What is an Opportunity?

Opportunity Defined

An opportunity is a favorable set of circumstances that creates

a need for a new product, service, or business.

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 Four Essential Qualities of an Opportunity

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 Three Ways to Identify an Opportunity

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 First Approach: Observing Trends

Observing Trends
◦ Trends create opportunities for entrepreneurs to pursue.
◦ The most important trends are:
◦ Economic forces
◦ Social forces
◦ Technological advances
◦ Political and regulatory change

◦ It’s important to be aware of changes in these areas.

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 Environmental Trends Suggesting Business
or Product Opportunity Gaps

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 Trend 1: Economic Forces

Example of Economic Trend

Creating a Favorable Opportunity
Economic trends help
• A weak economy favors
determine areas that are
start-ups that help consumers
ripe for new start-ups and
save money.
areas that start-ups should
• An example is GasBuddy.com,
avoid.
a company started to help
consumers save money on gas.
GasBuddy is a tech company based in Boston that operates apps and websites based on finding real-time
fuel prices at more than 140,000 gas stations in the United States, Canada, and Australia. They also sell
software products to convenience store owners via their B2B initiatives (formerly known as OpenStore).
The GasBuddy app is a GPS-based application program for smartphones and tablets which provides prices of
nearby gas stations from user-submitted data, as well as through partnerships with other companies and
directly from station operators. The app has both Android and iOS versions.

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 Trend 2: Social Forces
Examples of Social Trends
Social trends alter how
people and businesses • Aging of the population.
behave and set their • The increasing diversity of
priorities. These trends the workplace.
• Increased participation in
provide opportunities for social networks.
new businesses to • Growth in the uses of mobile
accommodate the devices.
changes. • An increasing focus on health
and wellness.

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 Trend 3: Technological Advances
Examples of Entire Industries
Advances in technology that Have Been Created as the
frequently create business Result of Technological
Advances
opportunities.
• Computer industry
• Internet
• Biotechnology
• Digital photography
• Big Data
• IOT
• Blockchain
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Once a technology is created, products often emerge to advance it.

Example: H20Audio

An example is H20Audio, a
company started by four
former San Diego State
University students, that
makes waterproof housings
and earbuds for the Apple
iPhone.

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 Trend 4: Political Action and Regulatory Changes

General Example
Political action and Laws to protect the environment
regulatory changes also have created opportunities for
provide the basis for entrepreneurs to start firms that
opportunities. help other firms comply with
environmental laws and
regulations.

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 Company created to help other companies comply with the law.

Specific Example
OSHA is a government agency
that formulates and enforces
safety, health, and
environmental regulations for
the workplace. Safety
Compliance Company was
started to help other companies
comply with OSHA regulations.

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 Second Approach: Solving a Problem

Solving a Problem
◦ Sometimes identifying opportunities simply involves
noticing a problem and finding a way to solve it.
◦ These problems can be pinpointed through observing
trends and through more simple means, such as intuition,
serendipity, or change.
◦ Many companies have been started by people who have
experienced a problem in their own lives, and then
realized that the solution to the problem represented a
business opportunity.

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A problem facing the U.S. and other countries is finding alternatives to
fossil fuels.

•A large number of entrepreneurial firms,

like wind farm and solar energy are being
launched to solve this problem.

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Third Approach: Finding Gaps in the Marketplace

Gaps in the Marketplace

◦ A gap in the marketplace is often created when a product or
service is needed by a specific group of people but doesn’t
represent a large enough market to be of interest to mainstream
retailers or manufacturers.

Product gaps in the marketplace represent potentially

viable business opportunities.
Many entrepreneurs realized
there were no guitars on the
market made specifically for
females.
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 Characteristics that tend to make some people better at
recognizing opportunities than others

Prior Experience Cognitive Factors

Social Networks Creativity

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 Prior Experience

Several studies have shown that prior experience in an industry

helps an entrepreneur recognize business opportunities.

By working in an industry, an individual may spot

a market niche that is underserved.

It is also possible that by working in an industry, an

individual builds a network of social contacts who
provide insights that lead to recognizing new
opportunities.

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 Cognitive Factors

Studies have shown that opportunity recognition may be an

innate skill or cognitive process.

Some people believe that entrepreneurs have a “sixth sense”

that allows them to see opportunities that others miss.

This “sixth sense” is called entrepreneurial alertness, which

is formally defined as the ability to notice things without
engaging in deliberate search.

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 Social Networks

The extent and depth of an individual’s social network affects

opportunity recognition.

People who build a substantial network of social and professional contacts

will be exposed to more opportunities and ideas than people with sparse
networks.Research results suggest that between 40% and 50% of people
who start a business got their idea via a social contact.

Strong-Tie Vs. Weak-Tie Relationships

It is more likely that an entrepreneur will get new business ideas through weak-tie
rather than strong-tie relationships. Why?

Strong tie relationships, which typically form between like-minded individuals,

tend to reinforce insights and ideas that people already have
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http://strategicorganizationdesign.com/the-innovator%E2%80%99s-dna-disruptive-research-disruptive-writing

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 Creativity

Creativity is the process of generating a novel or useful idea.

Opportunity recognition may be, at least in part, a creative

process.

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For an individual, the creative process can be
broken down into five stages
Five Steps to Generating Creative Ideas

Preparation—Is the background, experience, and knowledge that an entrepreneur brings

to the opportunity recognition process.
Incubation—Is the stage during which a person considers an idea or thinks about a
problem; it is the “mulling things over” phase.
Insight—Insight is the flash of recognition, when the solution to a problem is seen or an
idea is born.
Evaluation—Is the stage of the creative process during which an idea is subjected to
scrutiny and analyzed for its viability.
Elaboration—Is the stage during which the creative idea is put into a final form. The
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 Techniques for Generating Ideas

Brainstorming Focus Groups

Library and
Other Techniques
Internet Research
Other
Other Techniques SCAMBER Model of Creativity
Techniques Six Thinking Hats
Customer Advisory Boards
Mind Mapping
Day-In-The-Life Research

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 Brainstorming
Is a technique used to generate a large number of ideas and
solutions to problems quickly.
A brainstorming “session” typically involves a group of
people, and should be targeted to a specific topic.

No criticism

Rules for a
brainstorming
session:
Leap-frogging is
encouraged. The session should
move quickly.
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 Focus Groups
A focus group is a gathering of five to ten people, who have been selected based on
their common characteristics relative to the issues being discussed.

These groups are led by a trained moderator, who uses the internal
dynamics of the group environment to gain insight into why people feel
the way they do about a particular issue.

Although focus groups are used for a variety

of purposes, they can be used to help
generate new business ideas.

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Library and Internet Research
Library Research
Libraries are an often underutilized source of information for
generating new business ideas.

The best approach is to talk to a reference librarian, who can

point out useful resources, such as industry-specific
magazines, trade journals, and industry reports.

Simply browsing through several issues of a trade journal or an

industry report on a topic can spark new ideas.

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Large public and university Examples of Useful Search Engines
and Industry Reports
libraries typically have •ScienceDirect
access to search engines and •SpringLink
•SSRN
industry reports that would • BizMiner
• ProQuest
cost thousands of dollars to • IBISWorld
• Mintel
access on your own. • LexisNexis Academic

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Library and Internet Research
Internet Research
simply type “new business ideas” into a search engine will
produce links to newspapers and magazine articles about the
“hottest” new business ideas.

Mind maps, developed by Tony Buzan are an effective method of note-taking and
useful for the generation of ideas by associations
To make a mind map, one starts in the centre of the page with the main idea, and
works outward in all directions, producing a growing and organised structure
composed of key words and key images

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 Example of applying the SCAMPER technique, below is one potential output of
new ideas for a new version of pen:

•Substitute – replace nib with knife, ink with iron

•Combine – holding with opening, writing with cutting

•Adapt – use the pen top as a container

•Modify – body can be made flexible
•Put to other uses – utilize for writing on wood
•Eliminate – clip utilizing Velcro
•Rearrange – make the nib flow outwards
 Customer Advisory Boards

Some companies set up customer advisory boards that meet regularly

to discuss needs, wants, and problems that may lead to new ideas.

Day-In-The-Life Research
A type of anthropological research, where the employees of a company spend a
day with a customer.
Six Thinking Hats Source: Edward
De Bono

30
 What Is Feasibility Analysis?

• Feasibility analysis is the

process of determining whether
a business idea is viable.
Feasibility Analysis
• It is the preliminary evaluation
of a business idea, conducted
for the purpose of determining
whether the idea is worth
pursuing.

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 When To Conduct a Feasibility Analysis

• Timing of Feasibility Analysis

– The proper time to conduct a feasibility analysis is early in
thinking through the prospects for a new business.
– The thought is to screen ideas before a lot of resources are
spent on them.
• Components of a Properly Conducted Feasibility
Analysis
– A properly conducted feasibility analysis includes four
separate components, as discussed in the following slides.

