Business Planning and Entrepreneurship

Business Planning and Entrepreneurship Unit 1: A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships. The legal definition of "small" varies by country and by industry, ranging from fewer than 15 employees under the Australian Fair Work Act 2009, 50 employees in the European Union,[citation needed] and fewer than 500 employees to qualify for many U.S. Small Business Administration programs.[1] Small businesses can also be classified according to other methods such as sales, assets, or net profits. Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online business, such as webdesign and programming, etc. Advantages of small business A small business can be started at a very low cost and on a part-time basis. Small business is also well suited to internet marketing because it can easily serve specialized niches, something that would have been more difficult prior to the internet revolution which began in the late 1990s. Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic inertia, it is typically easier to respond to the marketplace quickly. Small business proprietors tend to be intimate with their customers and clients which results in greater accountability and maturity. Independence is another advantage of owning a small business. One survey of small business owners showed that 38% of those who left their jobs at other companies said their main reason for leaving was that they wanted to be their own bosses.[citation needed] Freedom to operate independently is a reward for small business owners. In addition, many people desire to make their own decisions, take their own risks, and reap the rewards of their efforts. Small business owners have the satisfaction of making their own decisions within the constraints imposed by economic and other environmental factors.[3] However, entrepreneurs have to work very long hours and understand that ultimately their customers are their bosses. Several organizations, in the United States, also provide help for the small business sector, such as the Internal Revenue Service's Small Business and Self-Employed OneStop Resource.[4] [edit] Problems faced by small businesses

Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in startup expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization. In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem. In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs and taxes. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.[5] Another problem for many small businesses is termed the 'Entrepreneurial Myth' or EMyth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly. Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success. Small Business to the Economy Small businesses contribute greatly to the economy all around the world. Almost all businesss are small businesses, or even started out as small businesses. They contribute to the society by selling their products to customers, products that people need. They also provide employment opportunities to people, which can become reasonable career paths and choices. There are many type of small business, these include:

Sole Trader Partnership Company Manufacturing

Retail Service

Role of Small Business in Indian Economy Small scale industries are small in size but play a big role in the economic development of a developing country like India. India has adopted the ideal of a socialistic pattern of society with full employment balanced regional development and self-reliance as the major objectives.

Small scale firms are helpful in the achievement of these goals in the following ways: 1. Employment: Small scale firms use labour-intensive techniques and, therefore, they have high potential to provide employment to a larger number of people per unit of capital. For every worker employed in large scale industries about three workers are engaged in small scale and cottage industries. Next to agriculture small business constitutes the most popular occupation of people in India. Small firms promote selfemployment particularly among the educated and professional class. They also provide employment to agriculturists who remain idle during a part of the year. In fact, the healthy growth of small scale industries can be an effective approach to the pressing problem of unemployment in the country. Several empirical studies have revealed that the employment generating capacity of small scale industries in about in times more than that of the large scale industries. 2. Balanced Regional Development: small scale industries promote decentralized development and help to remove regional disparities in industrialisation. Decentralized development contributes to the process of self-sustained growth and avoids concentration of industries in particular areas. By providing employment in rural areas they help to check migration and overcrowding in urban areas. Small scale firms can be a useful means of rural reconstruction and development. Development of decentralized sector also improves the standard of living of people in backward regions. 3. Optimization of Capital: Small scale firms require less capital per unit of output and, therefore, greater output can be obtained with small investment. The Annual Surveys of industries reveal that fixed capital per employee in case of small scale industry was Rs. 3,706 as compared to Rs. 27,757 in case of large scale industry. Small firms also provide quick returns after their establishment on account of short gestation period. In India where the rate of capital formation is low, small scale industries are very suitable. 4. Mobilization of Local Resources: Small scale industries facilitate Mobilization and utilization of local resources and family skills which might otherwise remain talent or utilized. Small business promotes a new cadre of small entrepreneurs and self-employed and encourages local talent. The growth of small enterprises helps in tapping talent

resources like entrepreneurial skills and small savings specially in rural areas. Small business helps to protect technical skills and handicrafts. 5. Exchange Earnings: Small scale industries help in reducing pressure on the country's balance of payments in two ways. First, they do not require imports of sophisticated machinery and equipment. Secondly, they earn valuable foreign exchange through exports of their products. The exports of small scale industries increased from Rs. 637 crores in 1975-76 to Rs. 2785 crores in 1985-86. Small scale sector accounts for 40 percent of the exports of non-traditional items and about 25 per cent of the country's total exports. About 90 per cent of its exports are of non-traditional items. 6. Egalitarian Society : Small scale industries help in reducing concentration of economic power in a few hands. They promote a more equitable distribution of national income and wealth. Development of small scale industries helps to reduce monopolies and exploitation of consumers. Benefits of small scale firms are derived by a wider population. A large part of the earnings is distributed among workers. 7. Feeder to Large industries: small scale sector is complementary to the large scale industries. Small scale industries manufacture various types of components, spare parts, tools and accessories which are required by the large scale sector. 8. Social Advantage: Small scale units offer opportunity for an independent way of life to people with small means. They offer savings in social overheads like education, housing and medical facilities by taking industry nearer to the people. They help to raise per capita income an standard of living in the country. A system of widely diffused ownership permits wider participation of people in the process of economic development. Small scale sector provides a base for democracy, socialism and self-government. At present there are about 16 lakh small scale units in India producing more than 500 times. The Seventh Fiver Year Plan envisages a growth rate of 10 per cent in the small scale sector. By the end of 1990 the production of small scale sector is expected to be Rs. 8,000 crores and employment 1.19 crore persons. At current prices the total output of small scale sector in 198-87 amounted to Rs. 72,250 crores.

Strengths and Weaknesses of a Small Business Staring your own small business can be a dream come true. The ability to be your own boss can give you more flexibility in your work schedule and the opportunity to reach

your fullest potential. Your talents, skills and creativity can be maximized without worrying that you are stepping on toes of your superiors. There are many positive sides to running your own small business. Of course, there are also some potential pitfalls if you are self employed. The advantages to running small business can be quickly identified. If your goal is to become your own boss, you do not need to achieve success overnight. Starting a small business, especially one based out of your own home, allows you to slowly build a business while maintaining your full time job. You can work a few hours each day to develop and grow your business rather than quitting your day job all at once. When your business becomes successful enough to support you and your family entirely, you can resign from your other job. If your business is not a success, you are not out of a job. Most small businesses require very little start-up money. This is a big advantage for anyone who does not have much money to invest in a business but who does have the work ethic and talents to create a lucrative business. There are many online business opportunities that require little more than a home computer and Internet access. Small businesses generally have low operational costs. A larger percentage of revenue from a small business can be converted into profit as opposed to revenue from a big business. Many small businesses are based right out of your home. You can provide freelance services (such as web design, programming or freelance writing) online. There are affiliate programs and multi-level marketing programs available to people who have good sales and/or people skills. Individuals with training in Medical transcription, coding or billing can work from their home computer. There are endless opportunities for individuals who want to work from home. The ability to work at home and spend more quality time with your family is another big advantage to running a small business. Small business owners typically have less money to invest on advertising. This can correlate into an advantage. Small businesses need to find creative ways to reach their customers. They usually offer a more personalized approach to interacting with clients. Customers who are treated like family are more likely to return to that business in the future. Small business owners and people who are self employed can take the time to get to know each customer and provide a higher level of customer service. Of course, in some cases having limited funds for advertising can be a disadvantage. As a small business owner it can be difficult to reach enough potential customers to establish a successful base of customers. Potential customers might be less likely to do business with a small business that does not offer a well known brand of products or services. Some clients will give their business to the bigger guy with the name they recognize. One of the largest disadvantages for small business owners is the potential misuse of money. Many business owners invest their own money at the start of a business or if the business falls upon hard times. If money is not used wisely, the business owner can take a hit to their own personal wallet if they have floated the business cash from their personal accounts.

Small businesses and work from home opportunities are becoming more prevalent with so many advantages. It was once common for large numbers of small businesses to fail, however, times are changing as people are learning how to make their small business a success.

SWOT Analysis is a strategic method for identifying your small business' Strengths and Weaknesses, and to examine the Opportunities and Threats in the wider environment (market, industry, global situation). There three levels is this tutorial: beginners who want to just do it, intermediates who want a more sophisticated analysis, and advanced for the intellectuals in the crowd. There are many good examples of the beginners and intermediate analyses on the web (see links).

Begniing List of SWOT Questions Press button for Strengths back to SWOT index What is golden about your company? What do you do well (in sales, marketing, operations, management)? What are your assets? What are your core competenceis? Where are you making money? What experience do you have? Press button for Weaknesses back to SWOT index What looks a bit rusty inside your company? What do you need (customer service, marketing, accounting, planning)? Where do you lack resources? What can you do better? Where are you loosing money? Press button for Opportunities back to SWOT index Where is the blue sky in your environment? What new needs of customers could you meet? What are the economic trends that benefit you? What are the emerging political and social opportunities? What are the technological breakthroughs? Where niches have your competitors missed?

Press button for Threats

back to SWOT index

Where are the red alerts in your environment? What are the negative economic trends? What are the negative political and social trends? Where are competitors about to bite you? Wher are you vulnerable?

Service Services has made the small business more profitable, small business owners have time to manage the after sale services. Customers wants the after sale service and satisfactions. In a small business, the business owner is very focused on working harder and longer with their customers, consumers and he has clearly make decision easily Small Business has the ability to change the fixed cost and long term planning. and more quickly to adapt to market needs. Large organization takes a long time to react to change the cost and plannings. In small business Communication and market needs are much focused because of fewer sources. it might take days, weeks, and years for larger corporations to implement major market changes. Customers and consumers dislike the rude attitudes and smaller business certainly has less of that decisions are made easier, because only one or two entrepreneurs are involved in this. Weakness of Small Business Small firms has continuously has challenged by the capitals and some time they faced problems to handle cash. Small business has the problem of some personal issue of employees; they have faced the problem in retaining successful employees around issues of compensation and benefits. Small business Owners are concentrate on day to day problems and challenges, There is more employees leaving firm in this type of business it is possibility that your best employee may leave you. Naturally small business firms pay more in d costs because they dont have buying power; as well they are often focused on the low profit margin. Small business has no guarantees or warrantees to be continued it may be closed, if it has some financial problems. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Defining an entrepreneur:

An entrepreneur is a person who has possession of a new enterprise, venture or idea and is accountable for the inherent risks and the outcome.[note 1] The term was originally a loanword from French and was first defined by the Irish-French economist Richard

Cantillon. Entrepreneur in English is a term applied to a person who is willing to launch a new venture or enterprise and accept full responsibility for the outcome. Jean-Baptiste Say, a French economist, is believed to have coined the word "entrepreneur" in the 19th century - he defined an entrepreneur as "one who undertakes an enterprise, especially a contractor, acting as intermediatory between capital and labour".[note

Leadership attributes The entrepreneur leads the firm or organisation and also demonstrates leadership qualities by selecting managerial staff. Management skill and strong team building abilities are essential leadership attributes for successful entrepreneurs. Scholar Robert. B. Reich considers leadership, management ability, and team-building as essential qualities of an entrepreneur. This concept has its origins in the work of Richard Cantillon in his Essai sur la Nature du Commerce en (1755) and Jean-Baptiste Say (1803 or 1834)[note 3] in his Treatise on Political Economy. Entrepreneurs emerge from the population on demand, and become leaders because they perceive opportunities available and are well-positioned to take advantage of them. An entrepreneur may perceive that they are among the few to recognize or be able to solve a problem. Joseph Schumpeter saw the entrepreneur as innovators and popularized the uses of the phrase creative destruction to describe his view of the role of entrepreneurs in changing business norms. Creative destruction encompasses changes entrepreneurial activity makes every time a new process, product or company enters the market. [edit] Influences, personality traits, and characteristics The most significant influence on an individual's decision to become an entrepreneur is workplace peers and the social composition of the workplace. Entrepreneurs also often possess innate traits such as extroversion and a propensity for risk-taking.[1] According to Schumpeter, an entrepreneur characteristically innovates, introduces new technologies, increases efficiency, productivity, or generates new products or services. An entrepreneur acts as a catalyst for economic change and research indicates that entrepreneurs are highly creative individuals who imagine new solutions by generating opportunities for profit or reward.[2] There is a complexity and lack of cohesion between research studies that explore the characteristics and personality traits of, and influences on, the entrepreneur. Most studies, however, agree that there are certain entrepreneurial traits and environmental influences that tend to be consistent. Although certain entrepreneurial traits are required, entrepreneurial behaviours are dynamic and influenced by environmental factors. Shane and VenKataraman (2000) argue the entrepreneur is solely concerned with opportunity recognition and exploitation; however, the opportunity that is recognised depends on the type of entrepreneur which Ucbasaran et al. (2001) argue there are many different types dependent on their business and personal circumstances.

Psychological studies show that the psychological propensities for male and female entrepreneurs are more similar than different. Perceived gender differences may be due more to gender stereotyping.[3] There is a growing body of work that shows that entrepreneurial behavior is dependent on social and economic factors. For example, countries which have healthy and diversified labor markets or stronger safety nets show a more favorable ratio of opportunity-driven rather than necessity-driven women entrepreneurs. Empirical studies suggest that women entrepreneurs possess strong negotiating skills and consensus-forming abilities.[4] New research regarding the qualities required for successful entrepreneurship is ongoing, with work from the Kauffman Foundation forming the statistical basis for much of it. [edit] Types of entrepreneurs [edit] Social entrepreneur A social entrepreneur is motivated by a desire to help, improve and transform social, environmental, educational and economic conditions. Key traits and characteristics of highly effective social entrepreneurs include ambition and a lack of acceptance of the status quo or accepting the world "as it is". The social entrepreneur is driven by an emotional desire to address some of the big social and economic conditions in the world, for example, poverty and educational deprivation, rather than by the desire for profit. Social entrepreneurs seek to develop innovative solutions to global problems that can be copied by others to enact change.[5] Social entrepreneurs act within a market aiming to create social value through the improvement of goods and services offered to the community. Their main aim is to help offer a better service improving the community as a whole and are predominately run as non profit schemes. Zahra et al. (2009: 519) said that social entrepreneurs make significant and diverse contributions to their communities and societies, adopting business models to offer creative solutions to complex and persistent social problems. [edit] Serial entrepreneur A serial entrepreneur is one who continuously comes up with new ideas and starts new businesses.[6] In the media, the serial entrepreneur is represented as possessing a higher propensity for risk, innovation and achievement. Serial entrepreneurs are more likely to experience repeated entrepreneurial success. They are more likely to take risks and recover from business failure.[7] [edit] Lifestyle entrepreneur A lifestyle entrepreneur places passion before profit when launching a business in order to combine personal interests and talent with the ability to earn a living. Many entrepreneurs may be primarily motivated by the intention to make their business profitable in order to sell to shareholders. In contrast, a lifestyle entrepreneur

intentionally chooses a business model intended to develop and grow their business in order to make a long-term, sustainable and viable living working in a field where they have a particular interest, passion, talent, knowledge or high degree of expertise. [8] A lifestyle entrepreneur may decide to become self-employed in order to achieve greater personal freedom, more family time and more time working on projects or business goals that inspire them. A lifestyle entrepreneur may combine a hobby with a profession or they may specifically decide not to expand their business in order to remain in control of their venture. Common goals held by the lifestyle entrepreneur include earning a living doing something that they love, earning a living in a way that facilitates self-employment, achieving a good work/life balance and owning a business without shareholders. Many lifestyle entrepreneurs are very dedicated to their business and may work within the creative industries or tourism industry,[9] where a passion before profit approach to entrepreneurship often prevails. While many entrepreneurs may launch their business with a clear exit strategy, a lifestyle entrepreneur may deliberately and consciously choose to keep their venture fully within their own control. Lifestyle entrepreneurship is becoming increasing popular as technology provides small business owners with the digital platforms needed to reach a large global market.[10] Younger lifestyle entrepreneurs, typically those between 25 and 40 years old, are sometimes referred to as Treps. [11]

There has been a great deal of attention paid to the subject of entrepreneurship over the past few years, stemming primarily from the discovery by economic analysts that small firms contri-bute considerably to economic growth and vitality. Moreover, many people have chosen entrepreneurial careers because doing so seems to offer greater eco-nomic and psychological rewards than does the large company route. Programmes, such as the TKMPK strive to identify potential entrepreneurs from within the target group of unemployed graduates and, to a certain extent, teach entrepreneurship. Yet, despite all of the discussion and attention paid to this issue, two fundamental questions remain unanswered: What is entrepreneurship? and Can you measure it? Clearly, in the context of TKMPK participant selection, these are two questions that need answering! Peter Kilby once compared entrepreneurship to the imaginary animal, the Heffa-lump: It is a large and important animal which has been hunted by many individuals using various ingenious trapping devices ... All who claim to have caught sight of him report that he is enormous, but they disagree on his particulari-ties. Not having explored his current habitat with sufficient care, some hunters have used as bait their own favourite dishes and have then tried to persuade people that what they caught was a Heffalump. However, very few are convinced, and the search goes on (Kilby, Hunting the Heffalump: Entrepre-neurship and Economic Development, 1971). What is Entrepreneurship?

Many definitions of entrepreneurship can be found in the literature describing business processes. The earliest definition of entrepreneurship, dating from the eighteenth century, used it as an economic term describing the process of bearing the risk of buying at certain prices and selling at uncertain prices. Other, later commentators broadened the definition to include the concept of bringing together the factors of production. This definition led others to question whether there was any unique entrepreneurial function or whether it was simply a form of management. Early this century, the concept of innovation was added to the definition of entrepreneur-ship. This innovation could be process innovation, market innovation, product innovation, factor innovation, and even organisational innovation. Later definitions described entrepreneurship as involving the creation of new enterprises and that the entrepreneur is the founder. Considerable effort has also gone into trying to understand the psychological and sociological wellsprings of entrepreneurship. These studies have noted some common characteristics among entrepreneurs with respect to need for achievement, perceived locus of control, orientation toward intuitive rather than sensate thinking, and risk-taking propensity. In addition, many have commented upon the common, but not universal, thread of childhood deprivation, minority group membership and early adolescent economic experiences as ty-pifying the entrepreneur. At first glance then, we may have the beginnings of a definition of entrepreneurship. However, detailed study of both the literature and actual examples of entrepreneurship tend to make a definition more difficult, if not impossible. Consider, for example, the degree to which entrepreneurship is synonymous with 'bearing risk', 'innovation', or even founding a com-pany. Each of the terms described above focuses upon some aspect of some entrepreneurs, but if one has to be the founder to be an entrepreneur, then neither Thomas Watson of IBM nor Rey Kroc of McDonald's will qualify; yet few would seriously argue that these individuals were not entrepreneurs. Although risk bearing is an important element of entrepreneurial behaviour, many entrepreneurs have succeeded by avoiding risk where possible and seeking others to bear the risk. As one extremely successful entre-preneur has said; 'My idea of risk and reward is for me to get the reward and others to take the risks'. Creativity is often not a prerequisite for entrepreneurship either. Many successful entrepreneurs have been good at copying others and they qualify as innovators and creators only by stretching the definition beyond elastic limits. There are similarly many questions about what the psychological and social traits of entrepreneurs are. The same traits shared by two individuals can often lead to vast different results: successful and unsuccessful entrepreneurs can share the characteristics commonly identified. As well, the studies of the life paths of entrepreneurs often show decreasing 'entrepreneurship' following success, which tends to disprove the centrality of character or personality traits as a sufficient basis for defining entrepreneurship.

So, we are left with a range of factors and behaviours which identify entrepreneurship in some individuals. All of the above tends to reinforce the view that it is difficult, if not impossible to define what an entrepreneur is, and that the word itself can be best used in the past tense to describe a successful business person. Measuring Entrepreneurship Despite the above, there is remains a powerful impulse, particularly amongst enterprise development practitioners, to measure entrepreneurship in some way. These measurement attempts can range from simple checklists through to complex and detailed computer programmes. This need for a definition and measure of entrepreneurship is because, however defined, the entrepreneur is the key to the successful launch of any business. He or she is the person who perceives the market opportunity and then has the motivation, drive and ability to mobilise resources to meet it. The major characteristics of entrepreneurs that have been listed by many commentators include the following.

Self confident and multi-skilled. The person who can 'make the prod-uct, market it and count the money, but above all they have the confidence that lets them move comfortably through unchartered waters'. Confident in the face of difficulties and discouraging circumstances. Innovative skills. Not an 'inventor' in the traditional sense but one who is able to carve out a new niche in the market place, often invisible to others. Results-orientated. To make be successful requires the drive that only comes from setting goals and targets and getting pleasure from achieving them. A risk-taker. To succeed means taking measured risks. Often the successful entrepreneur exhibits an incremental approach to risk taking, at each stage exposing him/herself to only a limited, measured amount of personal risk and moving from one stage to another as each decision is proved. Total commitment. Hard work, energy and single-mindedness are essential elements in the entrepreneurial profile.

However, two warnings need to be attached to this partial list of entrepreneurial qualities. Firstly, selecting individuals for enterprise development training by such a set of attitudes and skills in no way guarantees business success. Secondly, the entrepreneurial characteristics required to launch a business successfully are often not those required for growth and even more frequently not those required to manage it once it grows to any size. The role of the entrepreneur needs to change with the business as it develops and grows, but all too often he or she is not able to make the transition. Visionaries and Managers

In new and emerging businesses, the person who starts the business is often an entrepreneur; a visionary. The visionary who starts a business with a fresh idea -- to make something better or less expensively, to make it in a new way or to satisfy a unique need -- is often not primarily interested in making money. The visionary wants to do something that no one else has done because they can, because it is interesting and exciting, and because it may be meeting a need. Once the business begins to have some success, then the nature of the processes needed change. At this stage, the infant business experiences its first set of challenges:

How does the visionary entrepreneur transfer the skills and the inspiration that made the little enterprise a success into something larger? How does the business deal with cash flow constraints? How does it obtain the legitimacy necessary to enable it to borrow?

Often, the visionary is not interested in these issues. Visionaries are notoriously poor at supervising staff, negotiating with investors, or training successors. The business now needs a professional management focus, which calls on a different set of skills, to manage and sustain growth, that are distinct from the skills necessary to start an enterprise and promote a vision. Applying management skills allows the adolescent enterprise continues to do well, but the business culture begins to change. The emphasis of management is structure, policies, procedures and the bottom line, that is profitability. Then the business reaches the next challenge: the maturing enterprise now requires a management structure or governance to create checks and balances and to ensure that the management focus does not become too powerful and overwhelm the entrepreneurship necessary to create rapid growth and access new markets. Businesses in emerging industries go through these three stages characterised by vision, management, and governance. Upon developing into an institutionalised company with appropriate governance structures, the business encounters a new set of challenges that are common to all industries:

How does the business preserve its vision? How does it balance growth, risk, and profitability? How does it establish a governance system that holds management accountable without undermining its independence and flexibility?

Conclusion This business development cycle described above is common amongst successful businesses. The cycle itself raises the issue of what to focus on when attempting to select a business idea to take part in a programme such as the TKMPK. The real danger for

those involved in selection activities is that of selecting entrepreneurial qualities over managerial skills. This may thereby condemn the business to uneven growth, poor management and ultimate failure, as the enterprise does not respond adequately to new market and trading conditions. A further danger is attempting to select people over ideas. The focus of any predicative element in the selection process, therefore, needs to be on a balance of both entrepreneurial and managerial qualities. And the major determinant in selecting a participant for business management training must remain the business idea itself.

The person could be an individual or an entrepreneur team There is often a serial or habitual element. Entrepreneurs are rarely one-hit wonders who only spot a single opportunity Creativity and innovation underpin the process as ideas are transformed into successful businesses or projects For this to happen the potential winning opportunity has to be spotted and prioritised from amongst the many ideas around Entrepreneurs are successful because they create and deliver value that others recognise as important they are focused on what matters They are all around us in the world of business, in both small and growing businesses and long established corporations but thats not only where they are!

Entrepreneurs are found in all walks of life. Traits of Entrepreneur 1. Imagination. Einstein said, "Imagination is more important than knowledge." The fellas over at Google had all the computer skills and knowledge they needed to have successful careers in some firm's IT department--along with tens of thousands of other techies. What makes Larry Page and Sergey Brin household names is the fact they imagined there was a better way to search the web, and then they created it. Always questioning. "The important thing is not to stop questioning." One of the most important questions an entrepreneur can ask is How can I make it better? Whether you offer a product or a service, improving it is the only way to attract new clients and retain existing ones. While Phil Knight was marketing Nike to the top of the athletic-shoe sales heap, Bill Bowerman tinkered with the shoes' designs and made sure Nike footwear was on the cutting edge of innovation. How can the new model, Bowerman wondered, be better? If Einstein had stopped questioning, we would have been left with his thoughts on relativity instead of an entire theory. 2.

3. Old problems, new ways of thinking. "We can't solve problems by using the same kind of thinking we used when we created them." In the 1940s and '50s, book publishers printed paperback books based solely on hardback titles that had lost momentum; Ian Ballantine created Bantam Books Inc. to do just that. He soon realized he was limiting his profit potential by sticking to the old way of thinking. He decided--much to other publishers' and bookstores' chagrin--to produce original paperback titles for mass-market sales. Sixty years later, both models still exist. And Ballantine likely would have jumped at the chance to offer books electronically. 4. Intuition. "The only real valuable thing is intuition." Einstein worked in theoretical physics; he had to trust his intuition to move forward on anything. Entrepreneurs do the same thing every day. Intuition told Richard Branson the Sex Pistols were worth signing to a fledgling Virgin Records. Intuition told Hugh Hefner men would pay for a magazine filled with high-quality articles and fiction writing that was interspersed with photos of nude women. (Or was it the other way around?) Trusting one's gut led to many of the 20th century's greatest advances. Strong positive attitude. "Weakness of attitude becomes weakness of character." In the early 20th century, greeting cards were given for Christmas and Valentine's Day. In 1915, a few weeks before Cupid's favorite holiday, a warehouse fire destroyed J.C. and Rollie Hall's entire inventory of Valentine's Day cards and left them $17,000 in debt. They borrowed money, purchased an engraving firm, designed two new cards and printed them in time for Christmas. Nearly a century and countless new ideas later, Hallmark Cards sets the industry standard. 6. Naps. Einstein was supposed to be a big believer in midday siestas to recharge the brain. Some companies--Google and Nike, to name two--have created nap-friendly guidelines for their employees. There may be a lesson there for up-and-coming entrepreneurs. Other entrepreneurs have utilized naps in a different way: bringing napping equipment to the workplace. No lie. MetroNaps installs sleep pods in companies' buildings for employee use. 5.

7. Rise above the mundane details. The stories of Einstein having a closet full of the same suits are exaggerated, but the point of the story is made: He didn't want to spend intellectual and chronological capital wrestling with one of life's mundanities. The definition of mundane details will vary from person to person--you say spreadsheets, I say boring--but know what you consider mundane and hire someone to take care of those tasks before they get neglected and drag the company down. Howard Hughes--before he lost the keys to his sanity vault--didn't like the administrative day-to-day duties of the company he inherited from his father. He hired someone to handle it, and that person turned Hughes' $1 million company into a $75 million empire. The other lesson there is "hire well." 8. Willingness to try new things--and fail. "Anyone who has never made a mistake has never tried anything new." Just ask the people at Coca-Cola circa 1985. The Coke folks realized the error of their ways and reinstated the traditional formula, but many

of their other forays into new flavors--cherry and vanilla to name two--have proved to be huge successes. 9. Maintaining balance. "If A is a success in life, then A equals x plus y plus z. Work is x, y is play and z is keeping your mouth shut." Notice Einstein didn't put absolute amounts on each of his variables. I doubt that was accidental. He knew--and now so do you--the ingredients to success; he also knew the formula was going to change from day to day. Whatever the ratio of x to y to z, entrepreneurs cannot forget Y. 10. Stay on top of tech. Early in his career at the Swiss Patent Office, Einstein was passed over for a promotion until he mastered the technology of his day: machines. The entrepreneurs who are remembered at the end of this century will be the people who maximize the use of technology. What is the next internet? Where will communications be in 25 years? How will information be delivered, and on what devices? The people who figure out the answers to those questions will be entrepreneurs at the forefront of their industries.

1. Do what you enjoy. What you get out of your business in the form of personal satisfaction, financial gain, stability and enjoyment will be the sum of what you put into your business. So if you don't enjoy what you're doing, in all likelihood it's safe to assume that will be reflected in the success of your business--or subsequent lack of success. In fact, if you don't enjoy what you're doing, chances are you won't succeed. 2. Take what you do seriously. You cannot expect to be effective and successful in business unless you truly believe in your business and in the goods and services that you sell. Far too many home business owners fail to take their own businesses seriously enough, getting easily sidetracked and not staying motivated and keeping their noses to the grindstone. They also fall prey to naysayers who don't take them seriously because they don't work from an office building, office park, storefront, or factory. Little do these skeptics, who rain on the home business owner's parade, know is that the number of people working from home, and making very good annual incomes, has grown by leaps and bounds in recent years. 3. Plan everything. Planning every aspect of your home business is not only a must, but also builds habits that every home business owner should develop, implement, and maintain. The act of business planning is so important because it requires you to analyze each business situation, research and compile data, and make conclusions based mainly on the facts as revealed through the research. Business planning also serves a second function, which is having your goals and how you will achieve them, on paper. You can use the plan that

you create both as map to take you from point A to Z and as a yardstick to measure the success of each individual plan or segment within the plan. 4. Manage money wisely. The lifeblood of any business enterprise is cash flow. You need it to buy inventory, pay for services, promote and market your business, repair and replace tools and equipment, and pay yourself so that you can continue to work. Therefore, all home business owners must become wise money managers to ensure that the cash keeps flowing and the bills get paid. There are two aspects to wise money management. 1. 2. The money you receive from clients in exchange for your goods and services you provide (income) The money you spend on inventory, supplies, wages and other items required to keep your business operating. (expenses)

5. Ask for the sale. A home business entrepreneur must always remember that marketing, advertising, or promotional activities are completely worthless, regardless of how clever, expensive, or perfectly targeted they are, unless one simple thing is accomplished--ask for the sale. This is not to say that being a great salesperson, advertising copywriting whiz or a public relations specialist isn't a tremendous asset to your business. However, all of these skills will be for naught if you do not actively ask people to buy what you are selling. 6. Remember it's all about the customer. Your home business is not about the products or services that you sell. Your home business is not about the prices that you charge for your goods and services. Your home business is not about your competition and how to beat them. Your business is all about your customers, or clients, period. After all, your customers are the people that will ultimately decide if your business goes boom or bust. Everything you do in business must be customer focused, including your policies, warranties, payment options, operating hours, presentations, advertising and promotional campaigns and website. In addition, you must know who your customers are inside out and upside down. 7. Become a shameless self-promoter (without becoming obnoxious). One of the greatest myths about personal or business success is that eventually your business, personal abilities, products or services will get discovered and be embraced by the masses that will beat a path to your door to buy what you are selling. But how can this happen if no one knows who you are, what you sell and why they should be buying? Self-promotion is one of the most beneficial, yet most underutilized, marketing tools that the majority of home business owners have at their immediate disposal. 8. Project a positive business image. You have but a passing moment to make a positive and memorable impression on people with whom you intend to do business. Home business owners must go out of their way and make a conscious effort to always project the most professional business image

possible. The majority of home business owners do not have the advantage of elaborate offices or elegant storefronts and showrooms to wow prospects and impress customers. Instead, they must rely on imagination, creativity and attention to the smallest detail when creating and maintaining a professional image for their home business. 9. Get to know your customers. One of the biggest features and often the most significant competitive edge the home based entrepreneur has over the larger competitors is the he can offer personalized attention. Call it high-tech backlash if you will, but customers are sick and tired of hearing that their information is somewhere in the computer and must be retrieved, or told to push a dozen digits to finally get to the right department only to end up with voice mail--from which they never receive a return phone call. The home business owner can actually answer phone calls, get to know customers, provide personal attention and win over repeat business by doing so. It's a researched fact that most business (80 percent) will come from repeat customers rather than new customers. Therefore, along with trying to draw newcomers, the more you can do to woo your regular customers, the better off you will be in the long run and personalized attention is very much appreciated and remembered in the modern high tech world. 10. Level the playing field with technology. You should avoid getting overly caught up in the high-tech world, but you should also know how to take advantage of using it. One of the most amazing aspects of the internet is that a one or two person business operating from a basement can have a superior website to a $50 million company, and nobody knows the difference. Make sure you're keeping up with the high-tech world as it suits your needs.. The best technology is that which helps you, not that which impresses your neighbors. 11. Build a top-notch business team. No one person can build a successful business alone. It's a task that requires a team that is as committed as you to the business and its success. Your business team may include family members, friends, suppliers, business alliances, employees, sub-contractors, industry and business associations, local government and the community. Of course the most important team members will be your customers or clients. Any or all may have a say in how your business will function and a stake in your business future. 12. Become known as an expert. When you have a problem that needs to be solved, do you seek just anyone's advice or do you seek an expert in the field to help solve your particular problem? Obviously, you want the most accurate information and assistance that you can get. You naturally seek an expert to help solve your problem. You call a plumber when the hot water tank leaks, a real estate agent when it's time to sell your home or a dentist when you have a toothache. Therefore, it only stands to reason that the more you become known for your expertise in your business, the more people will seek you out to tap into your expertise, creating more selling and referral opportunities. In effect, becoming known as an expert is another style of prospecting for new business, just in reverse. Instead of finding new and qualified

people to sell to, these people seek you out for your expertise. 13. Create a competitive advantage. A home business must have a clearly defined unique selling proposition. This is nothing more than a fancy way of asking the vital question, "Why will people choose to do business with you or purchase your product or service instead of doing business with a competitor and buying his product or service?" In other words, what one aspect or combination of aspects is going to separate your business from your competition? Will it be better service, a longer warranty, better selection, longer business hours, more flexible payment options, lowest price, personalized service, better customer service, better return and exchange policies or a combination of several of these? 14. Invest in yourself. Top entrepreneurs buy and read business and marketing books, magazines, reports, journals, newsletters, websites and industry publications, knowing that these resources will improve their understanding of business and marketing functions and skills. They join business associations and clubs, and they network with other skilled business people to learn their secrets of success and help define their own goals and objectives. Top entrepreneurs attend business and marketing seminars, workshops and training courses, even if they have already mastered the subject matter of the event. They do this because they know that education is an ongoing process. There are usually ways to do things better, in less time, with less effort. In short, top entrepreneurs never stop investing in the most powerful, effective and best business and marketing tool at their immediate disposal--themselves. 15. Be accessible. We're living in a time when we all expect our fast food lunch at the drive-thru window to be ready in mere minutes, our dry cleaning to be ready for pick-up on the same day, our money to be available at the cash machine and our pizza delivered in 30 minutes or it's free. You see the pattern developing--you must make it as easy as you can for people to do business with you, regardless of the home business you operate. You must remain cognizant of the fact that few people will work hard, go out of their way, or be inconvenienced just for the privilege of giving you their hard-earned money. The shoe is always on the other foot. Making it easy for people to do business with you means that you must be accessible and knowledgeable about your products and services. You must be able to provide customers with what they want, when they want it. 16. Build a rock-solid reputation. A good reputation is unquestionably one of the home business owner's most tangible and marketable assets. You can't simply buy a good reputation; it's something that you earn by honoring your promises. If you promise to have the merchandise in the customer's hands by Wednesday, you have no excuse not to have it there. If you offer to repair something, you need to make good on your offer. Consistency in what you offer is the other key factor. If you cannot come through with the same level of service (and products) for clients on a regular basis, they have no reason to trust you . . . and without

trust, you won't have a good reputation. 17. Sell benefits. Pushing product features is for inexperienced or wannabe entrepreneurs. Selling the benefits associated with owning and using the products and services you carry is what sales professionals worldwide focus on to create buying excitement and to sell, sell more, and sell more frequently to their customers. Your advertising, sales presentations, printed marketing materials, product packaging, website, newsletters, trade show exhibit and signage are vital. Every time and every medium used to communicate with your target audience must always be selling the benefits associated with owning your product or using your service. 18. Get involved. Always go out of your way to get involved in the community that supports your business. You can do this in many ways, such as pitching in to help local charities or the food bank, becoming involved in organizing community events, and getting involved in local politics. You can join associations and clubs that concentrate on programs and policies designed to improve the local community. It's a fact that people like to do business with people they know, like and respect, and with people who do things to help them as members of the community. 19. Grab attention. Small-business owners cannot waste time, money and energy on promotional activities aimed at building awareness solely through long-term, repeated exposure. If you do, chances are you will go broke long before this goal is accomplished. Instead, every promotional activity you engage in, must put money back in your pocket so that you can continue to grab more attention and grow your business. 20. Master the art of negotiations. The ability to negotiate effectively is unquestionably a skill that every home business owner must make every effort to master. It's perhaps second in importance only to asking for the sale in terms of home business musts. In business, negotiation skills are used daily. Always remember that mastering the art of negotiation means that your skills are so finely tuned that you can always orchestrate a win-win situation. These win-win arrangements mean that everyone involved feels they have won, which is really the basis for building long-term and profitable business relationships. 21. Design Your workspace for success. Carefully plan and design your home office workspace to ensure maximum personal performance and productivity and, if necessary, to project professionalism for visiting clients. If at all possible, resist the temptation to turn a corner of the living room or your bedroom into your office. Ideally, you'll want a separate room with a door that closes to keep business activities in and family members out, at least during prime business and revenue generating hours of the day. A den, spare bedroom, basement or converted garage are all ideal candidates for your new home office. If this is not possible, you'll

have to find a means of converting a room with a partition or simply find hours to do the bulk of your work when nobody else is home. 22. Get and stay organized. The key to staying organized is not about which type of file you have or whether you keep a stack or two of papers on your desk, but it's about managing your business. It's about having systems in place to do things. Therefore, you wan to establish a routine by which you can accomplish as much as possible in a given workday, whether that's three hours for a part-time business or seven or nine hours as a full-timer. In fact, you should develop systems and routines for just about every single business activity. Small things such as creating a to-do list at the end of each business day, or for the week, will help keep you on top of important tasks to tackle. Creating a single calendar to work from, not multiple sets for individual tasks or jobs, will also ensure that jobs are completed on schedule and appointments kept. Incorporating family and personal activities into your work calendar is also critical so that you work and plan from a single calendar. 23. Take time off. The temptation to work around the clock is very real for some home business owners. After all, you don't have a manager telling you it's time to go home because they can't afford the overtime pay. Every person working from home must take time to establish a regular work schedule that includes time to stretch your legs and take lunch breaks, plus some days off and scheduled vacations. Create the schedule as soon as you have made the commitment to start a home business. Of course, your schedule will have to be flexible. You should, therefore, not fill every possible hour in the day. Give yourself a backup hour or two. All work and no play makes you burn out very fast and grumpy customer service is not what people want. 24. Limit the number of hats you wear. It's difficult for most business owners not to take a hands-on approach. They try to do as much as possible and tackle as many tasks as possible in their business. The ability to multitask, in fact, is a common trait shared by successful entrepreneurs. However, once in a while you have to stand back and look beyond today to determine what's in the best interest of your business and yourself over the long run. Most highly successful entrepreneurs will tell you that from the time they started out, they knew what they were good at and what tasks to delegate to others. 25. Follow-up constantly. Constant contact, follow-up, and follow-through with customers, prospects, and business alliances should be the mantra of every home business owner, new or established. Constant and consistent follow-up enables you to turn prospects into customers, increase the value of each sale and buying frequency from existing customers, and build stronger business relationships with suppliers and your core business team. Follow-up is especially important with your existing customer base, as the real work begins after the sale. It's easy to sell one product or service, but it takes work to retain customers and keep them coming back.

Key Trait #1: You must have a vision. We've all heard the saying "You must stand for something, or you'll fall for everything." But what does that really mean? Standing firm when it comes to your company's policies and procedures is all well and good, but it doesn't speak to having a vision. As a leader, you have to learn to communicate your vision or the vision of your company to the people you want to follow you. But how can you do that?

Learn to paint a picture with words. Speak it, write it, draw it, touch it. Whatever methods you can use to create a picture, do it. As they say, "A picture is worth a thousand words."

Ask each of the other managers in your company to tell you, in their own words, about the vision of the company. How close is it to what you thought they understood? Is your team on the same page as you?

As you work, your company's vision should be in your mind every day, and you should reevaluate it occasionally so that it stays current with the changing times in which we live. And remember, your staff needs to be just as involved as you in keeping it up to date if you truly want them to buy in on the vision. Be sure to keep your key players involved.

Key Trait #2: You must have passion. Your employees want passion; in fact, they'll go to the ends of earth because of it, live and die for it. Think of the sailors who traveled with Christopher Columbus or Leif Ericsson to explore uncharted territory. Their leaders' passion inspired them to take on new and very dangerous challenges. To build an extraordinary management team, you've got to light the "fire in their bellies," to get them to feel passion about the company and connect to the leader's vision. Passion is such a key part of being a great leader that if you don't have it, you simply can't be a great leader. Think of all the great leaders throughout the ages and try to name one that did not have passion. And passion is infectious: When you talk about your vision for the company, let your passion for your vision shine through. Others will feel it and want to get on board with you. If you don't have passion for your vision, you need to recreate your vision or reframe your description of your vision so it's connected to your passion. Key Trait #3: You must learn to be a great decision maker. How are major decisions made in your company? What is your process for making them? For instance, do you talk to your management team and create a list of pros and cons to help you make the best decision? Maybe you conduct a cost analysis. Or do you create a timeline for the implementation strategy, process and timing?

Some leaders have a set process, and others fly by the seat of their pants. But you don't want to be one of those leaders who consults no one before making a decision, announces the change the next day and then gets frustrated when no one follows it. If you're one of those, I urge you to implement a set process. In fact, here's a system you can use to become a better decision maker. It's called the QCAT:

Q = Quick. Be quick but not hasty.

C = Committed. Be committed to your decision but not rigid.

A = Analytical. Be analytical, but don't over-analyze (Too much analysis can cause paralysis.)

T = Thoughtful. Be thoughtful about all concerned, but don't be obsessive.

When you use the Q-CAT, it'll help you to decide when to bring others into the process and what steps need to be taken to help you make better decisions. Key Trait #4: You must be a team builder. To become a great leader, you must develop a great team or, one might say, a well-oiled machine. But how do you do that? You can start by handing off responsibility to your team and letting your team to run with it. Don't breathe down their necks and don't micromanage, but make yourself available if questions or problems come up. Teach your team to use the Q-CAT decision-making system and give them the freedom to work through their own decisions. When projects aren't on track or your team is falling behind on deadline, it serves no one if you start pointing fingers. This is when you need to rise to the occasion and inspire confidence in your employees, to let them know you support them and ready to help. Be ready to alter plans and make new ones. Don't forget to use humor to keep your team's spirits up during a crisis. When an emergency hits, your team will look to you to be a tower of strength and endurance. Key Trait #5: You must have character. Without character, all the other "keys" are for naught. That's because your innate character strengths and limitations play a critical role in your leadership style. The real question is, are you aware of just what role they play? All great leaders have taken steps to learn about their individual personality and what part it plays in their leadership style. So what's your leadership style? If you don't know, there are many leadership style assessments available on the market. Two popular ones that have been around for many years are the Myers-Briggs assessmentand the "360-Degree Feedback" model. There are dozens of other to choose from--the important part is that you "Just do it," as the Nike ad would say, and see how you rate. It's a good way to do a "character check" on yourself and your leadership skills.

Then, once you've done the assessment, the question to ask yourself is, do you feel your character matches what the assessments are pointing out to you? If you feel the traits don't match who you think you are, then look a little deeper and be honest with yourself. Sometimes our first response is defensive. You might want to assess yourself with a different type of profile and then compare the results. Within the 360 Degree Feedback model, there's an opportunity to see how your employees and peers view you, too. In learning to be a great leader, the first step is to be open to feedback about yourself as a leader and separate it from you the person. So are you a great leader? Or do you have the desire to become one? Remember, a great leader is someone who has a clear vision and can turn that vision into a vivid picture that others can see. When you speak about your vision, it should be with a passion you feel in your heart, a passion that creates so much enthusiasm that your team will want to jump on board. When major decisions need to be made, you should encourage everyone to use the Q-CAT system and be responsible for his or her own actions. And you should be continually assessing your own character and never stop growing, personally or professionally. If you can apply the five keys to great leadership, you'll be well on your way to becoming a great leader surrounded by great employees!

