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Lecture 4 & 5- Information and the Entrepreneur

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Information and the Entrepreneur Anita.Apiit. Entrepreneurship BM019-3-3
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  • Information and the EntrepreneurAnita.Apiit. EntrepreneurshipBM019-3-3

    Module Code and Module TitleTitle of Slides

    LEARNING OUTCOMES

    To assess the need of information for entrepreneurs.

    To study the types of information needed by entrepreneurs.

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    The facts: nothing but the facts: worship of the facts leads to everything, to happiness first of all, and then to wealth.--Edmond de Goncourt Edmond, 1888

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    Why Failure?Many entrepreneurs who found new ventures to develop products or services do not do their homework: they fail to acquire essential information before beginning.

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    Research has identified four areas where entrepreneurial information is typically incomplete:

    Risk in the form of financial return to investorsComplexity -- the number of inputs with which a business must deal Ignorance -- what the entrepreneur doesnt know that he doesnt knowIndeterminism not knowing how an entrepreneurs actions will affect the outcome

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    Information NeedsBefore creating a business plan, entrepreneur must undertake a feasibility study.Information for a feasibility study should focus on: Marketing.Finance. Production. Internet can be a valuable resource. Feasible, well-defined goals and objectives need to be established. Based on this, strategy decisions can be established to achieve these.

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    Crucial InformationCompetitor InformationMarketing informationGovernment regulations and policies,LawsMarket Research

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    COMPETITOR INFORMATIONWe read advertisementsto discover and enlarge our desires. We are always readyto discover, from the announcement of a new product, what we have all along wanted without really knowing it.--Daniel J. Borstein, 1961

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    Identifying the Competition Different types of Competitors

    Direct competitors -Are trying to serve the same customers that you are

    Indirect competitors-Compete with you for supplies, etc, or customer $$

    Emerging competitors-Look for the less obvious (outside the entrepreneurs industry and market)

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    How would you get Information about your Competitors?????

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    Competitor Information

    Check the competitors website and advertising

    Examine their annual stockholder reports (go to meetings)

    Visit competitor outlets where the product/service is distributed

    Become a customer to sample their product/service and to see how they treat and service their customers

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    Evaluating competitor competenciesAre there any additional competencies that the competitor must acquire in order to be successful?Are any of the competitors core competencies easily transferable to your business?Does the competitor have a competency in the same area as your firm?

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    MARKETING INFORMATIONWho are the potential customers? How will potential customers react to the new product of service?What can you learn about specific markets or geographic areas?

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    An Upside-Down Pyramid Approach to Gathering Market Information

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    Why Do Market Research?To find outIs the business concept viable from a market perspective?What are the major risks and information gaps in this venture, and what information is needed to characterize and minimize these risks?Will the business model and entry strategy succeed?

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    Characterizing the Target MarketWHO IS YOUR CUSTOMER?Getty Images

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    Characterizing the Target MarketThe customer or target market is that segment of the marketplace that will most likely purchase the product or service.

    The target customer is not always the end-user of the product or service.

    The target customer could be a manufacturer producing a product that is sold to a distributor, who in turn sells to the end-user -- the consumer perhaps, or another business.

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    Segmenting the Target MarketBy geographic area WHERE DO THEY LIVE? (area and region)

    By psychographics WHAT IS THEIR LIFESTYLE, VALUES, PERSONALITY TRAITS and MOTIVES?

    By demographics WHAT IS THEIR AGE, NATIONA L ORIGIN, SOCIAL CLASS and GENDER?

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    Key Questions of Market ResearchWho is your primary customer?

    What products/services do they typically buy?

    How did they hear about it?

    How do they like to buy this type of product/service?

    How often do they buy?

    How can we (our business) best meet the customers needs?

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    Direct Techniques-for Marketing InformationSurveyPerceptual mappingFocus groups

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    Customer SurveysPotential customers compare your product with existing onesTarget group rates different dimensions of the product on a scale from low to highAssumes you know the dimensions customers use to evaluate products

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    Survey QuestionsKeep the questionnaire shortKeep your questions neutral...no leading or bias Ask easy questions first...lead up to complex onesAsk demographic questions lastWhen you ask sensitive questions, or when people hesitate...give them a range to pick fromYour income level (in thousands) is... $20-$40, $40-60, $60-80, or $80+

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    Perceptual MappingA map that reveals the key dimensions along which potential customers perceive products and evaluate them

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    Perceptual Maps for Object Locators

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    Focus GroupsGroups of 8 to 12 people similar to potential customers Meet for one to two hours to describe their perceptions of and reactions to relevant productsIdentify the key dimensions along which focus group members perceive and evaluate various products

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    Repertory GridEach product is listed on a separate index cardThree cards are chosenGroup members describe ways in which any two products are similar and the third is differentIdentifies dimensions along which people perceive the product

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    Indirect TechniquesExamine secondary data including

    Sales of competing productsDemographic dataTrends (economic, lifestyle, etc.)

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    GOVERNMENT POLICIESMay make it harder or easier to start and run a new venture

    Gather relevant information on the government policies and regulations that will affect a new business

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    Health and SafetyOccupational Safety and Health Act of 1970 (OSHA) requires employers toProvide safe and healthy work environmentComply with specific standardsKeep records of occupational injuries and illnesses

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    AT THE WORKPLACE

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    WHY BOTHER ABOUT HEALTH AND SAFETY AT THE WORKPLACE?????