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 Feasibility Analysis

Role of feasibility analysis in developing business ideas.

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 Forms of Feasibility Analysis

1.0 Product/Service 2.0 Industry/Target Market

Feasibility Feasibility

3.0 Organizational
4.0 Financial Feasibility
Feasibility

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1.0 Product/Service Feasibility Analysis

Purpose
• Is an assessment of the overall
Product/Service appeal (‫ )جاذبية‬of the product or
Feasibility Analysis service
being proposed.

• Before a prospective firm rushes

a new product or service into
development, it should be sure
that the product or service is
what prospective customers
want.
 -- Product/Service Feasibility Analysis

Components of product/service
feasibility analysis

1.1 Product/Service 1.2 Product/Service

Desirability Demand

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 1.1 Product/Service Desirability

First, ask the following questions to determine the basic

appeal of the product or service.

• Does it make sense? Is it reasonable? Is it something consumers

will get excited about?
• Does it take advantage of an environmental trend, solve a
problem, or take advantage of a gap in the marketplace?
• Is this a good time to introduce the product or service to the
market?
• Are there any fatal flaws (‫ )عيوب قاتلة‬in the product or service’s
basic design
or concept?
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 Product/Service Desirability

• Second, Administer a Concept Test

– A concept statement should be developed.
– A concept statement is a one-page description of a business
that is distributed to people who are asked to provide
feedback on the potential of the business idea.
– The feedback will hopefully provide the entrepreneur:
• A sense of the viability of the product or service idea.
• Suggestions for how the idea can be strengthened or “tweaked”
(‫ لف‬- ‫ )إعادة بلورة‬before proceeding further.

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 1.2 Product/Service Demand

• Product/Service Demand
There are two steps to assessing product/service demand.

– Step 1: Talking Face-to-Face with Potential Customers.

– Step 2: Using Online Tools, Such as Google AdWords and

Landing Pages, To Assess Demand.
 Product/Service Demand

Step 1: Talking Face-to-Face with Potential Customers

– The only way to know if your product or service is what
people want is by talking to them.
– The idea is to gauge customer reaction to the general
concept of what you want to sell, and tweak, revise, and
improve on the idea based on the feedback.
– In some cases, talking with potential customers will cause
an entrepreneur to abandon (‫ )يتخلى‬an idea.
– Entrepreneurs are often surprised to find that a product idea
they think solves a problem gets lukewarm (‫ )فاتر‬reception
when they talk to actual customers.
 Product/Service Demand

Step Two: Utilizing Online Tools, Such as Google

AdWords and Landing Pages, to Assess Demand
– The second way to assess demand is to utilize online tools
to gauge reaction from potential customers.
– Some entrepreneurs purchase text ads on search engines
that show up when a user is searching for a product that is
close to their idea. If the searcher clicks on the text ad, they
are directed to a landing page that describes the idea. There
may be a link on the landing page that says “For future
updates please enter your e-mail address.” Demand for
the idea can be assessed by how many people click on
the text ad and enter their e-mail address.
 Product/Service Demand

• Utilizing Online Tools, Such as Google AdWords and

Landing Pages, to Assess Demand (continued)
– A variety of additional online tools are available to help
assess the demand for a new product or service.
– Examples include:
• Sites that provide feedback on business ideas (Foundersuite,
Quirky).
• Market Research (CrowdPicker, Google Trends).
• Online Surveys (Survey Monkey, Google Consumer Surveys).
• Q&A Sites (Quora, Stack Overflow).

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 2.0 Industry/Target Market Feasibility
Analysis

Purpose
• Is an assessment of the overall
appeal of the industry and the
Industry/ target market for the proposed
business.
Target • An industry is a group of firms
producing a similar product or
Market service.
Feasibility • A firm’s target market is the
limited portion of the industry it
Analysis plans to go after.
 Industry/Target Market Feasibility Analysis

Components of Industry/target market

feasibility analysis

2.2 Target Market

2.1 Industry Attractiveness
Attractiveness
 2.1 Industry Attractiveness

• Industry Attractiveness
– Industries vary in terms of their overall attractiveness.
– In general, the most attractive industries have the
characteristics depicted on the next slide.
– Particularly important —the degree to which environmental
and business trends are moving in favor rather than against
the industry.
 Industry Attractiveness

Characteristics of Attractive Industries

• Are young rather than old.
• Are early rather than late in their life cycle.
• Are fragmented rather than concentrated.
• Are growing rather than shrinking.
• Are selling products and services that customers “must have” rather
than “want to have.”
• Are not crowded.
• Have high rather than low operating margins.
• Are not highly dependent on the historically low price of key raw
materials.
 Target Market Attractiveness

• Target Market Attractiveness

– The challenge in identifying an attractive target market is to
find a market that’s large enough for the proposed business
but is yet small enough to avoid attracting larger
competitors.
– Assessing the attractiveness of a target market is tougher
than assessing the attractiveness an entire industry.
– Often, considerable ingenuity (‫ )براعة‬must be employed to
find information to assess the attractiveness of a specific
target market.

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 3.0 Organizational Feasibility Analysis

Purpose
• Is conducted to determine
Organizational Feasibility whether a proposed business has
Analysis sufficient management expertise,
organizational competence, and
resources to successfully launch
a business.
• Focuses on non-financial resources.
 Organizational Feasibility Analysis

Components of organizational
feasibility analysis

3.1 Management Prowess

3.2 Resource Sufficiency
(‫)شجاعة‬

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 Management Prowess

• Management Prowess
– A proposed business should candidly evaluate the prowess,
or ability, of its management team to satisfy itself that
management has the requisite passion and expertise to
launch the venture.
– Two of the most important factors in this area are:
• The passion that the sole entrepreneur or the founding team has for
the business idea.
• The extent to which the sole entrepreneur or the founding team
understands the markets in which the firm will participate.
 Resource Sufficiency

• Resource Sufficiency
– This topic pertains to an assessment of whether an
entrepreneur has sufficient resources to launch the
proposed venture.
– To test resource sufficiency, a firm should list the 6 to 12
most critical nonfinancial resources that will be needed
to move the business idea forward successfully.
• If critical resources are not available in certain areas, it may be
impractical to proceed with the business idea.
 Resource Sufficiency

Examples of nonfinancial resources that may be critical

to the successful launch of a new business
• Affordable office space.

• Lab space, manufacturing space, or space to launch a service business.

• Availability of contract manufacturers or service providers.
• Key management employees (now and in the future).
• Key support personnel (now and in the future).
• Ability to obtain intellectual property protection.
• Ability to form favorable business partnerships.
 4.0 Financial Feasibility Analysis

Purpose
• Is the final component of a
Financial Feasibility comprehensive feasibility analysis.
Analysis
• A preliminary financial assessment
is sufficient.
 Financial Feasibility Analysis

Components of financial
feasibility analysis

4.1 Total Start-Up Cash 4.2 Financial Performance

Needed of Similar Businesses

4.3 Overall Financial

Attractiveness of the
Proposed Venture
 4.1 Total Start-Up Cash Needed

• Total Start-Up Cash Needed

– The first issue refers to the total cash needed to prepare the
business to make its first sale.
– An actual budget should be prepared that lists all the
anticipated capital purchases and operating expenses
needed to generate the first $1 in revenues.
– The point of this exercise is to determine if the proposed
venture is realistic given the total start-up cash needed.
 4.2 Financial Performance of Similar
Businesses
• Financial Performance of Similar Businesses
– Estimate the proposed start-up’s financial performance by
comparing it to similar, already established businesses.
– There are several ways to doing this, all of which involve a
little ethical detective work.
• First, there are many reports available, some for free and some that
require a fee, offering detailed industry trend analysis and reports
on thousands of individual firms.
• Second, simple observational research may be needed. For
example, the owners of New Venture Fitness Drinks could estimate
their sales by tracking the number of people who patronize ( ‫تعامل‬
‫ )مع‬similar restaurants and estimating the average amount each
customer spends.
 4.3 Overall Financial Attractiveness of the
Proposed Venture

• Overall Financial Attractiveness of the Proposed

Investment
– A number of other financial factors are associated with
promising business start-ups.
– In the feasibility analysis stage, the extent to which a
business opportunity is positive relative to each factor is
based on an estimate rather than actual performance.
– The table on the next slide lists the factors that pertain to
the overall attractiveness of the financial feasibility of the
business idea.
 Overall Financial Attractiveness of the
Proposed Venture

Financial Factors Associated With Promising Business

Opportunities
• Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche.
• High percentage of recurring revenue —meaning that once a firm wins a
client, the client will provide recurring sources of revenue.
• Ability to forecast income and expenses with a reasonable degree of
certainty.
• Internally generated funds to finance and sustain growth.
• Availability of an exit opportunity for investors to convert equity to cash.
Template for completing a feasibility analysis.

• It’s called “First Screen” because it’s a tool that can be used
in the initial pass at determining the feasibility of a business idea.