Common Traits in a Successful Entrepreneur 1. Good health. Successful entrepreneurs must work long hours for extended periods of time. When they get sick, they recover quickly. 2. A Need to Control and Direct. They prefer environments where they have maximum authority and responsibility and do not work well in traditionally structured organizations. This is not about power, though. Entrepreneurs have a need to create and achieve by having control over events. 3. Self-confidence. Findings showed that as long as entrepreneurs were in control, they were relentless in pursuit of their goals. If they lost control, they quickly lost interest in the undertaking. 4. Sense of Urgency. They have a never-ending sense of urgency to do something. This corresponds with a high energy level. Many enjoy individual sports rather than team sports. Inactivity makes them impatient. 5. Comprehensive Awareness. They have a comprehensive awareness of a total situation and are aware of all the ramifications involved in a decision.

6. Realistic Outlook. There is a constant need to know the status of things. They may or may not be idealistic, but they are honest and straightforward and expect others to be the same. 7. Conceptual Ability. They have superior conceptual abilities. This helps entrepreneurs identify relationships in complex situations. Chaos does not bother them because they can conceptualize order. Problems are quickly identified and solutions offered. The drawback is that this may not translate well to interpersonal problems. 8. Low Need for Status. Their need for status is met through achievement not through material possessions. 9. Objective Approach. They take an objective approach to personal relationships and are more concerned with the performance and accomplishment of others than with feelings. They keep their distance psychologically and concentrate on the effectiveness of operations. 10. Emotional Stability. They have the stability to handle stress from business and from personal areas in their lives. Setbacks are seen as challenges and do not discourage them. 11. Attraction to Challenges. They are attracted to challenges but not to risks. It may look like they are taking high risks, but in actuality they have assessed the risks thoroughly. 12. Describing with Numbers. They can describe situations with numbers. They understand their financial position and can tell at any time how much they have in receivables and how much they owe.

Traits of The Successful Entrepreneur By Chuck And Sue DeFiore Business has changed significantly in recent years as a result of computers and the Internet - including web pages, e-mail and everything else associated with the worldwide

web. Telephone communication has also changed the way we do business, with the advent of cell phones and voice mail. However, even with all these technological advancements, the traits that make a person succeed in business can be traced back to our grandparents' days. So before you decide to launch your own business, first evaluate whether or not you have the traits of an entrepreneur. Goal-Setter Most successful people continually set goals. Many started at an early age; for example, they may have set a goal to excel in certain sport, or in a specific subject in school. If they wanted to buy something, and knew that their parents couldn't afford it, or wouldn't spend the money, they earned the money themselves. They may have set up lemonade stands, mowed lawns for neighbors, or delivered newspapers. As they became older, they developed other goals and worked to achieve them. They always have a vision for their future and never lose sight of it. As time goes on, they continue revising and setting new goals. If you want to succeed in business, get in the habit of setting goals. Knowing Your Strengths and Weaknesses Another trait of successful entrepreneurs is they know their strengths and weaknesses. Rather than letting their egos get in the way, they admit when they need to learn new skills or take other steps to improve themselves or their business. This is especially crucial in light of rapid changes in technology. You must realize that learning is a life-long process, and continually strive to improve your skills and knowledge. Maximizing Opportunities Successful entrepreneurs are always looking for opportunities. Whether they are already in business or just getting started, they have an attitude that expects opportunities, and they invest the time necessary to find the opportunities that will work for them. Even those already running a successful business remain open to new possibilities. Taking advantage of opportunities does not mean acting impulsively. It is important to evaluate each opportunity with questions such as: 1) Is this really as good as it sounds? 2) Is this something I really want to be doing? 3). Do I have the required skills, or can I develop them? 4) Will this help me to reach the financial goals I have set for myself? 4) What impact will this have on my family? Know Your Business/ Know Your Competition

You must know your business inside out to succeed. That includes learning everything you can about your competition, and understanding how your own business measures up against competitors. It also includes knowing exactly where your business stands in the context of the financial goals you have established. Effectively Manage Budgets and Finances Successful people know how to effectively manage budgets and finances. They know how much they have borrowed, the interest rates they are paying, and anything else that can affect their business. They always save for a rainy day. Understanding the principle that they must spend money to make money, they postpone personal expenditures such as a new house, car or vacation, until they can afford it. Never Settle for Second Best Another trait of top entrepreneurs is they never settle for second best. Striving for excellence, they set standards for themselves as well as their products and services. If they work with an outside company and that company sends them a sub-standard product, they return it. They look for the best products and workmanship in the price category they have established. If they realize they haven't done a good job or haven't done it right, they will do it again or take other actions to ensure the customer is satisfied. For this reason, their customers remain loyal. Remember, repeat business is one of they keys to long-term success. If you don't make a good impression the first time, you are not likely to get a second chance. Enjoy your Business The successful entrepreneur has fun in their occupation. While they might not enjoy every aspect of their business, overall they enjoy their work. One reason for that enjoyment is the sense of satisfaction in knowing that the business is theirs, and that they are building for the future. Hard Work Successful people willingly work long hours because they know it is necessary to move the business forward. This is especially true in the first few years after launching a new business. An owner wears many hats: selling, bookkeeping, handling customers, setting up appointments, meeting deadlines, and so forth. Get Help When Necessary Another trait of top business people is they know when to get help. Realizing they are not experts in everything, they will contact other professionals when warranted. They also realize when the times comes that they can longer do it all, and they delegate responsibility to an outside source, independent contractor, or hire an employee.

That's quite a challenge. What, besides the obvious, do successful entrepreneurs have in common? I know I'm not sure. But at least I can get the idea started. Maybe you can help. What am I missing? 1. There's a lot of talk about P-words: passion, perseverance, and persistence. I mistrust all three. A lot of unsuccessful entrepreneurs have them just as much. You have to have some variation on these traits, but you can have all three and still fail. You and I both know people who never made it and never stopped trying. My favorite P-word in entrepreneurship is planning, but that's just me. Stubbornness is good too, even without starting with P. 2. I like empathy, as in understanding how other people think and feel about things. Empathy leads to understanding what the people you sell to want, what they need, how they think, and how to best reach them. It's hard to imagine somebody building a company without being able to put themselves in the buyer's state of mind. 3. A sense of fairness. For dealing with vendors, customers, and employees. 4. Transferable values. This is closely related to the sense of fairness. I just don't see people building businesses without believing in what they're doing. 5. Willingness to work hard, shoulder to shoulder with other people. Cliche, but true: the harder I work, the luckier I get. 6. Knowing what they don't know. To me that's much more important than what you do know. 7. Listening carefully. Shutting up. 8. Vision for what they can build. Imagining a happy future. Dreaming. 9. Making mistakes. You have to deal with failure. Keep pitching. 10. Jumping viewpoints, like from short- to long-term in an instant, mixing those viewpoints together. That's like dribbling, keeping your eyes up while managing the ball at your feet. _______________________________________________________

Developing entrepreneur It is paradoxical that an applied discipline such as organizational research is often criticized as being out of touch with the needs of business executives (Behrman and

Levin 1984; Duncan 1974; Ford 1978; Mulligan 1987; Ryan 1977; Strasser and Bateman 1984; Taylor, Cochran, and Barnett 1988). Indeed, some even argue that researchers and practitioners work in different realities (McGuire 1986). This criticism also seems to apply to entrepreneurial research. As interest in entrepreneurship has increased, there has been a growing recognition that existing research in this area has not produced a satisfactory body of knowledge about the entrepreneur and the business problems he or she encounters. The same can be said about the future research agendas proposed by several researchers in this field. For example, Wortman (1987) identified five broad entrepreneurial research areas and numerous specific topics within each area. Although culled from the empirical literature, the research agenda actually represents Wortman's views about what the important issues are. It is an open question as to whether or not entrepreneurs concur with his judgments. Similar criticisms can be leveled at the research directions and design recommendations made by Low and MacMillan (1988). These researchers conclude that entrepreneurial research should be far more rigorous in both its theoretical base and empirical content. It is noteworthy that these prescriptions, especially the emphasis on theory, seem more relevent to academic researchers than to entrepreneurs. In a recent article, Gartner (1988) suggests that Mintzberg's (1973) statement of purpose from his study of managerial work would likewise serve as a research guideline for entrepreneurship research. Gartner notes that such research done by actually observing entrepreneurs, would help us answer many questions we have been asking for years. While Gartner is to be commended for pointing out such an obvious oversight in our research thrusts, his approach does not focus on the issues entrepreneurs themselves have defined as important. The same can be said for virtually every article or book on entrepreneurship which has a section on research directions. (1) Although not limited to entrepreneurial research, work by Balbaky and Sonnenfeld (1984) likewise seems more attuned to academic interests than to those of business practitioners. These researchers identified five trends facing businesses that will require additional executive training: technological change, workforce and population changes, foreign competition, economic instability, and changing worker attitudes. Unfortunately, they provide little justification for the selection of these issues, and no indication that the views of executives themselves were sought out. Complaints of lack of relevance also regularly surface from the business community. In 1988, a disgruntled Wharton graduate told Business Week "At no time in two years did any of my classes discuss . . . any . . . issue that can't be solved in 80 minutes." A Duke graduate stated "My lasting regret is that I spent $40,000 to learn useless tools from academicians who never worked for a real business . . . but I didn't learn anything about managing, motivating, and leading people." In the same article, Paul Allarie, president of Xerox Corporation, sums up the viewpoint of many executives: "The academicians are too busy writing about what other academics are interested in. They've got to think about what's relevent [to business people]." A recent article in Forbes echoed the same concern. The author, Joe Queenan (1989), reviews a number of articles in academic and practitioner journals, identifying several "important" business issues such as Tao (2) and intrinsic value, androgynous managers, institutional decision making, and many others. With tongue-in-cheek, he congratulates the academic community on its identification of these timeless truths.

To be fair, there have been at least three attempts to identify problems perceived by business people as being relevant. Gasse and d'Amboise (1981) attempted to use business executives to generate a research agenda for academicians. Through a series of interviews, they were able to identify managerial problems in each functional area of the firm. The authors then ranked each problem on a scale of 1 (least important) to 10 (most important) based on an elaborate interpretation scheme. Interestingly, only one issue was rated higher than a four (4). Moreover, this score came from respondents in one particular industry. Such low importance scores suggest that their list of issues may not serve as the most appropriate research agenda for academics. Why You Need a Strong Business Plan A business plan is the cornerstone of starting a business as well as a significant tool for monitoring the progress and growth of your company. Below are 10 key reasons why you should have a business plan. 1. To Attract Investors. Before investors can decide whether or not to back your business financially, they will need to know as much as possible about how the business will operate and how their investment will be spent. 2. To See If Your Business Ideas Will Work. By writing a business plan and outlining each aspect of your business, you can determine if your idea is actually viable. 3. To Outline Each Area of the Business. A business plan will provide an overview of all aspects of the business. You will be able to detail the who, what, where, when, and why of your day-to-day business operations, costs, and projected profitability. 4. To Set Up Milestones. By forecasting where your business will be in six months, one year, or five years, you are not only letting potential investors know your plans, but also setting up realistic milestones for yourself and your employees. 5. To Learn About the Market. Researching, analyzing, and writing about the market not only provides you with an overview for the business plan, but gives you greater insight into the overall market. 6. To Secure Additional Funding or Loans. Your business plan can demonstrate that you have met goals and illustrate the companys growth and need for additional funding. 7. To Determine Your Financial Needs. The process of writing your business plan will force you to analyze your financial picture.

8. To Attract Top-Level People. Your business plan will give talented people an overview of your business. 9. To Monitor Your Business. A business plan should serve as an ongoing business tool that you can use to monitor your progress. 10. To Devise Contingency Plans. While business plans often include some contingency plans, by virtue of having the document available, you can see how and where you can make such changes relatively quickly if, and when, necessary. 15 Reasons You Need a Business Plan Whether you're just starting out, growing your business or seeking outside help, a well-thought-out business plan is the vehicle you need to get you there. Why do you want a business plan? You already know the obvious reasons, but there are so many other good reasons to create a business plan that many business owners don't know about. So, just for a change, let's take a look at the less obvious reasons first and finish with the ones you probably already know about. Think of this as a late-show top 10, with us building up to the most important reasons you need a business plan. 15. Set specific objectives for managers. Good management requires setting specific objectives and then tracking and following up. I'm surprised how many existing businesses manage without a plan. How do they establish what's supposed to happen? In truth, you're really just taking a short cut and planning in your head--and good for you if you can do it--but as your business grows you want to organize and plan better, and communicate the priorities better. Be strategic. Develop a plan; don't just wing it. 14. Share your strategy, priorities and specific action points with your spouse, partner or significant other. Your business life goes by so quickly: a rush of answering phone calls, putting out fires, etc. Don't the other people in your business life need to know what's supposed to be happening? Don't you want them to know?

13. Deal with displacement. Displacement is probably by far the most important practical business concept you've never heard of. It goes like this: "Whatever you do is something else you don't do." Displacement lives at the heart of all small-business strategy. At least most people have never heard of it. 12. Decide whether or not to rent new space. Rent is a new obligation, usually a fixed cost. Do your growth prospects and plans justify taking on this increased fixed cost? Shouldn't that be in your business plan?

11. Hire new people. This is another new obligation (a fixed cost) that increases your risk. How will new people help your business grow and prosper? What exactly are they supposed to be doing? The rationale for hiring should be in your business plan. 10. Decide whether you need new assets, how many, and whether to buy or lease them. Use your business plan to help decide what's going to happen in the long term, which should be an important input to the classic make vs. buy. How long will this important purchase last in your plan? 9. Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training. 8. Develop new business alliances. Use your plan to set targets for new alliances, and selected portions of your plan to communicate with those alliances. 7. Deal with professionals. Share selected highlights or your plans with your attorneys and accountants, and, if this is relevant to you, consultants. 6. Sell your business. Usually the business plan is a very important part of selling the business. Help buyers understand what you have, what it's worth and why they want it. 5. Valuation of the business for formal transactions related to divorce, inheritance, estate planning and tax issues. Valuation is the term for establishing how much your business is worth. Usually that takes a business plan, as well as a professional with experience. The plan tells the valuation expert what your business is doing, when, why and how much that will cost and how much it will produce. 4. Create a new business. Use a plan to establish the right steps to starting a new business, including what you need to do, what resources will be required, and what you expect to happen. 3. Seek investment for a business, whether it's a startup or not. Investors need to see a business plan before they decide whether or not to invest. They'll expect the plan to cover all the main points. 2. Back up a business loan application. Like investors, lenders want to see the plan and will expect the plan to cover the main points. 1. Grow your existing business. Establish strategy and allocate resources according to strategic priority. You can find more information about growing your business with a business plan by reading " Existing Companies Need Planning, Too ."

A strong business plan is essentially the cornerstone of your business, and yet many entrepreneurs drag their feet when it comes to writing one possibly because it involves a good deal of work and may bring back childhood memories of writing a tedious book

report on summer vacation. But it's critical that you not only organize your thoughts on how you intend to run your business but also formalize your plan in writing. Here's why:

It forces you to identify your (and your company's) strengths and weaknesses.

You don't want to start a company that is flawed before it's even in business. Sitting down, writing a plan, thinking about everything you bring to the table (whether that's a passion for cupcakes or an enthusiasm for medical software) and considering everything you're lacking (whether that's salesmanship or computer skills) can give you a realistic snapshot of your odds of success. Your goal should be to focus on your strengths and fix any problems that could hamper your growth.

It helps you figure out how much money you'll need. Entrepreneurs chronically

underestimate how much money they'll need to start a business. Keep in mind: a lack of capital is one of the top reasons why businesses struggle or close during the first year. Writing a plan forces you to get a handle on where your money will come from, where it will go and whether it will be enough not only to get your business off the ground, but also to sustain growth in subsequent years.

It gives you clear direction, which can help eliminate stress. As a business

owner, you often have to juggle multiple roles everything from bookkeeper to CEO and that can leave you feeling distracted, disorganized and overwhelmed. A document that outlines your mission and plans for the future can prevent overload, help you set realistic goals, keep you on track and boost your productivity.

It will serve as a resume when you seek lenders, investors or partners. Most

lenders, and certainly any professional investor such as an angel or venture capitalist, will expect to see a business plan before giving you money. Even if you're not seeking outside money, a business plan can be helpful when renting space (a landlord might demand to see one) or seeking a business partner. For partners who start a business together, writing a plan ensures that everyone is on the same page when it comes to the company's mission and strategies.

It makes you evaluate the market for your product or service and size up the

competition. As you write your plan you'll research the current market and see how your product or service might fare against existing offerings. By analyzing your competition, you'll get a sense of how to price your product or service, how to target the right customers and how to make your company stand out, particularly in a crowded marketplace. As you assemble your business plan, you'll see opportunities to

fine-tune your concept, avoid problems that could become disasters and ultimately increase your odds of success.

Preparation and Use of business plans The business plan should be an integral part of the management and oversight of a financial institution (institution). It should establish the institutions goals and objectives. It is a written summary of how the business will organize its resources to meet its goals and how the institution will measure progress. The business plan should be a comprehensive plan, which is the result of in-depth planning by the institutions organizers and management. It should realistically forecast market demand, customer base, competition, and economic conditions. The plan must reflect sound banking principles and demonstrate realistic assessment of risk in light of economic and competitive conditions in the market to be served. An institution with a special purpose or focus (for example, credit card, trust only, cash management, or bankers bank) should address this special or unique feature in detail in the appropriate sections of the plan. The business plan should cover three years and provide detailed explanations of actions that are proposed to accomplish the primary functions of the institution. The description should provide enough detail to demonstrate that the institution has a reasonable chance for success, will operate in a safe and sound manner, and will have adequate capital to support the risk profile. For any institution with an Internet or alternative electronic delivery channel, the plan should contain a clear and detailed definition of the market the institution plans to serve and the products and services it will provide through electronic channels. Because the Internet has a potential global market and can reach anyone with Internet access, the selected information on market area and products and services is essential. The marketing plan should explain how the institution would achieve brand recognition. Confidentiality

Any Applicant desiring confidential treatment of specific portions of the plan and projections must submit the request in writing. The request must discuss the justification for the requested treatment. The Applicants reasons for requesting confidentiality should specifically demonstrate the harm (for example, loss of its competitive position, invasion of privacy) that would result from public release of information (5 U.S.C. 552 or relevant state law). Information for which confidential treatment is requested should be: (1) specifically identified in the public portion of the application (by reference to the confidential section); (2) separately bound; and (3) labeled "Confidential." The Applicant should follow the same procedure when requesting confidential treatment for the subsequent filing of supplemental information to the plan. The Applicant should contact the appropriate regulatory agency for specific instructions regarding requests for confidential treatment. The appropriate regulatory agency will determine whether the information will be treated as confidential and will advise the Applicant of any decision to publicly release information labeled as "Confidential." BUSINESS PLAN I. Table of Contents II. Executive Summary Describe the highlights of the plan. III. Description of Business A. Describe the institutions business and any special market niche, including the products, market, services, and nontraditional activities. B. If in a holding company structure, discuss the operations of the organization, including a brief detail of the organizational structure and interaction between the institution and its affiliates. C. Describe the extent, if any, that there are or will be transactions with affiliated entities or persons. Include terms. D. Discuss the legal form and stock ownership of the institution and any investment in subsidiaries or service corporations. E. For an operating company, describe the present financial condition and current resources, such as office network, staff, and customer base. Specifically discuss the strengths and weaknesses. F. Describe the proposed location, office quarters, and any branch structure. G. Discuss any growth or expansion plans, including additional branches, other offices, mergers, or acquisitions. IV. Marketing Plan

A marketing plan should provide in detail factual support that the institution has reasonable prospects to achieve the revenue projections, customer volume, and key marketing and income targets. The analysis should be based on the most current data available, and the sources of information should be referenced. This section should contain an in-depth discussion of the major planning assumptions for the market analysis, economic, and competitive components used to develop the plans, objectives, and the basis for the assumptions. A. Product Strategy 1) List and describe the general terms of the planned products and services, including activities of any subsidiaries. Discuss any plans to engage in any subprime or speculative lending, including plans to originate loans with high loan-to-value ratios. 2) Discuss how the institution will offer products and services over the three years, indicating any variation in the different market areas or distribution channels, and include the time frame for the introduction and the anticipated cost associated with each. 3) Describe the institutions plans to engage in any secondary market/mortgage banking activity, including loan participations. Discuss plans to use forward take-out commitments or engage in loan securitization. Describe any plans to engage in hedging activity to mitigate the risks of this activity. Also, discuss plans to retain recourse and servicing. 4) Describe the primary sources of loans and deposits and the major methods to solicit them. If using brokers or agents, provide full details of the nature and extent of all such activities, including sources, amounts, fees, and any intended tie-in of compensatory arrangements with the broker or agent. 5) Describe any arrangements with e-commerce businesses (for example, links to anothers Web site to shop, order, or purchase goods and/or services online). B. Market Analysis 1) Describe the intended target market and the geographical market area(s). 2) Describe the demographics of the target market population (for example, age, education, and occupation). 3) For an OTS filing, discuss in detail any current and/or proposed actions to accomplish the institutions commitment to promote home financing. C. Economic Component1 1) Describe the economic forecast for the three years of the plan. The plan should cover the most likely scenario and discuss possible economic downturns. 2) Indicate any national, regional, or local economic factors that may affect the operations of the institution. Include an analysis of any anticipated changes in the market, the factors influencing those changes, and the effect they will have on the institution. 3) Describe the current economic characteristics of the proposed market(s), for example, size, income, and industry and housing patterns.

4) Based on the economic characteristics described previously, discuss the economic factors that influence the products and services to be offered. A more in-depth discussion is warranted when different types of services are identified for different market areas in the Description of Business section. 1 If obtained, discuss any independent economic survey or market feasibility study. D. Competitive Analysis 1) Compare and contrast the institutions product strategy with its principal competitors in the target market(s). Include expected results in terms of relative strength, market share, and pricing. 2) Discuss the overall marketing/advertising strategy, including approaches to reach target market through the marketing of brand, products, and services. Outline the specific medium that will be used, including timing and level of advertising efforts. 3) Discuss potential competition in the target market(s). V. Management Plan Directors and Officers A. Provide the number of organizers and/or directors. Provide a list of board committees and a brief explanation of the responsibilities of each committee. B. Describe the organizational structure and provide an organizational chart, indicating the number of officers and employees. Describe the duties and responsibilities of the senior executive officers. Describe any management committees that are or will be established. C. Discuss the institutions plans to address management succession, including any management training program or other available resources. VI. Records, Systems, and Controls A. Describe the institutions current and/or proposed accounting and internal control systems, indicating any use of electronic processing systems. B. Describe managements proposed internal audit function. The description should set forth the independence of the department and the scope and frequency of audits. Discuss the experience and education of the audit staff. If external auditors will be used for internal audits, provide similar information for the external auditors. C. Describe the compliance management programs, addressing independence, scope, frequency, and staff qualifications. Discuss how the institution will respond to consumer complaints. D. State plans for an annual audit by independent public accountants. E. Discuss the functions that will be outsourced and what the institution will do in-house. VII. Financial Management Plan A. Capital and Earnings 1) Discuss the capital goals and the means to achieve them. 2) Discuss the earnings goals in terms of return on assets, net interest margin, or other profitability measurements, and summarize the strategies to achieve those goals. 3) Discuss the plan for raising capital and for financing growth, with particular emphasis on conformance with regulatory capital requirements. 4) Discuss the adequacy of the proposed capital structure relative to internal and external risks, planned operational and financial assumptions, including

technology, branching, and projected organization and operating expenses. Present a thorough justification to support the proposed capital, including any off-balance-sheet activities contemplated. 5) Describe the debt service requirements for any debt that will be issued at the holding company level to capitalize the institution. 6) Discuss the use of options, warrants, and/or other benefits associated with the institutions capital. 7) Summarize the dividend policy. B. Liquidity and Funds Management 1) Discuss how the institution will identify and measure liquidity risk. 2) Discuss the institutions plan to monitor and control its liquidity risk, including funding sources (deposits, borrowings, securitizations). Include holding company support, if any. 3) Describe any plans to borrow funds from any financial institutions or other sources, including the amount, composition, interest rate, maturity, purpose, and collateral. 4) Discuss the type of investment securities the institution plans to purchase. C. Sensitivity to Market Risk 1) Discuss the institutions objectives, strategies, and risk tolerance for interest rate risk. 2) Discuss how the institution will identify and measure interest rate risk. 3) Discuss the institutions asset and liability portfolio in terms of sensitivity to interest rate changes and the impact of earnings and capital and net portfolio value.2 Discuss the risk limits to control interest rate risk. 4) Describe any plans to use hedging activities (for example, futures, options, interest rate swaps, or other derivative instruments). 2 For OTS filing, see Thrift Bulletin 13a. D. Credit Risk 1) Discuss how the institution will identify and measure credit risk. 2) Describe the loan review program, addressing independence, scope, frequency, and staff qualifications. 3) Describe the methodology used to determine the allowance for loan and lease losses. VIII. Monitoring and Revising the Plan A. Describe how the board of directors will monitor adherence to the business plan. B. Describe how the board of directors will adjust and amend the plan to accommodate significant or material economic changes. IX. Alternative Business Strategy (Optional unless your regulator requires) An alternative business strategy details how an institution will operate under scenarios in which market conditions differ significantly from those projected in this business plan. This alternative business strategy should be realistic about the business risks and incorporate sound management of such risks. This alternative strategy should consider potential adverse scenarios relating to the asset or liability mixes, interest rates, operating expenses, marketing

costs, and growth rates. This discussion should include realistic plans for how the bank would access additional capital, if needed, in the future and, if applicable, contingency funding plans that address strategies for managing potential liquidity fluctuations. This plan also should discuss any financial safeguards to offset unexpected costs and remain well capitalized. Periodically, the institution should update this section, especially as the institution becomes more complex and as industry conditions change. X. Financial Projections A. Provide financial information for opening day pro forma and quarterly projections for the three years of operations. Also provide annual totals for the Income Statement. The line items in the financial statements should be consistent with the Consolidated Reports of Condition and Income or the Thrift Financial Report (Report)3 so that projected items may be compared conveniently with actual performance. The following reports should be used: Projected Balance Sheet (Schedule RC or SC) Projected Income Statement (Schedule RI or SO) Regulatory Capital Schedule (Schedule RI-A or CCR) 3 See FDICs Web site, http://www.fdic.gov/regulations/resources/call/crinst/callinst.html or http://www.ots.treas.gov (link to TFR form and instructions). The financial statements should be presented in two ways: (1) showing the dollar amounts, and (2) as a percentage of total assets. 1) Describe in detail all of the assumptions used to prepare the projected statements, including the assumed interest rate scenario for each interest earning asset and interest costing liability over the term of the business plan. Also present a thorough justification to support proposed capital, including any branch expansion and off-balance-sheet activities contemplated. 2) Provide the basis for the assumptions used for noninterest income and noninterest expense. Indicate the amount of lease expense, capital improvements, and furniture, fixtures, and equipment, including systems and equipment upgrades. 3) Describe the assumptions for the start-up costs, volumes, expected returns, and expected time frame to introduce each new product and service. B. Discuss how the institution used marketing studies or surveys to support the institutions projected growth. C. Discuss the level of marketing expenses necessary to achieve the projected market share for both loan and deposit products. Assumptions should be consistent with those experienced by other institutions in the target market. Explain any significant variances between the assumptions in the target market. D. Provide a sensitivity analysis of the financial projections. A sensitivity analysis provides a realistic stress test of the major underlying assumptions used in the business plan and the resultant financial projections. For example, adjust the financials to reflect

the effects of adverse changes in the interest rate environment, changes in the asset/liability mix, higher than expected operating expenses, marketing costs, and/or growth rates

Vie w All Ses sion s

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Po we re d by Tr an sla te Session 2 of 16

SESSION TWO Business Plan

What is a Business Plan? o Why prepare a business plan? o What to avoid in your business plan Business Plan Format o Vision statement o The people o Business profile o Economic assessment Six Steps to a Great Business Plan o Basic business concept o Feasibility and specifics o Focus and refine concept o Outline the specifics of your business o Put your plan into a compelling form o Review sample plans Does Your Plan Include the Following Necessary Factors o A sound business concept o Understanding your market o Healthy, growing and stable industry o Capable management

o o o o

Able financial control Consistent business focus Mindset to anticipate change Plans for online business

Why Do a Business Plan? Uses and Benefits of a Business Plan A business plan is often prepared when:

Starting a new organization, business venture, or product (service) or Expanding, acquiring or improving any of the above. There are numerous benefits of doing a business plan, including:

To identify an problems in your plans before you implement those plans. To get the commitment and participation of those who will implement the plans, which leads to better results. To establish a roadmap to compare results as the venture proceeds from paper to reality. To achieve greater profitability in your organization, products and services -- all with less work. To obtain financing from investors and funders. To minimize your risk of failure. To update your plans and operations in a changing world. To clarify and synchronize your goals and strategies.

For these reasons, the planning process often is as useful as the business plan document itself. Also read: Who Needs a Business Plan? (You Do) Types of Content of a Business Plan Business plans appear in many different formats, depending on the audience for the plan and complexity of the business. However, most business plans address the following five topic areas in one form or another. 1. Business summary -- Describes the organization, business venture or product (service), summarizing its purpose, management, operations, marketing and finances.

2. Market opportunity -- Concisely describes what unmet need it will (or does) fill, presents evidence that this need is genuine, and that the beneficiaries (or a third party) will pay for the costs to meet this need. Describes credible market research on target customers (including perceived benefits and willingness to pay), competitors and pricing. 3. People -- Arguably the most important part of the plan, it describes who will be responsible for developing, marketing and operating this venture, and why their backgrounds and skills make them the right people to make this successful. Ideally, each person in the management team (and key program and technical folks) are indicated by NAME. 4. Implementation -- This is the how-to section of the plan, where the action steps are clearly described, usually in four areas: start-up, marketing, operations and financial. Marketing builds on market research presented, e.g., in a Market Opportunity section of the plan, including your competitive niche (how you will be better than your competitors in ways that matter to your target customers). Financial plan includes, e.g., costs to launch, operate, market and finance the business, along with conservative estimates of revenue, typically for three years; a break-even analysis is often included in this section. 5. Contingencies -- This section outlines the most likely things that could go wrong with implementing this plan, and how management is prepared to respond to those problems if they emerge. In many cases, an organization will already have in its possession some of the information needed for preparing a business plan. For example, in the case of nonprofits, grant proposals often contain some of this information.

Need For Marketing Research:

market research - need and purpose Why do businesses need accurate and up-to-date information? To undertake marketing effectively, businesses need information information about customer wants, market demand, competition, distribution channels etc. This information needs to be updated regularly because businesses operate in a dynamic environment, characterised by frequent:

Changes in technology enabling new products and new production processes (e.g. the growth of digital study products like this toolkit which are reducing demand for printed textbooks) Changes in consumer tastes meaning that the demand for some products will decline, whilst others will grow more popular (e.g. increased demand for activity-related holidays at the expense of mass-market beach holidays) Changes in the product ranges of competitors the introduction of new rival products, or changes in pricing policies can greatly influence the demand for a product (e.g. the introduction of the Microsoft X-Box which has challenged Sonys PlayStation 2) Changes in economic conditions an improvement or worsening of the economic climate will have an impact on incomes on a national or regional level. Different products may be affected differently e.g. luxuries v necessities etc What is the purpose of marketing research Marketing research can help a business do one or more of the following: Gain a more detailed understanding of consumers needs marketing research can help firms to discover consumers opinions on a huge range of issues, e.g., views on products prices, packaging, recent advertising campaigns Reduce the risk of product/business failure there is no guarantee that any new idea will be a commercial success, but accurate and up-to-date information on the market can help a business make informed decisions, hopefully leading to products that consumers want in sufficient numbers to achieve commercial success. Forecast future trends marketing research can not only provide information regarding the current state of the market but it can also be used to anticipate future customer needs. Firms can then make the necessary adjustments to their product portfolios and levels of output in order to remain successful.

Market research is any organized effort to gather information about markets or customers. It is a very important component of business strategy.[1] The term is commonly interchanged with marketing research; however, expert practitioners may wish to draw a distinction, in that marketing research is concerned specifically about marketing processes, while market research is concerned specifically with markets.[2] Market Research is the key factor to get advantage over competitors. Market research provides important information to identify and analyze the market need, market size and competition. Market research,as defined by the ICC/ESOMAR International Code on Market and Social Research, includes social and opinion research, [and] is the systematic gathering and interpretation of information about individuals or organizations using statistical and

analytical methods and techniques of the applied social sciences to gain insight or support decision making.[3] Market research for business/planning Market research is for discovering what people want, need, or believe. It can also involve discovering how they act. Once that research is completed, it can be used to determine how to market your product. Questionnaires and focus group discussion surveys are some of the instruments for market research. For starting up a business, there are some important things:

Market information

Through Market information one can know the prices of the different commodities in the market, as well as the supply and demand situation. Information about the markets can be obtained from different sources, varieties and formats, as well as the sources and varieties that have to be obtained to make the business work.

Market segmentation

Market segmentation is the division of the market or population into subgroups with similar motivations. It is widely used for segmenting on geographic differences, personality differences, demographic differences, technographic differences, use of product differences, psychographic differences and gender differences. For B2B segmentation firmographics is commonly used.

Market trends

Market trends are the upward or downward movement of a market, during a period of time. The market size is more difficult to estimate if one is starting with something completely new. In this case, you will have to derive the figures from the number of potential customers, or customer segments. [Ilar 1998] Besides information about the target market, one also needs information about one's competitors, customers, products, etc. Lastly, you need to measure marketing effectiveness. A few techniques are:

Customer analysis Choice modelling Competitor analysis Risk analysis Product research Advertising the research

Marketing mix modeling

Operating Plans and Financial Plans It's at the end of your business plan, but the financial plan section is the section that determines whether or not your business idea is viable, and is a key component in determining whether or not your business plan is going to be able to attract any investment in your business idea. Basically, the financial plan section of the business plan consists of three financial statements, the income statement, the cash flow projection and the balance sheet and a brief explanation/analysis of these three statements. This article will lead you through the preparation of each of these three financial statements on the following pages. First, however, you need to gather together some of the financial data you'll need to prepare these financial statements for your business plan by examining your expenses. Think of your business expenses as broken into two categories; your start up expenses and your operating expenses. All the costs of getting your business up and running go into the start up expenses category. These expenses may include:

business registration fees business licensing and permits starting inventory rent deposits down payments on property down payments on equipment utility set up fees

This is just a sampling of start up expenses; your own list will probably expand as soon as you start writing them down. Operating expenses are the costs of keeping your business running. Think of these as the things you're going to have to pay each month. Your list of operating expenses may include:

salaries (yours and staff salaries)

rent or mortage payments telecommunications utlities raw materials storage distribution promotion loan payments office supplies maintenance

Once again, this is just a partial list to get you going. Once you have your operating expenses list complete, the total will show you what it will cost you to keep your business running each month. Multiply this number by 6, and you have a six month estimate of your operating expenses. Then add this to the total of your start up expenses list, and you'll have a ballpark figure for your complete start up costs. Now let's look at putting some financial statements for your business plan together, starting with the Income Statement. The Income Statement is one of the three financial statements that you need to include in the Financial Plan section of the business plan. The Income Statement shows your Revenues, Expenses, and Profit for a particular period. It's a snapshot of your business that shows whether or not your business is profitable at that point in time; Revenue - Expenses = Profit/Loss. While established businesses normally produce an Income Statement each fiscal quarter, or even once each fiscal year, for the purposes of the business plan, an Income Statement should be generated more frequently - monthly for the first year. Here's an Income Statement template for a service-based business. It's followed by an explanation of how to adapt this Income Statement template to a product-based business. YOUR BUSINESS NAME Income Statement for the year ending _____________ (Row listing each month) REVENUE

REVENUE: Services Service 1 Service 2 Service 3 TOTAL REVENUE: Services REVENUE: Miscellaneous Bank Interest TOTAL REVENUE: MISCELLANEOUS TOTAL REVENUE EXPENSES DIRECT COSTS Materials Equipment Rentals Salary (Owner) Wages EI Expense CPP Expense WCB Expense TOTAL DIRECT COSTS GENERAL AND ADMINISTRATION Accounting and Legal Fees Advertising and Promotion Bad Debts Bank Charges Depreciation and Amortization Insurance Interest Office Rent Telephone Utilities Credit Card Commissions Credit Card Charges TOTAL GENERAL AND ADMINISTRATION TOTAL EXPENSES NET INCOME BEFORE INCOME TAXES INCOME TAXES

NET INCOME Not all of the categories in this Income Statement will apply to your business. Leave out those that don't apply and add categories where necessary to adapt this template to your business. To use this template as part of the business plan, you'll need to set it up as a table and fill in the appropriate figures for each month (as indicated by the line "row listing each month"). There are links to two excellent examples of Income Statements provided by the Royal Bank in the sidebar of this article. If you have a product-based business, the Revenue section of the Income Statement will look different. Revenue will be called Sales, and inventory needs to be accounted for. For instance, if you look at the Royal Bank's example of an Income Statement for Kamiko's Fine Foods, you'll see the Revenue section of the Income Statement described as: SALES COST OF SALES OPENING INVENTORY PURCHASES ENDING INVENTORY GROSS PROFIT The Expense portion of the Income Statement, however, is very similar to the template I've provided above. Ready to move on to the next financial statement that you need to include in the Financial Plan section of your business plan? The Cash Flow Projection is next. The Cash Flow Projection shows how cash is expected to flow in and out of your business. For you, it's an important tool for cash flow management, letting you know when your expenditures are too high or when you might want to arrange short term investments to deal with a cash flow surplus. As part of your business plan, a Cash Flow Projection will give you a much better idea of how much capital investment your business idea needs. For a bank loans officer, the Cash Flow Projection offers evidence that your business is a good credit risk and that there will be enough cash on hand to make your business a good candidate for a line of credit or short term loan. Do not confuse a Cash Flow Projection with a Cash Flow Statement. The Cash Flow Statement shows how cash has flowed in and out of your business. In other words, it

describes the cash flow that has occurred in the past. The Cash Flow Projection shows the cash that is anticipated to be generated or expended over a chosen period of time in the future. While both types of Cash Flow reports are important business decision-making tools for businesses, we're only concerned with the Cash Flow Projection in the business plan. You will want to show Cash Flow Projections for each month over a one year period as part of the Financial Plan portion of your business plan. There are three parts to the Cash Flow Projection. The first part details your Cash Revenues. Enter your estimated sales figures for each month. Remember that these are Cash Revenues; you will only enter the sales that are collectible in cash during the specific month you are dealing with. The second part is your Cash Disbursements. Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay that month for each month. The third part of the Cash Flow Projection is the Reconciliation of Cash Revenues to Cash Disbursements. As the word "reconciliation" suggests, this section starts with an opening balance which is the carryover from the previous month's operations. The current month's Revenues are added to this balance; the current month's Disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month. Here is a template for a Cash Flow Projection that you can use for your business plan (or later on when your business is up and running): CASH FLOW PROJECTIONS (Add a row of monthly headings to cover one year period) CASH REVENUES Revenue from Product Sales Revenue from Service Sales TOTAL CASH REVENUES CASH DISBURSEMENTS Cash Payments to Trade Suppliers Management Draws Salaries and Wages Promotion Expense Paid Professional Fees Paid Rent/Mortgage Payments Insurance Paid

Telecommunications Payments Utilities Payments TOTAL CASH DISBURSEMENTS RECONCILIATION OF CASH FLOW OPENING CASH BALANCE ADD: TOTAL CASH REVENUES DEDUCT: TOTAL CASH DISBURSEMENTS CLOSING CASH BALANCE Remember, the Closing Cash Balance is carried over to the next month. Once again, to use this template for your own business, you will need to delete and add the appropriate Revenue and Disbursement categories that apply to your own business. The main danger when putting together a Cash Flow Projection is being over optimistic about your projected sales. Terry Elliott's article, 3 Methods of Sales Forecasting, will help you avoid this and provides a detailed explanation of how to do accurate sales forecasting for your Cash Flow Projections. You may also want to read Sales Forecasting (from Canada Business Service Centres), which outlines the steps of sales forecasting for a new business. Once you have your Cash Flow Projections completed, it's time to move on to the Balance Sheet. `The Balance Sheet is the last of the financial statements that you need to include in the Financial Plan section of the business plan. The Balance Sheet presents a picture of your business' net worth at a particular point in time. It summarizes all the financial data about your business, breaking that data into 3 categories; assets, liabilities, and equity. Some definitions first: Assets are tangible objects of financial value that are owned by the company. A liability is a debt owed to a creditor of the company. Equity is the net difference when the total liabilities are subtracted from the total assets. All accounts in your General Ledger are categorized as an asset, a liability or equity. The relationship between them is expressed in this equation: Assets = Liabilities + Equity.

For the purposes of your business plan, you'll be creating a pro forma Balance Sheet intended to summarize the information in the Income Statement and Cash Flow Projections. Normally a business prepares a Balance Sheet once a year. Here is a template for a Balance Sheet that you can use for your business plan (or later on when your business is up and running): YOUR COMPANY NAME BALANCE SHEET As At __________ (Date) ASSETS Current Assets Cash in Bank Petty Cash Net Cash Inventory Accounts Receivable Prepaid Insurance Total Current Assets Fixed Assets Land Buildings Less Depreciation Net Land & Buildings Equipment Less Depreciation Net Equipment TOTAL ASSETS LIABILITIES Current Liabilities Accounts Payable Vacation Payable EI Payable CPP Payable Federal Income Tax Payable Total Canada Customs & Revenue

WCB Payable Pension Payable Union Dues Payable Medical Payable PST Payable GST Charged on Sales GST Paid on Purchases GST Owing Total Current Liabilities Long-Term Liabilities Long-Term Loans Mortgage Total Long-Term Liabilities TOTAL LIABILITIES EQUITY EARNINGS Owner's Equity - Capital Owner - Draws Retained Earnings Current Earnings Total Earnings TOTAL EQUITY LIABILITIES AND EQUITY Once again, this template is an example of the different categories of assets and liabilities that may apply to your business. The Balance Sheet will reproduce the accounts you have set up in your General Ledger. You may need to modify the categories in the Balance Sheet template above to suit your own business. Once you have your Balance Sheet completed, you're ready to write a brief analysis of each of the three financial statements. When you're writing these analysis paragraphs, you want to keep them short and cover the highlights, rather than writing an in-depth analysis. The two Financial Plan samples in the sidebar (under "Elsewhere On The Web") will show you what these analyses will look like. The financial statements themselves (the Income Statement, Cash Flow Projections, and Balance Sheet) will be placed in your business plan's Appendices.

OPERATIONAL PLAN Explain the daily operation of the business, its location, equipment, people, processes, and surrounding environment. Production How and where are your products/services produced? Explain your methods of:

Production techniques & costs Quality control Customer service Inventory control Product development

Location What qualities do you need in a location? Describe the type of location you will have. Physical requirements:

Space; how much? Type of building Zoning Power and other utilities

Access: Is it important that your location be convenient to transportation or to suppliers? Do you need easy walk-in access? What are your requirements for parking, and proximity to freeway, airports, railroads, shipping centers? Include a drawing or layout of your proposed facility if it is important, as it might be for a manufacturer. Construction? Most new companies should not sink capital into construction, but if you are planning to build, then costs and specifications will be a big part of your plan.