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    Nine Killed In Blasts At Fireworks Factory13 April 2003 TOKYO, Japan Source: The Star, Malaysia

    Workplace Accidents Kill 48,504 People In Five Months 14 June 2003 BEIJING, ChinaSource: The Star

    Only 400 Factories Follow Safety Rules 25 July 2003, MalaysiaThe StarINDONESIA-There were 57,000 workplace accidents inthe first half of 2002 alone, andsome 18,000 fatalities from work-related llnesses or injuries in 2002 Source: www.insideindonesia.orgIn IRAN, on average 14,000 fatal industrial accidents occur annually at workplaces.Source:www.iran-daily.com

    Workplace Accidents Alarming 3 May 200275,386 cases in 2000 KUALA LUMPUR, Malaysia

    Nigeria Factory Fire Kills At Least 20 19 September 2002

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    It is estimated that at least 250 million occupational accidents occur every year worldwide. 335,000 of these accidents are fatal (result in death).

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    A HAZARD

    A hazard is usually used to describe a potentially harmful situation which posses a level of threat to life, property or environment

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    Who is legally responsible?Senior Management of the business organisation StaffManufacturers and suppliers

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    Operations Information NeedsEntrepreneur may need information on:LocationManufacturing operationsRaw materialsEquipmentLabor skillsSpaceOverhead

    Most of the information should be incorporated directly into the business plan.

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    CLASS EXERCISESuppose you want to start a new business in a particular field. What factors and what areas you would you research? How you would proceed?

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    Six-Step Market Research Process1.Design some business prototypes2.Assess and prioritize information needs, key assumptions, and unknowns based on the prototype designs3.Conduct interviews with opinion leaders and experts in the industry and market4.Prepare for market research5.Conduct field analysis or primary research with the customer6.Organize, analyze, modify, and conduct further research

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    Assess and Prioritize Information Needs An ideal market should have the following characteristics:

    Over $100 million and growing30-35 percent growth ratesGross margins of 40-50 percent or moreRelatively low start-up requirementsAllows for break-even in two years or less

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    Assumptions and UnknownsWhat assumptions are we making about the...Product/serviceIndustry/marketCustomersCompetitorsBusiness we hope to start

    We need to find proof that these assumptions are realistic.

    What information do we need to test these assumptions?

    Where can we find this information?...how can we get it?

    MAKE A LIST OF THE INFORMATION YOU NEED, AND WHERE YOU WILL GO TO OBTAIN IT.

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    Conduct Interviews with OpinionLeaders and Industry/Market Experts Talk with people in the industry who understand the value chain, the markets and the customers.

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    Prepare for Market ResearchThe following questions help to uncover the underlying rationale for the research.

    What are you trying to achieve?

    Who do you want (or need) to convince?

    What do you need to know in order to make a compelling case for sufficient market demand?

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    Secondary Sources of Customer DataU.S. Bureau of the Census. The 10-year U.S. population census, monthly Current Population Survey, and Survey of Income and Program Participation. Census data can be used to look at group demographic data within specific geographic regions and to estimate how many potential customers are within the geographic boundaries of the target market.

    Community economic development departments. Statistics on local population trends and other economic issues, as well as businesses locating in the community.

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    Secondary Sources of Customer DataChambers of commerce. Information on the community in general as well as businesses.

    Small Business Administration. Broad-based information and services for small businesses.

    Small Business Development Centers. Branches of the Small Business Administration that contain a wealth of information and services for small businesses.

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    Secondary Sources of Customer DataTrade associations. Typically keep statistics on their members and their industries. Some of this information may be available to the public.

    Trade journals. What is happening in an industry: trends, problems, opportunities, and sources of information.

    Government Printing Office. The federal government provides free of charge pamphlets and documents on just about anything a business owner might want to know.

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    More Active Sources of Customer DataTrade shows. Attending trade shows in your industry is an excellent way to learn who the competition is and to see what the latest trends in the industry and your specific market are.

    Competitors. Competitors can be a great source of information. Become one of their customers and study their strategies and how they deal with their customers. Who are their customers? What can you provide the customer that they are not providing?

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    Conduct Field Analysis or Primary ResearchSurveys Structured Interviews Focus Groups

    Choice Modeling and Concept Testing Choosing the Sample

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    Conduct Field Analysis or Primary Research with the CustomerData the entrepreneur collects through observation and talking with people = primary research

    Exploratory vs Confirmatory methods

    Focus Groups Presentations, experiential demonstrations, discussionsVideotaped opinions and feedback

    InterviewsStructured vs open-endedFace-to-Face and Phone

    Surveys (questionnaires)MailOn-linePhone

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    Picking your Customer SamplesStratified SamplesBased on geographyBased on psychographicsBased on demographics

    Convenience Samples

    Random Samples

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    Organize, Analyze, Modify, and Conduct Further Research

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    VIDEO CASE Apprentice RestaurantReferring to the case, what kind of information was necessary for such a venture.How can the ZAGAT survey be valuable for restaurant entrepreneurs in the business.How should the teams respond to the customer feedback if the business were to continue?

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    QUESTIONSWhat were the resources used in this restaurant business?What were the challenges faced by the girls team ? How could these be overcome with prior planning?What competitive advantage did the boys team have?How can the ZAGAT survey be valuable and useful information for restaurant entrepreneurs?

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    Exercise Do market segmentation for the below:hotel industry: identify a hotel that target each segment of market that you have identified.

    2. private university and colleges industry: identify a college or university that target each segment of market that you have identified.

    3. car industry: identify how Toyota / Honda targets different segments of car market.

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    Exercise Prepare a survey questionnaire and draw a perceptual map for:

    Group A- Different brands of computerGroup B- Different internet service providersGroup C- Different hypermarkets

    *** Do you see any underserved market?

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