• If a business idea cuts muster at this stage, the next step is to

complete a business plan.

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What is a Business Model?
“A business model is
what a business does
and how it makes
money.”

[As quoted in Boar, Bernard H. The art of strategic planning for information technology ,2nd Edition, John Wiley, 2000]

1/24/2024 1
What is a Business Model? (continued)
Concept
describes the
opportunity and
strategy

Value Capabilities
measures the benefit to define resources
investors and other needed to execute
stakeholders strategy

Adapted from Applegate et al, Corporate Information Strategy and Management, McGraw-Hill/Irwin 2003

1/24/2024 2
Let is now define a Start-up
A startup is a human institution designed to create a new product or
service under conditions of extreme uncertainty

A startup is a temporary organization that is in search of a repeatable

and scalable business model

1/24/2024 3
What a start-up is NOT
A startup is not a smaller version of a large company (i.e. it is not a doll
house)

Why is a startup not a smaller version of a large company?

1/24/2024 4
Startup vs everything else
Startup
◦ Problem: Unknown (Market? Customers? Need?)
◦ Solution: Unknown (What are we going to build?)

Everything else
◦ Problem: Known
◦ Solution: Known
◦ Known: Small business? Clone of an existing business?
◦ Existing market, waterfall product development

1/24/2024 5
What is everything else?
Small businesses

Large companies

Social entrepreneurship

Disruptive companies within large companies

1/24/2024 6
 Startups or SMEs
New products/ services Replicate current product /
services
Innovation driven
Innovation is limited
New technology
Growth is limited ( for most )
New business model
High growth / potential
 Value Creation
A Map of Socioeconomic Value Creation

Economic
Impact High Growth Transformational
Entrepreneurship
Entrepreneurship

Small Business Social

Entrepreneurship

Long Term Social Impact

 Value Creation : A Map of Socioeconomic Value Creation
Renewable
Apple
Advertising Energy
Oil &Gas Economic
Impact Google
Companies Facebook

Fast food Amazon

Starbucks Twitter
Longevity / Personalized
Medicine

Management Data Infrastructure

Consulting Crowdfunding Cheap Mobile
Phones
Social Games Collaborative Consumption

Liquor Stores Hair Dressers Microfinance

Laundromats
Long Term Social
1 for 1 Marketing Impact
Campaigns Wikipedia

Disease Treatment &

Most Aid & Charity Fighting
Prevention
Terrorism
Business Models
Business Model
◦ A business model is a firm’s plan or recipe for how it creates,
delivers, and captures value for its stakeholders.
◦ The proper time to develop a business model is following the
feasibility analysis stage and prior to fleshing out the
operational details of the company.
◦ A firm’s business model is integral to its ability to succeed both
in the short and long term.

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General Categories of Business Models
1 of 6

Standard Business Models

◦ The first category is standard business models.
◦ Standard business models depict existing plans or recipes firms
can use to determine how they will create, deliver, and capture
value.
◦ There are a number of standard or common business models,
which are shown on the next two slides.

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General Categories of Business Models
2 of 6
Standard Business Models
Business Model Representative Companies

Advertising Business Model Google, Facebook

Auction Business Model eBay, uBid.com
Bricks and Clicks Business Apple, Barnes & Noble
Model
Franchise Business Model Panera Bread, 24-Hour Fitness
Freemium Business Model Dropbox, Pandora
Low-Cost Business Model Southwest Airlines, Walmart
Manufacturer/Retailer Fitbit, Tesla Motors
Business Model
Peer-to-Peer Business Model Airbnb, Uber

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General Categories of Business Models
3 of 6
Standard Business Models
Business Model Representative Companies

Razor and Blades Business Game Consoles and Games,

Model Printers and Ink Cartridges
Subscription Business Model Birchbox, Netflix
Traditional Retailer Business Amazon, Whole Foods
Model Markets

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General Categories of Business Models
4 of 6

Disruptive Business Models

◦ The second category is disruptive business models.
◦ Disruptive business models, which are rare, are ones that do not
fit the profile of a standard business model.
◦ They are impactful enough that they disrupt or change the way
business is conducted in an industry or an important niche
within an industry.
◦ The next slides depict four business models that were disruptive
when they were introduced.

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 General Categories of Business Models
5 of 6
Disruptive Business Models
Business Model Company or Companies That Introduced It

Direct-to-Consumer Computer Sales (which Dell

allowed consumers to customize their
computers)
Online Text Ads on Search Engines (allowed Yahoo, Google
advertisers to place ads for products that
searchers were already searching for)
Software as a Service (SaaS) (By moving Salesforce.com
software to the cloud, allowed users to
access the software and their data from
anywhere there was an Internet connection)

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General Categories of Business Models
6 of 6
Disruptive Business Models

Business Model Company or Companies That Introduced It

Cloud-based Service to Connect Riders and Uber, Lyft

People Willing to Provide Rides (Provided
riders with an app that connects them with
the owners of private cars)

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 CS419 Technology Entrepreneurship
Week #1 «The Startup»

What is a business model again?

Diagram of flows between company and customers
Scorecard of hypotheses testing
Dynamic: Allows rapid change with each iteration and pivot
Founder-driven
CUSTOMER SEGMENTS

which customers and users are you serving?

which jobs do they really want to get done?
VALUE PROPOSITIONS

what are you offering them? what is that

getting done for them? do they care?
 CHANNELS

how does each customer segment want to be reached?

through which interaction points?
CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment?

personal? automated? acquisitive? retentive?
 REVENUE STREAMS

what are customers really willing to pay for? how?

are you generating transactional or recurring revenues?
 KEY RESOURCES

which resources underpin your business model? which

assets are essential?
 KEY ACTIVITIES

which activities do you need to perform well in your

business model? what is crucial?
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 KEY PARTNERS

which partners and suppliers leverage your model?

who do you need to rely on?
COST STRUCTURE

what is the resulting cost structure?

which key elements drive your costs?
 key activities value proposition customer
relationships

key partners customer

segments

cost structure revenue

key resources streams

channels

27
images by JAM
Business Model Components
Channels Value Proposition Customer Segments
• Value is delivered to • Seeking to solve customer • The Business serves one or
customers through problems and meet their several customer Segment.
communications, distribution, needs through value added.
and sales channels.

Key Resources Revenues Customer Relationships

• The main resources are the • Revenue is generated by • Customer relationships are
assets needed to deliver the delivering value proposition established and maintained
items already described ... successfully to customers. with each customer segment.

Cost Structure Partners Key Activities

• The implementation of the • Some activities are given to • All this is done by conducting
business model elements third parties and some a number of key activities.
results in the cost structure. resources are obtained from
outside the organization.

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

Customer Segments
Customer segments identify different groups of people
or organizations that the company aims to reach and
serve. Customers make up the heart of any business
model. Without a profit-generating client, no company
can survive .

In order to better serve customers, the company

grouping customers and classifies them into distinct
segments with common needs, behaviors or other
attributes. The business model may have one or
several segments of customers.

The business must make a conscious decision on which

segments to seve and which ones to ignore. Once this
decision is made, the business model can be carefully
designed around a strong understanding of customer
needs.

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

 Value Proposition
Value proposition describes a group of products
and services that create value for a specific
segment of customers.

Value proposition is why customers turn from one

company to another. This part solves customer’s
problem or satisfies a specific need.
The value proposition consist of a selected
package of products and / or services that meet
the requirements of a specific segment of
customers. Therefore, the added value is the
compilation or package of benefits the company
offers to customers.

Some values may be innovative and represent a

new or revolutionary offer, others may be similar
to current market offerings, but with additional
features. ‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com
Channels
Channels describe how a company can communicate
with and reach customer segments to deliver value
added, distribution and sales.
Channels are customer communication points that
play an important role in customer experience. The
channels serve several functions, among them:
Aware customers about the company's products and
services

Helping customers evaluate the value added

proposition of the company

Enable customers to purchase specific products and

services

Provide customer support after sales

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

Customer Relationships
Customer relationships describe the relationships
that the company establishes with specific segments
of customers

The company should know the type of relationship it wants

to establish with each customer segment. The relationship
could range from personal to automated. Customer
relationships may be driven by the following motives:
Customer acquisition, Retain customers, Increase Sales

For example, in the early days of the mobile phone industry,

customer relationships were based on customer acquisition
strategies involving giving free mobile phones for new
subscriptions. When they reached to market saturation, they
switched to focus on maintaining customers and increasing average
revenue from each customer.

Customer Relations affect deeply the overall

experience of the customer with the company.

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

 Revenues
The cash revenue represents the income that comes
from each customer segment (costs must be subtracted
from revenue to create profits).

If customers represent the heart of the business model, the

sources of income represent its arteries. The company must
always ask itself how much money each customer segment
willing to pay for the value proposition ? Successfully answering
this question allows the company to generate one or more
income sources from each customer segment.