Cost: Estimate your occupation expenses, including rent, but also including: maintenance, utilities, insurance, and initial remodeling costs to make it suit your needs. These numbers will become part of your financial plan. What will be your business hours? Legal Environment Describe the following

Licensing and bonding requirements Permits Health, workplace or environmental regulations Special regulations covering your industry or profession Zoning or building code requirements Insurance coverage Trademarks, copyrights, or patents (pending, existing, or purchased)

Personnel

Number of employees Type of labor (skilled, unskilled, professional) Where and how will you find the right employees? Quality of existing staff Pay structure Training methods and requirements Who does which tasks? Do you have schedules and written procedures prepared? Have you drafted job descriptions for employees? If not, take time to write some. They really help internal communications with employees. For certain functions, will you use contract workers in addition to employees?

Inventory

What kind of inventory will be kept: raw materials, supplies, finished goods? Average value in stock (i.e., what is your inventory investment)? Rate of turnover and how this compares to industry averages? Seasonal buildups? Lead-time for ordering?

Suppliers

Identify key suppliers.

Names & addresses Type & amount of inventory furnished Credit & delivery policies History & reliability

Should you have more than one supplier for critical items (as a backup)? Do you expect shortages or short term delivery problems? Are supply costs steady or fluctuating? If fluctuating, how would you deal with changing costs? Credit Policies Do you plan to sell on credit? Do you really need to sell on credit? Is it customary in your industry and expected by your clientele? If yes, what policies will you have about who gets credit and how much? How will you check the creditworthiness of new applicants? What terms will you offer your customers; i.e., how much credit and when is payment due? Will you offer prompt payment discounts (hint: do this only if it is usual and customary in your industry). Do you know what it will cost you to extend credit? Have you built the costs into your prices? Managing your Accounts Receivable If you do extend credit, you should do an aging at least monthly, to track how much of your money is tied up in credit given to customers, and to alert you to slow payment problems. A receivables aging looks like this: Table 2: Accounts Receivable Aging

You will need a policy for dealing with slow paying customers. When do you make a phone call? When send a letter? When get your attorney to threaten? Managing your Accounts Payable You should also age your Accounts Payable, what you owe to your suppliers. This helps you plan who to pay and when. Paying too early depletes your cash, but paying late can cost you valuable discounts and damage your credit. (Hint: if you know you will be late making a payment, call the creditor before the due date. It tends to relax them.) Are prompt payment discounts offered by your proposed vendors? A payables aging looks like this: Table 3: Accounts Payable Aging

At FPB, our mission is to improve your business results through quality, cost effective finance and accounting services. We can handle one-time projects, step in when temporary situations arise, or bridge the gap between the levels of support you have versus need. One testimony of our effectiveness can be drawn from the fact that over 75% of our clients were referred by other clients. Specifically, we can lead the way in any of the following areas:

Budgeting, Forecasting, Financial Analysis Accounting and Financial Reporting Financial Modeling Product Costing Variable Pay Plans Business Plans

causes for small business failure

The Seven Pitfalls of Business Failure and How to Avoid Them by Patricia Schaefer Summary: When you're starting a new business, the last thing you want to focus on is failure. But if you address the common reasons for failure up front, you'll be much less likely to fall victim to them yourself. Here are the top 7 reasons why businesses fail and tips for avoiding them. According to statistics published by the Small Business Administration (SBA), seven out of ten of new employer establishments survive at lease two years and 51 percent survive at least five years. This is a far cry from the previous long-held belief that 50 percent of businesses fail in the first year and 95 percent fail within five years. Better success rates notwithstanding, a significant percentage of new businesses do fail. Expert opinions abound about what a business owner should and shouldn't do to keep a new business afloat in the perilous waters of the entrepreneurial sea. There are, however, key factors that -- if not avoided -- will be certain to weigh down a business and possibly sink it forevermore. 1. You start your business for the wrong reasons. Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you'd have more time with your family? Or maybe that you wouldn't have to answer to anyone else? If so, you'd better think again. On the other hand, if you start your business for these reasons, you'll have a better chance at entrepreneurial success: You have a passion and love for what you'll be doing, and strongly believe -based on educated study and investigation -- that your product or service would fulfill a real need in the marketplace.

You are physically fit and possess the needed mental stamina to withstand potential challenges. Often overlooked, less-than-robust health has been responsible for more than a few bankruptcies.

You have drive, determination, patience and a positive attitude. When others throw in the towel, you are more determined than ever.

Failures don't defeat you. You learn from your mistakes, and use these lessons to succeed the next time around. Head, SBA economist, noted that studies of successful business owners showed they attributed much of their success to "building on earlier failures;" on using failures as a "learning process." You thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints.

You like -- if not love -- your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.

2. Poor Management Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don't do well, and seek help, business owners may soon face disaster. They must also be educated and alert to fraud, and put into place measures to avoid it. Neglect of a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and customer data, an area which may be more prone to disregard once a business has been established. A successful manager is also a good leader who creates a work climate that encourages productivity. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future. 3. Insufficient Capital A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.

It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. This business startup calculator will help you predict how much money you'll need to launch your business. 4. Location, Location, Location Your college professor was right -- location is critical to the success of your business. Whereas a good location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise. Some factors to consider:

Where your customers are Traffic, accessibility, parking and lighting Location of competitors Condition and safety of building Local incentive programs for business start-ups in specific targeted areas

The history, community flavor and receptiveness to a new business at a prospective site 5. Lack of Planning Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning -- and hard work -- success would not have followed. The same could be said of most business successes. It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future. Components may include:

Description of the business, vision, goals, and keys to success Work force needs Potential problems and solutions

Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast Analysis of competition Marketing, advertising and promotional activities

Budgeting and managing company growth

In addition, most bankers request a business plan if you are seeking to secure addition capital for your company. 6. Overexpansion A leading cause of business failure, overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies. At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be warranted include the inability to fill customer needs in a timely basis, and employees having difficulty keeping up with production demands. If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business, not on doing everything in it yourself. 7. No Website Simply put, if you have a business today, you need a website. Period. In the U.S. alone, the number of internet users (approximately 77 percent of the population) and e-commerce sales ($165.4 billion in 2010, according to the US Department of Commerce) continue to rise and are expected to increase with each passing year. At the very least, every business should have a professional looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services. Later, additional ways to generate revenue on the website can be added; i.e., selling ad space, drop-shipping products, or recommending affiliate products. Remember, if you don't have a website, you'll most likely be losing business to those that do. And make sure that website makes your business look good, not bad -- you want to increase revenues, not decrease them.

When it comes to the success of any new business, you -- the business owner -- are ultimately the "secret" to your success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed.

Based upon my research and personal observations as a strategic thinking business coach, here are 12 causes for small business failures. 1. Poor planning - The lack of a strategic business plan to help focus on vision, mission and goals. 2. Inadequate capital - The lack of adequate startup capital that has not included enough money to live for one or two years without income when getting the business started. 3. No prior business experience - The lack of experience running a business or in the industry entered. 4. Ineffective marketing The lack of a strategic Integrated Marketing Communications (IMC) Plan. 5. Competition The lack of understanding of whom the competition is and what their strengths and weaknesses are. 6. Poor customer service The lack of commitment to first class and reliable service to customers. 7. Poor record keeping and financial controls The lack of up-to-date, well documented financial and business records. 8. Limited product, services and/or clients. Small business owners fall prey to clinging to one big client, one product or one service, rather than a variety and diversification, which serves as a risk management too against the ups and downs of business cycles. 9. Opportunistic marketing only Entrepreneurs often get excited over any new opportunity and start pursuing a new opportunity without using strategic thinking to test the opportunity against the vision, mission and goals of the strategic business plan. 10. Poor time management Lack of discipline and commitment to do tasks that need

to be done on time. 11. Poor quality Lack of a standard for quality of products and services. 12. Burnout Owning a business with a significant investment of time, money, energy and emotion results in working long days and not taking time off. And not balancing your business life and your personal life will cause burnout and cause your motivation and creativity to suffer. ___________________________________________________________ What Causes Small Businesses to Fail? The short answer is, regardless of the industry, failure is the result of either the lack of management skills or lack of proper capitalization or both. Eleven Common Causes of Failure Choosing a business that isn't very profitable. Even though you generate lots of activity, the profits never materialize to the extent necessary to sustain an on-going company. Inadequate cash reserves. If you don't have enough cash to carry you through the first six months or so before the business starts making money, your prospects for Success are not good. Consider both business and personal living expenses when determining how much cash you will need. Failure to clearly define and understand your market, your customers, and your customers' buying habits. Who are your customers? You should be able to clearly identify them in one or two sentences. How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying? Failure to price your product or service correctly. You must clearly define your pricing strategy. You can be the cheapest or you can be the best, but if you try to do both, you'll fail. Failure to adequately anticipate cash flow. When you are just starting out, suppliers require quick payment for inventory (sometimes even COD). If you sell your products on credit, the time between making the sale and getting paid can be months. This two-way tug at your cash can pull you down if you fail to plan for it. Failure to anticipate or react to competition, technology, or other changes in the marketplace. It is dangerous to assume that what you have done in the past will always work. Challenge the factors that led to your Success. Do you still do things the same way

despite new market demands and changing times? What is your competition doing differently? What new technology is available? Be open to new ideas. Experiment. Those who fail to do this end up becoming pawns to those who do. Overgeneralization. Trying to do everything for everyone is a sure road to ruin. Spreading yourself too thin diminishes quality. The market pays excellent rewards for excellent results, average rewards for average results, and below average rewards for below average results. Overdependence on a single customer. At first, it looks great. But then you realize you are at their mercy. Whenever you have one customer so big that losing them would mean closing up shop, watch out. Having a large base of small customers is much preferred. Uncontrolled growth. Slow and steady wins every time. Dependable, predictable growth is vastly superior to spurts and jumps in volume. It's hard to believe that too much business can destroy you, but the textbooks are full of case studies. Going after all the business you can get drains your cash and actually reduces overall profitability. You may incur significant up-front costs to finance large inventories to meet new customer demand. Don't leverage yourself so far that if the economy stumbles, you'll be unable to pay back your loans. When you go after it all, you usually become less selective about customers and products, both of which drain profits from your company. Believing you can do everything yourself. One of the biggest challenges for entrepreneurs is to let go. Let go of the attitude that you must have hands-on control of all aspects of your business. Let go of the belief that only you can make decisions. Concentrate on the most important problems or issues facing your company. Let others help you out. Give your people responsibility and authority. Putting up with inadequate management. A common problem faced by Successful companies is growing beyond management resources or skills. As the company grows, you may surpass certain individuals' ability to manage and plan. If a change becomes necessary, don't lower your standards just to fill vacant positions or to accommodate someone within your organization. Decide on the skills necessary for the position and insist the individual has them. So, the founder's attitude, ability to be objective, willingness to bring in needed help, and share power are all crucial to success. "Most startups make the mistake of falling in love with their product or service," says Shukla. "Ultimately, it is this lack of selfcriticism that causes many companies, startups and their more mature counterparts, to fail. Startups suffer this fate more often because there are more dreamers than doers." I think that fact speaks for itself," says Jonathan Goldhill, a small-business consultant and former director of an economic development center in California's San Fernando Valley. "I would say that the primary reason for failure of startups within three years is usually...management's failure to act, or management's failure to react, or management's failure to plan."

Other reasons why businesses fail in their early years include: poor business location, poor customer service, unqualified/untrained employees, fraud, lack of a proper business plan, and failure to seek outside professional advice. While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you're starting a business or expanding one, sufficient ready capital is essential. It is not, however, enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money. Top Ten Legal Mistakes Made by Entrepreneurs 10. Failing to incorporate early enough. One problem that arises here is the so-called "forgotten founder": a partner involved in starting the venture subsequently drops out. When the venture gets financing or is ready to go public, this partner returns, perhaps with an inflated view of what his or her contribution was, demanding equity. This problem can be eliminated by incorporating early and issuing shares to the founders, subject to vesting. As partial consideration for their shares, each founder should be required to assign to the new corporation all inventions and works related to the company's proposed business. Incorporating early, before significant value has been created and well in advance of any financing event that establishes an implicit value for the shares - also helps prevent potential tax problems for "cheap stock." Incorporating too late, and issuing inexpensive stock to the founders at the same time that much more expensive stock is being sold to investors, can create tax problems when the IRS argues that the difference in stock price is actually income to the entrepreneur. 9. Issuing founder shares without vesting. Simply put, vesting protects the members of the founding team who take the venture forward. If people remain on the team and are productive, their shares will vest. If they leave earlier, that stock can be retrieved and given to whoever is brought in to replace them. 8. Hiring a lawyer not experienced in dealing with entrepreneurs and venture capitalists. Many venture capitalists say that they often rate the judgment of entrepreneurs by their choice of legal counsel. Lawyers who have no experience working with entrepreneurs and venture capitalists will most likely focus on the wrong things while failing to recognize some of the more subtle potential traps. It's better to hire someone who has played the game, who knows what's standard and what isn't, and who will get the deal negotiated and closed promptly. 7. Failing to make a timely Section 83 (b) election. If the advice in 9 is followed, then shares will be issued, subject to vesting, to the founders as well as new employees. If

stock is acquired and it's subject to what the IRS calls a substantial risk of forfeiture, then the IRS doesn't view the purchase as being closed until that risk goes away. When the stock vests, that risk evaporates, so the IRS considers the deal closed. The IRS then calculates the difference between the price paid at the outset and the fair market value at that later date, then taxes this difference as ordinary income. An 83 (b) election allows the tax computation to be made based on the value at the time the shares are issued, which is often pennies per share. 6. Negotiating venture capital financing based solely on the valuation. Valuation is not the only thing one should consider when selecting a venture capitalist or when negotiating the deal. There are many other ways for venture capitalists to get compensated if they end up paying a high price for shares. These include requiring participating preferred with a high cumulative dividend, redemption rights exercisable after only several years, and ratchet anti-dilution protection with no cap. One must ask, what's the reputation of this firm? Do they have a history of standing by the entrepreneur if the entrepreneur stumbles? Do they have good contacts in the industry? In trying to build alliances, do they know the big players? A no-name firm offering the highest valuation is often not the best source of equity. 5. Waiting to consider international intellectual property protection. Patents are granted on a country-by-country basis (with a single application available for the European Union). In the United States, if an invention is sold or made public, there's a year's grace period to file a patent application. Everywhere else, if the invention is sold or publicized prior to filing the patent application, the invention is unpatentable in that country. For example, if the invention is publicly disclosed to a Japanese national visiting a tradeshow in the United States, then under Japanese patent law, if no patent application has been filed, that disclosure makes the invention unpatentable in Japan. The same is true with trademarks. A tremendous amount of money might be spent in developing a brand in the United States, yet when the product is shipped overseas it could violate trademarks of companies dealing in similar goods outside the United States. One must make intelligent choices of where they think their markets are, and how much money to spend at an early stage in order to insure that the brand is available in those markets. 4. Disclosing inventions without a nondisclosure agreement, or before the patent application is filed. If patent protection hasn't been obtained, or in cases where a patent is not available, the only protection is to maintain something as a trade secret. To do so, one must show that they've taken reasonable steps to keep it secret from competitors. Is it wise to get potential venture capitalists to sign a nondisclosure agreement? In the best of all worlds, yes, but most won't. Before disclosing to anyone, one must learn who has a reputation for integrity in the industry. In dealing with most people, it's wise to require them to sign nondisclosure agreements. It needn't be elaborate, but it should say that they acknowledge they may be exposed to trade secrets, and they agree not to use or disclose them without permission. Business plans should expressly state on the cover page that they are confidential and proprietary. That's not as strong as a nondisclosure

agreement, but laws in some states suggest that if a person knows they have been exposed to a trade secret, they can't use it or disclose it without permission from the owner. 3. Starting a business while employed by a potential competitor, or hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets. The law is clear that if someone is currently working for a company, particularly if her or she is a key employee, they cannot operate a competing business. Even just incorporating may spark a lawsuit from the current employer. Would-be entrepreneurs should first go to their current employer and either resign or tell them what they're doing and ask them if they'd be interested in investing. Amazingly, that's often a very smooth way of ending that relationship. Under no circumstances should they misrepresent the nature of the new business. Even after leaving the current employer, one still cannot use or disclose the company's trade secrets. Under the so-called inevitable disclosure doctrine, if someone has been exposed to trade secrets at their job and leaves to work for someone else, and if their responsibilities in the new job are sufficiently similar, some courts will conclude that it's inevitable that they will use the information that they had from the earlier position. They could face an injunction prohibiting them from working for the new employer until a number of months go by and whatever trade secrets they had are stale. It also helps to know whether potential recruits are subject to covenants not to compete. States vary in terms of how enforceable they are, but one shouldn't assume they are not. One should also check to see what assignments of inventions might have been signed. Personnel files should be reviewed, and recruits should check theirs, to be certain that a covenant not to compete or an assignment of inventions wasn't tucked into a signed nondisclosure agreement. 2. Promising more in the business plan than can be delivered and failing to comply with state and federal securities laws. If someone promises to do something and knows that they can't perform that promise, that's considered fraud. In a business plan, one must make an honest appraisal of what's doable and set forth their assumptions, so the person putting up money can judge whether they are realistic. Can entrepreneurs be sued by their funders for fraud? Yes. Trying to squeeze out a little extra valuation by fudging the numbers erodes credibility, makes investors less trusting, and ultimately impairs the ability to get subsequent rounds of financing. Finally, anyone selling stock or other securities must comply with both the federal and state securities laws by either registering the securities (rare for a start-up) or meeting all the requirements for an applicable exemption. Ignorance of the law is no excuse. As one judge put it in a decision upholding criminal convictions for violating the securities laws: "No one with half a brain can offer 'an opportunity to invest in our company' without knowing that there is a regulatory jungle out there."

1. Thinking any legal problems can be solved later. There's a tendency to think, "Once I get my funding, once I'm up and running, then I've got time to hire the lawyers; right now, I'm running as fast as I can to get my business plan done and raising money." This is shortsighted logic. Many of the points made here are problems that can't just be patched up later. Does that mean that one should devote all of their time, effort, and money to the legal issues? No. That's a good reason to hire a competent lawyer. Excellent legal talent can be retained for relatively little money up front at the early stages. It will cost much less to get it right at the beginning than to try to sort it all out later and correct it. Why Small Businesses Fail Success in business is never automatic. It isn't strictly based on luck - although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees. Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years. In his book Small Business Management, Michael Ames gives the following reasons for small business failure:

Lack of experience Insufficient capital (money) Poor location Poor inventory management Over-investment in fixed assets Poor credit arrangements Personal use of business funds Unexpected growth

Gustav Berle adds two more reasons in The Do It Yourself Business Book: 1. Competition 2. Low sales More Reasons Why Small Businesses Fail These figures aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.

One fact reported by SBA this year has been that "8 of 10 small business start-ups are no longer in existence after five years due to lack of management knowledge and skills." While I realize that "no longer in existence" does not translate into "absolute failure" it appears that the "8 of 10" is extremely high. These are troubling statistics. Six Most Common Blunders That Lead to Failure Blunder 1: Amount of Effort Exerted The single most important factor in determining who succeeds and who doesn't is simply the amount of effort exerted. If you aren't ready and willing to work - and work hard being an entrepreneur is probably not for you. For starters, most people are used to working and 8-to-5 job, with a "boss" directing them. When you're in business for yourself, you must have the discipline to work independently. You must maintain the same work schedule of the same number of hours virtually every day even if you don't have anything scheduled. Also, many people assume that when they own their own business, they'll be able to work less and take more time off for recreation. Unfortunately, the opposite is true. When you run your own business, you usually have to work more hours, not fewer. You have to be willing to put in long hours and, if necessary, work weekends as well. This is especially true in the start-up stage. Blunder 2: Inadequate Financing A considerable number of people have unrealistic expectations when it comes to the funds needed to start a business. They often lack the necessary start-up funds and can't come up with adequate financing. Furthermore, a considerable number have virtually no cash or liquid assets and expect either a bank or the Small Business Administration (SBA) to provide 100 percent financing. In most instances, neither a bank nor the SBA will provide someone with financing unless that person is investing a significant portion of his or her own funds, boasts a good credit record and has the means to pay back the loan. Most people wrongly assume the SBA will provide them with 100 percent financing based solely on their good ideas. But if someone has no cash at all, it usually reflects poorly on his or her ability to manage finances -something the SBA takes into consideration. Funds may be derived from cash savings, personal credit lines or family loans. Blunder 3: Lack of Planning Another fact rarely considered is that the majority of new businesses fail within a few years mostly due simply to poor planning or no planning at all. Most people who go into business enter a field related to their current employment or a favorite hobby. They don't

do a market study first to see whether the demand for their product or service is growing, declining or stagnating. They also fail to allot the proper time for administrative tasks. Most new business owners assume the majority of their time will be spent producing and marketing their product or service. Unfortunately, this isn't the case. An inordinate amount of time is spent on administration - talking on the phone, purchasing supplies and equipment, filling out government forms, and taking care of other mundane duties. Internet business-to-business services are helping to cut down the time factor of some of these duties; however, it's still a relevant oversight. Blunder 4: Unrealistic Expectations Many individuals assume not only that most businesses succeed, but that they're lucrative from the get-go. This is definitely not the case. Generally speaking, it usually takes at least a year to develop a profitable business. The first year's goal is usually earning back your investment. Even then, the money has to be reinvested in the business. In other words, in your first year, you should have other sources of income to live on. Blunder 5: Inability to Commit Even though most people would like to start their own business, only a small percentage actually do it. When push comes to shove, most lack the self-confidence to make a decision and act on it. In order for the business to succeed, they must be able to gather information, weigh the facts and then make a prompt decision. Blunder 6: Unwillingness to Take Responsibility A business owner is 100 percent responsible for his or her mistakes. There's always a risk of a business failure or less-than-expected financial return. If that should happen to you, you can't blame it on someone else. If you would like to start a small business, you must thoroughly and objectively analyze the feasibility of your idea. Failure to do so can have a tremendous personal cost on finances, relationships and family ties.

So What is Business Failure? How can you tell when your business is going to fail, and make corrective action? Business failure is the last stage of an organization's life cycle. Organizational decline, leading to failure is characterized by management who has become reactionary. The result is inadequate or nonexistent planning and inefficient decision-making. The most common reasons for business to underperform (low productivity, low profits) or fail (bankrupt, cease being) are as follows:

Poor cash flow management. Absence of performance monitoring.

Lack of understanding or use of performance monitoring information.

Poor debtor management. A combination of not paying your debtor on time and not coordinating payments with incoming cash flows.

Overborrowing. The company is overleveraged and debt is not being reduced. Over reliance on a few key customers.

Poor market research leading to an inaccurate understanding of the target customers wants and needs.

Lack of financial skills and planning. Failure to innovate. Poor inventory management. Poor communications throughout the organization. Failure to recognize your own strengths and weaknesses.

Trying to go it alone. Trying to do everything yourself and not seeking external help. Whether this external help be as simple as hiring additional staff or going to professional services such as a lawyer, accountant, banker or business coach. Younger companies are more likely to go bankrupt because of shortcomings in managerial knowledge and financial management abilities. In contrast, older firms are more likely to fail because of an inability to adapt to environmental change. These are the conclusions of a new research paper that examines factors underlying corporate bankruptcies, and compares the main causes of failure between young and old firms.

It sounds simple, but the number one reason why businesses succeed or fail is because the business owner did not take the time to conduct a feasibility analysis, market and business plan. Why? Sometimes an idea is developed that the business owner thinks is good but no one else does. Sometimes an idea is formulated that the business owner believes is so good that the potential customers will find it themselves. And sometimes the business owner thinks that everyone is a potential customer.

A clear and consistent finding of prior research is that firms face the highest failure risk when they are young and small. But if there are factors other than the liabilities of newness and smallness that contribute to firm failure, what are they and how can their influence be mitigated? From the perspective of the resource-based view of the firm, firms will fail if they are unable to generate self-sustaining levels of organizational rents. For new firms, the critical challenge then is to establish valuable resources and capabilities before initial asset endowments are depleted. Among older firms, which have survived the liabilities of newness, it is imperative to ensure that

resources and capabilities continue to provide value as the competitive landscape changes. Thus, we should observe different causal mechanisms between firms that fail early and those that fail at a later stage. Young failures should be attributable to inadequate resources and capabilities (relative to initial endowments). Older failures should be attributable to a mismatch between resources and capabilities and strategic industry factors. The main reason for failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses. Even as the firm's age and management experience increases, knowledge and vision remain critical deficiencies that contribute to failure. A second key deficiency occurs in the area of financial management. Some 71% of firms fail because of poor financial planning. Three particular problems that arise in this area are an unbalanced capital structure, an inability to manage working capital, and undercapitalization. Both old and young bankrupt firms suffer this deficiency. This confirms other findings that initial problems in financial structure are difficult to overcome and continue to haunt firms as they age. This study suggests that the underlying factor contributing to financial difficulties is management failure rather than external factors associated with imperfect capital markets. Many bankrupt firms face problems in attaining financing in capital markets; but, it is the internal lack of managerial expertise in many of these firms that prevents exploration of different financing options.

In diagnosing the root causes of small firm failure it should not be surprising that this turns out to be the management inefficiency of owner-managers. In the 1930s in the US, management deficiencies were claimed to be related to business failure by Cover (1933) who said that 'discernible errors in management' were a major cause of retail bankruptcies. Dun and Bradstreet studies have consistently found that causes due to poor management predominate in failures (Peacock 1985c): US business failures, 92% due to management, US 17,000 business failures, 94% due to management, and Canada 2,598 business failures, 96% due to management. According to national annual reports under the Bankruptcy Act, internal factors relating to the quality of management are reported as major or contributing causes of failure at least as twice as often as factors external to the firm (Williams 1986; McMahon et. al 1993). Similarly, business consultants claimed that 90% of business failures were due to management inadequacy (48% incompetence and 42% inexperience).

There are a variety of reasons why a small business often fails. There are some steps that small business owners can do to avoid them. Here are ten causes of small business failure and how to avoid them. 1. Most small business owners don't have enough money saved up. You need to save up at least six months of worth living expenses along with six months of worth of expenses for your business too. 2. Some companies don't have enough advertisements through out the year. You need to have do more advertising in order for people to know about your company.

Advertisements are the most important to spend on since it will help your business become even more successful. 3. Some companies fail since they don't generate enough sales. You need to do more advertising so more people know about your company or lower the prices. You need to do a few specials in order to get more sales. 4. The company doesn't hire enough staff. You need to hire more staff when you have too much work too handle. You don't want to get behind on the work otherwise your customers won't be happy. 5. The company doesn't have a high enough budget. This is where most companies fail at since they don't have enough money to pay everything. The business owner needs to have more money before starting the company or get a business loan. 6. The company can't survive during the slow season so they often fail. The company needs to figure out a way to generate enough sales or save up enough money to survive during the slow season of the company. 7. A company doesn't have enough money to expand the business even though it needs too. The company needs to get a business loan, save money, or even outsource the work somehow. 8. The company doesn't have enough money to keep a professional image. Most companies lose sales when they don't look professional or even stay professional. They need to have the best of everything in order to succeed. 9. Some try to be cheap on products or service then they often fail. In order to stay successful in a business then you can't sell cheap products or service cause the only result is people not being impressed. You want people to feel they aren't getting ripped off. 10. Some try to violate city rules or state regulations. This is a big reason why companies go out of business real quick. You need to follow city rules and follow the state regulations otherwise you won't be in business anymore.

It is very important to identify and analyze why certain businesses fail, so that we can learn from their mistakes and take guidance from the successful ones. Many businesses fail because of some common causes which many entrepreneurs ignore at the onset of the business. These causes should be studied in depth because no university course gives you enough matter to study, on topics such as this. The most common causes of business failure are: 1. Laying more emphasis on product, rather than market and marketing

The requirement to identify a market for your idea or the product is more important than the product itself. You may have a great idea or a product, but if there are no buyers for the same then it cannot be a success. Smart businesses first identify the market requirement and then develop products accordingly. Tip: For your business idea to succeed you need to first find if there is a market for your idea by conducting a market test run. Find out if people actually want your product, and how much are they ready to pay for it. 2. Laying more emphasis on company image. To project a high profile image for the company by hiring expensive office space and a fancy logo and website will not do much to facilitate in the success of your business. In fact high overheads, because of expensive space and website maintenance costs, can drive you out of business very fast, because the golden rule for the success of any business is to keep overheads low especially at the start up time. Tip: At the start up time, keep the overheads low by reducing expenses. Operate from modest office space. Prospects cannot see where you are operating from and they do not care, anyways. Try to invest more on your marketing activities, which are likely to increase your revenue and chances of success. 3. Getting into Undesirable or Bad Business Partnership. You should get into business partnership only if you find that your ideas match with the probable partner, because business partnerships are even more difficult to maintain than marriages. Many partnerships fail because of lack of communication, proper documentation and deeds. A failed partnership can lead to bankruptcy and soured relations with the business partner. Tip: Avoid partnerships completely, if you possibly can. But if you must get into a business partnership, make sure the duties and responsibilities of the partners are detailed right from the start, and the partnership deed along with commercial terms is clearly defined 4. Attempting to have a very complex business model Simpler the business model, better it is. In a simple and uncomplicated business model everybody, including your vendors, suppliers, employees, and customers are well aware of their responsibilities and goals. In a complex model they have to adapt themselves to new roles that they may not be comfortable with. Tip: While devising the business model, follow the rule of "keep it simple". As the business grows and gets established, you can shift to a more radical or complicated business model, if required.

5. Attempting to pioneer a new product or industry Many businesses get into the vicious cycle of trying to pioneer a new product or industrymany a times the whole exercise can drain you and your business completely, without much success. Very few and limited entrepreneurs succeed in radically new businesses. Even customers at times are scared off because of a totally new concept or product, hence chances of success are not assured, despite all the efforts that you may apply. Tip: Try to achieve extraordinary business success by simply improving business practices of the existing business, rather than trying your hand at pioneering a new product. Once the business is established, you can try to get into the pioneering new product cycle. 6. Getting involved in a business lawsuit and bankruptcy Business lawsuits that are not in your favor can take away all your assets, including your personal assets like home, property, savings etc and make you and your business bankrupt. Tip: Always operate a business under the protection of a corporation, courtesy which you get a corporate shield. In this way personal liability to the business is limited to what ever you choose to put in your business. In the event of a law suit, just fold the existing corporation and try to start a new one. It is always advisable to hire the services of a lawyer and an accountant to discuss your personal involvement in the business, with respect to assets and even the taxation. If carefully planned, you can eliminate almost 100% of all potential legal threats which could go against your personal assets. 7. Getting involved in messy Divorce Proceedings. In many cases when marriages fall apart for people, their businesses also come to a halt because of the financial disagreements arising out of divorce proceedings. Tip: At the time of the marriage, get an attorney to prepare a prenuptial agreement that clearly states the financial implications of divorce proceedings, if any, on the businesses that you hold with your partner. Avoid the above pitfalls and the path to business success will become much smoother for you. When starting up in business we want to succeed but sadly it does not always end up that way. Many businesses fail after a few months to a year of setting up. They tend to fail because of their lack of market research, planning or bad management. If we think about it, there are many different targets that can be set in order to prevent a business from folding. Lets have a look at some common reasons why businesses fail and how we can plan carefully to avoid those failures!

Little to no Planning Having no business plan to work with is not going to get you very far, its important before setting up to write up a business plan so you know in which direction your business is heading. Without planing situations can become unstable which is not good. Lack of Research Its important to do plenty or research, for example if you are selling products, marketing research would come in handy. You might want to consult with an experienced business owner for help, or research how other businesses work for some ideas. Wrong Area / Location A common business mistake is setting up in the wrong place or location. For example setting up an ice cream hut in the middle of an area where its freezing all the time will most likely not have the same effect as setting up an ice cream hut near a beach which has hot weather all year round. So think carefully about where your business idea will be most effective. Poor Financial Management Its very important not to forget the financial side of a business or leaving bills until last minute. Make sure you keep on top of your taxes and credit control. A lot of failed businesses just end up in dept because they dont keep records and up to date with payments. So be careful and seek a financial adviser if needed! Lack of Sales and Funds If your business is not selling then you could have problems with paying bills such as rent, taxes and so on. Make sure you take care of promoting products effectively! Sometimes it can be simple things such as not promoting the correct way, make people fix their eyes on your product so they buy it. On the other hand if worst comes to worst your product might not be cutting it, study carefully. No Experience or Skills Some small businesses fold because the founder has lack of experience or skills. Make sure you attend workshops or small business meetings to fully understand how to set up a new business effectively so you dont encounter problems down the line. Maybe you will want to consult a business adviser. Staff Issues

Staff play a big roll in a business, they are there to help the business run. Make sure you pick the correct people for the job you are advertising, you wont want someone who does not know what they are doing as it can stain your business or give it a bad name. Its important to keep good relationships with staff members too, but remember if things go bad or disciplinary is involved dont hold back, make sure you stand your ground because holding back could lead your business to fall. Feel free to tell us any experience you have had with business failure. Maybe you have some advice you would like to add to these above points, if so please comment below, I think its awesome to share our experiences so we can learn from one another! success factors for small business Key Success Factors of Your Small Business Success, they say, is "where preparation and opportunity meet." But how do you define and measure success in your business? How do you know if your business is a success?

Success, they say, is "where preparation and opportunity meet." But how do you define and measure success in your business? How do you know if your business is a success? Can you tell if you are on or off course? If you are off course, what corrective action(s) can be taken? An important part of planning your business entails knowing the key things that can tell you when you have reached your goals. Called key success factors, these are indicators or milestones that measure your business achievements and help determine how well you are progressing towards your goals and objectives. Without determining your key success factors, you run the risk of needing to make expensive changes of direction later on as you have not aligned your objectives to the success of your business. You must sit down and think what you really need to do to make your dream business a success. The process of setting up your key success factors need not be tedious or difficult. Simply ask the question: "What are the key things that, if you do them well, will ensure your success as a business?" Then fill in the blanks of the sentence: "If I ______________________, then I will be successful." Your business plan must contain a list of key success factors for your business. Jan B. King, in her book "Business Plans to Game Plans: A

Practical System for Turning Strategies into Actions" offers a number of key success factors applicable for any start-up small businesses. Below are some of them: 1. Sell each unit at a profit. Evaluate each and every product that you sell and determine if you are selling them profitably. If not, you may need to identify how to make its current sales profitable, whether by reducing your costs for that product or increasing its price. 2. Continue to reduce overhead costs. A lower overhead should be a continuing objective for your business. You can cut costs by evaluating your insurance needs, reducing your reliance on outside consultants and service providers, or cutting down unnecessary supplies and equipment. 3. Develop new products while maintaining the high quality of existing products. Ensure that your products are created or chosen in response to the needs of your customers. Ask for customer feedback through surveys or direct interaction with them to find out what are the items that they need and expect from your business. 4. Find and retain high-value customers. The 80-20 rule of business states that 80 percent of your business will come from 20 percent of your customers. It is therefore critical that you exert the extra effort to ensure that you retain the business of your top customers. 5. Create and maintain the highest level of customer satisfaction. A very important success factor needed to sustain your business is to provide the best service to your customers. Satisfied customers are more likely to come back to you. Better yet, give your customers more than they expect. The above are but a few of the key success factors that you can use for your business. Your key success factors must encompass all the important areas of your business, from finance, marketing and product development, sales and customer service, and human resources. As a small and home business owner, understanding what you must do to make your business a success is the first step to your path to entrepreneurial success. Recently, a reporter asked me: "What is the most important elements a new small business needs to be successful?" I said the short answer is capitalization - having sufficient working capital. Being a good reporter, she asked for the long answer. I told her the long answer was, understanding the basic success factors. My friend, Doug Wilson, teaches a university level entrepreneurial course in which he has developed what I think is the best list of success factors. Doug is Vice President of Marketing at Palo Alto Software. I like his list, and I used it as the reporter and I

continued our interview on how to be successful in small business. Here are Doug's success factors followed by my thoughts. Success Factor 1 - Choice Of Business Why have you chosen this business? Are you passionate about this particular business, or just about being in business? You've heard me say this before: Whether fixing fenders, baking bagels, or sewing suits, you MUST love the business you're in. Merely being passionate about being in business won't get you through the days when the details of business turn against you. But loving a certain business isn't enough if the business you love is on the way out. One very important success factor is choosing a business that is going to be vital for as long as you can reasonably foresee. (More on this in Success Factor 5.) You have to be passionate about your business to be successful, but take care not to fall in love with the wrong business. Success Factor 2 - Education and Experience The reporter also asked me this question: "Which is more important: Education or experience?" I told her that I knew plenty of highly educated business failures, as well as many highly successful business owners who are not very well educated. Of course, I've also seen the other side of that coin. The best candidates for success are those who have adequate education AND experience. I then came back to her question, and I think my answer surprised her. I said, experience trumps education. When it comes to running a small business, I'll take 25 years of industry experience over an industry Ph.D. any day. Education and experience are both important success factors. Identify where you are deficient and acquire what you don't have. Success Factor 3 - People Doug puts people in the third slot, and he breaks this factor into three groups: Internal Team: These are the founders and the key employees who make the company work. A well capitalized company with a weak and poorly functioning team may be valuable on paper, but in terms of the marketplace, it's not as valuable as an undercapitalized company with outstanding people. Capital is just money, and therefore, a commodity. People are not fungible like money. Good people are actually considered rare, even precious.

Many winning strategies have been built around one person or team. Capital is critical to success, but there is nothing particularly strategic about it. Success is often a result of the intangibles: desire, spirit, courage, pride, honor, loyalty. There is no place for intangibles on the balance sheet. External team: These are the paid professionals. Every business has them, but in small businesses they become de facto vice presidents. Choosing this team is a critical element in success. Connections: I like to use the term, network: your community of marketplace friends. Networking has long been on my list of success factors, and it's never been truer than today. Leveraging your network give you access to more intangibles. Success Factor 4 - Creativity In Management Every small business needs the creative influence of an entrepreneur, PLUS the steady hand of a manager. But here are two cold, hard truths: Some entrepreneurs are not good managers. Some excellent managers don't have a creative bone in their bodies. Honesty is definitely the best policy here. Be honest with yourself. If you're an entrepreneur through-and-through, sell what you create quickly, like when an inventor licenses an invention, or hire a good manager to run what you have created. If you're a hide-bound manager, congratulations: You probably run a nice, tidy ship. But will need to find someone who can deliver the creative juices your organization will require to maintain a competitive advantage in the marketplace. I think this factor is the most misunderstood, and consequently, the most overlooked of all of the success factors. Success Factor 5 - The Industry This factor ties in closely with Success Factor 1 - Choice Of Business. Doug encourages you to find out if the industry you are considering has high potential or low potential. You're probably asking, "Why would anyone pick a low potential industry?" Well, believe it or not, it happens everyday. But only to those who don't do their industry homework. The definitions of high and low potential might seem intuitive, but not always. High Potential Intuitive - Obviously, a high potential industry is one that's emerging, or at least hasn't spent too much time on the maturity continuum. Much of the technology industry would fit this profile. Doug says a high potential industry is also one that affords a low capital investment, and/or one where you can operate with a small number of employees.

Counter-intuitive - VCR players are pretty technologically advanced these days, but with advances in digital technology, I wouldn't invest in a business that makes or sells VCRs today, would you? Low Potential Intuitive - A low potential industry is one that has already seen it's best days, like buggy whips at the turn of the 20th century, or 56K modems at the turn of the 21st century. Doug says industries that are capital and people intensive, and/or highly specialized, are also examples of those with low potential. Counter-intuitive - You might be the problem; low potential could be associated with the business owner. If you start a business that has high potential, but you lack adequate capital, experience, or other key elements of success, you have created low potential for your entry into that industry. Success Factor 6 - Records I think this factor ties closely with Success Factor 2 - Education/Experience. This is one area where education usually trumps experience. A business owner long on experience but short on education will typically be more likely to rely on instinct than documentation. The more educated business owner, on the other hand, will be more comfortable creating data and managing with it. Successful businesses must manage the information they collect: financial statements, customer records, sales performance, service levels, plus dozens of other categories. Furthermore, there are an infinite number of ways to cross-reference any data category with another to identify trends and other indicators. The more educated business owner will usually begin with data collection fundamentals, but must learn how to apply those rules effectively in the marketplace. Business owners with significant marketplace experience must acquire an understanding and appreciation for how sophisticated data collection and processing can leverage their experience. Either way, the educated and the experienced both must make a journey of understanding, and each one must decide which lane they have to travel to make this journey. Success Factor 7 - The Corridor Principle This factor is closely related to Success Factor 5 - Choice Of Industry. Doug defines the Corridor Principle as "the concept where an entrepreneurial venture may significantly change focus from the venture's initial concept through a continuous response to the market and the desire to optimize profitability." As you've heard me say before, marketplace velocity today is breathtaking. In past eras, a product could be expected to have a multi-year life and a market strategy at least 12 months. Today, things are measured in terms of the Internet, and an Internet year is about 90 days. Whew!

I think Doug puts the Corridor Principle last because the best way to adhere to it is to have the other six factors adequately covered. No matter what business you're in, you need to be operating with what I call the Three-Strategy Principle: 1. The current strategy - the one you're in the marketplace with right now. 2. The next strategy - the R&D is done and it's on the shelf ready to deploy when the current strategy plays out. 3. The quantum leap strategy - the one you're investing in today so it's ready to follow #2. Back To The Press The reporter asked, "Do small business owners really have to know all of this to be successful?" I said, yes - and much more. Write this on a rock... Small business success is made up of experience, education, hard assets, and human assets, all deployed in our wonderfully pure and extremely demanding marketplace. Identify how you measure up with each of the success factors. Lead with your strengths, overcome deficiencies, and keep one eye on the road ahead and one on the horizon.

UNIT 2
The Elements of a Good Feasibility Study There are basically six parts to any effective Feasibility Study: 1. The Project Scope which is used to define the business problem and/or opportunity to be addressed. The old adage, "The problem well stated is half solved," is very apropos. The scope should be definitive and to the point; rambling narrative serves no purpose and can actually confuse project participants. It is also necessary to define the parts of the business affected either directly or indirectly, including project participants and end-user areas affected by the project. The project sponsor should be identified, particularly if he/she is footing the bill. I have seen too many projects in the corporate world started without a well defined project scope. Consequently, projects have wandered in and out of their boundaries causing them to produce either far too much or far too little than what is truly needed. 2. The Current Analysis is used to define and understand the current method of implementation, such as a system, a product, etc. From this analysis, it is not uncommon

to discover there is actually nothing wrong with the current system or product other than some misunderstandings regarding it or perhaps it needs some simple modifications as opposed to a major overhaul. Also, the strengths and weaknesses of the current approach are identified (pros and cons). In addition, there may very well be elements of the current system or product that may be used in its successor thus saving time and money later on. Without such analysis, this may never be discovered. Analysts are cautioned to avoid the temptation to stop and correct any problems encountered in the current system at this time. Simply document your findings instead, otherwise you will spend more time unnecessarily in this stage (aka "Analysis Paralysis"). 3. Requirements - how requirements are defined depends on the object of the project's attention. For example, how requirements are specified for a product are substantially different than requirements for an edifice, a bridge, or an information system. Each exhibits totally different properties and, as such, are defined differently. How you define requirements for software is also substantially different than how you define them for systems. 4. The Approach represents the recommended solution or course of action to satisfy the requirements. Here, various alternatives are considered along with an explanation as to why the preferred solution was selected. In terms of design related projects, it is here where whole rough designs (e.g., "renderings") are developed in order to determine viability. It is also at this point where the use of existing structures and commercial alternatives are considered (e.g., "build versus buy" decisions). The overriding considerations though are:

Does the recommended approach satisfy the requirements? Is it also a practical and viable solution? (Will it "Play in Poughkeepsie?")

A thorough analysis here is needed in order to perform the next step... 5. Evaluation - examines the cost effectiveness of the approach selected. This begins with an analysis of the estimated total cost of the project. In addition to the recommended solution, other alternatives are estimated in order to offer an economic comparison. For development projects, an estimate of labour and out-of-pocket expenses is assembled along with a project schedule showing the project path and start-and-end dates. After the total cost of the project has been calculated, a cost and evaluation summary is prepared which includes such things as a cost/benefit analysis, return on investment, etc. 6. Review - all of the preceding elements are then assembled into a Feasibility Study and a formal review is conducted with all parties involved. The review serves two purposes: to substantiate the thoroughness and accuracy of the Feasibility Study, and to make a project decision; either approve it, reject it, or ask that it be revised before making a final decision. If approved, it is very important that all parties sign the document which

expresses their acceptance and commitment to it; it may be a seemingly small gesture, but signatures carry a lot of weight later on as the project progresses. If the Feasibility Study is rejected, the reasons for its rejection should be explained and attached to the document. 6 Business Plan Fundamentals I've always liked the idea of turning back to fundamentals when you need a special boost--like when times get tough. A downturn is a good time to review fundamentals, keeping in mind that your business plan isn't good or bad because it helps or doesn't help your business grow and prosper. A better way to gauge the value of your business plan is in the growth it encourages and the decisions it spurs. When writing or revising your business plan, make sure you've got the following six business planning tips covered: 1. Start with a good look at your planning needs in your business. Do you need a printed document to show outsiders? If you do, then develop the document to serve its readers and meet its purpose. Spelling, editing and page layout matter because they represent you and your company to readers. For example, a plan for investors should show a solid exit strategy and good discussions of defensibility, potential market growth and your management team. Likewise, a plan to support a bank loan should contain financial history and owners' financial information. If you're just planning your own business and not showing a document to outsiders, simplify it to serve your internal planning process. Don't include business descriptions and supporting information that only outsiders will read. For example, why deal with professional backgrounds of the managers, if outsiders won't be reading it? Why bother with a flowery advertising-oriented product or service description? 2. Cut your outline down to what you'll use. Start with a standard outline, and then delete unnecessary sections. Don't include what doesn't help you and your management team work better. For example:

The spit and polish. Why sweat over the editing, the wording, or the page formatting when a plan isn't going to be read by outsiders? Exit strategy. Vital for investors, but awkwardly out of place for a small bootstrapping startup. Backgrounds of managers. Why would you describe yourselves to yourselves? This is only needed when a plan is for outsiders.

3. Write simply and practically. Use simple bullet points to record key concepts so you can refer back to them to track results.

4. Emphasize the kind of metrics--sales, costs of sales, expenses, leads, presentations, calls, units, prospects, whatever--that will lead to useful plan reviews each month. Strive for visibility of performance, so you get accountability and management as a result. Metrics like these--concrete and measurable--help you track progress against the plan later. They also help guard against "blue sky" planning, which is purely conceptual, and lacks specifics to make it real. Ask yourself, point by point in the plan, "and how will we know, later, how we're doing on this?" 5. Keep the plan alive with regular revisions, but keep it short and manageable. It isn't a market research paper or a graduate thesis, it's a plan. Don't measure it in pages, but in readability. Just to cite a specific example, a 30-page plan with readable fonts and a lot of useful bar charts and tables might be much more readable than a 15-page plan of dense text only. Don't skimp on charts: pies and bars and line charts make numbers easier to understand. And don't skimp on tables: monthly projections of any and all important metrics are very good for following up later. How big is a good plan? Does it describe strategy well enough to lead to good business decisions? Does it describe the market well enough to generate effective marketing strategies? Then it's big enough. It might not even be a single document; maybe it's a combination of some spreadsheets, some slides, and some bullet point texts. Remember, things will change. Your real plan belongs on a computer, not on paper. Market assumptions, strategies and metrics have to change. Plan to review them each month, and change them as necessary. 6. Store a business plan on your computer as a starting point for the occasional elevator speech or business pitch. Standardize your talking points and make them serve your longterm strategy. I hope you see how both fundamentals apply to business planning more than ever. Don't create a business plan that's longer than absolutely necessary. At the same time, don't start, run or grow a business without a plan you can review and revise to keep you on track.

Marketing Research for New Ventures MARKETING RESEARCH Marketing research involves the gathering of information about a particular market, followed by analysis of that information. 4 A knowledge and understanding of the procedures involved in marketing research can

be very helpful to the entrepreneur in gathering, processing, and interpreting market information. Defining the Research Purpose and Objectives The first step in marketing research is to define precisely the informational requirements of the decision to be made. Although this may seem too obvious to mention, the fact is needs are too often identified without sufficient probing. If the problem is not defined clearly, the information gathered will be useless. In addition, specific objectives should be established. For example, one study has suggested the following set of questions for establishing objectives for general marketing research: Identify where potential customers go to purchase the good or service in question. Why do they choose to go there? What is the size of the market? How much of it can the business capture? How does the business compare with competitors? What impact does the business's promotion have on customers? What types of products or services are desired by potential customers? 5 Gathering Secondary Data Information that has already been compiled is known as secondary data. Generally speaking, secondary data are less expensive to gather than are new, or primary, data. The entrepreneur should exhaust all the available sources of secondary data before going further into the research process. Marketing decisions often can be made entirely with secondary data.

Secondary data may be internal or external. Internal secondary data consist of information that exists within the venture. The records of the business, for example, may contain useful information. External secondary data are available in numerous periodicals, trade association literature, and government publications. Unfortunately, several problems accompany the use of secondary data. One is that such data may be outdated and, therefore, less useful. Another is that the units of measure in the secondary data may not fit the current problem. Finally, the question of validity is always present. Some sources of secondary data are less valid than others. Gathering Primary Data If the secondary data are insufficient, a search for new information, or primary data, is the next step. Several techniques can be used to accumulate primary data. These are often classified as observational methods and questioning methods. Observational methods avoid contact with respondents, whereas questioning methods involve respondents in varying degrees. Observation is probably the oldest form of research in existence. Observational methods can be used very economically. Furthermore, they avoid a potential bias that can result from a respondent's awareness of his or her participation under questioning methods. A major disadvantage of observational methods, however, is that they are limited to descriptive studies. Surveys and experimentation are two questioning methods that involve contact with respondents. Surveys include contact by mail, telephone, and personal interviews. Mail surveys are often used when respondents are widely dispersed; however, these are characterized by low response rates. Telephone surveys and personal interview surveys involve verbal communication with respondents and provide higher response rates. Personal

interview surveys, however, are more expensive than mail and telephone surveys. Moreover, individuals often are reluctant to grant personal interviews because they feel a sales pitch is forthcoming. (Table 8.2 describes the major survey research techniques.) Experimentation is a form of research that concentrates on investigating cause-and-effect relationships. The goal is to establish the effect an experimental variable has on a dependent variable. For example, what effect will a price change have on sales? Here the price is the experimental variable, and sales volume is the dependent variable. Measuring the relationship between these two variables would not be difficult if it were not for the many other variables involved. 6 DEVELOPING AN INFORMATION-GATHERING INSTRUMENT The questionnaire is the basic instrument for guiding the researcher and the respondent through a survey. The questionnaire should be developed carefully before it is used. Several major considerations for designing a questionnaire are listed here: Make sure each question pertains to a specific objective in line with the purpose of the study. Place simple questions first and difficult-to-answer questions later in the questionnaire. Avoid leading and biased questions. Ask "How could this question be misinterpreted?" Reword questions to reduce or eliminate the possibility they will be misunderstood. Give concise but complete directions in the questionnaire. Succinctly explain the information desired, and route respondents around questions that may not relate to them. When possible, use scaled questions rather than simple yes/no questions to measure intensity of an attitude or frequency of an experience. For

example, instead of asking "Do we have friendly sales clerks?" (yes/no), ask "How would you evaluate the friendliness of our sales clerks?" Have respondents choose a response on a five-point scale ranging from "Very unfriendly" (1) to "Very friendly" (5).7 Interpreting and Reporting the Information After the necessary data have been accumulated, they should be developed into usable information. Large quantities of data are merely facts. To be useful, they must be organized and molded into meaningful information. The methods of summarizing and simplifying information for users include tables, charts, and other graphic methods. Descriptive statistics, such as the mean, mode, and median, are most helpful in this step of the research procedure.

Marketing Research Questions The need for marketing research before and during a venture will depend on the type of venture. However, typical research questions might include the following, which are divided by subject: SALES 1. Do you know all you need to know about your competitors' sales performance by type of product and territory?

2. Do you know which accounts are profitable and how to recognize a potentially profitable one? 3. Is your sales power deployed where it can do the most good, maximizing your investment in selling costs? DISTRIBUTION 1. If you are considering introducing a new product or line of products, do you know all you should about distributors' and dealers' attitudes toward it? 2. Are your distributors' and dealers' salespeople saying the right things about your products or services? 3. Has your distribution pattern changed along with the geographic shifts of your markets? MARKETS 1. Do you know all that would be useful about the differences in buying habits and tastes by territory and kind of product? 2. Do you have as much information as you need on brand or manufacturer loyalty and repeat purchasing in your product category? 3. Can you now plot, from period to period, your market share of sales by products? ADVERTISING 1. Is your advertising reaching the right people? 2. Do you know how effective your advertising is in comparison to that of your competitors? 3. Is your budget allocated appropriately for greater profitaccording to products, territories, and market potentials?

PRODUCTS 1. Do you have a reliable quantitative method for testing the market acceptability of new products and product changes? 2. Do you have a reliable method for testing the effect on sales of new or changed packaging? 3. Do you know whether adding higher or lower quality levels would make new profitable markets for your products?

INHIBITORS TO MARKETING RESEARCH Despite the fact most entrepreneurs would benefit from marketing research, many fail to do it. A number of reasons for this exist, among them cost, complexity, level of need for strategic decisions, and irrelevancy. A number of articles have dealt with the lack of marketing research by entrepreneurs in the face of its obvious advantages and vital importance to the success of small businesses. 8

Cost Marketing research can be expensive, and some entrepreneurs believe that only major organizations can afford it. Indeed, some high-level marketing research is expensive, but very affordable marketing techniques can also be used by smaller companies. Complexity A number of marketing research techniques rely on sampling, surveying, and statistical analysis. This complexity, especially the quantitative aspects, is frightening to many entrepreneurs, and they shun it. The important point to remember is that the key concern is interpretation of the data, and an entrepreneur always can obtain the advice and counsel of those skilled in statistical design and evaluation by calling on the services of marketing research specialists or university professors trained in this area. Strategic Decisions Some entrepreneurs feel that only major strategic decisions need to be supported through marketing research. This idea is tied to the cost and complexity issues already mentioned. The contention is that because of the cost and statistical complexity of marketing research, it should be conducted only when the decisions to be made are major. The problem lies not only in the misunderstanding of cost and complexity but also in the belief that marketing research's value is restricted to major decisions. Much of the entrepreneur's sales efforts could be enhanced through the results of such research .9 Irrelevancy Many entrepreneurs believe marketing research data will contain either information that merely supports what they already know or irrelevant information. Although it is true that marketing research does produce a

variety of data, some of which may be irrelevant, it is also a fact that much of the information is useful. In addition, even if certain data merely confirm what the entrepreneur already knows, it is knowledge that has been tested and thus allows the individual to act on it with more confidence. As indicated by these inhibitors, most of the reasons for entrepreneurs not using marketing research center either on a misunderstanding of its value or on a fear of its cost. However, the approach to marketing does not have to be expensive and can prove extremely valuable. DEVELOPING THE MARKETING CONCEPTS Effective marketing is based on three key elements: marketing philosophy, market segmentation, and consumer behavior. A new venture must integrate all three elements when developing its marketing concept and its approach to the market. This approach helps set the stage for how the firm will seek to market its goods and services. Marketing Philosophy Three distinct types of marketing philosophies exist among new ventures: production driven, sales driven, and consumer driven. The production-driven philosophy is based on the belief "produce efficiently and worry about sales later." Production is the main emphasis; sales follow in the wake of production. New ventures that produce hightech, state-of-the-art output sometimes use a production-driven philosophy. A sales-driven philosophy focuses on personal selling and advertising to persuade customers to buy the company's output. When an overabundance of supply occurs in the market, this philosophy often surfaces. New auto dealers, for example, rely heavily on a sales-driven philosophy. A consumer-driven philosophy relies on

research to discover consumer preferences, desires, and needs before production actually begins. This philosophy stresses the need for marketing research in order to better understand where or who a market is and to develop a strategy targeted toward that group. Of the three philosophies, a consumer-driven orientation is often most effective, although many ventures do not adopt it. Three major factors influence the choice of a marketing philosophy: 1. Competitive pressure. The intensity of the competition will many times dictate a new venture's philosophy. For example, strong competition will force many entrepreneurs to develop a consumer orientation in order to gain an edge over competitors. If, on the other hand, little competition exists, the entrepreneur may remain with a production orientation in the belief that what is produced will be sold. 2. Entrepreneur's background. The range of skills and abilities entrepreneurs possess varies greatly. While some have a sales and marketing background, others possess production and operations experience. The entrepreneur's strengths will influence the choice of a market philosophy. 3. Short-term focus. Sometimes a sales-driven philosophy may be preferred due to a short-term focus on "moving the merchandise" and generating sales. Although this focus appears to increase sales (which is why many entrepreneurs pursue this philosophy), it also can develop into a hardselling approach that soon ignores customer preferences and contributes to long-range dissatisfaction. Any one of the three marketing philosophies can be successful for an entrepreneur's new venture. It is important to note, however, that over the long ran the consumer-driven philosophy is the most successful. This approach focuses on the needs, preferences, and satisfactions of the consumer and works to serve the end user of the product or service.

Market Segmentation Market segmentation is the process of identifying a specific set of characteristics that differentiate one group of consumers from the rest. For example, although many people eat ice cream, the market for ice cream can be segmented based on taste and price. Some individuals prefer high-quality ice cream made with real sugar and cream because of its taste; many others cannot tell the difference between high-quality and average-quality ingredients and, based solely on taste, are indifferent between the two types. The price is higher for high-quality ice cream such as Haagen-Daz or Ben & Jerry's, so the market niche is smaller for these offerings than it is for lower-priced competitors. This process of segmenting the market can be critical for new ventures with very limited resources. To identify specific market segments, entrepreneurs need to analyze a number of variables. As an example, two major variables that can be focused on are demographic and benefit variables. Demographic variables include age, marital status, sex, occupation, income, location, and the like. These characteristics are used to determine a geographic and demographic profile of the consumers and their purchasing potential. The benefit variables help to identify unsatisfied needs that exist within this market. Examples may include convenience, cost, style, trends, and the like, depending on the nature of the particular new venture. Whatever the product or service, it is extremely valuable to ascertain the benefits a market segment is seeking in order to further differentiate a particular target group.

Consumer Behavior Consumer behavior is defined by the many types and patterns of consumer characteristics. However, entrepreneurs can focus their attention on only two considerations: personal characteristics and psychological characteristics. Table 8.3 provides an example by tying these characteristics to the five types of consumers: innovators, early adopters, early majority, late majority, and laggards. In the table the differences in social class, income, occupation, education, housing, family influence, and time orientation are illustrated. So, too, are the psychological characteristics labeled as needs, perceptions, self-concept, aspiration groups, and reference groups. This

breakdown can provide an entrepreneur with a visual picture of the type of consumer to target for the sales effort. The next step is to link the characteristic makeup of potential consumers with buying trends in the marketplace. Table 8.4 on page 234 shows the changing priorities that shaped buying decisions during the 1990s. Each of these factors relates to consumer attitudes and behaviors based on education, the economy, the environment, and/or societal changes. By tying together the data in Tables 8.3 and 8.4, the entrepreneur can begin to examine consumer behavior more closely.

An analysis of the way consumers view the venture's product or service provides additional data. Entrepreneurs should be aware of five major consumer classifications:

1. Convenience goodswhether staple goods (foods), impulse goods (checkout counter items), or emergency goods and servicesconsumers will want these goods and services but will not be willing to spend time shopping for them.

2. Shopping goods are products consumers will take time to examine carefully and compare for quality and price. 3. Specialty goods consist of products or services consumers make a special effort to find and purchase. 4. Unsought goods are items consumers do not currently need or seek. Common examples are life insurance, encyclopedias, and cemetery plots. These products require explanation or demonstration. 5. New products are items that are unknown due to lack of advertising or are new products that take time to be understood. When microcomputers were first introduced, for example, they fell into this category. Understanding these classifications is important both for selling to consumers and for choosing distribution channels. Figure 8.1 illustrates

the relationship between the consumer classification of items and the distribution channels followed. MARKETING Growth STAGES FOR GROWING VENTURES Most emerging ventures will evolve through a series of marketing stages. In each stage the marketing functions will differ; thus each requires a specific type of marketing strategy. 10 A growing venture has four distinct stages: entrepreneurial marketing (Stage 1), opportunistic marketing (Stage 2), responsive marketing (Stage 3), and diversified marketing (Stage 4).11 Table 8.5 provides a breakdown of each stage in relation to marketing strategy, marketing organization, marketing goals, and critical success factors. Notice that the strategy in each stage relates closely to the marketing goals. For example, entrepreneurial marketing (Stage 1) has a strategy of developing a market niche and a goal of attaining credibility in the marketplace. Stage 2, opportunistic marketing, seeks a strategy of market penetration for the purpose of attaining sales volume, thereby demonstrating the logical progression depicted in the table. Stage 3, responsive marketing, seeks to develop the product market and create customer satisfaction. Stage 4, diversified marketing, focuses on newbusiness development and seeks to manage the product life cycle.

It is important to realize that these stages are developed with a growing venture in mind. The idea of growth as a strategic planning factor, discussed in Chapter 15, is also presented here as a marketing factor. MARKETING PLANNING Marketing planning is the process of determining a clear, comprehensive approach to the creation of customers. For developing this plan, the following elements are critical:

 Marketing research: determining who the customers are, what they want, and how they buy Sales research: promoting and distributing products according to marketing research findings

 Marketing information system: collecting, screening, analyzing, storing, retrieving, and disseminating marketing information on which to base plans, decisions, and actions Sales forecasting: coordinating personal judgment with reliable market information Marketing plans: formulating plans for achieving long-term marketing and sales goals Evaluation: identifying and assessing deviations from marketing plans 12 Marketing Research The purpose of marketing research is to identify customerstarget marketsand to fulfill their desires. For marketing research, the following areas warrant consideration: The company's major strengths and weaknesses. These factors offer insights into profitable opportunities and potential problems and provide the basis for effective decision making. Market profile. A market profile helps a company identify its current market and service needs: How profitable are existing company services? Which of these services offer the most potential? Which (if any) are inappropriate? Which will customers cease to need in the future'/ Current and best customers. Identifying the company's current clients allows management to determine where to allocate resources. Defining the best customers enables management to more directly segment this market niche. Potential customers. By identifying potential customers, either geographically or with an industry-wide analysis of its marketing area, a company increases its ability to target this group, thus turning potential customers into current customers.

 Competition. By identifying the competition, a company can determine which firms are most willing to pursue the same basic market niche. Outside factors. This analysis focuses on changing trends in demographics, economics, technology, cultural attitudes, and governmental policy. These factors may have substantial impact on customer needs and, consequently, expected services. Legal changes. Marketing research performs the important task of keeping management abreast of significant changes in governmental rates, standards, and tax laws. 13 Marketing research need not be extremely expensive. Presented next are some useful tips regarding low-cost research. These tips can be valuable to entrepreneurs needing research but lacking the funds for sophisticated measures. Tip 1: Establish a contest requiring entrants to answer a few simple questions about the quality of your products or services. The entry form is dropped into a convenient deposit box at the exit door of your store or service department with the drawing at month's end. Tip 2: Piggyback a questionnaire about the quality of your products or services onto a company catalog or sales brochure. Be sure also to ask what other items the customer would like to see the organization offering. Such a system functions as an ongoing program of organizational evaluation. Tip 3: Every organization receives the occasional complaint from a disgruntled customer. Instead of treating such situations casually, many organizations now adopt a management-by-exception philosophy and give grievances a high priority. Management follow-up with an in-depth interview often results in the revelation of unsuspected problems. Tip 4: Develop a standard set of questions regarding the quality of your organization's product and services suitable for administration by telephone. Have a secretary or part-time employee set aside a half-day each month in which 20 to 30 customers are called. Such a program

often reminds customers to place an order. Many clients feel flattered their opinions are sought. Tip 5: Some organizations have succeeded by including research questionnaires in various products' packages. In this way they attempt to determine how a buyer heard about an item, why it was purchased from the firm, and so on. The only difficulty with this approach is that it focuses on customers and neglects research about the potential of sales to those who have not bought. 14 Sales Research An entrepreneur needs to continually review the methods employed for sales and distribution in relation to the market research that has been conducted. Matching the correct customer profile with sales priorities is a major goal in sales research. The following is a list of potential questions to be answered by this research: Do salespeople call on their most qualified prospects on a proper priority and time-allocation basis? Does the sales force contact decision makers? Are territories aligned according to sales potential and salespeople's abilities? Are sales calls coordinated with other selling efforts, such as trade publication advertising, trade shows, and direct mail? Do salespeople ask the right questions on sales calls? Do sales reports contain appropriate information? Does the sales force understand potential customers' needs? How does the growth or decline of a customer's or a prospect's business affect the company's own sales?

Marketing Information System A marketing information system compiles and organizes data relating to cost, revenue, and profit from the customer base. This information can be useful for monitoring the strategies, decisions, and programs concerned with marketing. As with all information systems design, the key factors affecting the value of such a system are (1) data reliability, (2) data usefulness or understandability, (3) reporting system timeliness, (4) data relevancy, and (5) system cost. Sales Forecasting Sales forecasting is the process of projecting future sales through historical sales figures and the application of statistical techniques. The process is limited in value due to its reliance on historical data, which many times fail to reflect current market conditions. As a segment of the comprehensive marketing-planning process, however, sales forecasting can be very valuable. Marketing Plans Marketing plans are part of a venture's overall strategic effort.
15

To be

effective, these plans must be based on the venture's specific goals. Here is an example of a five-step program designed to help entrepreneurs follow a structured approach to developing a market plan: Step 1: Appraise marketing strengths and weaknesses, emphasizing factors that will contribute to the firm's "competitive edge." Consider product design, reliability, durability, price/quality ratios, production capacities and limitations, resources, and need for specialized expertise. Step 2; Develop marketing objectives along with the short- and intermediate-range sales goals necessary to meet those objectives. Next, develop specific sales plans for the current fiscal period. These goals should be clearly stated, measurable, and within the company's

capabilities. To be realistic, these goals should require only reasonable efforts and affordable expenditures. Step 3: Develop product/service strategies. The product strategy begins with identifying the end users, wholesalers, and retailers, as well as their needs and specifications. The product's design, features, performance, cost, and price then should be matched to these needs. Step 4: Develop marketing strategies. Strategies are needed to achieve the company's intermediate- and long-range sales goals and long-term marketing objectives. These strategies should include advertising, sales promotion campaigns, trade shows, direct mail, and telemarketing. Strategies also may be necessary for increasing the size of the sales force or marketing new products. Contingency plans will be needed in the event of technological changes, geographic market shifts, or inflation. Step 5: Determine a pricing structure. A firm's pricing structure dictates which customers will be attracted, as well as the type or quality of products/services that will be provided. Many firms believe the market dictates a "competitive" pricing structure. But this is not always the casemany companies with a high price structure are very successful. Regardless of the strategies, customers must believe that the product's price is appropriate. The price of a product or service, therefore, should not be set until marketing strategies have been developed. 16 Evaluation The final critical factor in the marketing planning process is evaluation. Since a number of variables can affect the outcome of marketing planning, it is important to evaluate performance. Most important, reports should be generated from a customer analysisattraction or loss of customers with reasons for the gain or loss, as well as established customer preferences and reactions. This analysis can be measured against performance in sales volume, gross sales dollars, or market share. It is only through this

type of evaluation that flexibility and adjustment can be incorporated into marketing planning. TELEMARKETING Telemarketing is the use of telephone communications to sell merchandise directly to consumers. It is one of the fastest-growing direct market channels available to entrepreneurs and has become a directmarketing tool. Revenues generated by telephone sales are growing at an annual rate of 25 percent to 35 percent, according to the Direct Marketing Association. In fact, in 1991 marketers spent an estimated $234 billion in telephone charges to increase sales of their products and services. It is estimated that the average household receives at least 19 telemarketing calls per year and places 16 orders for products and services via the telephone. In many cases, firms have switched to fully automated telemarketing systems. Telemarketing systems now can use automatic-dialing and recorded-message players (ADRMPs) to dial numbers and play advertising messages that are voice activated and even that record orders from customers or forward the call to an operator. 17 Advantages

A telemarketing program can assist a venture in its marketing functions in a number of ways. A firm may be able to increase potential customer sales, upgrade sales or encourage multiple orders, reactivate old accounts, and support the current sales staff through an effective telemarketing program. Some of the specific advantages of telemarketing follow: Receptiveness. Most prospects are more receptive to telephone calls than to personal contact. This is true, in part, because potential customers expect less sales pressure over the phone.

 Impressions. First impressions, although often biased, can affect sales success. The telephone can help reduce many of the prospect's biases, since prejudgments can be based only on the caller's voice. More presentations. A conscientious field salesperson may obtain one high-quality prospect out of four contacts, while a telemarketer may reach only one high-quality prospect out of eight calls. However, a telephone salesperson can make 30 to 40 calls per hour, resulting in four to five presentations. Unlimited geographic coverage. Telephone salespeople can penetrate markets anywhere in the world where telephones are available. Better time management. The average field salesperson spends only three out of eight hours actually selling. The balance of the day is occupied in traveling or waiting for appointments. The telemarketer, on the other hand, uses the majority of the workday to sell. When a potential customer is unavailable, the salesperson simply makes a note to call later and dials another prospect. Immediate feedback. Telemarketing is the quickest means of assessing new sales strategies and allows them to be readily tested, adjusted, and retested before they are applied in the field. Some firms take advantage of telephone sales' immediate feedback by including marketing research questions in sales presentations. Better control. An inside sales force can be supervised more easily than a field staff. Typically, one supervisor for every five telephone salespeople monitors the sales team's performance. Less "piracy." Since inside sales personnel do not meet the customers or the competition's salespeople, they are less likely to receive job offers. Lower salary and commissions. Typically, compensation for a telemarketer is approximately 50 percent that of a field salesperson. Other lower expenses. A telemarketer can perform such diverse duties as handling marginal accounts, canvassing, and simple order taking more quickly than an outside salesperson by generating more customer calls per

hour. The resulting savings in both expenses and time is telemarketing's greatest advantage. 18 Although telemarketing has numerous advantages, an entrepreneur also should be aware of potential pitfalls. First, poor telephone techniques can defeat the telemarketing strategy. Bad habits such as vagueness, impersonal attitude, overaggressiveness, rudeness, dishonesty, and longwinded discussions have to be avoided. This can be done through effective training programs. Second, dissension between the field sales staff and the telephone sales personnel can arise. In order for the two groups to cooperate and work together effectively, both groups must have clear guidelines as well as open lines of communication between them. In addition, current customers need to be aware of the sales force's joint effort so they never feel discontent when the field representatives turn an account over to the telephone staff. A venture's management needs to address the coordination of leads, sales calls, follow-ups, and resulting commissions. Finally, entrepreneurs must be aware of the ever-present problem of rapid turnover of telephone staff. The work can be very monotonous, with people frequently leaving to find more interesting, challenging work. Additionally, the stigma of "phone peddling" often makes the workers feel their jobs are unimportant. To overcome these problems, management must make a sincere effort to create a professional, satisfied, and welltrained telemarketing staff. MARKETING ON THE INTERNET The Internet can assist a new venture's overall marketing strategy in a number of ways. First, the Internet allows the firm to increase its presence and brand equity in the marketplace. Company and brand sites provide the opportunity to communicate the overall mission of the company/brand, to

provide information on attributes and/or ratings of the company/brand, and to give information on the history of company/brand. In addition, firms can easily communicate information on the marketing mix offered. Second, the Internet allows the company to cultivate new customers. Providing important information about both the attributes of the firm's product and those of competitive products can aid in the decisionmaking process. In addition, the Web site can demonstrate products in actual use. This kind of information builds interest in the brand. In addition, the Internet allows Web site visitors to match their needs with the offerings of the company. It is extremely important to remember that while traditional marketing techniques tend to be push oriented (the company decides what the consumer will see and where), the Internet is pull oriented (the consumer chooses what, when, and how to look in greater detail). This technique requires Web site designers to think differently about what should or should not appear in the site offering. Third, the Internet can improve customer service by allowing customers to serve themselves when and where they choose. As more consumers begin to use the Internet, companies can readily serve these individuals without incurring expensive distribution costs. The expansion of the number of customers served requires only that the organization have enough servers available. The fourth benefit to marketers relates to information transfer. Traditionally, companies have gathered information via focus groups, mail surveys, telephone surveys, and personal interviews. These techniques can be very expensive to implement, however. In contrast, the Web offers a mechanism for the company to collect similar information at a fraction of the cost. Not only can information be gathered from consumers, but information can also be shared with them. For example, the Web can be used to provide expensive or specialized materials to consumers who request such

information. The fulfilling of information requests via the Web can offer substantial savings to the company (see Table 8.6 for Web tips). The greatest potential for the future is probably in direct marketing, where catalogs can be offered online. These catalogs can be changed with ease if prices and/or product offerings change, resulting in substantial savings for organizations that would otherwise print new catalogs and mail them to consumers.

Although numerous advantages are available to companies that market via the Internet, two major concerns have also arisen: the limited target audience and consumer resistance to change. In regard to the first concern, the Internet is popular but not accessible by everyone. Although Internet use is increasing rapidly, until the demographics of Internet usage mirror our society as a whole, companies must use caution in overemphasizing this medium in their overall marketing mix. In regard to the second concern, resistance to change, it should be remembered that changing behavior patterns is difficult and sometimes time-consuming. The change in behavior that will be necessary for Internet marketing to really take off requires that firms understand how to make consumers feel

more confident when purchasing over the Internet. One simple solution is to educate consumers about the processbut achieving that goal will take time. Warranties, security measures, and other methods to reduce the perceived risk to consumers must be evaluated by companies that are bent on overcoming consumers' resistance to change .19 PRICING STRATEGIES One final marketing issue that needs to be addressed is that of pricing strategies. Many entrepreneurs, even after marketing research is conducted, are unsure of how to price their product or service. A number of factors affect this decision: the degree of competitive pressure, the availability of sufficient supply, seasonal or cyclical changes in demand, distribution costs, the product's life-cycle stage, changes in production costs, prevailing economic conditions, customer services provided by the seller, the amount of promotion done, and the market's buying power. Obviously, the ultimate price decision will balance many of these factors and, usually, will not satisfy all conditions. However, awareness of the various factors is important. Other considerations, sometimes overlooked, are psychological in nature: The quality of a product in some situations is interpreted by customers according to the level of the item's price. Some customer groups shy away from purchasing a product where no printed price schedule is available. An emphasis on the monthly cost of purchasing an expensive item often results in greater sales than an emphasis on total selling price. Most buyers expect to pay even-numbered prices for prestigious items and odd-numbered prices for commonly available goods.

 The greater the number of meaningful customer benefits the seller can convey about a given product, generally the less will be the price resistance .20 Pricing procedures differ depending on the nature of the ventureretail, manufacturing, or service. Pricing for the product life cycle as presented in Table 8.7, however, might be applied to any type of business. The table demonstrates the basic steps of developing a pricing system and indicates how that system should relate to the desired pricing goals. With this general outline in mind, potential entrepreneurs can formulate the most appropriate pricing strategy. Table 8.8 provides a thorough analysis of pricing strategies, outlining when each strategy is generally used, what the procedures are, and the advantages and disadvantages associated with each. This checklist can provide entrepreneurs with reference points for establishing and evaluating pricing strategies for their ventures.

SUMMARY Marketing research involves the gathering of information about a particular market, followed by analysis of that information. The marketing research process has five steps:(1) Define the purpose and objectives of the research, (2) gather secondary data, (3) gather primary data, (4) develop an information-gathering instrument (if necessary), and (5) interpret and report the information. Entrepreneurs do not carry out marketing research for four major reasons: (1) cost, (2) complexity of the undertaking, (3) belief that only major strategic decisions need to be supported through marketing research, and (4) belief that the data will be irrelevant to company operations. Usually they misunderstand the value of marketing research or fear its cost. Developing a marketing concept has three important areas. One area is the formulation of a marketing philosophy. Some entrepreneurs are

production driven, others are sales driven, and still others are consumer driven. The entrepreneur's values and the market conditions will help determine this philosophy. A second area is market segmentation, which is the process of identifying a specific set of characteristics that differentiate one group of consumers from the rest. Demographic and benefit variables are often used in this process. A third area is an understanding of consumer behavior. Since many types and patterns of consumer behavior exist, entrepreneurs need to focus on the personal and psychological characteristics of their customers. In this way they can determine a tailor-made, consumer-oriented strategy. This customer analysis focuses on such important factors as general buying trends in the marketplace, specific buying trends of targeted consumers, and the types of goods and services being sold. Most emerging ventures go through the four marketing stages of entrepreneurial marketing, opportunistic marketing, responsive marketing, and diversified marketing. Each stage requires a different strategy, and the entrepreneur must adjust accordingly. Marketing planning is the process of determining a clear, comprehensive approach to the creation of customers. For developing this plan, the following elements are critical: marketing research, sales research, a marketing information system, sales forecasting, marketing plans, and evaluation. Two other critical areas in marketing for new ventures are telemarketing and the Internet. Telemarketing is the use of telephone communications to directly contact and sell merchandise to consumers. The cost/benefit ratio of telecommunications is so high that it is likely to be one of the most important marketing tools in the future. The Internet is fast becoming one of the greatest marketing tools of the twenty-first century. It offers numerous benefits for the overall marketing strategy of a company, including brand recognition, information transfer, and customer services.

Nevertheless, some concerns have arisen regarding the Internet's limited target audience and the potential for customer resistance to change. Pricing strategies are a reflection of marketing research and must consider such factors as marketing competitiveness, consumer demand, life cycle of the goods or services being sold, costs, and prevailing economic conditions.

How to Conduct Market Research Various methods of market research are used to find out information about markets, target markets and their needs, competitors, market trends, customer satisfaction with products and services, etc. Businesses can learn a great deal about customers, their needs, how to meet those needs and how the business is doing to meet those needs. Businesses need not to be experts at methods of research either. Critical Role of Market Research Copyright Carter McNamara, MBA, PhD It is extremely difficult to develop and provide a high-quality product or service without conducting at least some basic market research. Some people have a strong aversion to the word research because they believe that the word implies a highly sophisticated set of techniques that only highly trained people can use. Some people also believe that, too often, research generates lots of useless data that is in lots of written reports that rarely are ever read, much less used in the real world. This is a major misunderstanding. Odds are that you have already conducted at least some basic forms of market research. For example, you have listened (a research technique) to others complain about not having enough of something -- that should suggest providing what they need in the form of a product or service. Market research has a variety of purposes and a variety of data collection methods might be used for each purpose. The particular data collection method that you use during your market research depends very much on the particular information that you are seeking to understand. Uses for Market Research The following paragraphs mention some of the primary uses for market research. Useful data collection methods are associated with most of the items in the following list. 1. Identify opportunities to serve various groups of customers. Verify and understand the unmet needs of a certain group (or market) of customers. What do they say that they want? What do they say that they need? Some useful data collection methods might be, for example, conducting focus groups, interviewing customers and investors, reading the newspaper and other key library publications, and listening to what clients say and observing what they do. Later on, you might even develop a preliminary version of your product that you pilot, or test market, to verify if the product would sell or not.

2. Examine the size of the market how many people have the unmet need. Identify various subgroups, or market segments, in that overall market along with each of their unique features and preferences. Useful data collection methods might be, for example, reading about demographic and societal trends in publications at the library. You might even observe each group for a while to notice what they do, where they go and what they discuss. Consider interviewing some members of each group. Finally, consider conducting a focus group or two among each group. 3. Determine the best methods to meet the unmet needs of the target markets. How can you develop a product with the features and benefits to meet that unmet need? How can you ensure that you have the capacity to continue to meet the demand? Heres where focus groups can really come in handy. Conduct some focus groups, including asking them about their preferences, unmet needs and how those needs might be met. Run your ideas past them. At the same time, ask them what they would need to use your services and what they would pay for them. 4. Investigate the competition. Examine their products, services, marketing techniques, pricing, location, etc. One of the best ways to understand your competitors is to use their services. Go to their location, look around and look at some of their literature. Notice their ads in newsletters and the newspaper. Look at their web sites. 5. Clarify your unique value proposition. Your proposition describes why others should use your organization and not the competitions. A particularly useful data collection method in this area is the use of focus groups. Get some groups of potential clients together and tell them about your ideas. Tell them how your ideas are unique. Tell them how you would want your program to be seen (its positioning). Ask them what they think. 6. Conclude if the product is effectively meeting the needs of the customers. One of the best ways to make this conclusion is to conduct an evaluation. An evaluation often includes the use of various data collection methods, usually several of them, for example, observing clients, interviewing them, administrating questionnaires with them, developing some case studies, and, ideally, conducting a product field test, or pilot. 7. Conclude if your advertising and promotions strategies are effective or not. One of the best ways to make this conclusion is to evaluate the results of the advertising. This could include use of several data collection methods among your clients, such as observing clients, interviewing them, administrating questionnaires with them, developing some case studies.

To plan your market research, see Business Research. Basic Methods to Get Information and Feedback from Customers Copyright Carter McNamara, MBA, PhD Far too often, we think we know what our customers think and want because -- well, we just know, that's all. Wrong! Businesses can't be successful if they don't continue to meet the needs of their customers. Period. There should be few activities as important as finding out what your customers want for products and services and finding out what they think of yours. Fortunately, there are a variety of practical methods that businesses can use to feedback from customers. The methods you choose and how you use them depend on what the type of feedback that you want from customers, for example, to find out their needs in products and services, what they think about your products and services, etc. Employees Your employees are usually the people who interact the most with your customers. Ask them about products and services that customers are asking for. Ask employees about what the customers complain about. Comment Cards Provide brief, half-page comment cards on which they can answer basic questions such as: Were you satisfied with our services? How could we provide the perfect services? Are there any services you'd like to see that don't exist yet? Competition What is your competition selling? Ask people who shop there. Many people don't notice sales or major items in stores. Start coaching those around you to notice what's going on with your competition. (See Competitive Analysis.) Customers One of the best ways to find out what customers want is to ask them. Talk to them when they visit your facility or you visit theirs. (See Questioning and Listening.) Documentation and Records Notice what customers are buying and not buying from you. If you already know what customers are buying, etc., then is this written down somewhere? It should be so that you don't forget, particularly during times of stress or when trying to train personnel to help you out. Focus Groups Focus groups are usually 8-10 people that you gather to get their impressions of a product or service or an idea. (See Focus Groups.)

Surveys by Mail You might hate answering these things, but plenty of people don't -- and will fill our surveys especially if they get something in return. Promise them a discount if they return the completed form to your facility. (See Survey Design.) Telephone Surveys Hire summer students or part-time people for a few days every six months to do telephone surveys. (See Survey Design.) Some Major Sources of Market Research Information Copyright Carter McNamara, MBA, PhD Census Bureau There is a vast amount of information available to you, and much of this is online. Chamber of Commerce Get to know the people in your local office. Offices usually have a wealth of information about localities, sources of networking, community resources to help your business, etc. Department of Commerce The Department has offices in various regions across the country and publishes a wide range of information about industries, products and services. Ask Librarians They love to help people. See the Directory of Associations, Sales and Marketing Management magazine, American Statistics Index (ASI), Encyclopedia Of Business Information Book, Standard & Poor's Industry Survey's and Consumer's Index. Trade and Professional Organizations Organizations often produce highly useful newsletters for members, along with services for networking, answering questions, etc. Trade and Professional Publications These have become much more useful as various trades become more specialized and their expectations are increasing for timely and useful information

Marketing research for pre- start up planning Developing your business idea into a viable product or service is a critical part of building a business. Researching your markets and customers at an early stage will help you to establish whether there is a market for your product or service. Your market research will also inform your business plan by demonstrating your understanding of the marketplace and how your business fits in. A business plan is essential when starting up a business. Access our resources for guidance on how to prepare your business plan, key points you should cover, a business plan template to help you get started and tips on doing market research. Marketing Research Design and Implementation "The usefulness of a research project depends on the overall quality of the research design and on the data collected and analyzed based on the design." Pages: 71-89 A research design is the detailed blueprint used to guide a research study toward its objectives. The process of designing a research study involves many interrelated decisions. The most significant decision is the choice of research approach, because it determines how the information will be obtained. Typical questions at this stage are: Should we rely on secondary sources such as the Census? Which is more appropriate, an exploratory approach with group discussions or a survey? Is a mail, telephone, fax, or personal interview survey better for this problem? All research approaches can be classified into one of three general categories of research: exploratory, descriptive, and causal. These categories differ significantly in terms of research purpose, research questions, the precision of the hypotheses that are formed, and the data collection methods that are used. Exploratory Research. Exploratory research is used when one is seeking insights into the general nature of a problem, the possible decision alternatives, and relevant variables that need to be considered. Typically, there is little prior knowledge on which to build. The research methods are highly flexible, unstructured, and qualitative, for the researcher begins without firm preconceptions as to what will be found. The absence of structure permits a thorough pursuit of interesting ideas and clues about the problem situation.