Each revenue stream may have different pricing

approach, such as fixed price list, bargaining, auction or
others. Pricing approaches depend on the market size
and demand.

The business model could involve two different types of

revenue: 1. One-time revenue for each customer
transaction 2. Recurring revenue from payments to other
services that could be provided to deliver value added to
customers or after sales customer support.
‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com
 Key Resources

Key resources describe the most important assets needed to

implement the business model

Each business model requires specific core resources. These

resources allow the company to configure and deliver value
proposition, market access, maintain relationships with
customer segments, and earn revenue.

The need for key resources varies depending on the type of

business model. For example, a computer processor chips
factory needs to have high capital production facilities, while an
electronic design company focuses more on human resources.

Resources can be material, financial, intellectual, or human. Can

be owned or leased by the company or obtained from key
partners.

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

 Key Activities

The main activities illustrate the most important

activities needed to be implemented to have a
successful business model.

This is the most important activities that a company

must do in order to be successful. Like key resources,
these activities are required to create and deliver value,
access markets, maintain customer relationships, and
earn revenue. Key activities vary depending on the type
of business model

The software industry focuses, for example, on

software development. Computer manufacturers
focus on manufacturing and supply chain
management. Consulting companies focus on
solving problems for their customers.

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

 Partnerships

Key partnerships describe a network of suppliers and

partners that succeed in the business model.

Companies need partnerships for many reasons,

partnerships have become the cornerstone of many
business models. Companies create alliances to improve
their business models, reduce risk, or access resources.

We can distinguish between four different types of partnerships:

Strategic alliances between non-competitive companies
Strategic partnerships between competitors (collaboration)
Joint ventures to develop new business
Relations between buyer and supplier to ensure the supply can be
counted

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

Cost Structure

The cost structure describes all the costs incurred by the

company to run the business model. This brickwork
describes the costs of working under a particular
business model to form and deliver value, maintain
customer relationships, and generate income.

These costs can be calculated relatively easily after

identifying key resources, key activities, and key
partnerships.

Some business models are more focused on reducing

costs than others. Some airlines, for example, have built
business models around low-cost structures.

‫المصدر‬: ،‫كتاب تطوير نماذج األعمال التجارية‬www.businessmodelgeneration.com

 Business Mission

◦ A business’s mission or mission statement describes why

it exists and what its business model is supposed to
accomplish.
◦ If carefully written and used properly, a mission statement
can articulate a business’s overarching priorities and act as
its financial and moral compass.
◦ A well-written mission statement is something that a
business can continually refer back to as it makes
important decisions in other elements of its business
model.

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Financials

Financials
◦ The third component of a firm’s business model focuses on its
financials.
◦ This is the only section of a firm’s business model that
describes how it earns money—thus, it is extremely important.
◦ For most businesses, the manner in which it makes money is
one of the most fundamental aspects of its business model.

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Financials

Revenue Streams
◦ A firm’s revenue streams describe the ways in which it makes
money.
◦ Some businesses have a single revenue stream while others
have several.
◦ For example, most restaurants have a single revenue stream.
Their customers order a meal and pay for it. Other restaurants
may have several revenue streams—including meals, a catering
service, product sales (such as bottle barbeque sauce for a
barbeque restaurant), and apparel products with the name of the
restaurant on them.

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Revenue Streams

1. Assets Sales
2. Usage fee
3. Subscription Fee
4. Lending /Renting/Leasing
5. Licensing
6. Brokerage Fees
7. Advertising
Financials
3 of 5

Cost Structure
◦ A business’s cost structure describes the most important costs
incurred to support its business model.
◦ It costs money to establish a basis of differentiation, develop
core competencies, acquire and develop key assets, and so
forth.
◦ Generally, the goal for this box in a firm’s business model
template is threefold:
◦ Identify whether the business is a cost-driven or value-driven business.
◦ Identify the nature of a business’s costs.
◦ Identify the business’s major cost categories.

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Financials
4 of 5

Financing/Funding
◦ Many business models rely on a certain amount of financing or
funding to bring their business model to life.
◦ At the business model stage projections do not need to be
completed to determine the exact amount of money that is
needed. An approximation is sufficient.
◦ There are three categories of costs to consider:
◦ Capital costs.
◦ One-time expenses, such as building a Web site and training initial
employees.
◦ Provisions for ramp-up expenses (most businesses incur costs before they
earn revenues).

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Financials
5 of 5

Financing/Funding (continued)
◦ Some entrepreneurs are able to draw from personal resources to
fund their business. In other cases, the business may be simple
enough that it is funded from its own profits from day one.
◦ In many cases, however, an initial infusion of funding or
financing is needed.
◦ The business model template should indicate the appropriate
amount of funding that will be needed and where the money
will most likely come from.

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Reasons for Market Survey

To identify the current market situation

To find evidence of your market assumptions

?
To collect information about the customers of a
particular product or service; information about
what they prefer and what they hate.

Collect information about how much they can

spend for a service or product( willing to pay )

Learn how to put a product / service in a good

position in the market ( positioning )
‫للتقليل من المخاطرة في العمل‬

To reduce risk
‫تحديد فرصة عمل‬
 Key Questions in the Market Survey

What products and services

What do people want from
are similar/like to your
that product / service?
product in the market?

By doing the market survey you should determine the following:

How can we make a product / service

desirable by people?
How can we deliver a product / service
desirable by people?

‫تحديد فرصة عمل‬

 Competitor search
During your survey you will learn about :

If their products/services are

seasonal or throughout of the
Providers/ Suppliers of the year.
product / service in the
existing market

Production Cost and

selling prices

Production and
consumption(demand)
capacity over time Their customers

Their markets (local /

regional / country / global) Any special features / skills
they possess

Your competitors will not give you all this information!

Try to make some calls to some of their customers.
 Customer Segments

By doing this research

you will learn about the
following:

Types of customers (location, gender, rate of income, etc.)

Number of times customers use the product / service
Number of times they purchased the product / service
Where they buy it?
How much they have purchased / consumed in the past

What they plan to buy / consume in the future

What factors affect them when choosing a product / service?

‫تحديد فرصة عمل‬

Product Service Research
By the end of this research you will learn about
.

Features that customers want and need

Characteristics of existing products / services

Trademarks in the market and customers understanding of these trademarks.

Product packaging patterns and colors

Selling prices , product / service price ranges

‫تحديد فرصة عمل‬

 Sales and Distribution Research
By the end of this research you will know :

How do similar products / services usually be sold (cash / credit? In a store or

electronically? Directly to the consumer or through a wholesaler?)

Sales volume of the product / service (retailer / distribution partner, consumer)

The payment method usually used for distributors

The time required to deliver an order

Product / service delivery method

The methods used for promotion, marketing and advertisement of the product / service

Type of packaging used (Is it solid? Is it attractive? What quantity is used?)

‫تحديد فرصة عمل‬

 Research Implementation

Meet your competitors as a potential customer or buyer. They do not give any
useful information to a potential competitor.

Before meeting anyone, prepare the questions you wish to address.

Be patient when collecting information

Do not argue or criticize the person you meet

Record responses accurately (and be careful of bias

under personal assumptions)

Categorize the gathered information systematically

Summarize the results in order to

add them in the business plan

‫تحديد فرصة عمل‬

 Summarize the research
Summarize your research by answering the following questions:

Who are your product / service customers?

Why will customers buy the product / service?

Where can I buy the product / service now?

Why they will buy from you and not from one else?

How will you sell, distribute and promote your product / service?

‫تحديد فرصة عمل‬

What is Industry Analysis?

Industry
◦ An industry is a group of firms producing a similar
product or service, such as music, Pilates and yoga
studios, and solar panel manufacturing.
Industry Analysis
◦ Is business research that focuses on the potential of an
industry.

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Why is Industry Analysis Important?
Importance
• Once it is determined that a new
venture is feasible in regard to the
industry and market in which it
Industry Analysis will compete, a more in-depth
analysis is needed to learn the ins
and outs of the industry.
• The analysis helps a firm determine
if the target market it identified
during feasibility analysis is
favorable for a new firm.
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 Three Key Questions
When studying an industry, an entrepreneur must answer
three questions before pursuing the idea of starting a firm.

Question 1 Question 2 Question 3

Is the industry Are there positions in

Does the industry
accessible—in other the industry that avoid
contain markets that
words, is it a realistic some of the negative
are ripe for innovation
place for a new attributes of the
or are underserved?
venture to enter? industry as a whole?

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Techniques Available to Assess Industry
Attractiveness

Assessing Industry Attractiveness

Study Environmental The Five Competitive

and Business Trends Forces Model

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Studying Industry Trends
Environmental Trends
◦ Include economic trends, social trends, technological advances,
and political and regulatory changes.
◦ For example, industries that sell products to seniors are
benefiting by the aging of the population.
Business Trends
◦ Other trends that impact an industry.
◦ For example, are profit margins in the industry increasing or
falling? Is innovation accelerating or waning? Are input costs
going up or down?