Descriptive Research. Descriptive research embraces a large proportion of marketing research. The purpose is to provide an accurate snapshot of some aspect of the market environment. Causal Research. When it is necessary to show that one variable causes or determines the values of other variables, a causal research approach must be used. Descriptive research is not sufficient, for all it can show is that two variables are related or associated. Of course, evidence of a relationship or an association is useful; otherwise, we would have no basis for even inferring that causality might be present. To go beyond this inference we must have reasonable proof that one variable preceded the other and that there were no other causal factors that could have accounted for the relationship. The research designer has a wide variety of methods to consider, either singly or in combination. They can be grouped first according to whether they use secondary or primary sources of data. Secondary data are already available, because they were collected for some purpose other than solving the present problem. Included here are (1) the existing company information system; (2) databanks of other organizations, including government sources such as the Census Bureau or trade association studies and reports; and (3) syndicated data sources, such as consumer purchase panels, where one organization collects reasonable standardized data for use by client companies . . . Primary data are collected especially to address a specific research objective. A variety of methods, ranging from qualitative research to surveys to experiments, may be employed . . . Some methods are better suited to one category of research than another. Once the research approach has been chosen, research tactics and implementation follow: the specifics of the measurements, the plan for choosing the sample, and the methods of analyses must be developed. The first step is translate the research objective into information requirements and then into questions that can be answered by anticipated respondents . . . There are many ways to ask questions to obtain this kind of attitudinal information. Once the individual questions have been decided, the measuring instrument has to be developed. Usually this instrument is a questionnaire, but it also may be a plan for observing behavior or recording data. The researcher designing an effective questionnaire must be concerned with how questions on sensitive topics such as income can be asked, what the order of the questions should be, and how misinterpretations can be avoided. Most marketing research studies are limited to a sample or subgroup of the total population relevant to the research question,

rather than a census of the entire group. The sampling plan describes how the subgroup is to be selected. One approach is to use probability sampling, in which all population members have a known probability of being in the sample. This choice is ?Meansbusiness Inc. Page 8 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 indicated whenever it is important to be able to show how representative the sample is of the population. Other critical decisions at this stage are the size of the sample, as this has direct implications for the project budget, and the means of minimizing the effect on the results of sample members who cannot be reached or who refuse to cooperate. At this stage of the design, most of the cost has yet to be expended, but the research is now completely specified and a reliable cost estimate should be available. Thus, a more detailed cost-benefit analysis should be possible to determine if the research should be conducted as designed or if it should be conducted at all. The usefulness of a research project depends on the overall quality of the research design and on the data collected and analyzed based on the design. Several potential sources of error can affect the quality of the research process. The errors can influence the various stages of the research process and result in inaccurate or useless research findings. Two common approaches to budgeting for a marketing research project are estimating the dollar costs associated with each research activity or determining the activities to be performed, in hours, and then applying standard cost estimates to these hours. The former approach typically is used when a marketing research project is relatively unusual or expensive. The latter approach is used for routine marketing research projects or when the researcher has considerable knowledge of research activity costs. Regardless of the basic research design selected (exploratory, descriptive, or causal), researchers need to be familiar with and experienced in handling several issues or problems unique to the conduct of marketing research within and across countries and cultural groups. Three issues critical to international research design are (1) determining information requirements, (2) determining the unit of analysis, and (3) achieving equivalence of construct, measurement, sample and analysis. [Note] Apart from these issues, other aspects of the research process, such as identifying sources of data, availability, and comparability of data from different countries, problems associated with primary data collection across countries, and so

forth, add to the complexity of the international research process. Also, these issues add to the nonrandom error component of the research process. Chapter 5: Secondary Sources of Marketing Data Using Secondary Data Sources for Domestic Marketing Research "Secondary data can be used by researchers in many ways." Pages: 102-118 Secondary data are data that were collected by persons or agencies for purposes other than solving the problem at hand. They are one of the cheapest and easiest means of access to information. Hence, the first thing a researcher should do is search for secondary data available on the topic. The amount of secondary data available is overwhelming, and researchers have to locate and utilize the data that are relevant to their research. Most search procedures follow a distinctive pattern, which begins with the most available and least costly sources . . . Almost all information systems initially are based on routinely collected internal data, and expand through the inclusion of data from published and standardized sources. Secondary data can be used by researchers in many ways. 1. Secondary data may actually provide enough information to resolve the problem being investigated. 2. Secondary data can be a valuable source of new ideas that can be explored later through primary research. 3. Examining available secondary data is a prerequisite to collecting primary data. It helps to define the problem and formulate hypotheses about its solution. 4. Secondary data is of use in the collection of primary data. Examining the methodology and techniques employed by other investigators in similar studies may be useful in planning the present one. 5. Secondary data also helps to define the population, select the sample in primary information collection, and define the parameters of primary research. ?Meansbusiness Inc. Page 9 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 6. Secondary data can also serve as a reference base against which to compare the validity or accuracy of primary data. It may also be of value in establishing classifications that are compatible with past studies so that trends may be more readily analyzed. The most significant benefits secondary data offer a researcher are savings in cost and time. Secondary data research involves just spending a few days in the library extracting the data and reporting them. This should involve very little time, effort, and

money compared to primary research. Even if the data are bought from another source, it will turn out to be cheaper than collecting primary data, because the cost of data collection is shared by all those using the data. A company's internal records, accounting and control systems, provide the most basic data on marketing inputs and the resulting outcomes. The principal virtues of these data are ready availability, reasonable accessibility on a continuing basis, and relevance to the organization's situation. Data on inputsmarketing effort expendedcan range from budgets and schedules of expenditures to salespeople's call reports describing the number of calls per day, who was visited, problems and applications discussed, and the results of the visit. Extensive data on outcomes can be obtained from the billing records on shipments maintained in the accounting system. In many industries the resulting sales reports are the single most important items of data used by marketing managers, because they can be related (via exception reporting methods) to plans and budgets to determine whether performance is meeting expectations. Also, they may be compared with costs in order to assess profitability. Published data are by far the most popular source of marketing information. Not only are the data readily available, often they are sufficient to answer the research question. The major published sources are the various government publications (federal, state, provincial, and local), periodicals and journals, and publicly available reports from such private groups as foundations, publishers, trade associations, unions, and companies. Of all these sources, the most valuable data for the marketing researcher come from government census information and various registration requirements. The latter encompass births, deaths, marriages, income tax returns, unemployment records, export declarations, automobile registrations, and so on. How should someone who is unfamiliar with a market or research topic proceed? In general, two basic rules are suggested to guide the search effort: (1) Start with the general and go to the specific, and (2) make use of all available expertise. [Note] The four main categories are authorities, general guides and indices, compilations, and directories. Users of secondary sources rapidly develop a healthy skepticism. Unfortunately, there are many reasons why a forecast, historical statistic, or estimate may be found to be irrelevant or too inaccurate to be useful. Before such a judgment can be made, the researcher should have answers to the following questions: 1. Who? This question applies especially to the reputation of the collecting agency for honest and thorough work and the

character of the sponsoring organization, which may influence the interpretation and reporting of the data. A related question is whether either organization has adequate resources to do a proper job. The problems do not end here, for the original data source (which provided the count, estimate, or other basis for the reported result) may have its own motives for biasing what it reports. 2. Why? Data that are collected to further the interests of a particular group are especially suspect. Media buyers, for example, soon learn to be wary of studies of media. It is easy to choose unconsciously those methods, questions, analysis procedures, and so forth, that favor the interests of the study sponsor, and it is unlikely that unfavorable results will be exposed to the public. 3. How? It is possible to appraise the quality of secondary data without knowledge of the methodology used to collect them. Therefore, one should immediately be suspicious of any source that does not describe the procedures usedincluding a copy of the questionnaire (if any), the nature and size of the sample, the response rate, the results of field validation efforts, and any other procedural decisions that could influence the results. The crucial question is whether any of these decisions could bias the results systematically. 4. What? Even if the available data are of acceptable quality, they may prove difficult to use or inadequate to the need. One irritating and prevalent problem is the classifications that are used. Wide variations in geographic, age, and income groupings ?Meansbusiness Inc. Page 10 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 across studies are common. 5. When? There is nothing less interesting than last week's newspaper. Sooner or later, the pace of change in the world in general, and in markets in particular, renders all secondary data equally obsolete and uninteresting except to the historian. The rate of obsolescence varies with the type of data, but in all cases the researcher should know when the data were collected. There may be a substantial lag between the time of collection and the publication of the results. 6. Consistency? With all the possible pitfalls in secondary data, and the difficulty in identifying them fully, the best defense is to find another source that can be used as a basis for comparison. Ideally, the two sources should use different methodologies to arrive at the same kind of data. In the likely event that there is some disagreement between the two sets of data, the process

of reconciliation should first identify the respective biases in order to narrow the differences and determine which set is the most credible. Using Secondary Data Sources for International Marketing Research "Two major problems are associated with secondary data in international marketing research: the accuracy of the data and the comparability of data obtained from different countries." Pages: 122-124 Secondary data are a key source of information for conducting international marketing research. This is in part due to their ready availability, the high cost of collecting primary data versus the relatively low cost of secondary data, and the usefulness of secondary data in assessing whether specific problems need to be investigated, and if so, how. Further, secondary data sources are particularly valuable in assessing opportunities in countries with which management has little familiarity, and in product markets at an early stage of market development. A wide variety of secondary data sources are available for international marketing research. These range from sources that provide general economic, social, and demographic data for almost all countries in the world, to sources that focus on specific industries worldwide. A host of sources of macroeconomic data are to be found, ranging widely in the number of countries or regions covered. Many of these are based on or derived from United Nations and World Bank data. The Business International, Euromonitor, and Worldcasts divisions of Predicasts also publish annual information on macroeconomic variables. The preceding macroeconomic data sources, with the exception of Euromonitor, relate to the general business environment. They therefore do not provide much indication as to market potential for specific industries. A number of sources of industryspecific data are available. They are United Nations Yearbooks, publications of the U.S. Department of Commerce, The Economist, and the Worldcasts. Numerous other sources specific to individual countries or product markets are also to be found. The U.S. Department of Commerce, for example, publishes International Marketing Handbook, which provides profiles and special information about doing business in various countries. Information regarding regulations, customs, distribution channels, transportation, advertising and marketing research, credit, taxation, guidance for business travelers abroad, and so forth, are compiled in their "Overseas Business Reports." Governments or other bodies frequently publish national yearbooks or statistical data books. Various private sources also publish regional and country handbooks.

Two major problems are associated with secondary data in international marketing research: the accuracy of the data and the comparability of data obtained from different countries. Different sources often report different values for the same macroeconomic factor, such as gross national product, per-capita income, or the number of television sets in use. This casts some doubt on the accuracy of the data. This may be due to different definitions followed for each of those statistics in different countries. The accuracy of data also varies from one country to another. Data from highly industrialized nations are likely to have a higher level of accuracy than data from developing countries, because of the difference in the sophistication of the procedures adopted. The level of literacy in a country also plays a role in the accuracy of the macroeconomic data collected in that country. Business statistics and income data vary from country to country because different countries have different tax structures and different levels of taxation. Hence, it may not be useful to compare these statistics across countries. Population censuses may ?Meansbusiness Inc. Page 11 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 not only be inaccurate, they also may vary in frequency and the year in which they were collected. Although in United States they are collected once every 10 years, in Bolivia there was a 25-year gap between two censuses. So most population figures are based on estimates of growth that may not be accurate and comparable. Measurement units are not necessarily equivalent from country to country. For example, in Germany the expense incurred on buying a television would be classified as entertainment expense, whereas in the United States it would be classified as furniture expense. Secondary data are particularly useful in evaluating country or market environments, whether in making initial market-entry decisions or in attempting to assess future trends and developments. They thus form an integral form of the international marketing research process. More specifically, three major uses of secondary data are in: 1. Selecting countries or markets that merit in-depth investigation 2. Making an initial estimate of demand potential in a given country or a set of countries 3. Monitoring environmental changes Secondary data can be used systematically to screen market potential, risks, and likely costs of operating in different countries throughout the world. Two types of generalized procedures are used. The first procedure classifies countries on two dimensions: the degree of demographic and economic mobility, and the country's domestic stability and cohesion. The

second procedure calculates multiple factor indices for different countries. For example, Business International publishes information each year on three indices showing (1) market growth, (2) market intensity, and (3) market size, for countries in Western and Eastern Europe, the Middle East, Latin America, Asia, Africa, and Australia. Customized models, which are geared to specific company objectives and industry characteristic, can also be developed using secondary data. Once the appropriate countries and markets to be investigated in depth have been determined, the next step is to make an explicit evaluation of demand in those countries or markets. [Note] This is important when considering initial market entry, because of the high costs and uncertainty associated with entering new markets. Management has to make an initial estimate of demand potential, and also project future market trends. Four types of data analyses are unique to demand estimation in an international context. The first and the most simplistic is lead-lag analysis. This uses time-series (yearly) data from a country to project sales in other countries. A second procedure is the use of surrogate indicators. This is similar to the use of general macroindicators, but develops the macroindicators relative to a specific industry or product market. An example of a surrogate indicator is the number of childbirths in the country as an indicator of the demand potential for diapers. A third technique, which relies on the use of cross-sectional data (data from different countries), is analogous to the use of barometric procedures in domestic sales forecasting. One assumes that if there is a direct relationship between the consumption of a product, service, or commodity and an indicator in one country, the same relationship will hold in other countries to estimate the demand. The fourth and most complex forecasting model is the econometric forecasting model. This model uses cross-sectional and time-series data on factors underlying sales for a given product market for a number of countries to estimate certain parameters. Later, these models can be used to project the market demand. A third use of secondary data in an international context is to monitor environmental changes. Monitoring environmental changes requires surveillance of a number of key indicators. These should be carefully selected and tailored to the specific product or range of products with which management is concerned. Two types of indicators are required. The first monitors the general health and growth of a country and its economy and society; the second, those of a specific industry or product market. A variety of procedures can be used to analyze the impact of environmental factors on world trends or industrial

countries, and on product markets, as well as the implications for market growth and appropriate marketing strategies. These range from simple trend projections or tracking studies and the use of leading indicators to the more complex scenario evaluation studies. Chapter 6: Standardized Sources of Marketing Data Standardized Sources of Marketing Data "A number of services have evolved to measure consumer exposure to the various media and advertisements." ?Meansbusiness Inc. Page 12 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 Pages: 128-143 The use of standardized data sources has been revolutionized by so-called single-source data from scanner systems. This means that all data on product purchases and causal factors, such as media exposure, promotion influence, and consumer characteristics, come from the same households. These data are being made possible through advances in information technology whose full impact is only slowly being understood . . . It does not appear that single-source data will fully displace other standardized sources, but it will be used in conjunction with them to generate important new insights. From store audits and warehouse withdrawal services, we can learn how much product is moving through the distribution channel. As this information is one step removed from the actual purchase transaction, we still don't know who bought, how frequently they bought, or whether the seeming stability of market shares reflects stable purchasing patterns or a great deal of switching back and forth between brands and stores in response to short-term promotional efforts. To answer these questions, we need detailed records of purchasing activity by the same people over an extended period of time. Here are two methods for collecting this data: 1. In the home audit approach the panel member agrees to permit an auditor to check the household stocks of certain product categories at regular intervals. A secondary condition is that the panel member save all used cartons, wrappers, and so on, so the auditor can record them. 2. In the mail diary method the panel member records the details of each purchase in certain categories and returns the completed diary by mail at regular intervals (biweekly or monthly). Both types of panels are used extensively in Europe, whereas in the United States and Canada the mail dairy method is

dominant. When comparisons have been possible, the tow methods have produced equally accurate market share and trend data. [Note] The data from a panel can be analyzed as a series of snapshotsproviding information on aggregate sales activity, brand shares, and shifts in buyer characteristics and types of retail outlets from one month to the next. However, just as a motion picture is more revealing than a snapshot, it is the ability to measure changes in the behavior of Individuals that is the real advantage of a panel. Knowledge of the sequence of purchases makes it possible to analyze: Heavy buyers and their associated characteristics Brand-switching rates and the extent of loyal buying (Evidence of stable purchase activity in the aggregate usually masks a great deal of individual movement.) Cumulative market penetration and repeat purchase rates for new products (The success of new products depends jointly on the proportion who have tried them once and then purchased them a second, third, or fourth time.) In comparison with interview methods, although not with audits, the continuous purchase panel has the advantage of accuracy. Several studies have found that interview respondents will exaggerate their rate of purchasing (an effect that is most pronounced for infrequently purchased products) and dramatically oversimplify brand-switching behavior. Apparently, survey respondents tend to equate their most recent brand buying with the "normal" behaviorwhether or not this is accurate. The limitations all relate to the vulnerability of panels to various biases. The first problem encountered is selection bias, because of the high rates of refusal and the resulting lack of representativeness. It is estimated that panel recruitment rates may vary from as low as 10 to 15 percent when the initial contact is made by mail in the United States, to 50 percent or more for personal contacts made on behalf of panels in Great Britain. Panels also are subject to a variety of testing effects. There is a definite tendency for new panel members to report unusual levels of purchasing because of the novelty of the reporting responsibility. This effect is so pronounced that the first month's results usually are discarded. Surprisingly, there is little evidence to suggest that there is any long-run conditioning behavior that would lead to great brand loyalty or price consciousness that would produce systematically biased data. Another area in which there is a great deal of commercial information available for marketers relates to advertising and

media. A number of services have evolved to measure consumer exposure to the various media and advertisements. The Nielsen Television Index (NTI) is probably the best known of all the commercial services available in this category. As a system for estimating national television audiences, NTI produces a "rating" and corresponding share estimate. A rating is ?Meansbusiness Inc. Page 13 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 the percent of all households that have at least one television set tuned to a program for at least 6 of every 15 minutes that the program is telecast. Share is the percent of households that have a television set that is tuned to a specific program at a specific time. Arbitron, a subsidiary of Control Data, maintains both national and regional radio and TV panels. The panel members are chosen by randomly generated telephone numbers, to ensure that households with unlisted numbers are reached. Those household members who agree to participate when called are sent diaries in which they are asked to record their radio listening behavior over a short duration. Most radio markets are rated only once or twice a year; however, some larger ones are rated four times a year. The TV diary panel is supplemented with a sample of households that have agreed to attach an electronic meter to their television sets. Arbitron produces custom reports for clients. Typically, these are based on an interactive computer-based system called Arbitron Information on Demand (AID). The Starch Readership Service measures the readership of advertisements in magazines and newspapers. [Note] The Starch surveys employ the recognition method to access a particular ad's effectiveness. Four degrees of reading are recorded: 1. Nonreader: A person who does not remember having seen the advertisement in the issue. 2. Noted: A person who remembers seeing the advertisement in the issue. 3. Associated: A person who not only "noted" the advertisement, but who also saw or read some part of it that clearly indicated the brand or advertiser. 4. Read Most: A person who read 50 percent or more of the written material in the ad. Because newspaper and magazine space cost data are also available, a "readers per dollar" variable can be calculated. The final summary report from Starch shows each ad's (one-half page or larger) overall readership percentages, readers per dollar, and rank when grouped by product category. Chapter 7: Marketing Research on the Internet The Internet and Marketing Research Today

"Like any traditional information resource, the Internet has certain advantages and disadvantages." Pages: 163-176 The value of the Internet as a marketing research tool is argued by some people today. They think that quality information is hard to find and that the Internet is too slow. Although there is some truth to these statements, they need some qualification. Like any traditional information resource, the Internet has certain advantages and disadvantages. Some information can be searched well on the Internet when other information sources are not available at all. Besides this, the Internet is characterized by very dynamic technological developments, which in turn influence the information search process. As the population of the Internet and on-line users increases, new research issues have arisen concerning the demographics and psychographics of the on-line user and the opportunities for a product or service. Online focus groups are conducted entirely on-lineeverything from recruitment and screening (which the recruiter does via e-mail) to moderation of the discussion itself. This method allows researchers to reach target segments more effectively. As the on-line population increases, the demographics broaden, enabling remote global segments to be reached, something not possible via traditional methods. One of the limitations to on-line research is that the results cannot be projected to the general population because not everyone has access to a computer, modem, and on-line service. Another difference between on-line and traditional qualitative research is that cyberspace is populated by trend leaders. Commonly targeted by marketers, advertisers, and product manufacturers, trend leaders are early adopters who try out new ideas, products, services, and technologies before these innovations reach popularity in the mass market. ?Meansbusiness Inc. Page 14 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 Companies are increasingly collecting information from their Web site visitors. Especially for companies which sell over the Web, collecting information about potential customers who have Internet access is critical. This type of data collection can serve a number of purposes: Counting and describing Web site visitors in order to customize Web site content to suit their needs Collecting additional information for customer databases, which then may be used by product development, sales, marketing, or service departments

 Receiving questions or suggestions regarding the use of a product Receiving and answering complaints Finding out information about competitor activities is an important task for businesses. The Internet is a prime tool for this task, since it reduces the time spent and may increase substantially the quality of the information collected. Both product and financial information are probably suited best for competitive tracking. Especially larger corporations display this information most often on their Websites. On the other hand, pricing information might not be amenable to tracking readily, since it is not too common for businesses to display product prices (unless they actually sell over the Internet). Competitive promotion and distribution information is probably the least suited to tracking via the Internet. Information about products or companies can be obtained using search engines on the Web . . . However, search engines have certain limitations and hence do not guarantee that all relevant information has been obtained. For this purpose, there are providers of custom search services, who search for information for a fee. The time when one could keep up with the information on the World Wide Web is already ancient history. With the Web growing dramatically, it becomes impossible to track even a small and well-defined segment of the Web. Therefore, the market researcher has even more difficulty finding the information he or she seeks. Intranets are internal company networks. While corporations are looking for ways and means of communicating to consumers through the World Wide Web, it is apparent that intranets are the building blocks for successful commercial activity. These internal networks start off as ways for employees to connect to company information. Intranets may also incorporate connections to the company's various suppliers. According to many industry experts, the advent of total commercial integration is fairly closeemployees, suppliers, and customers will soon operate in a totally seamless environment. The advantage for an intranet user is that he or she can connect to the Internet easily, whereas Internet users cannot access intranets without appropriate security codes. The utilization of intranets will aid in the communication and distribution of information inside large corporations. This is especially crucial for firms where information and know-how is mission-critical, such as management consultants or software developers. Once information is gathered, it is stored in internal databases so that it can be accessed from any company location in the world. By researching internal databases in the first place, the danger of duplicating information search

procedures in separate locations is minimized and therefore the return on information is maximized. There are a number of promising technologies on the horizon which all have a common objective: to increase the bandwidth of the Internet. The demand for high-speed connections is huge, since more and more large data files such as multimedia applications are sent over the Internet. Chapter 8: Information Collection: Qualitative and Observational Methods Using Qualitative Methods for Information Collection "The reality in the kitchen or supermarket differs drastically from that in most corporate offices." Pages: 184-202 The purpose of qualitative research is to find out what is in a consumer's mind. It is done in order to access and also get a rough idea about the person's perspective. It helps the researcher to become oriented to the range and complexity of consumer activity and concerns. Qualitative data are collected to know more about things that cannot be directly observed and measured. Feelings, thoughts, intentions, and behavior that took place in the past are a few examples of those things that can be obtained only through qualitative data collection methods. It is also used to identify likely methodological problems in the study, and to clarify certain issues that were not clear in the problem. Sometimes it may not be possible or desirable to obtain information from respondents by using fully structured or formal methods. Qualitative data collection methods are used in such situations. People may be unwilling to answer some questions when confronted with them directly. Questions that they ?Meansbusiness Inc. Page 15 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 perceive as invasion of privacy, that they think will embarrass them, or that may have a negative impact on their ego or status will not be answered . . . Sometimes, accurate answers will not be forthcoming because they are part of the subconscious mind and cannot be tapped into directly. They are disguised from the outer world through the mechanism of ego defenses, such as rationalization . . . It has been shown that information of this sort can be better obtained from qualitative methods, such as focus-group discussions or projective techniques, than through a formal, structured-survey method of data collection. The basic assumption behind qualitative methods is that an individual's organization of a relatively unstructured stimulus indicates the person's basic perception of the phenomenon and his or her reaction to it. [Note] The more unstructured and

ambiguous a stimulus is, the more subjects can and will project their emotions, needs, motives, attitudes, and values. The structure of a stimulus is the degree of choice available to the subject. A highly structured stimulus leaves very little choice: The subject has unambiguous choice among clear alternatives. A stimulus of low structure has a wide range of alternative choices. If it is ambiguous, the subjects can "choose" their own interpretations. Collectively, these methods are less structured and more intensive than standardized questionnaire-based interviews. There is a longer, more flexible relationship with this respondent, so the resulting data have more depth and greater richness of contextwhich also means a greater potential for new insights and perspectives. The numbers of respondents are small and only partially representative of any target population, making them preludes to, but not substitutes for, carefully structured, large-scale field studies. There are three major categories of acceptable uses of qualitative research methods: 1. Exploratory Defining problems in more detail. Suggesting hypotheses to be tested in subsequent research. Generating new product or service concepts, problem solutions, lists of product features, and so forth. Getting preliminary reactions to new product concepts. Pretesting structured questionnaires. 2. Orientation Learning the consumer's vantage point and vocabulary. Educating the researcher to an unfamiliar environment: needs, satisfactions, usage situations, and problems. 3. Clinical Gaining insights into topics that otherwise might be impossible to pursue with structured research methods. Individual in-depth interviews are interviews that are conducted face to face with the respondent, in which the subject matter of the interview is explored in detail. There are two basic types of in-depth interviews. They are nondirective and semistructured, and their differences lie in the amount of guidance the interviewer provides. In nondirective interviews the respondent is given maximum freedom to respond, within the bounds of topics of interest to the interviewer. Success depends on (1) establishing a relaxed and sympathetic relationship; (2) the ability to probe in order to clarify and elaborate on interesting responses, without biasing the content of the responses; and (3) the skill of guiding the discussion back to the topic outline when digressions are unfruitful, always pursuing reasons behind the comments and answers.

A focus-group discussion is the process of obtaining possible ideas or solutions to a marketing problem from a group of respondents by discussing it. The emphasis in this method is on the results of group interaction when focused on a series of topics a discussion leader introduces. Each participant in a group of five to nine or more persons is encouraged to express views on each topic, and to elaborate on or react to the views of the other participants. The objectives are similar to unstructured in-depth interviews, but the moderator plays a more passive role than an interviewer does. The focus-group discussion offers participants more stimulation than an interview; presumably this makes new ideas and meaningful comments more likely. [Note] Among other advantages, it is claimed that discussions often provoke more spontaneity and candor than can be expected in an interview. Some proponents feel that the security of being in a crowd encourages some participants to speak out. ?Meansbusiness Inc. Page 16 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 Focus groups can be classified into three types. Exploratory focus groups are commonly used at the exploratory phase of the market research process to aid in defining the problem precisely. They can also be viewed as pilot testing: Exploratory groups can be used to generate hypotheses for testing or concepts for future research. Clinical focus groups involve qualitative research in its most scientific form. The research is conducted as a scientific endeavor, based on the premise that a person's true motivations and feelings are subconscious in nature. The moderator probes under the level of the consumer's consciousness. Obviously, clinical groups require a moderator with expertise in psychology and sociology. Their popularity is less because of the difficulty of validating findings from clinical groups and because unskilled operators sometimes attempt to conduct clinical groups. The reality in the kitchen or supermarket differs drastically from that in most corporate offices. Experiencing focus groups allow the researcher to experience the emotional framework in which the product is being used. Thus an experiencing approach represents an opportunity to "experience" a "flesh-and-blood" consumer. Most of the limitations of these qualitative methods stem from the susceptibility of the results in misuse, rather than their inherent shortcomings. There is a great temptation among many managers to accept small-sample exploratory results as sufficient for their purposes, because they are so compelling in their reality. The dangers of accepting the unstructured output

of a focus group or a brief series of informal interviews are twofold. First, the results are not necessarily representative of what would be found in the population, and hence cannot be projected. Second, there is typically a great deal of ambiguity in the results. The flexibility that is the hallmark of these methods gives the moderator or interviewer great latitude in directing the questions; similarly, an analyst with a particular point of view may interpret the thoughts and comments selectively to support that view. In view of these pitfalls, these methods should be used strictly for insights into the reality of the consumer perspective and to suggest hypotheses for further research. Observation Methods "There are strong arguments for considering the observation of ongoing behavior as an integral part of the research design." Pages: 203-207 Observational methods are limited to providing information on current behavior. Too often, this limitation becomes an excuse for not considering observational methods; because many researchers do not use these methods, they may not appreciate their considerable benefits. Nevertheless, there are strong arguments for considering the observation of ongoing behavior as an integral part of the research design. Some of these are the following: Casual observation is an important exploratory method. Managers continually monitor such variables as competitive prices and advertising activity, the length of lines of customers waiting for service, and the trade journals on executives desks, to help to identify problems and opportunities. Systematic observation can be a useful supplement to other methods. During a personal interview, the interviewer has the opportunity to note the type, condition, and size of the residence, the respondent's race, and the type of neighborhood with regard to mixed types and qualities of homes and apartments. Seldom is this data source adequately exploited in surveys. Observation may be the least expensive and most accurate method of collecting purely behavioral data such as instore traffic patterns or traffic passing a certain point on a highway system. Thus, people's adherence to pedestrian safety rules before and after a safety campaign can be measured most easily by counting the number of people who cross against the light or outside the crosswalks. Sometimes observation is the only research alternative. This is the case with physiological phenomena or with young children who cannot articulate their preferences or motives.

Direct observation is frequently used to obtain insights into research behavior and related issues, such as packaging effectiveness. One firm used an observer disguised as a shopper, to watch grocery store shoppers approach a product category, to measure how long they spend in the display area, and to see whether they have difficulty finding the product; and whether the package is read, and if so, whether the information seemed hard to find. This kind of direct observation can be highly structured, with a detailed recording form prepared in advance, or very unstructured. When making an unstructured observation, the observer may be sent to mingle with customers in the store and look for activities that suggest service problems. This is a highly subjective task, because the observer must select a few things to note and record in varying amounts of detail. This inevitably will draw subjective inferences from the observed behavior. ?Meansbusiness Inc. Page 17 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam%20Hai\Desktop Contrived observation can be thought of as behavioral projective tests; that is, the response of people placed in a contrived observation situation will reveal some aspects of their underlying beliefs, attitudes, and motives. Many direct-mail offers of new products or various kinds of books fall into this category, as do tests of variations in shelf space, product flavors, and display locations. The ethics of such offers can be very dubious, as in the example where a manufacturer decides to produce a product only after receiving an acceptable number of orders from a direct-mail advertisement. A variant of this method uses buying teams, disguised as customers, to find out what happens during the normal interaction between the customer and the retailer, bank, service department, or complaint department. This method has provided useful insights into the discriminatory treatment of minorities by retailers, and the quality of public performance by employees of government agencies, banks, and airlines. One is hard pressed to think of other ways of finding out about the knowledgeability, helpfulness in meeting customers' needs, and efficiency of the staff. Clouding this picture are some serious, unresolved questions of ethics. Content analysis is an observation technique used to analyze written material into meaningful units, using carefully applied rules. [Note] It is defined as the objective, systematic, and quantitative description of the manifest content of communication.

It includes observation as well as analysis. The unit of analysis may be words, characters, themes, space and time measures, or topics. Analytical categories for classifying the units are developed, and the communication is broken down according to p Information from Respondents: Issues in Data Collection "The choice of data collection method is a critical point in the research process." Pages: 218-229 Measuring behavior usually involves four related concepts: what the respondents did or did not do; where the action takes place; the timing, including past, present, and future; and the frequency or persistence of behavior. In other words, it often means assessing what, where, and how often. Surveys can also be conducted to determine respondents' lifestyles. Groupings of the population by lifestyle can be used to identify an audience, constituency, target market, or other collections of interest to the sponsor. Social contact and interaction are often the focus of survey research or bear heavily on other issues relevant to the survey. So the family setting, memberships, social contacts, reference groups, and communications of respondents frequently are measured or assessed within the survey research process. Demographic factors often obtained through surveys include such variables as age, sex, marital status, education, employment, and income, among others. Personality reflects consistent, enduring patterns of behavior, and it is more deeply rooted than lifestyle. Personality can be measured using rating methods. Situational tests, projective techniques, and inventory schemes. Motivation and knowledge are also frequently measured using surveys. The problem of getting meaningful results from the interview process stems from the need to satisfy reasonably the following conditions: Population has been defined correctly. Sample is representative of the population. Respondents selected to be interviewed are available and willing to cooperate. Respondents understand the questions. Respondents have the knowledge, opinions, attitudes, or facts required. Respondents are willing and able to respond. Interviewer understands and records the responses correctly. These conditions often are not satisfied because of interviewer error, ambiguous interpretation of both questions and answers, and errors in formulating responses. The choice of data collection method is a critical point in the research process. The decision is seldom easy, for there are many factors to be considered and many variations of the four basic survey methods: (1) personal interview, (2) telephone

interview, (3) mail survey, and (4) fax survey. Because each research problem will have a different ranking of importance, and no data collection method is consistently superior, few generalizations can be made. Much depends on the researcher's skill in adapting the methods to the circumstances. Overall, however, the telephone and the mail survey methods are the dominant methods for conducting surveys. The way a researcher plans to draw a sample is related to the best way to collect the data. Certain kinds of sampling approaches make it easier or more difficult to use one or another data collection strategy. If one is sampling from a list, the information on the list matters. Obviously, if a list lacks either good mailing addresses or good telephone numbers, trying to collect data by mail, phone, or fax is complicated. Random-digit dialing has improved the potential of telephone data collection strategies by giving every household with a telephone a chance to be selected. The reading and writing skills of the population and its motivation to cooperate are two salient considerations in choosing a mode of data collection. Self-administered approaches to data collection place more of a burden on the respondent's reading and writing skills than do interviewer procedures. Respondents who are not very well educated, whose reading and writing skills in English are less than facile (but who can speak English), people who do not see well, and people who are somewhat ill or tire easily will find an interviewer-administered survey easier than filling our a selfadministered form. Another problem for mail surveys is getting people to return a completed questionnaire. People who are particularly interested in the research problem tend to be most likely to return questionnaires. [Note] Generally speaking, if one is going to have a self-administered questionnaire, one must reconcile oneself to closed-end questionsthat is, questions that can be answered by simply checking a box or circling the proper response from a set provided by the researcher. Second, and more important, self-administered open answers often do not produce useful data. ?Meansbusiness Inc. Page 19 of 36 mhtml:file://C:\Documents%20and%20Settings\Hoang%20Nam %20Hai\Desktop\Marketi... 7/30/2003 With no interviewer present to probe incomplete answers for clarity and to meet consistent question objectives, the answers will not be comparable across respondents, and they will be difficult to code. Researchers have argued persuasively that one or another of the strategies should have an advantage when dealing with sensitive topics. Self-administered procedures are thought to be best, because the respondent does not have to admit directly

to an interviewer a socially undesirable or negatively valued characteristic or behavior. Others have argued that telephone procedures lend an air of impersonality to the interview process that should help people report negative events or behaviors. Moreover, random-digit dialing at least provides the option of having a virtually anonymous survey procedure, because the interviewer need not know the name or location of the respondent. Still others argue that personal interviews are the best way to ask sensitive questions, because interviewers have an opportunity to build rapport and establish the kind of trust that is needed for respondents to report potentially sensitive information. Misrepresentation of the data collection process stems from two principal sources. The first is the representation of a marketing activity other than research, as research. The second is the abuse of respondents' rights during the data collection process under the rationale of providing better-quality research. Both the misrepresentation of research and the abuse of respondents' rights during the legitimate research interviewing process involve consumer deception. This has two implications. From a business perspective, if public willingness to cooperate with the research process is adversely affected, the long-term statistical reliability of marketing research is jeopardized. From a social perspective, consumer deception violates basic business ethics. The responsibility of business to society rests on a fundamental concern for the advancement of professional business practices. Marketing research depends on mutual trust and honesty between the business community and society. Deception undermines the trust by using people as mere instruments to accomplish unstated purposes. _______________________________________ PRICING As we said earlier, there is no "one right way" to calculate your pricing. Once you've considered the various factors involved and determined your objectives for your pricing strategy, now you need some way to crunch the actual numbers. Here are four ways to calculate prices: Cost-plus pricing - Set the price at your production cost, including both cost of goods and fixed costs at your current volume, plus a certain profit margin. For example, your widgets cost $20 in raw materials and production costs, and at current sales volume (or anticipated initial sales volume), your fixed costs come to $30 per unit. Your total cost is $50 per unit. You decide that you want to operate at a 20% markup, so you add $10 (20% x $50) to the cost and come up with a price of $60 per

unit. So long as you have your costs calculated correctly and have accurately predicted your sales volume, you will always be operating at a profit. Target return pricing - Set your price to achieve a target return-on-investment (ROI). For example, let's use the same situation as above, and assume that you have $10,000 invested in the company. Your expected sales volume is 1,000 units in the first year. You want to recoup all your investment in the first year, so you need to make $10,000 profit on 1,000 units, or $10 profit per unit, giving you again a price of $60 per unit.

Value-based pricing - Price your product based on the value it creates for the customer. This is usually the most profitable form of pricing, if you can achieve it. The most extreme variation on this is "pay for performance" pricing for services, in which you charge on a variable scale according to the results you achieve. Let's say that your widget above saves the typical customer $1,000 a year in, say, energy costs. In that case, $60 seems like a bargain - maybe even too cheap. If your product reliably produced that kind of cost savings, you could easily charge $200, $300 or more for it, and customers would gladly pay it, since they would get their money back in a matter of months. However, there is one more major factor that must be considered.

Psychological pricing - Ultimately, you must take into consideration the consumer's perception of your price, figuring things like:

Positioning - If you want to be the "low-cost leader", you must be priced lower than your competition. If you want to signal high quality, you should probably be priced higher than most of your competition.

Popular price points - There are certain "price points" (specific prices) at which people become much more willing to buy a certain type of product. For example, "under $100" is a popular price point. "Enough under $20 to be under $20 with sales tax" is another popular price point, because it's "one bill" that people commonly carry. Meals under $5 are still a popular price point, as are entree or snack items under $1 (notice how many fast-food places have a $0.99 "value menu"). Dropping your price to a popular price point might mean a lower margin, but more than enough increase in sales to offset it.

Fair pricing - Sometimes it simply doesn't matter what the value of the product is, even if you don't have any direct competition. There is simply a limit to what consumers perceive as "fair". If it's obvious that your product only cost $20 to manufacture, even if it delivered $10,000 in value, you'd have a hard time charging two or three thousand dollars for it -- people would just feel like they were being gouged. A little market testing will help you determine the maximum price consumers will perceive as fair.

Now, how do you combine all of these calculations to come up with a price? Here are some basic guidelines: Your price must be enough higher than costs to cover reasonable variations in sales volume. If your sales forecast is inaccurate, how far off can you be and still be profitable? Ideally, you want to be able to be off by a factor of two or more (your sales are half of your forecast) and still be profitable.

You have to make a living. Have you figured salary for yourself in your costs? If not, your profit has to be enough for you to live on and still have money to reinvest in the company.

Your price should almost never be lower than your costs or higher than what most consumers consider "fair". This may seem obvious, but many entrepreneurs seem to miss this simple concept, either by miscalculating costs or by inadequate market research to determine fair pricing. Simply put, if people won't readily pay enough more than your cost to make you a fair profit, you need to reconsider your business model entirely. How can you cut your costs substantially? Or change your product positioning to justify higher pricing?

Pricing is a tricky business. You're certainly entitled to make a fair profit on your product, and even a substantial one if you create value for your customers. But remember, something is ultimately worth only what someone is willing to pay for it.

Marketing Plan
The information for this article was derived from many sources, including Michael Porter's book Competitive Advantage and the works of Philip Kotler. Concepts addressed include 'generic' strategies and strategies for pricing, distribution, promotion, advertising and market segmentation. Factors such as market penetration, market share, profit margins, budgets, financial analysis, capital investment, government actions, demographic changes, emerging technology and cultural trends are also addressed. There are two major components to your marketing strategy:

how your enterprise will address the competitive marketplace how you will implement and support your day to day operations.

In today's very competitive marketplace a strategy that insures a consistent approach to offering your product or service in a way that will outsell the competition is critical. However, in concert with defining the marketing strategy you must also have a well defined methodology for the day to day process of implementing it. It is of little value to have a strategy if you lack either the resources or the expertise to implement it. In the process of creating a marketing strategy you must consider many factors. Of those

many factors, some are more important than others. Because each strategy must address some unique considerations, it is not reasonable to identify 'every' important factor at a generic level. However, many are common to all marketing strategies. Some of the more critical are described below. You begin the creation of your strategy by deciding what the overall objective of your enterprise should be. In general this falls into one of four categories:

If the market is very attractive and your enterprise is one of the strongest in the industry you will want to invest your best resources in support of your offering. If the market is very attractive but your enterprise is one of the weaker ones in the industry you must concentrate on strengthening the enterprise, using your offering as a stepping stone toward this objective. If the market is not especially attractive, but your enterprise is one of the strongest in the industry then an effective marketing and sales effort for your offering will be good for generating near term profits. If the market is not especially attractive and your enterprise is one of the weaker ones in the industry you should promote this offering only if it supports a more profitable part of your business (for instance, if this segment completes a product line range) or if it absorbs some of the overhead costs of a more profitable segment. Otherwise, you should determine the most cost effective way to divest your enterprise of this offering.

Having selected the direction most beneficial for the overall interests of the enterprise, the next step is to choose a strategy for the offering that will be most effective in the market. This means choosing one of the following 'generic' strategies (first described by Michael Porter in his work, Competitive Advantage).

A COST LEADERSHIP STRATEGY is based on the concept that you can produce and market a good quality product or service at a lower cost than your competitors. These low costs should translate to profit margins that are higher than the industry average. Some of the conditions that should exist to support a cost leadership strategy include an on-going availability of operating capital, good process engineering skills, close management of labor, products designed for ease of manufacturing and low cost distribution. A DIFFERENTIATION STRATEGY is one of creating a product or service that is perceived as being unique "throughout the industry". The emphasis can be on brand image, proprietary technology, special features, superior service, a strong distributor network or other aspects that might be specific to your industry. This uniqueness should also translate to profit margins that are higher than the industry average. In addition, some of the conditions that should exist to support a differentiation strategy include strong marketing abilities, effective product engineering, creative personnel, the ability to perform basic research and a good reputation. A FOCUS STRATEGY may be the most sophisticated of the generic strategies, in that it is a more 'intense' form of either the cost leadership or differentiation

strategy. It is designed to address a "focused" segment of the marketplace, product form or cost management process and is usually employed when it isn't appropriate to attempt an 'across the board' application of cost leadership or differentiation. It is based on the concept of serving a particular target in such an exceptional manner, that others cannot compete. Usually this means addressing a substantially smaller market segment than others in the industry, but because of minimal competition, profit margins can be very high. Pricing Having defined the overall offering objective and selecting the generic strategy you must then decide on a variety of closely related operational strategies. One of these is how you will price the offering. A pricing strategy is mostly influenced by your requirement for net income and your objectives for long term market control. There are three basic strategies you can consider.

A SKIMMING STRATEGY If your offering has enough differentiation to justify a high price and you desire quick cash and have minimal desires for significant market penetration and control, then you set your prices very high. A MARKET PENETRATION STRATEGY If near term income is not so critical and rapid market penetration for eventual market control is desired, then you set your prices very low. A COMPARABLE PRICING STRATEGY If you are not the market leader in your industry then the leaders will most likely have created a 'price expectation' in the minds of the marketplace. In this case you can price your offering comparably to those of your competitors.

Promotion To sell an offering you must effectively promote and advertise it. There are two basic promotion strategies, PUSH and PULL.

The PUSH STRATEGY maximizes the use of all available channels of distribution to "push" the offering into the marketplace. This usually requires generous discounts to achieve the objective of giving the channels incentive to promote the offering, thus minimizing your need for advertising. The PULL STRATEGY requires direct interface with the end user of the offering. Use of channels of distribution is minimized during the first stages of promotion and a major commitment to advertising is required. The objective is to "pull" the prospects into the various channel outlets creating a demand the channels cannot ignore.

There are many strategies for advertising an offering. Some of these include:

Product Comparison advertising In a market where your offering is one of several providing similar capabilities, if

your offering stacks up well when comparing features then a product comparison ad can be beneficial. Product Benefits advertising When you want to promote your offering without comparison to competitors, the product benefits ad is the correct approach. This is especially beneficial when you have introduced a new approach to solving a user need and comparison to the old approaches is inappropriate. Product Family advertising If your offering is part of a group or family of offerings that can be of benefit to the customer as a set, then the product family ad can be of benefit. Corporate advertising When you have a variety of offerings and your audience is fairly broad, it is often beneficial to promote your enterprise identity rather than a specific offering.

Distribution You must also select the distribution method(s) you will use to get the offering into the hands of the customer. These include:

On-premise Sales involves the sale of your offering using a field sales organization that visits the prospect's facilities to make the sale. Direct Sales involves the sale of your offering using a direct, in-house sales organization that does all selling through the Internet, telephone or mail order contact. Wholesale Sales involves the sale of your offering using intermediaries or "middle-men" to distribute your product or service to the retailers. Self-service Retail Sales involves the sale of your offering using self service retail methods of distribution. Full-service Retail Sales involves the sale of your offering through a full service retail distribution channel.

Of course, making a decision about pricing, promotion and distribution is heavily influenced by some key factors in the industry and marketplace. These factors should be analyzed initially to create the strategy and then regularly monitored for changes. If any of them change substantially the strategy should be reevaluated. The Environment Environmental factors positively or negatively impact the industry and the market growth potential of your product/service. Factors to consider include:

Government actions - Government actions (current or under consideration) can support or detract from your strategy. Consider subsidies, safety, efficacy and operational regulations, licensing requirements, materials access restrictions and price controls. Demographic changes - Anticipated demographic changes may support or negatively impact the growth potential of your industry and market. This includes factors such as education, age, income and geographic location.

Emerging technology - Technological changes that are occurring may or may not favor the actions of your enterprise. Cultural trends - Cultural changes such as fashion trends and life style trends may or may not support your offering's penetration of the market

The Prospect It is essential to understand the market segment(s) as defined by the prospect characteristics you have selected as the target for your offering. Factors to consider include:

The potential for market penetration involves whether you are selling to past customers or a new prospect, how aware the prospects are of what you are offering, competition, growth rate of the industry and demographics. The prospect's willingness to pay higher price because your offering provides a better solution to their problem. The amount of time it will take the prospect to make a purchase decision is affected by the prospects confidence in your offering, the number and quality of competitive offerings, the number of people involved in the decision, the urgency of the need for your offering and the risk involved in making the purchase decision. The prospect's willingness to pay for product value is determined by their knowledge of competitive pricing, their ability to pay and their need for characteristics such as quality, durability, reliability, ease of use, uniformity and dependability. Likelihood of adoption by the prospect is based on the criticality of the prospect's need, their attitude about change, the significance of the benefits, barriers that exist to incorporating the offering into daily usage and the credibility of the offering.

The Product/Service You should be thoroughly familiar with the factors that establish products/services as strong contenders in the marketplace. Factors to consider include:

Whether some or all of the technology for the offering is proprietary to the enterprise. The benefits the prospect will derive from use of the offering. The extent to which the offering is differentiated from the competition. The extent to which common introduction problems can be avoided such as lack of adherence to industry standards, unavailability of materials, poor quality control, regulatory problems and the inability to explain the benefits of the offering to the prospect. The potential for product obsolescence as affected by the enterprise's commitment to product development, the product's proximity to physical limits, the ongoing potential for product improvements, the ability of the enterprise to react to technological change and the likelihood of substitute solutions to the prospect's needs.

Impact on customer's business as measured by costs of trying out your offering, how quickly the customer can realize a return from their investment in your offering, how disruptive the introduction of your offering is to the customer's operations and the costs to switch to your offering. The complexity of your offering as measured by the existence of standard interfaces, difficulty of installation, number of options, requirement for support devices, training and technical support and the requirement for complementary product interface.

The Competition It is essential to know who the competition is and to understand their strengths and weaknesses. Factors to consider include:

Each of your competitor's experience, staying power, market position, strength, predictability and freedom to abandon the market must be evaluated.

Your Enterprise An honest appraisal of the strength of your enterprise is a critical factor in the development of your strategy. Factors to consider include:

Enterprise capacity to be leader in low-cost production considering cost control infrastructure, cost of materials, economies of scale, management skills, availability of personnel and compatibility of manufacturing resources with offering requirements. The enterprise's ability to construct entry barriers to competition such as the creation of high switching costs, gaining substantial benefit from economies of scale, exclusive access to or clogging of distribution channels and the ability to clearly differentiate your offering from the competition. The enterprise's ability to sustain its market position is determined by the potential for competitive imitation, resistance to inflation, ability to maintain high prices, the potential for product obsolescence and the 'learning curve' faced by the prospect. The prominence of the enterprise. The competence of the management team. The adequacy of the enterprise's infrastructure in terms of organization, recruiting capabilities, employee benefit programs, customer support facilities and logistical capabilities. The freedom of the enterprise to make critical business decisions without undue influence from distributors, suppliers, unions, creditors, investors and other outside influences. Freedom from having to deal with legal problems.

Development A review of the strength and viability of the product/service development program will heavily influence the direction of your strategy. Factors to consider include:

The strength of the development manager including experience with personnel management, current and new technologies, complex projects and the equipment and tools used by the development personnel. Personnel who understand the relevant technologies and are able to perform the tasks necessary to meet the development objectives. Adequacy and appropriateness of the development tools and equipment. The necessary funding to achieve the development objectives. Design specifications that are manageable.

Production You should review your enterprise's production organization with respect to their ability to cost effectively produce products/services. The following factors are considered:

The strength of production manager including experience with personnel management, current and new technologies, complex projects and the equipment and tools used by the manufacturing personnel. Economies of scale allowing the sharing of operations, sharing of production and the potential for vertical integration. Technology and production experience The necessary production personnel skill level and/or the enterprise's ability to hire or train qualified personnel. The ability of the enterprise to limit suppliers bargaining power. The ability of the enterprise to control the quality of raw materials and production. Adequate access to raw materials and sub-assembly production.

Marketing/Sales The marketing and sales organization is analyzed for its strengths and current activities. Factors to consider include:

Experience of Marketing/Sales manager including contacts in the industry (prospects, distribution channels, media), familiarity with advertising and promotion, personal selling capabilities, general management skills and a history of profit and loss responsibilities. The ability to generate good publicity as measured by past successes, contacts in the press, quality of promotional literature and market education capabilities. Sales promotion techniques such as trade allowances, special pricing and contests. The effectiveness of your distribution channels as measured by history of relations, the extent of channel utilization, financial stability, reputation, access to prospects and familiarity with your offering. Advertising capabilities including media relationships, advertising budget, past experience, how easily the offering can be advertised and commitment to advertising. Sales capabilities including availability of personnel, quality of personnel, location of sales outlets, ability to generate sales leads, relationship with distributors, ability to demonstrate the benefits of the offering and necessary sales support capabilities.

The appropriateness of the pricing of your offering as it relates to competition, price sensitivity of the prospect, prospect's familiarity with the offering and the current market life cycle stage.

Customer Services The strength of the customer service function has a strong influence on long term market success. Factors to consider include:

Experience of the Customer Service manager in the areas of similar offerings and customers, quality control, technical support, product documentation, sales and marketing. The availability of technical support to service your offering after it is purchased. One or more factors that causes your customer support to stand out as unique in the eyes of the customer. Accessibility of service outlets for the customer. The reputation of the enterprise for customer service.

Conclusion After defining your strategy you must use the information you have gathered to determine whether this strategy will achieve the objective of making your enterprise competitive in the marketplace. Two of the most important assessments are described below. Cost To Enter Market This is an analysis of the factors that will influence your costs to achieve significant market penetration. Factors to consider include:

Your marketing strength. Access to low cost materials and effective production. The experience of your enterprise. The complexity of introduction problems such as lack of adherence to industry standards, unavailability of materials, poor quality control, regulatory problems and the inability to explain the benefits of the offering to the prospect. The effectiveness of the enterprise infrastructure in terms of organization, recruiting capabilities, employee benefit programs, customer support facilities and logistical capabilities. Distribution effectiveness as measured by history of relations, the extent of channel utilization, financial stability, reputation, access to prospects and familiarity with your offering. Technological efforts likely to be successful as measured by the strength of the development organization. The availability of adequate operating capital.

Profit Potential This is an analysis of the factors that could influence the potential for generating and maintaining profits over an extended period. Factors to consider include:

Potential for competitive retaliation is based on the competitors resources, commitment to the industry, cash position and predictability as well as the status of the market. The enterprise's ability to construct entry barriers to competition such as the creation of high switching costs, gaining substantial benefit from economies of scale, exclusive access to or clogging of distribution channels and the ability to clearly differentiate your offering from the competition. The intensity of competitive rivalry as measured by the size and number of competitors, limitations on exiting the market, differentiation between offerings and the rapidity of market growth. The ability of the enterprise to limit suppliers bargaining power. The enterprise's ability to sustain its market position is determined by the potential for competitive imitation, resistance to inflation, ability to maintain high prices, the potential for product obsolescence and the 'learning curve' faced by the prospect. The availability of substitute solutions to the prospect's need. The prospect's bargaining power as measured by the ease of switching to an alternative, the cost to look at alternatives, the cost of the offering, the differentiation between your offering and the competition and the degree of the prospect's need. Market potential for new products considering market growth, prospect's need for your offering, the benefits of the offering, the number of barriers to immediate use, the credibility of the offering and the impact on the customer's daily operations. The freedom of the enterprise to make critical business decisions without undue influence from distributors, suppliers, unions, investors and other outside influences.

Growth Strategies Looking for a business growth strategy that will take you to the next level? Here are four growth strategies you ought to consider. Growth isn't just a priority -- it's a necessity for your small business. But growing a company takes a lot more than good intentions. You need a plan. With dozens of strategies to choose from, here are four that could put your company on the fast track to growth. Not every growth strategy is appropriate for every small business. The key to finding the right growth strategy is properly matching it to your company and its specific marketplace. Since the wrong strategy can devastate your business, it's important to determine whether you are selling new or emerging products in a new or existing market. Diversification (New Products/New Market)

Diversification is a high-risk growth strategy, largely because both the products and the market are unproven territory for the entrepreneur. Though trailblazing emerging products and markets can be exhilarating, it can also be terrifying given the fact that neither you nor anyone else can rely on prior experience for reassurance. But if innovation is one of your company's defining characteristics, a diversification strategy will eventually become second nature. To achieve growth, you will need to be realistic about the risks you face and crystal clear about what you hope to achieve. Market Development (Existing Products/New Market) A more common scenario is one in which a small business owner attempts to develop a new market for their existing products and services. The new market can be geographical (e.g. foreign export) or an untapped segment of a domestic market. It's even possible to develop a new market for existing products by adjusting the product's packaging or expanding the product's distribution channels. In any event, a market development growth strategy requires a working knowledge of existing markets and the ability to gaps in the marketplace that can be exploited to your advantage. If your marketing skills are not up to the task, you will need the assistance of a skilled marketing professional to achieve growth in your new market. Product Development (New Products/Existing Market) A growth strategy based on product development is the mirror image of a market development strategy. Instead of pioneering a new market with existing products, you attempt to roll out a new product(s) in a market with which you are already familiar. Many small business owners are more comfortable working in this kind of scenario because they already possess an awareness of prevailing market conditions. However, a product development strategy can be just as challenging as a market development strategy because it often requires the business to develop new abilities and continuously adapt the products until they achieve marketplace success. Market Penetration (Existing Products/Existing Markets) Businesses that find themselves in a situation that involves neither new markets nor new products are forced to grow through a market penetration strategy, a strategy that is designed to give the business a greater percentage of market share. This type of strategy usually seeks to gain a competitive edge through pricing, marketing, or other initiatives. Additionally, market penetration can be achieved by increasing customer usage through loyalty programs and incentives targeting your existing customer base.

UNIT 3
________________________________ If you plan to buy an existing business, carefully analyse both the advantages and disadvantages. One advantage is that a good business history can increase the likelihood of a successful operation and ensure that finance is easier to obtain. Potential disadvantages can be overestimating the goodwill figure and a poor public image inherited from the previous owner. As a prospective business owner you should determine the current worth of the business and its future prospects. Some important considerations are:

Vendor - reason for sale of business Sales - patterns, trends, customer base, current suppliers Costs - fixed and variable costs, staff costs Profits - analyse financial records, future cash flow and profitability Assets - identify and check all assets, including intellectual property and leasing arrangements Liabilities - outstanding debts, refunds and warranties Purchase agreement - review carefully Tax - GST, Capital Gains Tax, stamp duty implications Legal issues - leases, business structure.

For advice and protection in buying a business we suggest that you seek the services of a solicitor, accountant or business adviser. Buying an Established Business

One of the options available when starting a business might be to purchase one which is already established. This method might well avoid many of the issues concerning building a new business from of the beginning and the potential for a large fall in income in the early periods of trading. An established business would have a customer base, access to key suppliers and thus the owner might find that they have more time initially to begin growing the organisation, rather than sourcing suppliers and formulating an extensive business start-up plan. Disadvantages of Buying an Established Business A significant disadvantage of buying a business which is already established would of course be that the price and costs involved in acquiring it would be greater than if the operations were set-up from the beginning. As well as paying for the tangible assets, the buyer is likely to have to acquire the goodwill of the business, the value of which would be uncertain. The buyer would have to try to ascertain what exactly they are buying. It could be the technical know-how which the business has; it could be physical assets such as buildings or plant or it could be the skills that some key employees have. Wherever the value lies within the business, the purchaser should assess the risk attached to each. Key employees may leave, technical know-how might be replicated by the competition and plant and machinery will one day, become obsolete. Should one or more of the above events happen, the buyer should ask how such occurrences would affect the value of the business. Practice in Running a Business For someone leaving employment and starting a business, one of the significant factors which might exist when comparing buying an existing business against building one from scratch, is the expertise that person has in running an organisation. In starting an entity from the beginning, a person might be given the time and opportunity to get used to their new way of life. Making decisions for themselves, bring the various components of the business together might be good learning experiences for the person to undergo. There might be distinct advantages however, completing this training whilst

transforming the business start-up idea in to an actual working operation. Mistakes which are made during the set-up stage are likely to be small and be able to be corrected before the operation go live. If the person buys an existing business however, any mistakes which are made due to the persons inexperience will be made in real-time on a live business. They stand a greater chance therefore, of affecting the customers and generally having a greater effect on the operation. The question to ask is: I am capable of running an established business right now or should I learn about it whilst I set-up my own?

evaluating business opportunities

Opportunities

o o

The world is filled with great business opportunities and none of them guarantee success. Spotting the opportunities is easy. What's hard is developing the discipline and stamina to stay focused on the single opportunity that you've chosen until it's turned into an established business that can stand on its own.

Focus Phase one is to develop a single specific business. Focus is needed here to not consider 10 different business ideas at the same time, looking for the most promising. That's the wrong question. Here's what to ask yourself: Which business do I like the most? Which one fits in best with what I want to do with my life? Select the single idea that, for whatever reason, strikes you as more appealing than the others. o Phase two is to thoroughly the promising opportunity you like the best by researching it. Here's how: Arrange to spend time working in the industry. Find out everything you can about the current industry players and how the business really works. Get information from trade associations, talking to people in related businesses, and interviewing customers. Commitment o Any business is a long-term commitment. Plan to give it your full attention for at least five years. o We're not talking about neglecting the rest of your life, but at work you need to be totally dedicated to the path you've chosen until the company is firmly established, and that takes a long time. Is it viable? o Enjoyment in the long-term is vital, but viability is needed or else your commitment is futile. If you can't answer the following questions, which are crucial if you're moving forward, then it's generally because you're not focusing on the one specific opportunity and pushing the others out of your mind: Do you have the resources and skills you need to be successful in your business? Is it reasonable to think that the business will get you to where you want to go? Build a customer base o The biggest challenge comes once you've started as you soon discover there are more opportunities available--both from inside and outside the business. These tempt you to lose your focus, and with it, your best shot at success. o Unless you focus first on building a customer base, you don't have a business. Any business must sustain itself on a base of customers that provide an internally-generated cash flow and profit to make the business viable. Ask these questions:
o

What kind of customers will give you such a base? How can you draw them in? o Relentlessly focus on this customer base. This isn't easy and doesn't come naturally to most people. o Opportunities are always there, but if they move you away from your focus, they tie up capital, waste your money in the wrong areas, and take your time away from doing the one thing that makes a business successful: building the customer base. o The two limiting resources are time and money. Don't waste either. What if your approach isn't working? o Don't wear blinders. Focus shouldn't make you rigid. Sometimes your information, such as inability to get information out of the people in the industry, limit your ability to know basic things such as how to go after the customers and how much to charge. o Try using competitive prices first and add value by giving better service. If this doesn't work, then you've got the wrong approach. Maybe people won't switch vendors or buy because of service or improved technology. So think about lowering your price. o Lowering prices is tricky. You must be able to do it while still making the business viable. o Remember that profit = gross income - expenses. So you either need to increase income or decrease expenses in a timely enough manner to maintain cash flow while the business is growing. o Expenses relate to each item sold. You need to be able to calculate a per item expense. Then you have the possibility of thinking up creative ways to decrease this by considering every area of expense for ways to do it cheaper. o Increase income by increasing customers or raising prices. o If you're not getting enough leads to customers, then perhaps your selling strategy is wrong. Where are the customers? If they're at trade shows, go there, but see what the results are. Maybe you need to cold call. o Be both focused and flexible. Don't be distracted by the opportunities yet don't be so focused that you ignore signs of trouble. o A business idea almost never works exactly as you though it would when you started out. o You have to figure out how to make it work by watching, listening, asking questions, experimenting, making changes, refining your concept, and constantly developing your customer base.

Methods of Valuing a Business Business valuation is a mixture of art and science wrapped up in a professionals opinion. But in the real world, the value of a business is what a buyer will pay for the enterprise. How a buyer can determine a

fair value can be based on methods described below. Each of these methods may have variations depending on application and specific situations. Its common to value a business by a number of different methods and use a weighted average for the final valuation. There are a number of reasons to value a business but for purposes of this article we will limit our scope to valuing businesses for the purpose of buying and selling. Below are the approaches with specific methods used within each. 1. The Income Approach This is the most widely recognized approach to estimating economic value. The income approach is an income-oriented method of estimating economic value. It involves estimating the amount of future income/earnings that will be produced by a business along with and the expected rate of return required by the investor to determine an estimated value. There are two different methods within the Income Approach. The first method is the Capitalization of Earnings Method. The term capitalization refers to the process of dividing a known or assumed amount of return on an investment by a known or assumed rate of return to determine the principle to invest. You take the estimated net income (adjusted earnings) by an estimated rate of return resulting in an investment value. Investment Value = Adjusted Earnings divided by Capitalization Rate While the mathematics of the capitalization is quite simple, the process of estimating net earnings and selecting the appropriate capitalization is complex. The following outline is simplified and shows the basic steps of the capitalization of earning method: 1. Determine the type of earnings to be capitalized. wners discretionary income (includes owner salary) O Earnings before interest, taxes, depreciation and amortization Earnings before interest and taxes Net Profit After Tax Free Cash Flow 2. Prepare a recast statement of earnings based on historical earnings. 3. Choose a capitalization rate. 4. Calculate the investment value. capitalization method is used when growth of the company is forecasted to be flat or less than 5% annually. When growth is expected to be greater than 5% it would be appropriate to use

the Discounted Future Earnings Method. In applying the discounted future earnings method to estimating economic value, the amount of future earnings from the business is estimated for each forecasted period. The estimated earnings for each year are then discounted at the appropriate discount rate to determine their present value. The present value of each period of estimated earnings for all future years are then added to determine the total present value. The last step determines what we call the terminal value. Its the residual value of the property at the end of the period of years being estimated. This value is discounted to its equivalent present value and added to the present value of the future earnings to determine total economic value. This method is most often used in merger and acquisition valuations. 2. Market Data Approach In estimating the value of businesses using the market data approach the valuator attempts to identify publicly and privately held businesses that have been sold, which are similar to the one being appraised. The appraiser then uses information about the selling prices of these businesses as a basis for estimating the value of the business being appraised. As one uses this type of approach it is important to appropriately compare the size of the business being valued. Over recent years more and more information on privately-held business sales are being documented among business brokers and intermediaries, it is still sometimes difficult to obtain information on past business transactions due to the uniqueness and scarcity of data. One should be very careful to make sure you are comparing apples to apples in transaction data. 3. Tangible Assets (Replacement Cost Approach) In some instances, a business is worth no more than the value of its tangible assets. This would be the case for some (not all) businesses that are losing money or paying the owner(s) less in total than fair market compensation. You would adjust the assets values up or down on the balance sheet to their present fair market value less the companys liabilities. 4. Cost to Create Approach Sometimes companies or individuals will purchase a company just to avoid the difficulties of starting from scratch. The buyer will calculate the companys his or her start up costs using costs incurred and time

expended. This method can be used for the business as whole or certain assets such as copyrights and patents. Various proprietary items such as trade formulas or processes, customer lists, are other examples of assets that can also be valued by means of the cost to create approach. 5. Rules of Thumb What are rules of thumb? Rules of thumb or industry formulas are supposedly market derived units of comparison (from Market Data Approach). The multiple or percentage contained in the formula is an expression of the relationship between gross purchase price and/or some indicator of the operating results of the business (Sales, Net Profit, Gross Profitetc.). Since these formulas are statistically derived from the sale of many businesses of each type. You have to be very careful because the formulas are based on averages. Not all businesses operate at the industry average, which would overvalue or undervalue a business if the rule of thumb was applied. They do serve their purpose if the appraiser can determine the business operates in the averages of the industry. franchising perseptive Satisfy an enduring need with suitable reward. The product or service offered must have long-term market potential. Franchisees will have been advised to look for business opportunities that take advantage of coming trends and avoid those based on passing attractions or fads. Although franchisees may not expect substantial returns on their investment in the first couple of years, they will expect by the end of the initial franchise period to have paid off their bank loan (as will the bank) and to have achieved a reasonable return on their initial investment. The franchisor must ensure that there is sufficient margin in the business for the franchisee to pay ongoing fees to the franchisor and to make money for him/herself. Possess a clear identity. Potential franchisees will evaluate the clarity and distinctiveness of the franchisor's identity, name and image. They will be looking for a franchise operation that has the potential to develop sales through its brand and reputation.

Display a proven track record. As with any good investment an investor will need to be able to evaluate the past success of the franchise. Potential franchisees, and those from whom they may be borrowing, will want to be assured that the franchise is proven, both financially and operationally. Possess easily transferable operational methods. Successful franchises are based on operations that do not require a potential franchisee to have any experience of the particular business. Regardless of the franchisee's experience, the methods of conducting the business must be transferable, allowing the franchisee to run it as successfully as the franchisor. Have capable management to provide adequate support. For the franchisor, franchising means decentralisation, with greater power being handed down to unit level. It also means the franchisor will have to deal with a new type of workforce whose motivation is very different to that of the company's own staff. While franchisees can be highly motivated, they can also be very demanding on the franchisor's staff. As the franchise develops the franchisor will be expected to invest in research and development to ensure that the business methods, products and services continue to meet changing consumer needs. It will also be necessary for the franchisor to provide on-going support to franchisees to assist and encourage them to develop their business and to improve its overall performance. In addition, the franchisor must see to it that the level of support provided is sufficient to ensure that the network as a whole maintains the quality standards set out in the operating manual. franchisee's perspective

Evaluating Yourself You should take the time to assess your individual skill set strengths and weaknesses before deciding to invest in a franchise or business opportunity. Use this on-line assessment to define your skill set strengths and weaknesses Read More Evaluating Yourself Assessing the Business Type You should check that any franchise or business opportunity you are interested in investing in, is a genuine franchise or business operation. Use the checklist provided here as a guide to asking the right questions about a franchise investment before investing your hard earned money.

Read More Assessing the Business Type Assessing the Franchisor When assessing a potential franchisor you should follow the checklist provided in this article to clearly define the franchisors credibility. The Franchisor Read More Assessing the Franchisor Assessing the Business Proposition You should assess a franchise business proposition according to the checklist provided here, and ask the relevant questions when analysing the business proposition. Read More Assessing the Business Proposition The Franchise Agreement After you have assessed the business proposition and the franchisor, researched the industry and the franchise opportunity you would like to invest in, you should be ready to sign on the dotted line! You should, with the legal help of a solicitor analyse the Franchise Agreement, and to ask the following questions in this article to make sure you are getting the best deal for your investment. Read More The Franchise Agreement What the Franchise Agreement Should Include? View this article on the key clauses that should be included in the franchise agreement. The following six clauses training, brand or intellectual property protection, support, business system improvements and Marketing and PR- should be included as obligatory within the Franchise Agreement. Read More What the Franchise Agreement Should Include? Franchising: The Stepping Stones Read this article for an overview of the key steps you will have to take when deciding on investing in a franchise or business operation. Remember every franchise business model is different and unique and will have different criteria. It is up to you to take the relevant steps to find the perfect franchise to suit you. Read More Franchising: The Stepping Stones

Using a Franchise Broker A good franchise broker can help aspiring franchisees to choose their prefect business by providing them with expert insight into possible opportunities with the franchisors they represent. They can save valuable research time and can often point franchisees in directions they would not otherwise have thought of but which could turn out to be the right ones for them. Read More Using a Franchise Broker Starting Your Own Business Read this article on key tips relating to how you go about setting up your own franchise operation. Key issues are finance, franchise costs, location and most importantly a realistic and fool-proof business plan should be drawn up by you. Read More Starting Your Own Business Growing Your Franchise Business After creating a unique business plan for your start-up business, this should help you with the first initial stages of the business operation. You should consult your business plan when you need to make changes, adjust, add new staff etc. This will help you keep on track and grow your business into a successful franchise operation. Read More Growing Your Franchise Business Operate a successful franchise For many franchisees the successful nature of their business depends on how the manage to plan for the future with the implementation of strategic business and financial plans. In order for the franchise business to be successful, it is important to concentrate on the daily activities of the business. Keep in mind the following points when you decide to invest in a franchise or business opportunity to ensure its long term success. Read More Operate a successful franchise Marketing a Franchise View these key points in relation to the marketing of your franchise or business opportunity. Either your franchisor or you will help promote the business on a local or national level using effective advertising and PR campaigns. However, for first-time franchisees, generally the franchisor will create and allocate marketing campaigns on behalf of the franchisees. Read More Marketing a Franchise

Master Franchises: Benefits & Demands Master franchises give people with significant funds to start a business a degree of power, as they will be in charge of the other franchises that are established in a specified country or region. View this article for a list of the benefits of Master Franchise Licences and the demands placed upon a Master Franchisor. Read More Master Franchises: Benefits & Demands Multi-Unit Franchising An individual or company acquires the right to establish a series of franchised units over a specified amount of time. These units will usually be located within an exclusive territory. The franchisee operates the units according to his/her own account.

UNIT 4
Financing your new venture Own Sources. The individual inventor probably will have to face the reality of finding start-up funds from his or her own resources. This is the way inventions traditionally have been financed. Each source of start-up funds has some advantages and disadvantages. From savings. This is the most desirable source of funds, as it assures the ownership of the invention remains with the inventor. Unfortunately, savings often are not available. The inventor may not have enough confidence to risk his or her own savings. If this is the case, the inventor can hardly expect to convince others to risk their cash, and he or she had better go back to complaining about the insensitivity of the capitalist system to the truly innovative. From your 401(k) account. This follows the above approach, but it puts at risk not only your present, but your future personal solvency. Not even I can recommend it; but it may be necessary if you are to get your business off the ground. Borrowing using credit cards. This works, and doesnt involve annoying discussions with loan officers. The main disadvantage is that credit cards have high interest rates. Search for cards with low rates before starting your venture. If worse comes to worse, personal bankruptcy will discharge credit card debts. (But be sure to see a lawyer before undertaking this strategy, particularly if you own a home). Borrowing on your house. This provides funds at the lowest interest rate, and the interest may be tax deductible. It may be your best bet. But never forget if you fail to make the monthly payments, the bank will take your house - no ifs, ands, or buts. Borrowing from your family and friends. Again this is a traditional source of funds. But be sure to consult a lawyer before promising a portion of the company, invention or proceeds to the provider of the money. Be sure all agreements are recorded in writing. Future venture capital will be impossible to obtain if ownership of the company is vague or uncertain. No one wants to buy a lawsuit. "If this works out, youll get a share of the company" is uncertain. "If you write the software you get 1% of the company" is certain with respect to the ownership of the company. Grants and contracts. Generally available from government agencies, such as the National Institutes of Health, such contracts are life-saving for many technology start-up companies. One disadvantage is the time and effort required to obtain the grants and contracts. It is of course necessary that the research required by the grant or contract actually be done. Ideally the research will fit the company

requirements. Unfortunately, the companys greatest needs may be in areas other than research, such as market and product development. Nevertheless, few startups can afford to ignore grants and contracts. Other sources. There are a variety of state and local government programs which can provide needed cash. JREF is a private non-profit foundation is which provides low-interest loans to Howard County companies. Information on these opportunities is available from the Small Business Development Center on Bendix Road. Outside Investors. All the above schemes (with the possible exception of family and friends) do not involve transfer stock to outsiders, and certainly allow the inventor to control the business. Financing at the next stage, involving angel investors, venture capitalists, bank loans, and private and public offerings of stock, is beyond this article. These financing arrangements all involve a greater or lesser loss of control by the company founder. Any founder who sells the majority of the company stock should not be surprised when someday he or she is asked to give up control. Thats when you know its time to start a new venture.

Financing Options for New Businesses Coming up with the money to start a new business is a challenge, but it is not impossible. There are many options, some of which you may not have even considered. In addition to traditional lenders, you can seek money from friends and relatives, look for lenders through the SBA, or even borrow against your retirement accounts. Friends and family Borrowing money from friends and relatives makes many people uncomfortable, but it's a sacrifice some are willing to make to start their new businesses. If you have friends and family willing to help you, approach them as you would any potential investor. Present a professional loan request with supporting materials such as a business plan and earnings projections, just as you would to a commercial lender. If you go forward with a loan from a friend or family member, draft a contract that outlines the terms and conditions of the loan and the obligations of both parties. Borrowing from yourself If you have a 401(k) plan, you may be able to borrow against the money you have been contributing. About 90 percent of 401(k) plans allow loans. If your plan allows you to borrow against it, you can get a maximum of $50,000 but not more than 50 percent of the total amount in your account. There are several benefits of 401(k) loans:

Fast approval. Since you are essentially borrowing your own money, the approval process is more or less a formality. Attractive interest rate. Most 401(k) loans' interest rates are fixed at the prime rate for the duration of the loan. No restriction on how you use the funds. Unlike loans from conventional sources, you can use the money for whatever purposes you see fit.

When you make loan payments, the funds, minus the interest, return to your 401(k) account. One downside is that payments must be made on schedule and the loan must be satisfied within the designated time frame or you may be subject to paying taxes on the money and a 10 percent penalty fee. The SBA If you are starting a business from scratch, the Small Business Administration (SBA) is a great place to turn for financial assistance. While the SBA does not grant loans, they do guarantee them. The SBA guarantee substantially lowers a lender's risk, making them more apt to grant a loan. The SBA's Prequalification Loan program is designed to assist low income borrowers, disabled business owners, new and emerging businesses, veterans, exporters, rural, and specialized industries. It uses intermediary organizations to assist prospective borrowers in putting together their applications and directs them to approved lenders. This service is known as loan packaging. Commercial lenders and consultants charge for loan packaging, but the SBA does it for free for qualified borrowers. Once the loan package is ready, your intermediary submits it to the SBA for consideration. If your application is approved, the SBA will issue a prequalification letter on your behalf. The prequalification letter indicates that the SBA will guarantee the loan made by a lender under specific terms and conditions. Traditional lenders Banks and other lenders like to see substantiation of past earnings, an established business credit history, and positive personal credit. When just starting your business, it can be difficult to demonstrate your business plan's viability and potential to earn. Many lenders will still take a chance on you if you can show them a strong business plan, good personal financial statements, and a solid credit rating. Proving the financial health of your company or of your business plan requires an understanding of your business's cash flow (projected or current). Our plain-English guide to cash flow management tools explains which numbers you'll need to watch, and it also recommends programs that can help you analyze those numbers. Three Steps Of Effective Asset Management. By Mark C. Lynn Thursday, 17th February 2011

Assessment, Implementation and Measurement To add value, asset managers must provide asset oversight that translates into quantifiable value to a hotel owner. This article presents three basic steps that asset managers should follow in order to provide effective asset management. The approach to asset management has evolved over the years based on ever-changing market conditions and hotel owners needs. To contribute value, asset managers must provide focused and results-oriented asset oversight that translates into quantifiable value to a hotel owner. In order to accomplish this, asset managers must approach an engagement in three basic steps. First, an initial evaluation of the present situation regarding a hotels operations and performance should be conducted to gain knowledge of the operation and its strengths and weaknesses. While some assets do require a wide-lens approach, with the asset managers becoming heavily involved in all operational areas, simultaneously, many assets have hot spots that can be quickly converted into areas of opportunity. These areas of quick results are identified during the evaluation period. A list of the actions typically taken during the initial assessment is contained later in this article. Second, armed with the knowledge gained during the initial assessment, the asset manager should develop a recommended strategic plan of action and scope of work that prioritize areas of focus and include a recommended length of engagement. Third, after the initiative has begun the asset manager should closely monitor progress and report ongoing activities and success to hotel ownership through written reports, verbal communications, and regularly scheduled meetings. Determination of Scope The recommended scope and length of an asset management engagement should be determined after the completion of the initial operational evaluation, not before. Strengths and weaknesses within the operation are identified during the initial assessment and the asset manager should provide a hotel owner with a focused, cost-effective plan and approach to improve results based on current conditions. No different than a doctor performing a physical on a patient, this exercise provides a thorough understanding of how the asset is currently being managedand how it is performing compared to its competitive set, and to other assets of similar size and quality

level. Customization of Priorities and Actions As noted, the information obtained during the initial assessment is utilized to prioritize and focus ongoing asset management efforts in specific operational areas to provide maximum impact to the assets performance. What is found will also bear heavily on the scope of work and length of engagement the asset manager may recommend to the hotels owner. The more traditional, long-term asset management agreements of the past are now, more frequently, being replaced by shorter, results-driven contracts that provide the hotel owner with specific, targeted initiatives to improve cash flow and value. As an example, during the initial step of a recent engagement, our firm determined that a hotel was excessively sacrificing rate to drive occupancy. Using HVSs proprietary fixed-variable model we determined that the propertys profitability would be more greatly enhanced by selectively reconfiguring the rate structureraising rates and slightly depressing occupancy, replacing current managements philosophy of decreasing rates to increase occupancy. As this example illustrates, the scrutiny of yield management and other management practices can quickly identify fundamental missteps that can be quickly changed to improve results during the initial operational assessment period. During the initial operational evaluation the following actions are generally taken to assess the current situation. 1. Evaluate and analyze annual and year-to-date financial statements, Smith Travel STR Reports, the sales and marketing plan, the budget, capital improvement schedules, franchise inspections (if applicable), repeat-guest data and guest satisfaction information, employee turnover and satisfaction data, and the propertys organizational chart. 2. Conduct an on-site inspection of the hotel, during which the public areas, retail space, back-of-the-house space, a sampling of all guestroom types, spa facilities, food and beverage and meeting facilities, and other facilities and amenities that are contained within and around the hotel are evaluated. 3. Interview key management staff members to assess and determine their range of responsibilities, experience levels, and the procedures they employ to carry out their various functions at the hotel. 4. Review guest comments, guest satisfaction information, and repeat-guest information. 5. Assess employee turnover and satisfaction data.

6. Analyze the financial performance of the operating departments within the hotel to assess the expenses and profitability level of each department and compare this information to the financial results of similar operations of the same size and quality level. 7. Assess the sales and marketing and public relations efforts being put forth on behalf of the hotel. 8. Evaluate pricing strategies and yield-management practices to determine if the hotel is properly positioned and is maximizing its top-line revenues. 9. Inspect all hotels in the assets competitive set to compare quality and amenity differences. 10. Compare the overall financial performance to the financial performance of hotels of similar size, configuration, and quality. Continually Provide Value Asset managers must demonstrate that they are not another layer of expense, but that they contribute quantifiable value to a hotel owner. Through the three steps described, asset managers can demonstrate to a hotel owner that their activities contribute quantifiable value to a hotel. In addition to traditional management oversight, asset management firms provide strategic planning advice, acquisition and disposition services, tax planning, and alternative-use evaluations. No two assets are alike and the specific wants and needs of hotel owners vary greatly. Through a well-thought-out approach involving ownership, the asset manager, and the on-site management team, a hotels optimum performance can be achieved. About Mark C. Lynn

Based in San Francisco, MARK LYNN oversees the wide range of hotel asset management, strategic planning, development and operational consulting services provided by the firm. Mr. Lynn has more than 30 years of hotel industry

experience and has been involved in the development and management of more than 100 hotel projects with an asset value exceeding $2 billion.

Startup Financing and Bootstrapping! Bootstrapping in the context of this discussion is focused on financing a business startup or business continuation or growth through non-traditional methods. Some say that bootstrapping is about starting a new business without startup financing or startup venture capital. To new business owners that may mean borrowing from non-traditional lenders, raising small business startup grants, or working several jobs to raise cash, or changing your small business plan to startup with less financial need (for example, buy used furniture and lease two computers, instead of buying new furniture and purchasing three computers) and improve cash flow (for example, by selling your goods or services with shorter terms for more immediate payment or by providing incentives to customers to pay invoices immediately or quickly; and to extend terms with your suppliers to pay them over a longer period of time these tactics will help you preserve cash). ---------------Sidebar--------------Ive recently heard horror stories of businesses that have had their operating lines of credit slashed to a degree that continued operations are not possible; and stories of asset financing that has fallen through at the last moment because the lending organization could not access the necessary funds. In fairness to the lending institutions, the business failure rate is high, and growing higher, so their ultra-conservative approach might be necessary. ------------------------------------Traditional business financing includes banks, government financial programs, and commercial financial lending institutions. These organizations provide lending products, operating lines of credit and cash flow programs, equipment leasing and asset financing, and more. Additionally, startup venture capital funds are another, rather more traditional form of raising financing. But, due to current global financial market conditions, it can be challenging to, first, qualify for access to this startup financing - lending criteria has tightened to the point where most traditional lending institutions want a sure thing and, second, to actually get the lending institutions to disperse the business start up loans, asset financing, or operating funds promised.

Some Non-Traditional Business Financing Methods Might include:

use of credit cards; owner(s) income from a second (or even third) job; second mortgages; equity loans (secured by personal assets, such as a home); customer loans or advances on future orders; supplier loans; develop a strategic partnership; loans from family, friends, acquaintances, business associates.

For small business owners, obtaining financing to startup your business or to keep it operating (or to grow your business through acquisition, take-overs, and horizontal or vertical mergers) is usually a high stress experience. You need to ensure that your business can support the money you want to borrow. You need to build a strong business case and provide your lenders with detailed information on your business, your strategy, your human resources, your target market and marketing. Can You Qualify For A Small Business Startup Grant? One startup option might be to see if you can qualify for a small business startup grant: from your local association, or bank, or government. Typically, grants (which are not the same as a loan because they are not repayable) are given for some specific niche type of business; for example, a business that employs disabled workers. Financial lenders need to be able to assess your knowledge, your capability, and your opportunities for success. Additionally you will need to put up personal guarantees for the money you are looking for; this means you need assets to back up your guarantees. Not all new business owners have the credit worthiness or credit rating to qualify with the lending institutions (or even to qualify for business startup grants). If you are considering bootstrapping as a means of financing your business; it is a high stress experience. You may now owe money to family, friends, customers, suppliers, business associates, and so on. If your business doesn't succeed then those people who helped you startup will lose all or part of their investments. The hardest financing for many entrepreneurs, but the lowest risk, is to finance it yourself by selling some assets (for example, your car, your house or anything else of value) or by working a second job until the business is sustainable. All small business startups and new business owners, as well as owners wanting to continue their operations or grow their business, need to ensure that they develop and manage their small business plan successfully: ensure that your plan is doable and ensure that you understand your market, your competitors, your customers, your products and services.

Keep up-to-date in your industry; network with other small business owners inside, and outside, of your industry. Talk with your industry association and/or find a good business mentor or advisor to help you make the right business decisions and to improve your financial problem solving outcomes. Bootstrapping is an alternative way of obtaining startup financing or acquiring business financing for ongoing operations or capital expenditure investments; make sure whatever method of financing you select that it's a best-fit for you and your business operations.

Sources of funds A company might raise new funds from the following sources: The capital markets: i) new share issues, for example, by companies acquiring a stock market listing for the first time ii) rights issues Loan stock Retained earnings Bank borrowing Government sources Business expansion scheme funds Venture capital Franchising. Ordinary (equity) shares Ordinary shares are issued to the owners of a company. They have a nominal or 'face' value, typically of $1 or 50 cents. The market value of a quoted company's shares bears no relationship to their nominal value, except that when ordinary shares are issued for cash, the issue price must be equal to or be more than the nominal value of the shares. Deferred ordinary shares are a form of ordinary shares, which are entitled to a dividend only after a certain date or if profits rise above a certain amount. Voting rights might also differ from those attached to other ordinary shares. Ordinary shareholders put funds into their company:

a) by paying for a new issue of shares b) through retained profits. Simply retaining profits, instead of paying them out in the form of dividends, offers an important, simple low-cost source of finance, although this method may not provide enough funds, for example, if the firm is seeking to grow. A new issue of shares might be made in a variety of different circumstances: a) The company might want to raise more cash. If it issues ordinary shares for cash, should the shares be issued pro rata to existing shareholders, so that control or ownership of the company is not affected? If, for example, a company with 200,000 ordinary shares in issue decides to issue 50,000 new shares to raise cash, should it offer the new shares to existing shareholders, or should it sell them to new shareholders instead? i) If a company sells the new shares to existing shareholders in proportion to their existing shareholding in the company, we have a rights issue. In the example above, the 50,000 shares would be issued as a one-in-four rights issue, by offering shareholders one new share for every four shares they currently hold. ii) If the number of new shares being issued is small compared to the number of shares already in issue, it might be decided instead to sell them to new shareholders, since ownership of the company would only be minimally affected. b) The company might want to issue shares partly to raise cash, but more importantly to float' its shares on a stick exchange. c) The company might issue new shares to the shareholders of another company, in order to take it over. New shares issues A company seeking to obtain additional equity funds may be: a) an unquoted company wishing to obtain a Stock Exchange quotation b) an unquoted company wishing to issue new shares, but without obtaining a Stock Exchange quotation c) a company which is already listed on the Stock Exchange wishing to issue additional new shares. The methods by which an unquoted company can obtain a quotation on the stock market are: a) an offer for sale b) a prospectus issue

c) a placing d) an introduction. Offers for sale: An offer for sale is a means of selling the shares of a company to the public. a) An unquoted company may issue shares, and then sell them on the Stock Exchange, to raise cash for the company. All the shares in the company, not just the new ones, would then become marketable. b) Shareholders in an unquoted company may sell some of their existing shares to the general public. When this occurs, the company is not raising any new funds, but just providing a wider market for its existing shares (all of which would become marketable), and giving existing shareholders the chance to cash in some or all of their investment in their company. When companies 'go public' for the first time, a 'large' issue will probably take the form of an offer for sale. A smaller issue is more likely to be a placing, since the amount to be raised can be obtained more cheaply if the issuing house or other sponsoring firm approaches selected institutional investors privately. Rights issues A rights issue provides a way of raising new share capital by means of an offer to existing shareholders, inviting them to subscribe cash for new shares in proportion to their existing holdings. For example, a rights issue on a one-for-four basis at 280c per share would mean that a company is inviting its existing shareholders to subscribe for one new share for every four shares they hold, at a price of 280c per new share. A company making a rights issue must set a price which is low enough to secure the acceptance of shareholders, who are being asked to provide extra funds, but not too low, so as to avoid excessive dilution of the earnings per share. Preference shares Preference shares have a fixed percentage dividend before any dividend is paid to the ordinary shareholders. As with ordinary shares a preference dividend can only be paid if sufficient distributable profits are available, although with 'cumulative' preference shares the right to an unpaid dividend is carried forward to later years. The arrears of dividend on cumulative preference shares must be paid before any dividend is paid to the ordinary shareholders. From the company's point of view, preference shares are advantageous in that:

 Dividends do not have to be paid in a year in which profits are poor, while this is not the case with interest payments on long term debt (loans or debentures). Since they do not carry voting rights, preference shares avoid diluting the control of existing shareholders while an issue of equity shares would not. Unless they are redeemable, issuing preference shares will lower the company's gearing. Redeemable preference shares are normally treated as debt when gearing is calculated. The issue of preference shares does not restrict the company's borrowing power, at least in the sense that preference share capital is not secured against assets in the business. The non-payment of dividend does not give the preference shareholders the right to appoint a receiver, a right which is normally given to debenture holders. However, dividend payments on preference shares are not tax deductible in the way that interest payments on debt are. Furthermore, for preference shares to be attractive to investors, the level of payment needs to be higher than for interest on debt to compensate for the additional risks. For the investor, preference shares are less attractive than loan stock because: they cannot be secured on the company's assets the dividend yield traditionally offered on preference dividends has been much too low to provide an attractive investment compared with the interest yields on loan stock in view of the additional risk involved. Loan stock Loan stock is long-term debt capital raised by a company for which interest is paid, usually half yearly and at a fixed rate. Holders of loan stock are therefore long-term creditors of the company. Loan stock has a nominal value, which is the debt owed by the company, and interest is paid at a stated "coupon yield" on this amount. For example, if a company issues 10% loan stocky the coupon yield will be 10% of the nominal value of the stock, so that $100 of stock will receive $10 interest each year. The rate quoted is the gross rate, before tax. Debentures are a form of loan stock, legally defined as the written acknowledgement of a debt incurred by a company, normally containing provisions about the payment of interest and the eventual repayment of capital. Debentures with a floating rate of interest

These are debentures for which the coupon rate of interest can be changed by the issuer, in accordance with changes in market rates of interest. They may be attractive to both lenders and borrowers when interest rates are volatile. Security Loan stock and debentures will often be secured. Security may take the form of either a fixed charge or a floating charge. a) Fixed charge; Security would be related to a specific asset or group of assets, typically land and buildings. The company would be unable to dispose of the asset without providing a substitute asset for security, or without the lender's consent. b) Floating charge; With a floating charge on certain assets of the company (for example, stocks and debtors), the lender's security in the event of a default payment is whatever assets of the appropriate class the company then owns (provided that another lender does not have a prior charge on the assets). The company would be able, however, to dispose of its assets as it chose until a default took place. In the event of a default, the lender would probably appoint a receiver to run the company rather than lay claim to a particular asset. The redemption of loan stock Loan stock and debentures are usually redeemable. They are issued for a term of ten years or more, and perhaps 25 to 30 years. At the end of this period, they will "mature" and become redeemable (at par or possibly at a value above par). Most redeemable stocks have an earliest and latest redemption date. For example, 18% Debenture Stock 2007/09 is redeemable, at any time between the earliest specified date (in 2007) and the latest date (in 2009). The issuing company can choose the date. The decision by a company when to redeem a debt will depend on: a) how much cash is available to the company to repay the debt b) the nominal rate of interest on the debt. If the debentures pay 18% nominal interest and the current rate of interest is lower, say 10%, the company may try to raise a new loan at 10% to redeem the debt which costs 18%. On the other hand, if current interest rates are 20%, the company is unlikely to redeem the debt until the latest date possible, because the debentures would be a cheap source of funds. There is no guarantee that a company will be able to raise a new loan to pay off a maturing debt, and one item to look for in a company's balance sheet is the redemption date of current loans, to establish how much new finance is likely to be needed by the company, and when. Mortgages are a specific type of secured loan. Companies place the title deeds of freehold or long leasehold property as security with an insurance company or mortgage broker and

receive cash on loan, usually repayable over a specified period. Most organisations owning property which is unencumbered by any charge should be able to obtain a mortgage up to two thirds of the value of the property. As far as companies are concerned, debt capital is a potentially attractive source of finance because interest charges reduce the profits chargeable to corporation tax. Retained earnings For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. Profit re-invested as retained earnings is profit that could have been paid as a dividend. The major reasons for using retained earnings to finance new investments, rather than to pay higher dividends and then raise new equity for the new investments, are as follows: a) The management of many companies believes that retained earnings are funds which do not cost anything, although this is not true. However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. b) The dividend policy of the company is in practice determined by the directors. From their standpoint, retained earnings are an attractive source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders. c) The use of retained earnings as opposed to new shares or debentures avoids issue costs. d) The use of retained earnings avoids the possibility of a change in control resulting from an issue of new shares. Another factor that may be of importance is the financial and taxation position of the company's shareholders. If, for example, because of taxation considerations, they would rather make a capital profit (which will only be taxed when shares are sold) than receive current income, then finance through retained earnings would be preferred to other methods. A company must restrict its self-financing through retained profits because shareholders should be paid a reasonable dividend, in line with realistic expectations, even if the directors would rather keep the funds for re-investing. At the same time, a company that is looking for extra funds will not be expected by investors (such as banks) to pay generous dividends, nor over-generous salaries to owner-directors. Bank lending Borrowings from banks are an important source of finance to companies. Bank lending is still mainly short term, although medium-term lending is quite common these days. Short term lending may be in the form of:

a) an overdraft, which a company should keep within a limit set by the bank. Interest is charged (at a variable rate) on the amount by which the company is overdrawn from day to day; b) a short-term loan, for up to three years. Medium-term loans are loans for a period of from three to ten years. The rate of interest charged on medium-term bank lending to large companies will be a set margin, with the size of the margin depending on the credit standing and riskiness of the borrower. A loan may have a fixed rate of interest or a variable interest rate, so that the rate of interest charged will be adjusted every three, six, nine or twelve months in line with recent movements in the Base Lending Rate. Lending to smaller companies will be at a margin above the bank's base rate and at either a variable or fixed rate of interest. Lending on overdraft is always at a variable rate. A loan at a variable rate of interest is sometimes referred to as a floating rate loan. Longerterm bank loans will sometimes be available, usually for the purchase of property, where the loan takes the form of a mortgage. When a banker is asked by a business customer for a loan or overdraft facility, he will consider several factors, known commonly by the mnemonic PARTS. - Purpose - Amount - Repayment - Term - Security P The purpose of the loan A loan request will be refused if the purpose of the loan is not acceptable to the bank. A The amount of the loan. The customer must state exactly how much he wants to borrow. The banker must verify, as far as he is able to do so, that the amount required to make the proposed investment has been estimated correctly. R How will the loan be repaid? Will the customer be able to obtain sufficient income to make the necessary repayments? T What would be the duration of the loan? Traditionally, banks have offered short-term loans and overdrafts, although medium-term loans are now quite common. S Does the loan require security? If so, is the proposed security adequate? Leasing A lease is an agreement between two parties, the "lessor" and the "lessee". The lessor owns a capital asset, but allows the lessee to use it. The lessee makes payments under the terms of the lease to the lessor, for a specified period of time.

Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars and commercial vehicles, but might also be computers and office equipment. There are two basic forms of lease: "operating leases" and "finance leases". Operating leases Operating leases are rental agreements between the lessor and the lessee whereby: a) the lessor supplies the equipment to the lessee b) the lessor is responsible for servicing and maintaining the leased equipment c) the period of the lease is fairly short, less than the economic life of the asset, so that at the end of the lease agreement, the lessor can either i) lease the equipment to someone else, and obtain a good rent for it, or ii) sell the equipment secondhand. Finance leases Finance leases are lease agreements between the user of the leased asset (the lessee) and a provider of finance (the lessor) for most, or all, of the asset's expected useful life. Suppose that a company decides to obtain a company car and finance the acquisition by means of a finance lease. A car dealer will supply the car. A finance house will agree to act as lessor in a finance leasing arrangement, and so will purchase the car from the dealer and lease it to the company. The company will take possession of the car from the car dealer, and make regular payments (monthly, quarterly, six monthly or annually) to the finance house under the terms of the lease. Other important characteristics of a finance lease: a) The lessee is responsible for the upkeep, servicing and maintenance of the asset. The lessor is not involved in this at all. b) The lease has a primary period, which covers all or most of the economic life of the asset. At the end of the lease, the lessor would not be able to lease the asset to someone else, as the asset would be worn out. The lessor must, therefore, ensure that the lease payments during the primary period pay for the full cost of the asset as well as providing the lessor with a suitable return on his investment. c) It is usual at the end of the primary lease period to allow the lessee to continue to lease the asset for an indefinite secondary period, in return for a very low nominal rent. Alternatively, the lessee might be allowed to sell the asset on the lessor's behalf (since the lessor is the owner) and to keep most of the sale proceeds, paying only a small percentage (perhaps 10%) to the lessor.

Why might leasing be popular The attractions of leases to the supplier of the equipment, the lessee and the lessor are as follows: The supplier of the equipment is paid in full at the beginning. The equipment is sold to the lessor, and apart from obligations under guarantees or warranties, the supplier has no further financial concern about the asset. The lessor invests finance by purchasing assets from suppliers and makes a return out of the lease payments from the lessee. Provided that a lessor can find lessees willing to pay the amounts he wants to make his return, the lessor can make good profits. He will also get capital allowances on his purchase of the equipment. Leasing might be attractive to the lessee: i) if the lessee does not have enough cash to pay for the asset, and would have difficulty obtaining a bank loan to buy it, and so has to rent it in one way or another if he is to have the use of it at all; or ii) if finance leasing is cheaper than a bank loan. The cost of payments under a loan might exceed the cost of a lease. Operating leases have further advantages: The leased equipment does not need to be shown in the lessee's published balance sheet, and so the lessee's balance sheet shows no increase in its gearing ratio. The equipment is leased for a shorter period than its expected useful life. In the case of high-technology equipment, if the equipment becomes out-of-date before the end of its expected life, the lessee does not have to keep on using it, and it is the lessor who must bear the risk of having to sell obsolete equipment secondhand. The lessee will be able to deduct the lease payments in computing his taxable profits. Hire purchase Hire purchase is a form of instalment credit. Hire purchase is similar to leasing, with the exception that ownership of the goods passes to the hire purchase customer on payment of the final credit instalment, whereas a lessee never becomes the owner of the goods. Hire purchase agreements usually involve a finance house. i) The supplier sells the goods to the finance house. ii) The supplier delivers the goods to the customer who will eventually purchase them. iii) The hire purchase arrangement exists between the finance house and the customer.

The finance house will always insist that the hirer should pay a deposit towards the purchase price. The size of the deposit will depend on the finance company's policy and its assessment of the hirer. This is in contrast to a finance lease, where the lessee might not be required to make any large initial payment. An industrial or commercial business can use hire purchase as a source of finance. With industrial hire purchase, a business customer obtains hire purchase finance from a finance house in order to purchase the fixed asset. Goods bought by businesses on hire purchase include company vehicles, plant and machinery, office equipment and farming machinery. Government assistance The government provides finance to companies in cash grants and other forms of direct assistance, as part of its policy of helping to develop the national economy, especially in high technology industries and in areas of high unemployment. For example, the Indigenous Business Development Corporation of Zimbabwe (IBDC) was set up by the government to assist small indigenous businesses in that country. Venture capital Venture capital is money put into an enterprise which may all be lost if the enterprise fails. A businessman starting up a new business will invest venture capital of his own, but he will probably need extra funding from a source other than his own pocket. However, the term 'venture capital' is more specifically associated with putting money, usually in return for an equity stake, into a new business, a management buy-out or a major expansion scheme. The institution that puts in the money recognises the gamble inherent in the funding. There is a serious risk of losing the entire investment, and it might take a long time before any profits and returns materialise. But there is also the prospect of very high profits and a substantial return on the investment. A venture capitalist will require a high expected rate of return on investments, to compensate for the high risk. A venture capital organisation will not want to retain its investment in a business indefinitely, and when it considers putting money into a business venture, it will also consider its "exit", that is, how it will be able to pull out of the business eventually (after five to seven years, say) and realise its profits. Examples of venture capital organisations are: Merchant Bank of Central Africa Ltd and Anglo American Corporation Services Ltd. When a company's directors look for help from a venture capital institution, they must recognise that: the institution will want an equity stake in the company it will need convincing that the company can be successful

 it may want to have a representative appointed to the company's board, to look after its interests. The directors of the company must then contact venture capital organisations, to try and find one or more which would be willing to offer finance. A venture capital organisation will only give funds to a company that it believes can succeed, and before it will make any definite offer, it will want from the company management: a) a business plan b) details of how much finance is needed and how it will be used c) the most recent trading figures of the company, a balance sheet, a cash flow forecast and a profit forecast d) details of the management team, with evidence of a wide range of management skills e) details of major shareholders f) details of the company's current banking arrangements and any other sources of finance g) any sales literature or publicity material that the company has issued. A high percentage of requests for venture capital are rejected on an initial screening, and only a small percentage of all requests survive both this screening and further investigation and result in actual investments. Franchising Franchising is a method of expanding business on less capital than would otherwise be needed. For suitable businesses, it is an alternative to raising extra capital for growth. Franchisors include Budget Rent-a-Car, Wimpy, Nando's Chicken and Chicken Inn. Under a franchising arrangement, a franchisee pays a franchisor for the right to operate a local business, under the franchisor's trade name. The franchisor must bear certain costs (possibly for architect's work, establishment costs, legal costs, marketing costs and the cost of other support services) and will charge the franchisee an initial franchise fee to cover set-up costs, relying on the subsequent regular payments by the franchisee for an operating profit. These regular payments will usually be a percentage of the franchisee's turnover. Although the franchisor will probably pay a large part of the initial investment cost of a franchisee's outlet, the franchisee will be expected to contribute a share of the investment himself. The franchisor may well help the franchisee to obtain loan capital to provide hisshare of the investment cost.

The advantages of franchises to the franchisor are as follows: The capital outlay needed to expand the business is reduced substantially. The image of the business is improved because the franchisees will be motivated to achieve good results and will have the authority to take whatever action they think fit to improve the results. The advantage of a franchise to a franchisee is that he obtains ownership of a business for an agreed number of years (including stock and premises, although premises might be leased from the franchisor) together with the backing of a large organisation's marketing effort and experience. The franchisee is able to avoid some of the mistakes of many small businesses, because the franchisor has already learned from its own past mistakes and developed a scheme that works. Now attempt exercise 7.1. Exercise 7.1 Sources of finance Outdoor Living Ltd., an owner-managed company, has developed a new type of heating using solar power, and has financed the development stages from its own resources. Market research indicates the possibility of a large volume of demand and a significant amount of additional capital will be needed to finance production. Advise Outdoor Living Ltd. on: a) the advantages and disadvantages of loan or equity capital b) the various types of capital likely to be available and the sources from which they might be obtained c) the method(s) of finance likely to be most satisfactory to both Outdoor Living Ltd. and the provider of funds. Key terms Bank lending Capital markets Debentures Deferred ordinary shares Franchising Government assistance Hire purchase Loan stocks New share issue Ordinary shares PARTS

Preference shares Retained earnings Rights issue Sources of funds Venture capital

Venture Capital

What Does Venture Capital Mean? Money provided by investors to startup firms and small businesses with perceived longterm growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

Investopedia explains Venture Capital Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity. introduction to venture capital Venture Capital is a form of "risk capital". In other words, capital that is invested in a project (in this case - a business) where there is a substantial element of risk relating to the future creation of profits and cash flows. Risk capital is invested as shares (equity) rather than as a loan and the investor requires a higher"rate of return" to compensate him for his risk. The main sources of venture capital in the UK are venture capital firms and "business angels" - private investors. Separate Tutor2u revision notes cover the operation of business angels. In these notes, we principally focus on venture capital firms. However, it should be pointed out the attributes that both venture capital firms and business angels look for in potential investments are often very similar. What is venture capital? Venture capital provides long-term, committed share capital, to help unquoted companies grow and succeed. If an entrepreneur is looking to start-up, expand, buy-into a business,

buy-out a business in which he works, turnaround or revitalise a company, venture capital could help do this. Obtaining venture capital is substantially different from raising debt or a loan from a lender. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of the success or failure of a business . Venture capital is invested in exchange for an equity stake in the business. As a shareholder, the venture capitalist's return is dependent on the growth and profitability of the business. This return is generally earned when the venture capitalist "exits" by selling its shareholding when the business is sold to another owner. Venture capital in the UK originated in the late 18th century, when entrepreneurs found wealthy individuals to back their projects on an ad hoc basis. This informal method of financing became an industry in the late 1970s and early 1980s when a number of venture capital firms were founded. There are now over 100 active venture capital firms in the UK, which provide several billion pounds each year to unquoted companies mostly located in the UK. What kind of businesses are attractive to venture capitalists? Venture capitalist prefer to invest in "entrepreneurial businesses". This does not necessarily mean small or new businesses. Rather, it is more about the investment's aspirations and potential for growth, rather than by current size. Such businesses are aiming to grow rapidly to a significant size. As a rule of thumb, unless a business can offer the prospect of significant turnover growth within five years, it is unlikely to be of interest to a venture capital firm. Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plan into reality. For how long do venture capitalists invest in a business? Venture capital firms usually look to retain their investment for between three and seven years or more. The term of the investment is often linked to the growth profile of the business. Investments in more mature businesses, where the business performance can be improved quicker and easier, are often sold sooner than investments in early-stage or technology companies where it takes time to develop the business model. Where do venture capital firms obtain their money? Just as management teams compete for finance, so do venture capital firms. They raise their funds from several sources. To obtain their funds, venture capital firms have to demonstrate a good track record and the prospect of producing returns greater than can be achieved through fixed interest or quoted equity investments. Most UK venture capital firms raise their funds for investment from external sources, mainly institutional investors, such as pension funds and insurance companies. Venture capital firms' investment preferences may be affected by the source of their funds. Many funds raised from external sources are structured as Limited Partnerships

and usually have a fixed life of 10 years. Within this period the funds invest the money committed to them and by the end of the 10 years they will have had to return the investors' original money, plus any additional returns made. This generally requires the investments to be sold, or to be in the form of quoted shares, before the end of the fund. Venture Capital Trusts (VCT's) are quoted vehicles that aim to encourage investment in smaller unlisted (unquoted and AIM quoted companies) UK companies by offering private investors tax incentives in return for a five-year investment commitment. The first were launched in Autumn 1995 and are mainly managed by UK venture capital firms. If funds are obtained from a VCT, there may be some restrictions regarding the company's future development within the first few years. What is involved in the investment process? The investment process, from reviewing the business plan to actually investing in a proposition, can take a venture capitalist anything from one month to one year but typically it takes between 3 and 6 months. There are always exceptions to the rule and deals can be done in extremely short time frames. Much depends on the quality of information provided and made available. The key stage of the investment process is the initial evaluation of a business plan. Most approaches to venture capitalists are rejected at this stage. In considering the business plan, the venture capitalist will consider several principal aspects: Is the product or service commercially viable? Does the company have potential for sustained growth? - Does management have the ability to exploit this potential and control the company through the growth phases? Does the possible reward justify the risk? - Does the potential financial return on the investment meet their investment criteria? In structuring its investment, the venture capitalist may use one or more of the following types of share capital: Ordinary shares These are equity shares that are entitled to all income and capital after the rights of all other classes of capital and creditors have been satisfied. Ordinary shares have votes. In a venture capital deal these are the shares typically held by the management and family shareholders rather than the venture capital firm. Preferred ordinary shares These are equity shares with special rights.For example, they may be entitled to a fixed dividend or share of the profits. Preferred ordinary shares have votes. Preference shares These are non-equity shares. They rank ahead of all classes of ordinary shares for both

income and capital. Their income rights are defined and they are usually entitled to a fixed dividend (eg. 10% fixed). The shares may be redeemable on fixed dates or they may be irredeemable. Sometimes they may be redeemable at a fixed premium (eg. at 120% of cost). They may be convertible into a class of ordinary shares. Loan capital Venture capital loans typically are entitled to interest and are usually, though not necessarily repayable. Loans may be secured on the company's assets or may be unsecured. A secured loan will rank ahead of unsecured loans and certain other creditors of the company. A loan may be convertible into equity shares. Alternatively, it may have a warrant attached which gives the loan holder the option to subscribe for new equity shares on terms fixed in the warrant. They typically carry a higher rate of interest than bank term loans and rank behind the bank for payment of interest and repayment of capital. Venture capital investments are often accompanied by additional financing at the point of investment. This is nearly always the case where the business in which the investment is being made is relatively mature or well-established. In this case, it is appropriate for a business to have a financing structure that includes both equity and debt. Other forms of finance provided in addition to venture capitalist equity include: - Clearing banks - principally provide overdrafts and short to medium-term loans at fixed or, more usually, variable rates of interest. - Merchant banks - organise the provision of medium to longer-term loans, usually for larger amounts than clearing banks. Later they can play an important role in the process of "going public" by advising on the terms and price of public issues and by arranging underwriting when necessary. - Finance houses - provide various forms of installment credit, ranging from hire purchase to leasing, often asset based and usually for a fixed term and at fixed interest rates. Factoring companies - provide finance by buying trade debts at a discount, either on a recourse basis (you retain the credit risk on the debts) or on a non-recourse basis (the factoring company takes over the credit risk). Government and European Commission sources - provide financial aid to UK companies, ranging from project grants (related to jobs created and safeguarded) to enterprise loans in selective areas. Mezzanine firms - provide loan finance that is halfway between equity and secured debt. These facilities require either a second charge on the company's assets or are unsecured. Because the risk is consequently higher than senior debt, the interest charged by the mezzanine debt provider will be higher than that from the principal lenders and

sometimes a modest equity "up-side" will be required through options or warrants. It is generally most appropriate for larger transactions. Making the Investment - Due Diligence To support an initial positive assessment of your business proposition, the venture capitalist will want to assess the technical and financial feasibility in detail. External consultants are often used to assess market prospects and the technical feasibility of the proposition, unless the venture capital firm has the appropriately qualified people in-house. Chartered accountants are often called on to do much of the due diligence, such as to report on the financial projections and other financial aspects of the plan. These reports often follow a detailed study, or a one or two day overview may be all that is required by the venture capital firm. They will assess and review the following points concerning the company and its management: Management information systems Forecasting techniques and accuracy of past forecasting Assumptions on which financial assumptions are based - The latest available management accounts, including the company's cash/debtor positions Bank facilities and leasing agreements Pensions funding - Employee contracts, etc. The due diligence review aims to support or contradict the venture capital firm's own initial impressions of the business plan formed during the initial stage. References may also be taken up on the company (eg. with suppliers, customers, and bankers). Venture capital (VC) is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc. The typical venture capital investment occurs after the seed funding round as growth funding round (also referred as Series A round) in the interest of generating a return through an eventual realization event, such as an IPO or trade sale of the company. It is important to note that venture capital is a subset of private equity. Therefore all venture capital is private equity, but not all private equity is venture capital.[1] In addition to angel investing and other seed funding options, venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get

significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value). Venture capital is also associated with job creation (accounting for 21% of US GDP),[2] the knowledge economy, and used as a proxy measure of innovation within an economic sector or geography. Every year there are nearly 2 million businesses created in the USA, and only 600-800 get venture capital funding. According to the National Venture Capital Association 11% of private sector jobs come from venture backed companies and venture backed revenue accounts for 21% of US GDP.[3]

Venture Capital Decision-Making Process: Why This Matters

Must understand ANY customer processand investors are customers Less mysterious than you think Business valuation -especially for startups -requires a holistic view

Decision-Making Process: Twenty Questionsor so

Regardless your stage, investors will want comfort that you understand: Why are you in business What business are you in Why are you in this business What are your immediate & long-term objectives Who will work with you in this endeavor Who is responsible andaccountable for what Are those roles & responsibilities understood

Do the goals & objectives align with the team If not, why not? If not now Assuming you know your business, market Do you have a product specfrom a customer Can you compare it to a competitor and the status quo What do you need to deliver to your first customer

Is this the rightfirst customer? How do you know Do you know they will pay for it? Why What is between you and the customer

Have you convinced an experienced, hardened startup lawyer to work with you Have you convinced an experienced, hardened industry-savvy exec to join your board as an independent chair

Why All the Questions?

Thorough answers to these (and a lot more) The more likely an investor will invest The more likely youll get a higher valuation DO NOT try to bluff your way through If you dont know, say so and get back with answers

Where to Get Money

You and your team (AKA Visa ventures) Family, Friendsunadvisable unless they are in the business, can afford to lose every dime Professional angels -look for industry experience and willingness to help Customers -if you have what they need Government -depends on business & stage. Grant programs, sometimes larger deals Banks -not likely until cash flow positive or large venture round 2004 Cascadia Partners LLC Ownership Issues & Determination Must determine ownership among founders Make certain that you have the right people

Dont fill a position just to avoid holes Not all founders / jobs are equal. CEOs, even non-founder CEOs usually own more than other execs 2004 Cascadia Partners LLC Venture Capital Valuation First rule: you do not GIVE a piece of your company to an investor, they BUY it Rules of thumb: Seed Round20 -50% to investors 1stRound 25 -60% to investors 2ndRound25 -65% to investors Where your company falls in the range depends on how compelling your story is Most experienced, professional investors will set aside 15 -20% of total equity for management / employees 2004 Cascadia Partners LLC How VCs Arrive At a Value Comparables Market forces Experience in the industry How complete the business proposition and how compelling Structure of the deal Subscription services such as VentureOne, Venture Economics & VentureWire SEC filings -www.sec.gov/cgi-bin/srch-edgar Find competitorsor comparable companiesS-1 filings and deconstruct their financial history Talk to your advisors, legal counsel, etc. Early stage VCs dont use discounted cash flow, NPV, Black-Scholls, etc. Late stage investors might

Market Forces What are investor colleagues paying How much competition in the local capital market How hot is the particular technology / market segment How important is it that a venture firm have an investment in your sector

Industry Knowledge Ideally, your prospective investor(s) understand your industry and business If they have considerable knowledge, that is worth a lower initial valuation in exchange for the benefit of experience If you cant find knowledgeable VCs in your sector, may need to look for alternatives Deal Structure What does this mean? Most private equity investments involve purchase of stock with specific conditions and protections Those conditions and protections are manifest as preferences. In short, the investors will get their money back first, with a preferredreturn before anyone else Generally speaking, deal simplicity and valuation are directly related If you want the money quickly, with a simple structure take a lower valuation over a Higher valuation, complex deal structure that results in more money going to lawyers Corporate stock Common Stock -generally voting, usually the first stock issued. Basic rights provided by state and federal law called Blue Sky lawsgovern offerings. Preferred Stock -is ahead of common stock in liquidation, has specific privileges regarding voting, board representation, rights to documents, dividends, repayment period, forced sale of the company or offer of public securities. Can result in a minority owner effectively controlling the company Advantages Preferred Stock Offer to a Startup Will attract more sophisticated, experienced investors Provides for a dual-priced stock structure Common stock can have a substantially lower price than preferred The lower-priced common stock can then be used for employee stock incentive plan Over time the price differential between the classes must converge

Financial Structures As a rule, deal complexity is related to the current status and history of accomplishment Private equity investment instruments have evolved to protect the investor and offset risk Terms & conditions affect the structure of the company and board, and management responsibilities to the investors

Examples of key terms & conditions follow Summary Private equity covers a broad range and a variety of investors serve this sector The key to successful fund raising is preparation The more you know, the more you can demonstrate, the better the terms / price Get good advisors, good advice and good introductions before contacting private equity firms When negotiating valuation with a willing and able investor, poor time to stand on principle Remember: complicated structures designed to preserve founderspositions almost always backfire

working capital requirement

Definition The amount of working capital a company determines it must maintain in order to continue to meet its costs and expenses. The working capital requirement will be different for each company, depending upon many factors such as how frequently the company receives earnings and how high their expenses are. Working capital needs Different industries have different optimum working capital profiles, reflecting their methods of doing business and what they are selling. Businesses with a lot of cash sales and few credit sales should have minimal trade debtors. Supermarkets are good examples of such businesses; Businesses that exist to trade in completed products will only have finished goods in stock. Compare this with manufacturers who will also have to maintain stocks of raw materials and work-in-progress. Some finished goods, notably foodstuffs, have to be sold within a limited period because of their perishable nature. Larger companies may be able to use their bargaining strength as customers to obtain more favourable, extended credit terms from suppliers. By contrast, smaller companies, particularly those that have recently started trading (and do not have a track record of credit worthiness) may be required to pay their suppliers immediately.

 Some businesses will receive their monies at certain times of the year, although they may incur expenses throughout the year at a fairly consistent level. This is often known as seasonality of cash flow. For example, travel agents have peak sales in the weeks immediately following Christmas. Working capital needs also fluctuate during the year The amount of funds tied up in working capital would not typically be a constant figure throughout the year. Only in the most unusual of businesses would there be a constant need for working capital funding. For most businesses there would be weekly fluctuations. Many businesses operate in industries that have seasonal changes in demand. This means that sales, stocks, debtors, etc. would be at higher levels at some predictable times of the year than at others. In principle, the working capital need can be separated into two parts: A fixed part, and A fluctuating part The fixed part is probably defined in amount as the minimum working capital requirement for the year. It is widely advocated that the firm should be funded in the way shown in the diagram below:

Factors Determining Working Capital Requirements

(1) Availability of Credit: The amount of credit that a firm can obtain, as also the length of the credit period significantly affects the working capital requirement. The greater the prospects of getting credit, the smaller will be its requirement of working capital because it can easily purchase raw materials and other requirements on credit. Creditworthiness can also the interpreted to mean that the firm can function smoothly even with a smaller amount of working capital if it is assured that it can obtain loans from the bank immediately and easily. The firm does not need then to keep a wide margin of safety. (2) Growth and Expansion: The working capital requirements increase with growth and expansion of business. Hence planning of the working capital requirements and its procurement must go hand in hand with the planning of the growth and expansion of the firm. The implementation of the production plan that aims at the growth or expansion of the unit necessitates more of fixed capital and working capital both. Even the expansion of the volume of sales increases the requirements of working capital. Of course, it is difficult to establish a quantitative relationship between them. An important point to be noted is that the requirements of working capital emerge before the growth or expansion actually takes place.

(3) Profit and its Distribution: The net profit of a firm is a good index of the resources available to it to meet its capital requirements. But, from the viewpoint of working capital requirement, it is the profit in the form of cash which is important, and not the net profit. The profit available in the form of cash is called cash profit and it can be assessed by adding or deducting non-cash items from the net profit of the firm. The larger the amount of cash profit, the greater will be the possibility of acquiring working capital. But, in fact the entire amount of cash profit may not be available to meet working capital needs. The portion of cash profit which is available for this purpose depends on the profit distribution policy. The policies with regard to distribution of dividends, ploughing back of profit and tax payments will determine the portion of cash profit which the firm can use to meet its working capital needs. Even depreciation policy can influence the amount of cash available, as depreciation of capital assets is deductible item of expenditure and it reduces tax liability. (4) Price Level Fluctuations: A general statement may be made that with price rise, a firm will require more funds to purchase its current assets. In other words, the requirements of working capital will increase with the rise in prices. But all firms may not be affected equally. The prices of all current assets never go up to the same extent. Price of some current assets rise less rapidly than those of the others. Hence for the firms which use such current assets, the working capital need will increase by a smaller amount. Besides, if it is possible to pass on the burden of high prices of raw materials to the customers by raising the prices of final product, then also there will be no increase in working capital requirements. (5) Operating Efficiency: If a firm is efficient, it can use its resources economically, and thereby it can reduce cost and earn more profit. Thus, the working capital requirement can be reduced by more efficient use of the current assets. Making Your Working Capital Work The more rapidly that your business expands, the greater the need for working capital becomes. If you have insufficient working capital the money necessary to keep your business functioning your enterprise is doomed to fail. Many businesses, that are profitable on-paper, are forced to "close their doors" due to their inability to meet shortterm debts when they come due. However, by implementing sound working capital management strategies, your enterprise can flourish; in other words, your assets are working for you! At one time or another, most businesses have the need to borrow money in order to finance their growth. The ability to obtain a loan is based on the credit worthiness of a business. The two major factors that determine credit worthiness are the existence and extent of collateral and the liquidity of the business. Your company's balance sheet is used to assess both of these factors. On your balance sheet, working capital represents the difference between current assets and current liabilities the capital that you currently have to finance operations. That number, plus your key working capital ratios,

indicates to your creditors your ability to pay your bills. By definition, working capital is a company's investment in current assets cash, marketable securities, accounts receivable, and inventory. The difference between a company's current assets and current liabilities is known as net working capital. Current liabilities include accounts payable, accrued expenses, and the near-term portion of loan or lease payments due. The term "current" is generally defined as those assets or liabilities that will be liquidated within the course of one business cycle, typically a year. Decisions relating to working capital and short term financing are referred to as Working Capital Management. These decisions involve managing the relationship between a company's short-term assets and its short-term liabilities. The goal of Working Capital Management is to ensure that your company is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. The true test of a company's ability to manage its financial affairs rests on how well it manages its conversion of assets into cash that will ultimately pay the bills. The ease with which your company converts its current assets (accounts receivable and inventory) into cash in order to meet its current obligation is called, "liquidity." Relative liquidity is calculated in terms of a ratio---a ratio of current assets to current liabilities. The rate at which accounts receivable and inventory are converted into cash affect liquidity. All other things being equal, a business that has a higher ratio of current assets to current liabilities is more liquid than a company with a lower ratio. Most business activities affect working capital either by consuming working capital or by generating it. A company's cash passes through a series of stages in the working capital cycle. The working capital cycle begins by converting cash into raw material, then converting raw material into product, converting product into sales, converting sales into accounts receivable, and finally converting accounts receivable back into cash. The primary objective of Working Capital Management is to minimize the length of time that it takes for money to pass through the working capital cycle. Obviously, the longer it takes a company to convert its inventory into accounts receivable, and then, convert their receivables into cash, the greater the cash flow difficulties. Conversely, the shorter a company's working capital cycle, the faster cash and profits are realized from credit sales. Proper cash flow forecasting is essential to successful Working Capital Management. In order to understand the magnitude and timing of cash flows, plotting cash movement with the use of cash flow forecasts, is critical. A cash flow forecast provides you with a clearer picture of your cash sources and their expected date of arrival. Identifying these two factors will help you to determine "what" you will spend the cash on, and "when" you will need to spend it. The management of working capital includes managing cash, inventories, accounts

receivable, accounts payable, and short-term financing. Since the following five working capital processes are interrelated, decisions made within each one of the disciplines can impact the other processes, and ultimately affect your company's overall financial performance.

Cash Management: Cash Management is the efficient management of cash in a business for the purpose of putting cash to work more quickly and to keep the cash in applications that produce income. The use of banking services, lockboxes and sweep accounts, provide both the rapid credit of funds received, as well as, interest income generated on deposited funds. The lockbox service includes collecting, sorting, totaling, and recording customers' payments while processing and making the necessary bank deposits. A sweep account is a prearranged, automatic "sweep" by the bank - of funds from your checking account into a high interest-bearing account. Inventory Management: Inventory Management is the process of acquiring and maintaining a proper assortment of inventory while controlling the costs associated with ordering, storing, shipping, and handling. The use of an Economic Order Quantity (EOQ) system and the Just-In-Time (JIT) inventory system provides uninterrupted production, sales, and/or customer-service levels at the minimum cost. The EOQ is an inventory system that indicates quantities to be ordered - which reflects customer demand - and minimizes total ordering and holding costs. EOQ inventory system employs the use of sales forecasts and historical customer sales volume reports. The JIT inventory system relies on suppliers to ship product for justin-time arrival of raw material to the manufacturing floor. The JIT system reduces the amount of storage space required and lowers the dollar level of inventories. Accounts Receivable Management: Accounts Receivables Management enables you, the business owner, to intelligently and efficiently manage your entire credit and collection process. Greater insight into a customer's financial strength, credit history, and trends in payment patterns is paramount in reducing your exposure to bad debt. While a Comprehensive Collection Process (CCP) greatly improves your cash flow, strengthens penetration into new markets, and develops a broader customer base, CCP depends on your ability to quickly and easily make well-informed credit decisions that establish appropriate lines of credit. Your ability to quickly convert your accounts receivable into cash is possible if you execute well-defined collection strategies. Accounts Payable Management: Accounts Payable Management (APM) is not simply, "paying the bills." The APM is a system/process that monitors, controls, and optimizes the money that a company spends. Whether or not it is money that is spent on goods or services for direct input, such as raw materials that are used in the manufacturing of products, or money spent on indirect materials, as in office supplies or miscellaneous expenses that are not a direct factor in the finished product, the objective is to have a management system in place that not only saves you money, but also controls costs.

Short-Term Financing: Short-Term Financing is the process of securing funds for a business for a short period, usually less than one year. The primary sources of short-term financing are trade credit between companies, loans from commercial banks or finance companies, factoring of accounts receivable and business credit cards. Trade credit is a spontaneous source of financing in that it arises from ordinary business transactions. In a prearranged agreement, suppliers ship goods or provide services to their customers, who in turn, pay their suppliers at a later date. It is a wise investment of your effort/time to prearrange and to establish a revolving line of credit with a commercial bank or finance company. In the event that a need to borrow cash should arise, the funds wouldthen be readily available. By arranging a line of credit prior to the capital (cash) need, your company will not experience sales or production interruptions due to cash shortages. Factoring is short-term financing that is obtained by selling or transferring your Accounts Receivable to a third party - at a discount - in exchange for immediate cash. The percentage discount depends upon the age of the receivables, how complex the collection process will be, and how collectible they are. A business credit card is quick and easy and eliminates funds approval. Using your business credit card will also protect you from losses if, perhaps, you receive damaged goods or fail to receive merchandise that you have already paid for. Depending on the type of credit card that you choose for your business, you can earn bonuses, frequent flyer miles, and cash back. However, keep a close watch on your spending and pay most, if not all, of your debt each month.

In order to effectively manage working capital, it is prudent to measure your progress and control your processes. A good rule of thumb is- - - If you cannot measure it, you cannot control it. The five working-capital ratios that help you assess and measure your progress are: 1. Inventory Turnover Ratio (ITR): ITR = Cost of Goods Sold / Average Value of Inventory. The ITR indicates how quickly you are turning over inventory. This ratio should be compared to averages within your industry. A low turnover ratio implies poor sales, and therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. 2. Receivables Turnover Ratio (RTR): RTR= Net Credit Sales / Receivables. The RTR indicates how quickly your customers are returning payments for products/services rendered. A high ratio implies that either a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies that the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.

3. Payables Turnover Ratio (PTR): PTR = Cost of Sales / Payables. Calculate this ratio to determine how quickly you are paying your vendors. If you are consistently beating the industry norm, then you may have developed leverage which will facilitate in negotiating discounts or other favorable terms. 4. Current Ratio (CR): CR = Total Current Assets / Total Current Liabilities. The CR is used primarily to determine a company's ability to pay back its shortterm liabilities (debt and payables) with its short-term assets (cash, inventory, accounts receivable). The higher the current ratio, the more capable the company is of paying its obligations. 5. Quick Ratio (QR): QR = (Total Current Assets Inventory) / Total Current Liabilities Also known as the acid test ratio, the QR predicts your immediate liquidity more accurately than the current ratio because it takes into account the time needed to convert inventory to cash. The higher the QR, the more liquid the company is. Working Capital Management is critically important for small businesses because a large portion of their debt is in short-term liabilities versus long-term liabilities. Small business may minimize its investment in fixed assets by renting or leasing plant and equipment. However, there is no way of avoiding an investment in accounts receivable and inventory. Therefore, current assets are particularly significant for the owner of a small business. By effectively shortening the working capital cycle, you become less dependent on outside financing. In other words, your working capital is truly working for you. Government agencies financing the project The MUIDCL has the mandate to help Urban Local Bodies (ULBs) and other Project Implementing Agencies (PIAs) in improving urban and environmental infrastructure (which includes water supply, sewerage and sanitation, solid waste management, solid and liquid waste and effluent treatment plants, roads, bridges, flyovers, by-passes, storm water drainage, street lighting, traffic and transportation systems, area development, public markets, slum improvement, health and education, sports and recreation, fire fighting, , energy saving in urban infrastructure projects, projects under Clean Development Mechanism etc.) by utilizing the following:1). Project Development Fund (PDF) Scheme Developing projects including those based on PPP; Advising Project Implementing Agencies (PIAs) including ULBs regarding project financing and assisting them in raising funds from various sources; Providing loan assistance to PIAs for development of projects; Building capacities of ULBs and PIAs; and Providing policy support to the State Government and collaborating with the State Govt. in development of urban infrastructure

Under the PDF Scheme, the MUIDCL would help the agencies in the following tasks : 1. Preparing bankable infrastructure projects with the help of a panel of technical experts / consultants / transaction advisors etc. or providing interest free or soft loans / grants (depending on the finances of the Agency) for development of PPPbased or other types of urban infrastructure projects 2. Obtaining / arranging funds from various sources for development of PPP or NonPPP projects 3. Facilitating access to institutional finance and / or capital market for projects and advising the agency on the activities required for improving credit-worthiness of the agency 4. Promoting private and community sector participation in projects 5. Initiating, financing and sustaining urban institutional reforms through capacity building (Training and knowledge management), efficiency improvements and demonstration projects 6. Carrying out studies and assisting the Government of Maharashtra and the State agencies in benchmarking, policy analysis, design of sector strategies, system development, model guidelines and information management 7. Providing support for policy reforms to the Government of Maharashtra. In cases, where the MUIDCL develops projects or helps agencies in obtaining finance, the costs incurred on these activities are to be recovered from the concerned agency along with a success fee as a proportion of project development cost to be decided based on the nature of the project, subject to a ceiling of 25% of the project development cost. The interest-free or soft loans provided for project development are also to be recovered from the Agency as per the tenor and rate of interest decided by the MUIDCL in the light of the financial condition of the Agency as assessed by the MUIDCL. In case of default in the repayment towards the project development cost or success fee or towards repayment of loan and interest, the MUIDCL would request the State Govt. to intercept the grants payable by the Govt. to the concerned Agency. 2). Project Finance Fund (PFF) Scheme This fund aims at providing loan assistance for execution of PPP and Non-PPP projects Under the PFF Scheme, the MUIDCL would borrow and lend funds for priority urban infrastructure projects to the agencies, which find it difficult to directly raise funds from the financial institutions or capital market. The MUIDCL would assist the Agencies under this Scheme as follows : 1. Carrying out technical and financial appraisal of the projects and the borrowing agencies with the help of empanelled technical experts / consultants / transaction advisors etc. 2. Providing loan assistance in the form of Viability Gap Funding (VGF) for PPP projects 3. Providing loan assistance towards substantial cost funding of Non-PPP projects

The amount of loan assistance will depend on the extent of funding admissible to the project from other sources, including grant from the Government under any Scheme or Programme, and would be subject to the funding pattern of the Scheme or Programme. The interest rates on the loans offered would vary depending on the Class of the Municipal Councils and the Municipal Corporations, the nature and priority of the projects and also on the cost and tenure of borrowing by the MUIDCL. A tripartite loan agreement between the MUIDCL, the Borrowing Agency and the State Government will be executed. The loan, along with interest, processing fee, commitment charges and delayed payment charges, if any, would be recovered as per the terms of the Tripartite Agreement. In case of default in the repayment of loan, interest or any other dues, the MUIDCL would request the State Govt. to intercept the grants payable by the Govt. to the concerned Agency. The Loan Application Form can be downloaded from the MUIDCL website www.muidcl.com. 3). Debt Service Reserve Fund (DSRF) Scheme This funds has been set up to provide financial guarantees for raising loans from other agencies. Under the DSRF Scheme, the MUIDCL would provide guarantees for loans in the following manner : 1. Treasury management and appraisal of debt guarantee proposals with the help of a panel of technical experts / consultants / transaction advisors etc. 2. Reducing the cost of capital by providing financial guarantee for debt raised or providing any other form of guarantee 3. Organizing credit enhancement mechanisms and formalising and monitoring the Borrowing Agency level mechanisms such as escrow, loan repayment fund etc. 4. Exploring and using other mechanisms to substitute or supplement direct guarantees provided under the DSRF Scheme In cases, where the MUIDCL provides guarantees, a fixed fee in proportion to the debt guaranteed will be charged. In case of invoking of guarantee and related payment, such amount paid will be recovered along with interest. In case of default in the payment towards such guarantee payments made by the MUIDCL and the guarantee fee, the MUIDCL would request the State Govt. to intercept the grants payable by the Govt. to the concerned Agency. Thus MUIDCL is positioned to facilitate the entire process from identification of priority projects to their preparation, funding and execution

UNIT 5
The Life Cycle of Entrepreneurship What is the entrepreneurial life cycle? Posted on February 24, 2011 by Robert W Price Discussions About The Entrepreneurial Life Cycle The Entrepreneurial Life Cycle repeats itself in businesses of all sizes, from start-ups in a garage to corporate entrepreneurship activities in global Fortune 500 companies. It starts with an entrepreneur who perceives an opportunity, creates an organization to pursue it, assembles the required resources, implements a practical plan, assumes the risks and the rewards, all in a timely manner for all involved. In this Article, we present the seven stages in the Entrepreneurial Life Cycle. Entrepreneurs are directly involved in the dynamic, and very complex, interrelationship between financial management and business strategy. This is the significant difference that sets entrepreneurial management apart from all business management practices. In almost all cases, the person making the decisions has personal risk at stake. The worstcase scenario for folks at work is getting fired. The worst case for entrepreneurs is losing their home, personal credit, and lifestyle, as well as the destruction of family relationships. Peter Drucker remarked that for the existing large company, the controlling word in the phrase entrepreneurial management is entrepreneurial. In any new business venture, the controlling word is management. Therefore, for the purposes of our work we lean toward management as a discipline for entrepreneurs. We define entrepreneurial management as the practice of taking entrepreneurial knowledge and utilizing it for increasing the effectiveness of new business venturing as well as small- and medium-sized businesses. The heart of entrepreneurial management is continually juggling these vital management issues: - What is this venture about? (mission and values statement)

- Where should it go? (goals and objectives) - How will it get there? (growth strategy) - What does it need to get there? (people and resources) - What structure is best? (organizational capabilities) - How much money does it need and when? (financing strategy) - How will it recognize the final destination? (vision of success) These vital entrepreneurial management issues and activities play out in what we call the entrepreneurial life cycle. The entrepreneurial life cycle repeats itself in businesses of all sizes, from start-ups in a garage to corporate entrepreneurship activities in global Fortune 500 companies. It starts with an entrepreneur who perceives an opportunity, creates an organization to pursue it, assembles the required resources, implements a practical plan, assumes the risks and the rewards, all in a timely manner for all involved. It was once said that entrepreneurship is a lot like driving fast on an icy road. We prefer to think of entrepreneurship as less reckless and more methodical. Entrepreneurship is a continual problem-solving process. It is like putting together a huge jigsaw puzzle; at first pieces will seem to be missing, obscure, or not clearly recognizable. Not all entrepreneurial life cycles follow a single process, but our research suggests that the stages we present below are common in the most successful emerging growth ventures. Size, profitability, commitment, complexity, scale of organizational structure, decrease in risk, increase in value, and decrease in founders involvement characterize each stage. We believe that by knowing and understanding these stages entrepreneurs, business managers, investors, and consultants will be able to make more informed decisions, and most of all, be prepared themselves for challenges that lie ahead. The Seven Stages in the Entrepreneurial Life Cycle Stage 1. Opportunity Recognition This gestation period is quite literally the pre-start analysis. It often occurs over a considerable period of time ranging from one month to ten years. At this stage it is important to research and understand the dimensions of the opportunity, the concept

itself, and determine how to decide whether it is attractive or unattractive. The individuals need to look internally and see if they are truly ready for entrepreneurship. The vast majority of people, including almost all inventors, never move off of this stage and remain just considering entrepreneurship. Stage 2. Opportunity Focusing This is a sanity check, a go/no-go stage gate for part-time entrepreneurs because it fleshes out shaky ideas and exposes gaping holes. Venture capitalist Eugene Kleiner, of Kleiner Perkins Caufield & Byers, says, Focus is essential; there can be the possibility of the business branching out later, but the first phase of a company should be quite narrowly defined.It is important to include objective, outside viewpoints because different people can investigate the same opportunity and come to opposite conclusions. Stage 3. Commitment of Resources Most entrepreneurs see commitment as incorporating their business or quitting their day job. But this stage actually starts with developing the business plan. There is a huge difference between screening an opportunity and researching and writing a business plan. Writing an effective business plan requires a new level of understanding and intense commitment. The process will take between 200 to 300 hours, so squeezing that amount of time into evenings and weekends can make this stage stretch over three to twelve months. A common mistake entrepreneurs make is skipping the business plan; commit other resources, start the venture, then follow up and try to determine exactly what the focus will be for the venture. Stage 4. Market Entry Profitability and success define the market entry stage. The entrepreneur is committed with a very simple organization, the resources were correctly allocated according to the business plan, and the first sales were made. This is what defines success in the very early stages. If the business model was profitable, reasonable objectives were met, and the venture is on track for attaining true economic health, then the entrepreneur can chose between a capital infusion for growth or remaining small with self-financing (bootstrapping). Stage 5. Full Launch and Growth At this stage, the entrepreneur needs to choose a particular high-growth strategy. Upon considering such alternatives, quite often the entrepreneur chooses to remain a small

business and never passes this stage or perhaps opts to remain operating as a sole proprietor. Or the venture could remain small for the simple fact that not all small ventures can or will become big companies. They are not fast growth potential because there is not enough room in the market for growth, their production and management systems are not scalable, or they will not scale because the rate is too great of a challenge to the management. Stage 6. Maturity and Expansion Now the venture is a market leader at cruising altitude. The growth becomes a natural extension of the venture through professional management practices. This professional management team is implementing the ventures growth strategy through global expansion, acquisitions, and mergers as cash is plentiful and inefficiencies are completely flushed out. Stage 7. Liquidity Event This harvesting stage is focused on capturing the value created in the previous stages through a business exit. Typical exits are an initial public offering (IPO) or being acquired by a larger publicly traded corporation. Unfortunately, most of the literature in entrepreneurship has concentrated on the earlier stages. Little attention has been given to exits. We know from experience that the opportunity to exit successfully from a venture is a significant factor in the entrepreneurial life cycle, both for the entrepreneur and for any investors providing investment capital along the way. requirements for successful patent grants

A patent ( /ptnt/ or /petnt/) is a set of exclusive rights granted by a state (national government) to an inventor or their assignee for a limited period of time in exchange for a public disclosure of an invention. Procedure for grant of patent To apply for a patent, the applicant should file the application in the prescribed form, along with the requisite fee at the Patent Office. The application should be accompanied by a provisional or complete specification (description of the invention). The provisional specification need not be full and specific, and has to merely contain the general description of the invention, its application and anticipated results. The object of the provisional specification is to fix the priority

date of the patent. The complete specification should be filed within a specified period of filing the application, otherwise the application will be deemed to be abandoned. The application is thereafter examined by the Examiner of Patents to check the following: whether it complies with the requirements of the Patent Act and Rules; whether there is any lawful ground for objection to grant of patent; and

whether the invention has already been published or claimed by another person. Objections, if any are communicated to the applicant and such objections generally relate to the drafting of the specification or any speculation as to anticipation about prior claims. These objections can, in many cases, be overcome by suitably amending the description of the invention or the claims or by inserting a reference to a prior specification number. If the objections are not answered satisfactorily, the Controller of Patents may refuse to grant patent after giving a hearing to the applicant. If the objections are satisfactorily handled, the Controller of Patents publishes the specification in the Official Gazette. An interested party may give notice of opposition of such advertisement. The notice of opposition is forwarded to the applicant, the reply to which is to be filed within three months. Thereafter both parties are heard and the matter decided. Once the application is accepted, the patent is granted expeditiously and the date on which patent is granted shall be entered in the register.