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The Five Competitive Forces Model
1 of 3

Explanation of the Five Forces Model

◦ The five competitive forces model is a framework for
understanding the structure of an industry.
◦ The model is composed of the forces that determine industry
profitability.
◦ They help determine the average rate of return for the firms in
an industry.

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The Five Competitive Forces Model
2 of 3

Explanation of the Five Forces Model (continued)

◦ Each of the five forces impacts the average rate of return for the
firms in an industry by applying pressure on industry
profitability.
◦ Well managed firms try to position their firms in a way that
avoids or diminishes these forces—in an attempt to beat the
average rate of return of the industry.

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The Five Competitive Forces Model
3 of 3

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Threat of Substitutes
1 of 3

Threat of Substitutes
◦ The price that consumers are willing to pay for a product
depends in part on the availability of substitute products.
◦ For example, there are few, if any, substitutes for
prescription medicines, which is one of the reasons the
pharmaceutical industry is so profitable.
◦ In contrast, when close substitutes for a product exist,
industry profitability is suppressed, because consumers
will opt out if the price gets too high.

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Threat of Substitutes
2 of 3

Threat of Substitutes (continued)

◦ The extent to which substitutes suppress the profitability
of an industry depends on the propensity for buyers to
substitute between alternatives.
◦ This is why firms in an industry often offer their
customers amenities to reduce the likelihood that they will
switch to a substitute product, even in light of a price
increase.

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Threat of Substitutes
3 of 3

• This independently owned

coffee shop doesn’t just sell
coffee.
• It also offers its patrons a
convenient and pleasant place
to meet, socialize, and study.
• It provides these amenities to
decrease the likelihood that its
customers will “substitute”
coffee at this shop for less
expensive alternatives.

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Threat of New Entrants
1 of 6

Threat of New Entrants

◦ If the firms in an industry are highly profitable, the
industry becomes a magnet to new entrants.
◦ Unless something is done to stop this, the competition in
the industry will increase, and average industry
profitability will decline.
◦ Firms in an industry try to keep the number of new
entrants low by erecting barriers to entry.
◦ A barrier to entry is a condition that creates a disincentive for a new
firm to enter an industry.

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Threat of New Entrants
2 of 6

Barriers to Entry

Barrier to Entry Explanation

Industries that are characterized by large economies

Economies of Scale
of scale are difficult for new firms to enter, unless they
are willing to accept a cost disadvantage.

Industries such as the soft drink industry that are

Product
characterized by firms with strong brands are difficult
differentiation
to break into without spending heavily on advertising.

Capital The need to invest large amounts of money to gain

requirements entrance to an industry is another barrier to entry.

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Threat of New Entrants
3 of 6

Barriers to Entry (continued)

Barrier to Entry Explanation

Existing firms may have cost advantages not related
Cost advantages to size. For example, the existing firms in an industry
independent of size may have purchased land when it was less expensive
than it is today.

Distribution channels are often hard to crack. This is

Access to distribution particularly true in crowded markets, such as the
channels convenience store market.

Government and Some industries, such as banking and broadcasting,

legal barriers require the granting of a license by a public authority
to compete.

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Threat of New Entrants
4 of 6

Nontraditional Barriers to Entry

◦ It is difficult for start-ups to execute barriers to entry that
are expensive, such as economies of scale, because money
is usually tight.
◦ Start-ups have to rely on nontraditional barriers to entry to
discourage new entrants, such as assembling a world-class
management team that would be difficult for another
company to replicate.

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Threat of New Entrants
5 of 6

Nontraditional Barriers to Entry

Barrier to Entry Explanation

If a start-up puts together a world-class management

Strength of
team, it may give potential rivals pause in taking on
management team
the start-up in its chosen industry.

If a start-up pioneers an industry or a new concept

First-mover
within an industry, the name recognition the start-up
advantage
establishes may create a barrier to entry.

If the employees of a start-up are motivated by the

Passion of the
unique culture of a start-up, and anticipate a large
management team
financial reward, this is a combination that cannot be
and employees
replicated by larger firms.

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Threat of New Entrants
6 of 6

Nontraditional Barriers to Entry (continued)

Barrier to Entry Explanation

If a start-up is able to construct a unique business

Unique business model and establish a network of relationships that
model makes the business model work, this set of advantages
creates a barrier to entry.

Some Internet domain names are so “spot-on” that

Internet domain they give a start-up a meaningful leg up in terms of e-
name commerce opportunities.

Inventing a new If a start-up invents a new approach to an industry

approach to an and executes it in an exemplary fashion, these factors
industry create a barrier to entry for potential imitators.

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Rivalry Among Existing Firms
1 of 3

Rivalry Among Existing Firms

◦ In most industries, the major determinant of industry
profitability is the level of competition among existing
firms.
◦ Some industries are fiercely competitive, to the point
where prices are pushed below the level of costs, and
industry-wide losses occur.
◦ In other industries, competition is much less intense and
price competition is subdued.

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Rivalry Among Existing Firms
2 of 3

Factors that determine the intensity of the rivalry among

existing firms in an industry

Number and The more competitors there are, the more likely it
balance of is that one or more will try to gain customers by
competitors cutting its price.

Degree of The degree to which products differ from one

difference product to another affects industry rivalry.
between products

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Rivalry Among Existing Firms
3 of 3

Factors that determine the intensity of the rivalry among existing

firms in an industry (continued)

The competition among firms in a slow-growth

Growth rate of an
industry is stronger than among those in fast-
industry
growth industries.

Firms that have high fixed costs must sell a higher

Level of fixed
volume of their product to reach the break-even
costs
point than firms with low fixed costs.

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Bargaining Power of Suppliers
1 of 3

Bargaining Power of Suppliers

◦ Suppliers can suppress the profitability of the industries to
which they sell by raising prices or reducing the quality of
the components they provide.
◦ If a supplier reduces the quality of the components it
supplies, the quality of the finished product will suffer,
and the manufacturer will eventually have to lower its
price.
◦ If the suppliers are powerful relative to the firms in the
industry to which they sell, industry profitability can
suffer.

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Bargaining Power of Suppliers
2 of 3

Factors that have an impact on the ability of suppliers to

exert pressure on buyers

Supplier When there are only a few suppliers that supply a

concentration critical product to a large number of buyers, the
supplier has an advantage.

Switching costs are the fixed costs that buyers

Switching costs encounter when switching or changing from one
supplier to another. If switching costs are high, a
buyer will be less likely to switch suppliers.

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Bargaining Power of Suppliers
3 of 3

Factors that have an impact on the ability of suppliers to exert

pressure on buyers (continued)

Attractiveness of Supplier power is enhanced if there are no

substitutes attractive substitutes for the product or services
the supplier offers.

Threat of The power of a supplier is enhanced if there is a

forward credible possibility that the supplier might enter
integration the buyer’s industry.

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Bargaining Power of Buyers
1 of 3

Bargaining Power of Buyers

◦ Buyers can suppress the profitability of the industries
from which they purchase by demanding price
concessions or increases in quality.
◦ For example, the automobile industry is dominated by a
handful of large companies that buy products from
thousands of suppliers in different industries. This allows
the automakers to suppress the profitability of the
industries from which they buy by demanding price
reductions.

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Bargaining Power of Buyers
2 of 3

Factors that have an impact on the ability of buyers to exert

pressure on suppliers

If there are only a few large buyers, and they buy

Buyer group from a large number of suppliers, they can
concentration pressure the suppliers to lower costs and thus
affect the profitability of the industries from which
they buy.

The greater the importance of an item is to a

Buyer’s costs buyer, the more sensitive the buyer will be to the
price it pays.

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Bargaining Power of Buyers
3 of 3

Factors that have an impact on the ability of buyers to exert

pressure on suppliers (continued)

Degree of The degree to which a supplier’s product

standardization differs from its competitors affects the buyer’s
of supplier’s bargaining power.
products

Threat of The power of buyers is enhanced if there is a

backward credible threat that the buyer might enter the
integration supplier’s industry.

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First Application of the Five Forces Model
1 of 2

First Application of the Model

◦ The five forces model can be used to assess the
attractiveness of an industry by determining the level of
threat to industry profitability for each of the forces.
◦ If a firm fills out the form shown on the next slide and
several of the threats to industry profitability are high, the
firm may want to reconsider entering the industry or think
carefully about the position it would occupy.

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First Application of the Five Forces Model
2 of 2

Assessing Industry Attractiveness Using the Five Forces Model

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Second Application of the Five Forces Model
1 of 2

Second Application of the Model

◦ The second way a new firm can apply the five forces
model to help determine whether it should enter an
industry is by using the model to answer several key
questions.
◦ The questions are shown in the figure on the next slide,
and help a firm project the potential success of a new
venture in a particular industry.