Requirements and Procedure for Patents Requirements for filing a Patent Application in India Ordinary Application Applicants Details (Company or Individual) o Name of applicant(s) with the complete address and nationality Inventors Details (Natural Person(s)) o Full Name of Inventor(s) with complete address and nationality Complete Specification [or provisional specification if an application is filed with Provisional Specification] o Description, Claims, Abstract & Drawings (if any) Convention Application Applicants Details (Company or Individual) o Name of applicant(s) with the address and nationality Inventors Details (Natural Person(s)) o Full Name of Inventor(s) with Address and nationality Complete Specification o Description, Claims, Abstract & Drawings (if any) Priority claim details o Priority date, Priority country, Priority application number

Applicant in priority application Title of the priority application Certified copy of priority document (may be submitted at later stage) Verified English translation of priority document (if relevant) PCT-National Phase Application Applicants Details (Company or Individual) o Name of applicant(s) with the address and citizenship Inventors Details (Natural Person) o Full Name of Inventor(s) with Address and citizenship Complete Specification o Description, Claims, Abstract & Drawings (if any) Priority claim details (if applicable) o Priority date, Priority country, Priority application number o Applicant in priority application o Title of the priority application o Certified copy of priority document (if not filed at IB) o Verified English translation of priority document (if required by the Controller during examination) PCT Application Details o International Application Number o International Application Date Other Documents (if applicable) o Amendment to claims or description if made at the International Phase o Corrections or changes made at the International phase (Form PCT/IB/306) Other requirements for all types of application (where applicable) Details of all corresponding applications filed outside India, including application number, date of filing and current status Application Form executed by the inventors/Applicants. In lieu of such form, an Original Assignment or a certified/notarized copy of the assignment filed for the priority application If invention relates to micro-organisms o Name of International Depository Authority o Accession Number and Date of deposit Sequence listing as a Soft copy
o o o o

Procedure of grant of patent Fist step for granting of patent is a filling an application. An application for granting a patent should contains: - description of invention (utility model, industrial design); - claims; - abstract; - drawings (as needed);

- set of images of the product (for industrial designs). Description should disclosure the subject-matter of the invention quite clearly and completely. According to the Ukrainian legislation there are requirements for the description. Providing patent legal services we draft description according to these requirements. Claims must disclose the subject-matter of an invention and must be based on the description. Claims define the extent of the patent protection. Thats why it is very important to write claims right. Abstract means a brief description of an invention. During two month after date of filling a patent application you must pay a fee for such filling. Then a patent application will be examined by the Patent Office. There are two examinations- formal and substantive. Formal examination is the examination in which it is determined whether an invention (utility model, industrial design) is patentable and whether a patent application fulfills the established requirements. If the object is patentable and a patent application fulfills all requirements a patent office grant of patent for an utility model or for an industrial design. On the stage of substantive examination an invention will be checked on fulfilling following requirements: - novelty; - inventive step; - capability of industrial application. If all requirements are satisfied patent office will grant of patent. A patent application is one of the most important steps of granting of patent. We will help you to grant of patent. For more information about patenting, please call us via +38 044 362 01 89 or email us via office@ipstyle.net _______________________________ Steps in obtaining a patent in India

Patent Laws in India: Steps to Obtain a Patent

According to the patent laws in India, an individual or a company must follow these steps to obtain a patent: Submission of Application: The conditions that an applicant must meet are listed in sections 6 to 11 of the Act. The statute grants patent on the basis of the first-to-apply system. Only one application should be made for an invention as per section 7(1). Examination of Application: Once an application is submitted, it is examined by the Examiner of Patents to ensure that:

It meets the requirements of the Act and the Rules There does not exist any ground on which the patent can be objected The invention has not already been published or claimed by anyone else.

Advertisement of Acceptance of Complete Specification: This is done to announce to the general public that the applicant is the true inventor of the invention. The aim is to allow anyone, with valid objections to the applicants claim, start opposition proceedings. Opposition to the Grant of Patent to the Applicant: If an individual wants to challenge the applicants claim, s/he must send the opposition to the controller of Patents in no more than four months after the acceptance of the claim was advertised. Permissible grounds on which a person can oppose the grant of patent are specified in section 25 of the Act. Grant and Sealing of Patent: The applicants claim to the patent is granted and sealed once the application is accepted, either without any opposition or after the applicant was adjudged the first inventor of the invention in an opposition. The date of the sealing of the patent is entered in the register maintained by the Patent Office. Final Legal Take Away Tip: If your claim for a patent is denied by the Controller, you have the right to file a petition in the High Court. Trademark Registration in India

WHAT IS A TRADEMARK A Mark` may consist of a word or invented word, signature, device, letter, numeral, brand, heading, label, name written in a particular style, the shape of goods other than those for which a mark is proposed to be used, or any combination thereof or a

combination of colors and so forth. Subject to certain conditions, a trademark may also be symbolized by the name of a person, living or dead. For the purpose of registration, a mark chosen should be capable of distinguishing goods or services of one person from those of the others. Further it should not be deceptively similar to an existing mark of another person and not the one expressly prohibited under the Act.

Under the new law, service marks can be registered as well as trademarks. _____****_____

The marks devoid of any distinctive character, or which are only indicative of the kind, quality, quantity, purpose, value or geographical origin of the goods, or which are marks already in vogue in the trade due to their customary use may not be registered. But these disqualifications do not apply to marks, which have already acquired distinction due to their popularity and consistent use. Internationally acclaimed brand names are freely available for use in India. WHAT IS COVERED UNDER TRADEMARKS A trademark is a mark used in relation to goods or services so as to indicate a connection in the course of trade between the goods or services and some person having the right as proprietor to use the mark.

WHAT IS THE FUNCTION OF A TRADEMARK Under modern business condition a trade mark performs four functions:

It identifies the goods / or services and its origin. It guarantees its unchanged quality It advertises the goods/services It creates an image for the goods/ services.

HOW TO SELECT A TRADEMARK

If it is a word it should be easy to speak, spell and remember. The best trade marks are invented words or coined words. Please avoid selection of a geographical name. No one can have monopoly right on it.

Avoid adopting laudatory word or words that describe the quality of goods (such as best, perfect, super etc) It is advisable to conduct a market survey and a search at Trademark office to ascertain if same/similar mark is used in market.

WHAT ARE THE TYPES OF TRADEMARKS THAT CAN BE REGISTERED Under the Indian trademark law the following are the types of trademarks that can be registered:

Product trademarks: are those that are affixed to identify goods. Service trademarks: are used to identify the services of an entity, such as the trademark for a broadcasting service, retails outlet, etc. They are used in advertising for services. Certification trademarks: are those that are capable of distinguishing the goods or services in connection with which it is used in the course of trade and which are certified by the proprietor with regard to their origin, material, the method of manufacture, the quality or other specific features Collective trademarks: are registered in the name of groups, associations or other organizations for the use of members of the group in their commercial activities to indicate their membership of the group.

WHAT ARE DIFFERENT TYPES OF TRADEMARKS AVAILABLE FOR ADOPTION

Any name (including personal or surname of the applicant or predecessor in business or the signature of the person), which is not unusual for trade to adopt as a mark. An invented word or any arbitrary dictionary word or words, not being directly descriptive of the character or quality of the goods/service. Letters or numerals or any combination thereof. The right to proprietorship of a trade mark may be acquired by either registration under the Legislation or by use in relation to particular goods or service. Devices, including fancy devices or symbols Monograms Combination of colors or even a single color in combination with a word or device Shape of goods or their packaging Marks constituting a 3- dimensional sign. Sound marks when represented in conventional notation or described in words by being graphically represented.

WHO CAN APPLY FOR A TRADEMARK A person who claims to be the proprietor of the trademark can apply for the registration of its mark for goods as well services. A person may apply for registration of a trade mark to the Trademark office under whose jurisdiction the principal place of the business of the applicant in India falls. In case, the principal place of business is outside India, then the application can be filed in the Trademark office under whose jurisdiction the office of the lawyer appointed by you is located. In case of a company about to be formed, anyone may apply in his name for subsequent assignment of the registration in the company's favor. Before making an application for registration it is prudent to conduct a trademark search in the Trademark office in context of the already registered trademarks to ensure that registration may not be denied in view of resemblance of the proposed mark to an existing one or prohibited one.

WHO CAN USE A TRADEMARK The right to use a mark can be exercised either by the registered proprietor or a registered user.

WHAT ARE LEGAL REQUIREMENTS FOR REGISTRATION OF TRADEMARK IN INDIA The legal requirements to register a trade mark under the Legislation are:

The selected mark should be capable of being represented graphically (that is in the paper form). It should be capable of distinguishing the goods or services of one undertaking from those of others. It should be used or proposed to be used mark in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services and some person have the right to use the mark with or without identity of that person.

WHAT IS THE DURATION OF A TRADEMARK IN INDIA? Term of registration of a trademark is ten years, which may be renewed for a further period of ten years on payment of prescribed renewal fees.

Non-user of a registered trademark for a continuous period of five years is a ground for cancellation of registration of such trademark at the behest of any aggrieved party.

CONVENTION APPLICATION AND INTERNATIONAL TREATIES India has declared certain countries as convention countries, which afford to citizens of India similar privileges as granted to its own citizens. A person or company from a convention country, may within six months of making an application in the home country, apply for registration of the trademark in India. If such a trademark is accepted for registration, such foreign national will be deemed to have registered his or her trademark in India, from the same date on which he or she made application in the home country. Where the applications have been made for the registration of trademark in two or more convention countries, the period of six months would be reckoned from the date on which the earlier or earliest of those applications was made. Although the recovery of damages for infringement of a trademark is possible only if the infringement takes place after the date of filing application for registration with the concerned trademark office in India, yet the deemed seniority in making application in home country may entitle the applicant to initiate an action in India for injunction, delivery of impugned labels and so on.

WHAT ARE BENEFITS OF TRADEMARK REGISTRATION The registration of a trade mark confers upon the owner the exclusive right to the use of the registered trade mark and indicate so by using the symbol (R) in relation to the goods or services in respect of which the mark is registered and seek the relief of infringement in appropriate courts in the country. The exclusive right is however subject to any conditions entered on the register such as limitation of area of use etc. Also, where two or more persons have registered identical or nearly similar mark due to special circumstances such exclusive right does not operate against each other.

REMEDIES FOR INFRINGEMENT OF TRADEMARK IN INDIA AND PASSING-OFF Two types of remedies are available to the owner of a trademark for unauthorized use of his or her mark or its imitation by a third party. These remedies are:

an action for infringement' in case of a registered trademark; and an action for passing off' in the case of an unregistered trademark

While former is a statutory remedy, the latter is a common law remedy. In an action involving infringement or passing off, a court may grant relief of injunction and/or monetary compensation for damages for loss of business and/or confiscation/destruction of infringing labels and tags etc. Although registration of trademark is prima facie an evidence of validity of a trademark, yet the registration can not upstage a prior consistent user of trademark, for the rule is priority in adoption prevails over priority in registration`.

HOW TO APPLY FOR REGISTRATION OF A TRADEMARK IN RESPECT OF PARTICULAR GOODS OR SERVICES Goods and services are classified according to the International Classification of goods and services. Currently schedule IV of the Legislation provides a summary of list of such goods and services falling in different classes which is merely indicative. The Registrar is the final authority in the determination of the class in which particular goods or services fall. The Schedule IV of the Legislation is annexed at the end of this questionnaire on trade marks.

WHAT PURPOSE THE TRADEMARK SYSTEM SERVES

It identifies the actual physical origin of goods and services. The brand itself is the seal of authenticity. It guarantees the identity of the origin of goods and services. It stimulates further purchase. It serves as a badge of loyalty and affiliation. It may enable consumer to make a life style or fashion statement.

WHO BENEFITS FROM TRADEMARK REGISTRATION The Registered Proprietor: The Registered Proprietor of a trade mark can stop other traders from unlawfully using his trade mark, sue for damages and secure destruction of infringing goods and or labels. The Purchaser and ultimately Consumers of trademarks goods and services. The Government: The Trademarks Registry is expected to earn a substantial annual revenue, which is perpetually on the rise.

WHAT DOES THE REGISTER OF TRADEMARK CONTAIN The register of trade mark currently maintained in electronic form contains inter alia the trade mark the class and goods/ services in respect of which it is registered including particulars affecting the scope of registration of rights conferred or disclaimers, if any; the address of the proprietors; particulars of trade or other description of the proprietor; the convention application date (if applicable); where a trade mark has been registered with the consent of proprietor of an earlier mark or earlier rights, that fact. CAN ANY CORRECTION BE MADE IN THE APPLICATION OR THE REGISTER OF TRADEMARKS Yes. But the basic principle is that the trade mark applied for should not be substantially altered affecting its identity. Subject to this changes are permissible according to rules detailed in the subordinate legislation.

CAN A REGISTERED TRADEMARK BE REMOVED FROM THE REGISTER It can be removed on application to the Registrar on prescribed form on the ground that the mark is wrongly remaining on the register. The Registrar also can suo moto issue Notice for removal of a registered trade mark. Non use of a registered trademark for continuous period of 5 years is also a ground of removal.

CAN I APPLY FOR A DESIGN/LOGO REGISTRATION FOR SAME GOODS AND SERVICES IN BLACK & WHITE AS WELL AS COLOR Yes. You can do so in one application as India recognizes the system of series application.

WHAT RECOURSE I HAVE IF A COMPETITOR HAS ALREADY REGISTERED MY MARK IN INDIA The Indian trademark law provides for invalidation proceedings and you have the right to initiate a cancellation action should a competitor have registered your trademark in India. You also have the right to initiate either a civil or a criminal action against any party that is violating your mark in India.

WHO CAN USE SYMBOL IN INDIA Only the proprietor of a trademark whose trademark has been registered in India can use the symbol in India. Using the symbol unless your mark has been registered in India is unlawful.

WHEN CAN THE SYMBOL BE USED IN INDIA Using this symbol with your trademark simply implies that you claim to be the proprietor of the trademark. There is no prohibition on the use of the symbol in India.

WHAT IS THE PENALTY PRESCRIBED UNDER CRIMINAL LAWS FOR INFRINGEMENT OF A TRADEMARK IN INDIA The penalty for selling or providing services using a false trademark is a minimum of six months and maximum of three years and with fine not less than Rupees fifty thousand but which may extend to Rupees two lakh.

AS A FOREIGN INVESTOR HOW CAN I REGISTER MY TRADEMARK IN INDIA Registration of trademarks is one of the important protections that businesses should avail in India. Many foreign and domestic Applicants have been able to successfully register their marks in India. Indian courts have upheld many of those registrations and granted favorable decisions to rights holders. In addition to the registering of their trademarks in India, businesses need to adopt other strategies for protecting their trademarks. Some of them are mentioned below:

Get trademark searches conducted in the Indian Trade Marks Registry in the classes that are of interest to you including the ancillary classes. Get common law searches (this includes the internet, market surveys, yellow pages and directories) conducted to ascertain whether third parties are using your trademarks and if so, the extent of such use. Based on this information and after seeking the local counsels opinion decide if the trademark is available for use or not. Should the trademark be available for use, immediately apply for the registration. The rights holder should also consider hiring a watching service to monitor the trademark journals in order to alert them to any published, deceptively similar trademarks or descriptive trademarks that might be of concern.

Should the rights holder own a trademark that has been used and has acquired goodwill and reputation, it is advisable that along with filing of the trademark application in India, they should also make press releases, publish cautionary notices and advertise the mark to ensure that the relevant section of the public is aware that they are entering the Indian market and are protecting their trademark from any kind of third party violation. The rights holder should also take immediate steps to register their domain names including country coded top level domain names in India, as there have been many instances of third parties registering domains for certain well known marks with the intention of extracting money by selling these domain names to the rights holders. Should the rights holder discover that their trademark is being infringed, they should take immediate steps to protect their trademark, either by the means of filing oppositions, cancellations, conducting investigations, sending cease and desist notices or initiating appropriate civil and criminal actions. AS A FOREIGN CORPORATION CAN I FILE A SINGLE APPLICATION FOR USE OF MY MARK ON MORE THAN ONE GOOD OR IN ASSOCIATION WITH MORE THAN ONE SERVICE IN INDIA

Yes. India recognizes the system of multi-class applications and follows the International Classification. There are 42 classes in which the goods and services have been divided in India and you can file for multi-class applications both for goods and services.

BEING A FOREIGN CORPORATION, MUST I SELL MY PRODUCTS OR SERVICES IN INDIA BEFORE SEEKING TRADEMARK REGISTRATION No, Indian trademark law allows filing of a trademark application in India on an intentto-use basis. However the registered proprietor of the trademark in India has to commence use of the mark within 5 years and 3 months of the date of registration. Otherwise the registered trademark is open to invalidation proceedings. WHAT ARE THE SOURCES OF TRADEMARK LEGISLATION

(1) The national statute i.e., the Trade Marks Act,1999 and rules made there under . (2) International multilateral convention. (3) National bilateral treaty. (4) Regional treaty. (5) Decision of the courts. (6) Office practice and rulings

(7) Decision of Intellectual Property Appellate Board. (8) Text books written by academician and professional experts.

WHAT ARE THE FORMALITIES FOR MAJOR TRADEMARK TRANSACTIONS For filing new applications there are prescribed forms depending on the nature of application such as Form TM-1, TM-2, TM-3, TM-8, TM-51 etc. To file a Notice of Opposition to oppose an application published in the Trade Marks Journal (FormTM-5). For Renewal of a Regd. trademark (Form TM-12 ). Surcharge for belated renewal (Form -10) Restoration of removed mark (Form TM-13) Application for rectification of a registered trade mark (Form TM-26) Legal Certificate (Form TM-46) (Providing details of entries in the Register) Official search request (Form TM-54). Preliminary advise of the Registrar as to the registrability of a mark (Form TM-55). Copyright search request and issuance of certificate (Form TM-60) Copyright Law in India

What is Copyright? Copyright is a form of intellectual property protection granted under Indian law to the creators of original works of authorship such as literary works (including computer programs, tables and compilations including computer databases which may be expressed in words, codes, schemes or in any other form, including a machine readable medium), dramatic, musical and artistic works, cinematographic films and sound recordings. Copyright law protects expressions of ideas rather than the ideas themselves. Under section 13 of the Copyright Act 1957, copyright protection is conferred on literary works, dramatic works, musical works, artistic works, cinematograph films and sound recording. For example, books, computer programs are protected under the Act as literary works. Copyright refers to a bundle of exclusive rights vested in the owner of copyright by virtue of Section 14 of the Act. These rights can be exercised only by the owner of copyright or by any other person who is duly licensed in this regard by the owner of copyright. These rights include the right of adaptation, right of reproduction, right of publication, right to make translations, communication to public etc. Copyright protection is conferred on all Original literary, artistic, musical or dramatic, cinematograph and sound recording works. Original means, that the work has not been

copied from any other source. Copyright protection commences the moment a work is created, and its registration is optional. However it is always advisable to obtain a registration for a better protection. Copyright registration does not confer any rights and is merely a prima facie proof of an entry in respect of the work in the Copyright Register maintained by the Registrar of Copyrights. As per Section 17 of the Act, the author or creator of the work is the first owner of copyright. An exception to this rule is that, the employer becomes the owner of copyright in circumstances where the employee creates a work in the course of and scope of employment. Copyright registration is invaluable to a copyright holder who wishes to take a civil or criminal action against the infringer. Registration formalities are simple and the paperwork is least. In case, the work has been created by a person other than employee, it would be necessary to file with the application, a copy of the assignment deed. One of the supreme advantages of copyright protection is that protection is available in several countries across the world, although the work is first published in India by reason of India being a member of Berne Convention. Protection is given to works first published in India, in respect of all countries that are member states to treaties and conventions to which India is a member. Thus, without formally applying for protection, copyright protection is available to works first published in India, across several countries. Also, the government of India has by virtue of the International Copyright Order, 1999, extended copyright protection to works first published outside India. Indian perspective on copyright protection: The Copyright Act, 1957 provides copyright protection in India. It confers copyright protection in the following two forms: (A) Economic rights of the author, and (B) Moral Rights of the author. (A) Economic Rights: The copyright subsists in original literary, dramatic, musical and artistic works; cinematographs films and sound recordings. The authors of copyright in the aforesaid works enjoy economic rights u/s 14 of the Act. The rights are mainly, in respect of literary, dramatic and musical, other than computer program, to reproduce the work in any material form including the storing of it in any medium by electronic means, to issue copies of the work to the public, to perform the work in public or communicating it to the public, to make any cinematograph film or sound recording in respect of the work, and to make any translation or adaptation of the work. In the case of computer program, the author enjoys in addition to the aforesaid rights, the right to sell or give on hire, or offer for sale or hire any copy of the computer program regardless whether such copy has been sold or given on hire on earlier occasions. In the case of an artistic work, the rights available to an author include the right to reproduce the work in any material form, including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work, to communicate or issues copies of the work to the public, to include the work in any cinematograph work, and to make any adaptation

of the work. In the case of cinematograph film, the author enjoys the right to make a copy of the film including a photograph of any image forming part thereof, to sell or give on hire or offer for sale or hire, any copy of the film, and to communicate the film to the public. These rights are similarly available to the author of sound recording. In addition to the aforesaid rights, the author of a painting, sculpture, drawing or of a manuscript of a literary, dramatic or musical work, if he was the first owner of the copyright, shall be entitled to have a right to share in the resale price of such original copy provided that the resale price exceeds rupees ten thousand. (B) Moral Rights: Section 57 of the Act defines the two basic moral rights of an author. These are: (i) Right of paternity, and (ii) Right of integrity. The right of paternity refers to a right of an author to claim authorship of work and a right to prevent all others from claiming authorship of his work. Right of integrity empowers the author to prevent distortion, mutilation or other alterations of his work, or any other action in relation to said work, which would be prejudicial to his honour or reputation. The proviso to section 57(1) provides that the author shall not have any right to restrain or claim damages in respect of any adaptation of a computer program to which section 52 (1)(aa) applies (i.e. reverse engineering of the same). It must be noted that failure to display a work or to display it to the satisfaction of the author shall not be deemed to be an infringement of the rights conferred by this section. The legal representatives of the author may exercise the rights conferred upon an author of a work by section 57(1), other than the right to claim authorship of the work.. Indian Judiciary Response: The response of Indian judiciary regarding copyright protection can be grouped under the following headings: (1) Ownership of copyright, (2) Jurisdictional aspect, (3) Cognizance taken by the court, (4) Infringement of copyright, (5) Availability of alternative remedy, and (6) Rectification of copyright. (1) Ownership of copyright: The ownership in copyright may vest in different persons under different circumstances. ++++++++++++++++ Well, what exactly is Copyright or should it be Copy write? Copyright is used to describe the right a writer/ creator has over his/her works. It is an intellectual property right. Sounds good, but how do I make sure I get copyright for what I write?

Literally nothing! The minute you write and publish something, you have the copyright by default! Though, it helps to also formalize it by registering. Does this only cover written work? What about other creative work? Copyright protects by law any literary, dramatic, artistic and musical work including films, soundtracks, and computer programs. Sounds good, but what exactly are my rights under copyright? Copyright means the exclusive right to reproduce, translate or adapt the work for public dissemination and performance by any means. Once published, you enjoy copyright to your work during your lifetime and your heirs have the rights for another 60 years. You can choose to transfer your complete, partial or territorial rights as per your business priorities. The Indian Copyright Act empowers the authors by providing moral rights also. Moral rights? What is that? Moral rights are rights of the author even after he has transferred his copyrights for business purposes. They allow an author to claim damages in case of distortion of facts, modification, mutilation of his work or any disrepute or dishonor. Moral rights can be exercised when one observes gross violation of the literary work. It varies across countries. India empowers authors by providing the moral rights. Can you tell me, what I should be doing if someone violates my copyright? The first step would be to check if it was out of sheer ignorance and remind them to rectify the mistake. If the other party is non conciliatory and maximizing profit on your work, then it is an outright criminal offence. You may lodge an official police complaint. For more on that refer to Section 63 of the Copyright Act. Given the amount of information available for reference, what if I want to use some information for my work? How do I know that the material has a copyright? Usually all published documents have a copyright notice and year of copyright mentioned at the beginning of the book along with all other documentary information.

The symbol implies copyright. On books and websites, it is most commonly written as: Chillibreeze, 2006 So, how do I secure copyright permission? You need to get written permission from copyright owner for use of copyright material. The contact information is usually available in published documents and websites. Under copyright act, fair use of information is permissible for educational and other purposes. Chillibreeze is in India and if I publish my work in India, does it get protection in other countries as well? Copyright is a country specific right. India is a member of the following international conventions:

Berne Convention for the Protection of Literary and Artistic works. http://www.wipo.int/treaties/en/ip/berne/trtdocs_wo001.html Universal Copyright Convention. http://www.unesco.org/culture/laws/copyright/html_eng/page1.shtml Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms. http://www.wipo.int/treaties/en/ip/phonograms/trtdocs_wo023.html Multilateral Convention for the Avoidance of Double Taxation of Copyright Royalties. http://www.unesco.org/culture/laws/doubletax/html_eng/page1.shtml Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm

Thanks to these, Indian works are protected in countries which are signatories to these treaties. What are Indian works? Any literary, dramatic or musical work for which the author is a citizen of India; or which is first published in India; or the author of which, in the case of an unpublished work is, at the time of the making of the work, a citizen of India. Can you tell me as to which are the important copyright legislations in India? The Copyright Act, 1957 as amended in 1983, 1984 and 1992, 1994, 1999; and Copyright Rules, 1958.

For more information about the Act: http://copyright.gov.in/ Where do I get more information on Copyright in India? The Ministry of Human Resource Development has a detail handbook for public use on copyright: http://copyright.gov.in/mainhandbook.asp My work is too precious to take a risk and I wish to register it in India. How do I do that? Please contact the copyright office at: B2/ W3, Curzon Road Barracks, Kasturba Gandhi Marg, New Delhi 110001 Are foreign works protected in India? Copyrights of works of the countries mentioned in the International Copyright Order (covering Berne, UCC and TRIPS agreements) are protected in India, as if such works are Indian works. To view list of countries which are signatories to various copyright conventions, Click here. Fair Use The Meaning of "Fair Use" Remember the intent of copyright: "to promote the progress of science and the useful arts" Authors are given a mini-monopoly to reproduce, distribute, adapt, perform and display their work, as an incentive to encourage development of new work. If this mini-monopoly would interfere with the "general" production of more new work, however, limitations will be placed upon it. Fair Use: gives scholars, researchers, authors, etc., permission to make limited use of the work of another without asking permission. To determine whether your intended use falls under the Fair Use principle, consider all four of these issues: 1. The purpose and character of the intended use. If the work is "transformative" then fair use is more likely to be applicable.

Typical acceptable transformations include:

o o o

Comment and Criticism -- e.g., a quote used to illustrate a comment; News reporting -- e.g., summarizing a report, and including a quotation, in a news piece; Research and Scholarship -- e.g., a quote used to illustrate a comment or observation.

Fair use is more likely to apply in the above situations if the use of the otherwise protected work in the situation is intended to advance new knowledge. It is less likely to apply if the intention is simple commercial gain. 2. The nature of the copyrighted work. Fair use is more likely to apply if the original is a factual work (e.g., scientific or technical paper) than a work of fancy (e.g., novel or poem). For example, there are only so many ways to state a physical law. Since the principle itself is not covered by copyright, and there are a limited number of ways to express it completely and accurately, many such expressions may be fairly used by others. Fair use as applied to unpublished materials is a very complicated topic. An extreme oversimplification is that a major limitation to its fair use involves any potential negative impact on the later value of publishing the original. Fair use does not mean that you can automatically re-use out-of-print work, but it does suggest that less-strict guidelines are applicable when a previously-published work is no longer readily available through normal means. 3. The amount and substantiality of the portion to be used in related to the copyrighted work as a whole. The larger the amount, and proportion, of original expression you want to use, the less likely it is covered by fair use. The more important the specifics are to the original work, the less likely it is covered by fair use. 4. The effect of the use on the potential market for, or value of, the copyrighted work. The more your use is likely to have a negative impact on the potential market for, or value of, the original or derivative works of the original, the less likely your use is covered by fair use.

The more that similar copying by others would further reduce the value of the original or derivative works, the less likely your use is covered by fair use. In a legal distpute, as the copier it will be up to you to show that your use did no harm to the value of the original. Unless your intended use meets all four criteria for fair use, then you must get the copyright holder's permission before you can use protected material. ++++++++++ What is fair use? Fair use provisions of the copyright law allow for limited copying or distribution of published works without the author's permission in some cases. Examples of fair use of copyrighted materials include quotation of excerpts in a review or critique, or copying of a small part of a work by a teacher or student to illustrate a lesson. How can I tell if my copying is allowed by fair use provisions of the Law? There are no explicit, predefined, legal specifications of how much and when one can copy, but there are guidelines for fair use. Each case of copying must be evaluated according to four factors: 1. The purpose and nature of the use.

If the copy is used for teaching at a non-profit institution, distributed without charge, and made by a teacher or students acting individually, then the copy is more likely to be considered as fair use. In addition, an interpretation of fair use is more likely if the copy was made spontaneously, for temporary use, not as part of an "anthology" and not as an institutional requirement or suggestion. 2. The nature of the copyrighted work.

For example, an article from a newspaper would be considered differently than a workbook made for instruction. With multimedia material there are different standards and permissions for different media: a digitized photo from a National Geographic, a video clip from Jaws, and an audio selection from Peter Gabriel's CD would be treated differently--the selections are not treated as a equivalent chunks of digital data. 3. The nature and substantiality of the material used.

In general, when other criteria are met, the copying of extracts that are "not substantial in length" when compared to the whole of which they are part may be considered fair use. 4. The effect of use on the potential market for or value of the work.

In general, a work that supplants the normal market is considered an infringement, but a work does not have to have an effect on the market to be an infringement. +++++++++++ Fair Use The concept of fair use can be confusing and difficult to apply to particular uses of copyright protected material. Understanding the concept of fair use and when it applies may help ensure your compliance with copyright law. Fair use is a uniquely U.S. concept, created by judges and enshrined in the law. Fair use recognizes that certain types of use of other people's copyright protected works do not require the copyright holder's authorization. In these instances, it is presumed the use is minimal enough that it does not interfere with the copyright holder's exclusive rights to reproduce and otherwise reuse the work. Fair use is primarily designed to allow the use of the copyright protected work for commentary, parody, news reporting, research and education. However, fair use is not an exception to copyright compliance so much as it is a "legal defense." That is, if you use a copyright protected work and the copyright owner claims copyright infringement, you may be able to assert a defense of fair use, which you would then have to prove. Section 107 of the United States Copyright Act lists four factors to help judges determine, and therefore to help you predict, when content usage may be considered "fair use." 1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes. If a particular usage is intended to help you or your organization to derive financial or other business-related benefits from the copyright material, then that is probably not fair use. 2. The nature of the copyrighted work. Use of a purely factual work is more likely to be considered fair use than use of someone's creative work. 3. The amount and substantiality of the portion used in relation to the copyright protected work as a whole. There are no set page counts or percentages that define the boundaries of fair use. Courts exercise common-sense judgment about whether what is being used is too

much of, or so important to, the original overall work as to be beyond the scope of fair use. 4. The effect of the use on the potential market for or value of the copyright protected work. This factor looks at whether the nature of the use competes with or diminishes the potential market for the form of use that the copyright holder is already employing, or can reasonably be expected soon to employ, in order to make money for itself through licensing. At one extreme, simple reproduction of a work (i.e., photocopying) is commonly licensed by copyright holders, and therefore photocopying in a business environment is not likely to be considered fair use. At the other extreme, true parody is more likely to be considered fair use because it is unlikely that the original copyright holder would create a parody of his or her own work. While the factors above are helpful guides, they do not clearly identify uses that are or are not fair use. Fair use is not a straightforward concept, therefore the fair use analysis must be conducted on a case-by-case basis. Understanding the scope of fair use and becoming familiar with those situations where it applies and those where it does not can help protect you and your organization from unauthorized use of copyright materials, however, many individuals do not want this responsibility. Corporate Copyright Policies (link to section) often provide guidelines for determining whether a use may be considered fair use. Frequently, a complete risk analysis is required. Most organizations prefer to follow the motto "when in doubt, obtain permission." Thousands of cases, and many, many books and articles have attempted to analyze fair use in order to define specific examples. Examples of Fair Use include: Quotation of excerpts in a review or criticism for purposes of illustration or comment.

Quotation of short passages in a scholarly or technical work for illustration or clarification of the author's observations. Reproduction of material for classroom use where the reproduction was unexpected and spontaneousfor example, where an article in the morning's paper is directly relevant to that day's class topic.

Use in a parody of short portions of the work itself.

A summary of an address or article, which may include quotations of short passages of the copyrighted work. Protection of Intellectual Property

As was the case with China, India too showed signs of resistance to quick enforcement of international intellectual property right (IPR) protection laws as demanded by the developed countries, particularly the US. China could get away on grounds that it is not a member of the World Trade Organisation (WTO), but India was required to comply. Under the terms of the WTO, India is required to implement WTO-standard IPR protection laws by 2005. It must be acknowledged that there has been remarkable progress in IPR protection the field of software and cinema products. India's general argument was that it does acknowledge in principle the case for strict IPR protection, but this can be done only in phases suited by its own ground reality. The reality is that absence of international IPR protection for some decades has spawned employment for millions, so an overnight clampdown on IPR violators would foment social unrest. However, under pressure from its own domestic industry and the United States, India strengthened its copyright law in May 1994, placing it at par with international practice. The new law, which entered into force in May, 1995, fully reflects the provisions of the Berne Convention on copyrights, to which India is a party. Based on its improved copyright protection, India's designation as a "priority foreign country" under the United States' Special301 list was revoked and India was placed on the "priority watch list." Copyright enforcement is also rapidly improving. Classification of copyright infringements as "cognisable offenses" expands police search and seizure authority. While the formation of appellate boards under the new legislation should speed prosecution, local attorneys indicate that some technical flaws in the laws, which require administrative approval prior to police action, need to be corrected. Trademark protection is considered good by the US authorities, and could be raised to international standards with the passage of a new trademark bill that codifies existing court decisions on the use and protection of foreign trademarks, including service marks. The bill was first introduced in 1995 but failed to win parliamentary approval. Passage of the trademark bill is expected in 1998. Enforcement of trademark owner rights had been weak in the past, but is steadily improving as the courts and police respond to domestic concerns about the high cost of piracy to Indian rights' holders. India's patent protection is weak and has especially adverse effects on international pharmaceutical and chemical firms. Estimated annual losses to the US pharmaceutical industry due to piracy are $450 million, but Indian authorities have a different point of view. India's patent act prohibits product patents for any invention intended for use or capable of being used as a food, medicine, or drug or relating to substances prepared or produced by chemical processes. Consequently, many drugs invented by foreign companies are widely reproduced.

Processes for making drugs are patentable, but the patent term is limited to the shorter of five years from the grant of patent or seven years from the filing date of the patent application. Product patents in other areas are granted for 14 years from the date of filing. However, as a signatory to the Uruguay Round of GATT, including its provisions on TradeRelated Intellectual Property Rights (TRIPS), India must introduce a comprehensive system of product patents no later than 2005. The Indian government has formed an advisory committee to recommend changes in the 1970 Indian Patents Act. A temporary ordinance for patent protection implementing the "mailbox" provisions of the WTO TRIPS agreement and providing for exclusive marketing rights was issued in December 1994. However, the ordinance lapsed and the parliament has yet to pass a new patent bill implementing the provisions of the ordinance. In July 1996, the U.S. initiated WTO dispute settlement procedures over India's failure to implement its TRIPS obligations. The final panel report on this case was issued in August 1997, and ruled that India had failed to meet its obligations under the TRIPS agreement. Indian officials have pledged to introduce another bill in parliament which, if passed, will put India in compliance with its TRIPS obligations. The bottomline is that India considers itself a responsible member of the WTO which suggests that international class IPR protection should be in place by 2005. Besides, given India's determination to emerge as a power in the global software industry, it is most likely that all IPR protection laws will be instituted and enforced by 2005. Note that Bill Gates, the chief executive officer of Microsoft Corporation, has distinguished India as a most promising base for software development. If such an IPR-conscious business leader like Gates is of this opinion, one can only conclude that India's IPR scene is no deterrent to foreign companies.

Businesses dont plan to fail, they fail to plan is an often cited quotation by Harvey MacKay. Businesses that fail to plan are likely to be reactive, vulnerable to threats, closed to opportunities and work blind with a short-term focus. Indeed creating a business plan is crucial to the success of an organisation. A business plan is a report of the things that a company plans to do over a particular period of time. It is often used to help secure investment and gain approval from internal and external stakeholders as it will cover the opportunities that the business intends to exploit and outline the resources it needs to do that. It will also contain background

information and analysis as to why the company decided on those objectives and strategies. The key questions that a business plan will answer are:

Where are we now? Where do we want to be? How do we get there? Are we on course to get there?

To answer these questions a business plan covers the following stages: 1. A situational analysis of the internal and external environment. This often includes the use of tools such as PESTLE, SWOT, BCG and Porters Five Forces 2. The setting of clearly defined, measurable and time specific objectives. This will usually include a mission statement as well as measurable goals such as to increase brand awareness to 75% by the end of 2008. 3. An outline of the strategies that will be used to achieve those objectives. Using the above example to increase brand awareness one strategy could be advertising that keeps the brand top of mind 4. Tactical plans will outline how the strategies will be delivered. Here we might consider a particular combination of TV and radio advertising at peak viewing and listening times 5. An implementation plan, with budgets and responsibilities, which will become a working document for day-to-day activities 6. Procedures will also be decided upon and put into place for monitoring performance against the objectives. This could involve external customer research to test awareness levels at various points in time throughout the year. The most effective plans will be regularly updated and refined based on close monitoring of actual results versus the objectives set.

A business plan should be carefully evaluated before any time or money is spent on implementing it. The potential in the plan must be assessed and feedback sought before it is signed off and approved. The following questions should be answered:

Are the objectives realistic and achievable? Am I convinced that its worth investing in this company? Are the forecasts believable? Will the resources outlined help achieve the goals? Is there any evidence that the customer will accept the plan?