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Second Application of the Five Forces Model
2 of 2
Using the Five Forces Model to Pose Questions to Determine the Potential
Success of a New Venture in an Industry

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 CS419 Technology Entrepreneurship
Week #3 «Value Innovation and the TALC»

Industry Analysis = Porter’s 5 Forces

Industry Types and the Opportunities They
Offer
1 of 3

Emerging Industries
◦ Industries in which standard operating procedures have yet to
be developed.
◦ Opportunity: First-mover advantage.

Fragmented Industries
◦ Industries that are characterized by a large number of firms of
approximately equal size.
◦ Opportunity: Consolidation.

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Industry Types and the Opportunities They
Offer
2 of 3

Mature Industries
◦ Industries that are experiencing slow or no increase in demand.
◦ Opportunities: Process innovation and after-sale service innovation.

Declining Industries
◦ Industries that are experiencing a reduction in demand.
◦ Opportunities: Leadership, establishing a niche market, and pursuing a cost
reduction strategy.

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Industry Types and the Opportunities They
Offer
3 of 3

Global Industries
◦ Industries that are experiencing significant international sales.
◦ Opportunities: Multidomestic and global strategies.

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 Economic Industries
What industry does your company belong to?
There are several standard classifications that can be adopted, such as
ISIC, which is developed by the United Nations
-ISIC URL
http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=27
Competitor Analysis
What is a Competitor Analysis?
◦ A competitor analysis is a detailed analysis of a firm’s
competition.
◦ It helps a firm understand the positions of its major competitors
and the opportunities that are available.
◦ A competitive analysis grid is a tool for organizing the
information a firm collects about its competitors.

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Identifying Competitors
Types of Competitors New Ventures Face

Dropbox & Google Drive Skype & Facebook

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Sources of Competitive Intelligence
1 of 2

Collecting Competitive Intelligence

◦ To complete a competitive analysis grid, a firm must first
understand the strategies and behaviors of its competitors.
◦ The information that is gathered by a firm to learn about
its competitors is referred to as competitive intelligence.
◦ A new venture should take care that it collects competitive
intelligence in a professional and ethical manner.

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Sources of Competitive Intelligence
2 of 2

Ethical ways to obtain information about competitors

• Attend conferences and trade shows.

• Purchase competitors’ products.
• Study competitors’ Web sites and social media sites.
• Set up Google e-mail alerts.
• Read industry-related books, magazines, and Web sites.
• Talk to customers about what motivated them to buy your
product as opposed to your competitor’s product.

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Completing a Competitive Analysis Grid

Competitive Analysis Grid

◦ A tool for organizing the information a firm collects about
its competitors.
◦ A competitive analysis grid can help a firm see how it
stacks up against its competitors, provide ideas for
markets to pursue, and identify its primary sources of
competitive advantage.

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 What is a Business Plan?
A comprehensive, stand-alone document that:
Describes a viable market need
Describes how your business will meet that need
Highlights required resources

Is a written narrative, typically 25 to 35 pages

long, that describes what a new business plans
Business plan is : to accomplish.

A document that presents the business idea and

shows how it will be implemented in an organized
manner
A document which is developed with the development
of the project / business itself and is not a fixed
document written in the initial phase only

A document requested by bank managers , venture

capitalists(VC) and potential investors if you are looking for
financing ‫وضع خطة العمل‬
 Business Plan main objectives:

It shows the main business

activities of the proposed
business
It shows that you've
thought about all the

? important aspects of your

proposed business

It serves as a reference
when the management
team makes decisions Enable any third party( investors, VCs,
others) to understand the basics of the
proposed business quickly

‫وضع خطة العمل‬

 Business Plan main objectives : ( Continue )

Capture the essence of your

business idea

Raise awareness &

Raise Capital

?
Identify priorities, risks
and opportunities for you
and potential investors Help recruit early customers and
employees

‫وضع خطة العمل‬

ISC Who Reads the Business Plan—And What
Are They Looking For?
There are two primary audiences for business plan

Audience What They are Looking For

Business A clearly written business plan helps the

Employees employees of the proposed business ( new
venture ) operate in sync and move forward in a
consistent and purposeful manner.

Investors and Business plan must make the case that the proposed
other external business ( new venture ) is a good use of an
stakeholders investor’s funds or the attention of others.

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Guidelines for Writing a Business Plan
There is no unified common template for writing a
business plan, but it should include the following four
elements:
Concept
Customers
Competitors
Capital

Concept: What product / service do you want to provide? What is it’s basis
of differentiation ( distinguishes it from other competing products /
services) ?
Customers: Who are the customers who would like to buy your product?
And why they will buy from you not from any one else?
Competitors: Who is currently selling a similar product / service?
Capital: How much money do you need to start your business? How will
you cover these costs and what is the expected profit?

Make it concise and use a Attention must be paid

clear language free from to grammatical rules
unintelligible words. and spelling.

‫وضع خطة العمل‬

Guidelines for Writing a Business Plan

• Structure of the Business Plan

• To make the best impression a business plan
should follow a conventional structure.

• Although some entrepreneurs want to demonstrate

creativity, departing from the basic structure of the
conventional business plan is usually a mistake.

• Typically, investors are busy people and want a

plan where they can easily find critical
information.

‫وضع خطة العمل‬

Guidelines for Writing a Business Plan
• Structure of the Business Plan
• Software Packages
• There are many software packages available that
employ an interactive, menu-driven approach to
assist in the writing of a business plan.

• Some of these programs are very helpful.

However, entrepreneurs should avoid a boilerplate
plan that looks as though it came from a “canned”
source.
• Content of the Business Plan
• The business plan should give clear and concise information on all
the important aspects of the proposed venture.

• It must be long enough to provide sufficient information yet short

enough to maintain reader interest. For most plans, 25 to 35 pages
is sufficient. ‫وضع خطة العمل‬
 Outline of Business Plan

Section 2: Industry Analysis

Section 3: Company Description
Section 4: Market Analysis
Section 5: The Economics of the Business
Section 6: Marketing Plan
Section 7: Design and Development Plan
Section 8: Operations Plan
Section 9: Management Team and Company Structure
Section 10: Overall Schedule
Section 11: Financial Projections ‫وضع خطة العمل‬
ISC
Section 1: Executive Summary
1 of 2

Executive Summary
◦ The executive summary is a short overview of the entire
business plan.
◦ It provides a busy reader with everything that needs to be
known about the new venture’s distinctive nature.
◦ An executive summary shouldn’t exceed two single-
spaced pages.
◦ Even though the executive summary appears at the
beginning of the business plan, it should be written last.
◦ The plan itself will evolve as it’s written, so not everything is known
at the outset.

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ISC
Section 2: Industry Analysis
1 of 2

Industry Analysis
◦ This section should begin by describing the industry the
business will enter in terms of its size, growth rate, and
sales projections.
◦ Items to include in this section:
◦ Industry size, growth rate, and sales projections.
◦ Industry structure.
◦ Nature of participants.
◦ Key success factors.
◦ Industry trends.
◦ Long-term prospects.

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ISC
Section 3: Company Description
1 of 2

Company Description
◦ This section begins with a general description of the
company.
◦ Items to include in this section:
◦ Company description.
◦ Company history.
◦ Mission statement.
◦ Products and services.
◦ Current status.
◦ Legal status and ownership.
◦ Key partnerships (if any).

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ISC
Section 4: Market Analysis
1 of 2

Market Analysis
◦ The market analysis breaks the industry into segments and
zeros in on the specific segment (or target market) to
which the firm will try to appeal.
◦ Items to include in this section:
◦ Market segmentation and target market selection.
◦ Buyer behavior.
◦ Competitor analysis.

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ISC
Section 5: The Economics of the Business
1 of 2

The Economics of the Business

◦ This section addresses the basic logic of how profits are
earned in the business and how many units of a business’s
profits must be sold for the business to “break even” and
then start earning a profit.
◦ Items to include in this section:
◦ Revenue drivers and profit margins.
◦ Fixed and variable costs.
◦ Operating leverage and its implications.
◦ Start-up costs.
◦ Break-even chart and calculations.

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ISC
Section 6: Marketing Plan
1 of 2

Marketing Plan
◦ The marketing plan focuses on how the business will
market and sell its product or service.
◦ Items to include in this section:
◦ Overall marketing strategy.
◦ Product, price, promotions, and distribution.
◦ Sales process (or cycle).
◦ Sales tactics.

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ISC
Section 7: Design and Development Plan
1 of 2

Design and Development Plan

◦ If you’re developing a completely new product or service,
you need to include a section in your business plan that
focuses on the status of your development efforts.
◦ Items to include in this section:
◦ Development status and tasks.
◦ Challenges and risks.
◦ Projected development costs.
◦ Proprietary issues (patents, trademarks, copyrights, licenses, brand
names).

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ISC
Section 8: Operations Plan
1 of 2

Operations Plan
◦ Outlines how your business will be run and how your
product or service will be produced.
◦ A useful way to illustrate how your business will be run is
to describe it in terms of “back stage” (unseen to the
customer) and “front stage” (seen by the customer)
activities.
◦ Items to include in this section:
◦ General approach to operations.
◦ Business location.
◦ Facilities and equipment.

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Section 9: Management Team and Company
ISC
Structure
1 of 2

Management Team and Company Structure

◦ The management team of a new venture typically consists
of the founder or founders and a handful of key
management personnel.
◦ Items to include in this section:
◦ Management team.
◦ Board of directors.
◦ Board of advisers.
◦ Company structure.

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ISC
Section 10: Overall Schedule
1 of 2

Overall Schedule
◦ A schedule should be prepared that shows the major
events required to launch the business.
◦ The schedule should be in the format of milestones critical
to the business’s success.
◦ Examples of milestones:
◦ Incorporating the venture.
◦ Completion of prototypes.
◦ Rental of facilities.
◦ Obtaining critical financing.
◦ Starting production.
◦ Obtaining the first sale.

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ISC
Section 11: Financial Projections
1 of 2

Financial Projections
◦ The final section of a business plan presents a firm’s pro
forma (or projected) financial projections.
◦ Items to include in this section:
◦ Sources and uses of funds statement.
◦ Assumptions sheet.
◦ Pro forma income statements.
◦ Pro forma balance sheets.
◦ Pro forma cash flows.
◦ Ratio analysis.

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 Description of your Product/Service & Management Team

Product/Service
‫وصف المفهوم‬ Advisors , Consultants,
and Mentors
Example: Accountant,
Bank Manager and Mentor

Management team
- Information about the person who prepare the business plan
(name, phone number and e-mail)
- Name of Business / legal status of the business, registration
number, business / project address, website (if available)
- Experience of each team member
- The qualifications of each team member related to the business

‫وضع خطة العمل‬

 Description of customers

What is the
target market
for your business?
Why they would buy
your product / service?

Where and how

many times will they How much they will
buy the product / pay for the service
service? / product‫؟‬

What type of research did you do to

verify this information?

‫وضع خطة العمل‬

 Description of Competitors

Who are your direct competitors?

Who are your indirect competitors?

What are their advantages and disadvantages related to: price,

location, product / service, offers, target customers, etc.?

What is their competitive advantage?

‫وضع خطة العمل‬

 Summarization of Capital Requirements

How much money is required to What is your plan to raise the

start and establish the business ? money /fund required to start
your business?

What is the total market

size? What is your What is the your
market share? product / service
( expected units to sell) price?

When do you expect to reach How much profit / loss do

the break even point? you expect to achieve during
the first year?
‫وضع خطة العمل‬
 SWOT Analysis

+
Strengths: What distinguishes your business
from your competitors (By what you are
different)? For example, you may have a
better location, higher product/ service
quality, or a more qualified team.

Weaknesses: By what your competitors

better than you in terms of product /service
quality, location, or team etc.? -
o
Opportunities: Where do we find a possible new business
model derived from our existing one? For example, we can
develop additional products and services that complement

?
existing products and services, or you can find new product
usage and discover a new customer segments or new
markets.
Threats: What can happen? For example, a team may
withdraw without prior notice, or new entrance businesses
that may offer prices lower than your prices.
‫وضع خطة العمل‬
 By the end of this Part you will be able to :

Identify the resources needed for your business /

project
Distinguish between fixed costs and variable costs

Compute your fixed and variable costs

Distinguish between fixed capital and working capital

Compute the required capital needed to start your business

Identify possible funding sources

Prepare Financial Statements

Fixed Costs

Fixed Costs are the costs that remain

 constant regardless of the rate of production

Examples:

Furniture
Equipment Lands & Buildings

‫اعتبارات عند البدء‬

 Variable Costs

Variable Costs are costs rising and falling

 as the production rate changes

Example

Raw materials used in Utilities and services

the production of (water / electricity / Packging
goods waste charges)

‫اعتبارات عند البدء‬

Working Capital Fixed capital

 
The costs needed to cover
the variable costs, that is,
the amount you need to
keep your sales and The costs needed to cover your
production going
fixed costs

‫اعتبارات عند البدء‬

 Total Capital

The amount of money needed to Start the business

Failure to cover these costs = Risk of business failure due to insufficient capital

Use this formula:

Total Capital = Fixed Capital + Working Capital

‫اعتبارات عند البدء‬

ISC
Break-even Analysis
 To evaluate process & equipment alternatives.
 Objective:
 Find the point ($ or units) at which total cost equals total
revenue, -or-
 Find the range of output over which different alternatives
are preferred.
 Assumptions:
 Revenue & costs are related linearly to volume.
 All information is known with certainty.
 No time value of money.

7-30
ISC
Break-even Analysis - Costs

Fixed costs: Costs independent of the volume of units

produced.
◦ Depreciation, taxes, debt, mortgage payments, etc.

Variable costs: Costs that vary with the volume of units

produced.
◦ Labor, materials, portion of utilities, etc.

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ISC
Break-even Equations
F = Fixed cost per unit time.
V = Variable cost per unit produced.
x = Number of units produced per unit time.
P = Revenue (price) per unit

TC = Total costs per unit time = F + Vx

TR = Total revenue per unit time = Px
Profit = TR - TC
At break-even point: Total Cost = Total Revenue
7-32
ISC Break-even Example

A firm produces radios with a fixed cost of $7,000 per month and a
variable cost of $5 per radio. If radios sell for $8 each:
a) What is the break-even point?
TR = TC so 8x = 7000 + 5x
x = 7000/3 = 2,333.333 radios per month

b) What output is needed to produce a profit of $2,000/month?

Profit = 2000/month so
TR - TC = 8x - (7000 + 5x) = 2000
x = 9000/3 = 3,000 radios per month

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ISC
Break-even Example - continued

c) What is the profit or loss if 500 radios are produced each

week?
First, get monthly production:
50052/12 = 2,166.6667 radios per month

Then calculate profit or loss

TR - TC = 82166.6667 - (7000 + 52166.6667)
= $-500 per month
($500 loss per month)

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ISC

Capital Budgeting
Based on the time value of money principal

Payback period
Net present value
Internal rate of return
Options models

All of these models use discounted cash flows

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ISC
Payback Period
Determines how long it takes for a project to
reach a breakeven point
Investment
Payback Period 
Annual Cash Savings

Cash flows should be discounted

Lower numbers are better (faster payback)

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 Sources of funding

Possible sources of funding for your business :

Self-financing : Entrepreneur own savings

 Obtain a loan from a bank or other financial institution
Collect funds from investors for getting shares in your business

 Apply for grants from . Example: Government / local authorities / charities /
donors …..

‫اعتبارات عند البدء‬

ISC
Alternatives for Raising Money for a New Venture

Personal Funds Equity Capital

Debt Financing Creative Sources

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ISC Sources of Personal Financing

Personal Funds
◦ The vast majority of founders contribute personal funds, along
with sweat equity, to their ventures.
◦ Sweat equity represents the value of the time and effort that a founder puts
into a new venture.

Friends and Family

◦ Friends and family are the second source of funds for many new
ventures.

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ISC Sources of Personal Financing

Bootstrapping
◦ A third source of seed money for a new venture is referred to as
bootstrapping.
◦ Bootstrapping is finding ways to avoid the need for external
financing or funding through creativity, ingenuity, thriftiness,
cost cutting, or any means necessary.
◦ Many entrepreneurs bootstrap out of necessity.

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ISC Examples of Bootstrapping Methods

Buy used instead of Coordinate purchases Lease equipment

new equipment. with other businesses. instead of buying.

Obtain payments in
Minimize personal Avoid unnecessary
advance from
expenses. expenses.
customers.

Buy items cheaply but Share office space or

prudently via options employees with other Hire interns.
such as eBay. businesses.

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ISC
Sources of Equity Funding

Venture Capital Business Angels

Initial Public
Offerings

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ISC Business Angels

Business Angels
◦ Are individuals who invest their personal capital directly
in start-ups.
◦ The prototypical business angel is about 50 years old, has
high income and wealth, is well educated, has succeeded
as an entrepreneur, and is interested in the start-up
process.
◦ The number of angel investors in the U.S. has increased
dramatically over the past decade.

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ISC Business Angels

Business Angels (continued)

◦ Business angels are valuable because of their willingness to make
relatively small investments.
◦ These investors generally invest between $10,000 and $500,000 in a
single company.
◦ Are looking for companies that have the potential to grow between
30% to 40% per year.
◦ Business angels are difficult to find.

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ISC Venture Capital

Venture Capital
◦ Is money that is invested by venture capital firms in start-ups
and small businesses with exceptional growth potential.
◦ There are about 875 venture capital firms in the U.S.
◦ Venture capital firms are limited partnerships of money managers who
raise money in “funds” to invest in start-ups and growing firms.
◦ The funds, or pool of money, are raised from wealthy individuals,
pension plans, university endowments, foreign investors, and similar
sources.
◦ The investors who invest in venture capital funds are called limited
partners. The venture capitalists are called general partners.

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 ISC Venture Capital

Venture Capital (continued)

◦ Venture capital firms fund very few entrepreneurial firms in
comparison to business angels.
◦ Many entrepreneurs get discouraged when they are repeatedly rejected for
venture capital funding, even though they may have an excellent business
plan.
◦ Venture capitalists are looking for the “home run” and so reject the
majority of the proposals they consider.
◦ A distinct difference between angel investors and venture capital firms is
that angels tend to invest earlier in the life of a company, whereas venture
capitalists come in later.

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ISC Venture Capital

Venture Capital (continued)

◦ An important part of obtaining venture capital funding is
going through the due diligence process.
◦ Venture capitalists invest money in start-ups in “stages,”
meaning that not all the money that is invested is
disbursed at the same time.
◦ Some venture capitalists also specialize in certain “stages”
of funding.

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ISC
Sources of Debt Financing

Commercial Banks / Financial Institutions

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ISC
Commercial Banks

Banks
◦ Historically, commercial banks have not been viewed as a
practical source of financing for start-up firms.
◦ This sentiment is not a knock against banks; it is just that
banks are risk averse, and financing start-ups is a risky
business.
◦ Banks are interested in firms that have a strong cash flow, low
leverage, audited financials, good management, and a healthy
balance sheet.

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ISC Strategic Partners

Strategic Partners
◦ Strategic partners are another source of capital for new
ventures.
◦ Many partnerships are formed to share the costs of product or
service development, to gain access to particular resources, or
to facilitate speed to market.
◦ Older established firms benefit by partnering with young
entrepreneurial firms by gaining access to their creative ideas
and entrepreneurial spirit.

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ISC Strategic Partners

• Biotech firms often partner

with large drug companies
to conduct clinical trials and
bring new products to
market.
• The biotech firms benefit by
obtaining funding from their
partners, and the partners
benefit by having additional
products to sell.

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ISC
Financial Objectives of a Firm

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ISC The Process of Financial Management

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ISC
Revenue Model

Pricing strategy for each source of revenue

◦ What is the pricing strategy of the direct or indirect
competitors?
◦ What level of gross margins (revenue less cost of the
product/service) would be reasonable?
◦ How should the pricing of the competitors be monitored?
◦ How does the pricing reflect the brand image of the
product/service?

54
ISC
New Venture Costs and Financial Plan

The budget, financing requirements and potential revenue generation.

◦ Define the actual amount of money needed to set-up the business operation
(capital costs)
◦ and the amount needed to keep it going (operating costs)
Capital costs should include
◦ all initial development costs
◦ personnel, technology, legal/professional services, and marketing

55
ISC

New Venture Costs and Financial Plan

Forecasts of the different sources for meeting these capital
costs
Pro-forma income projections (profit and loss statement)
and pro-forma cash flow projections
◦ based on revenue generation and cost assumptions
◦ income statement and cash flow projections should cover
up to 5 years of operations

56
ISC What is the Purpose of Your
Business Plan Financials?

57
ISC
Business Plan Financials

Helps you:
◦ test various potential business models
◦ isolate critical assumptions
◦ determine whether this is a viable business opportunity
◦ determine how much money you’ll need
◦ persuade investors to invest

58
ISC

Business Plan Financials

Helps potential investors:
◦ test the viability of your business model
◦ evaluate your critical assumptions
◦ Are they credible?
◦ Do you understand your business?
◦ evaluate you as someone who understands how business
works from a financial perspective
◦ determine whether the investment is potentially attractive
◦ evaluate your true financial needs

59
 “The Taste Test”

Can you taste the revenues?

Is the revenue scenario credible or will you have to
achieve miracles to hit your forecast numbers?

60
ISC

So, how do you convince someone that

your revenue scenarios are credible?

61
ISC
Tips for Credibility

Show your assumptions and be

able to back them up with
FACTS based on market
research and/or some
compelling rationale

62
 ISC
Showing a Potential Market
Showing Potential Market
Market share required to achieve Revenue Goals

Unit Sales Price $ 2.50 25% of competitor price ; greater value

Market Opportunity in Units
( Market Size ) 150000 According to Gartner Group.

Market Opportunity in Revenue $ 375,000.00

year 1 Year 2 year 3 year 4 year 5
Yearly Objective $ 3,500 $ 7,000 $ 14,000 $ 28,000 $ 56,000
Growth Rate 100% 100% 100% 100%
Required Unit Sales 1400 2800 5600 11200 22400
Required Market Share 0.93% 1.87% 3.73% 7.47% 14.93%

63
ISC
Mistakes to Avoid

Assumptions you can’t justify

◦ Too high a market share

Too much detail

Too little detail
Not enough growth
Too much profit (in later years)

64
ISC
Financial Statements

Historical Financial Statements

◦ Reflect past performance and are usually prepared on a
quarterly and annual basis.
◦ Publicly traded firms are required by the SEC to prepare financial
statements and make them available to the public.

Pro Forma Financial Statements

◦ Are projections for future periods based on forecasts and
are typically completed for two to three years in the
future.
◦ Pro forma financial statements are strictly planning tools and are not
required by the SEC.

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ISC Historical Financial Statements
Three types of historical financial statements

Financial Statement Purpose

Reflects the results of the operations of a firm over a

Income Statement specified period of time. It records all the revenues and
expenses for the given period and shows whether the
firm is making a profit or is experiencing a loss.

Balance Sheet Is a snapshot of a company’s assets, liabilities, and

owner’s equity at a specific point in time.

Summarizes the changes in a firm’s cash position for

Statement of cash flows a specified period of time and details why the changes
occurred.

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ISC
Pro Forma Financial Statements

Pro Forma Financial Statements

◦ A firm’s pro forma financial statements are similar to its
historical financial statements except that they look
forward rather than track the past.
◦ The preparation of pro forma financial statements helps a
firm rethink its strategies and make adjustments if
necessary.
◦ The preparation of pro forma financials is also necessary
if a firm is seeking funding or financing.

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ISC
Types of Pro Forma Financial Statements
Financial Statement Purpose

Pro Forma Income Shows the projected financial results of the

Statement operations of a firm over a specific period.

Shows a projected snapshot of a company’s

Pro Forma Balance assets, liabilities, and owner’s equity at a specific
Sheet point in time.

Pro Forma Statement Shows the projected flow of cash into and out of a
of Cash flows company for a specific period.

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ISC Income Statement

69
ISC
What is an Income Statement?
Shows financial results of a company over a given
period of time
Includes:
◦ Revenues
◦ Cost of Sales (costs directly attributable to the products/services sold)
◦ Other Operating Expenses
◦ Marketing, Sales
◦ Research and Development
◦ General and Administrative
◦ Earnings before Tax
◦ Operating Income
◦ Tax
◦ Earnings after Tax

70
ISC
Income Statement Questions

What is Revenue?
What is Cost of Goods sold?
What are some of the components of operating expenses?
What is operating profit?

71
ISC

What is a Balance Sheet?

A snapshot of a company’s financial position at a moment in time
Left hand side = Assets
Right hand side = Liabilities and Equities
Assets must equal liabilities plus equities (hence it is a “balance” sheet)

72
ISC
Balance Sheet
Simple Balance Sheet
Enterprize, Inc.
6-Jan-00

Liabilities &
Assets Equity

Cash $ 25,000 Accounts Payable $ 5,000

Accounts Receivable $ 10,000 Prepaid royalties $ 25,000
Inventory $ 15,000 Current portion of notes payable $ -

Total Current Assets $ 50,000 Total Current Liabilities $ 30,000

Property, Plant & Equipment $ 25,000 Long term debt $ -

Total Liabilities $ 30,000

Paid-in Capital $ 100,000

Retained Earnings (cumulative deficit) $ (55,000)

Total Assets $ 75,000 Total Liabilities and Equities $ 75,000

73
 ISC

What is an Asset?
Assets are valuable resources owned by an entity and include:
◦ Cash
◦ Things that are likely to become cash soon
(inventories, accounts receivable)
◦ Valuable things that help the business produce
revenues over a longer period (property, plant,
and equipment, etc.)

74
ISC

What is a Liability?
Liabilities are the claims of creditors and
include:
◦ Accounts payable
◦ Notes payable this year
◦ Longer term obligations, such as long term
debt

75
ISC
What is an Equity?
Equities reflect the “claims” of
investors and include:

Paid in capital
“Retained Earnings” or the sum total of
profits after tax that haven’t been paid out
through dividends

Note: You can’t cash in equities—they

represent a claim on the business not an
asset.
76
ISC
Cash Flow Statement

Records the Flow of Cash during a given period

Cash inflows include:
◦ Profits
◦ Sale of assets
◦ Reduction in:
◦ Accounts Receivables
◦ Other assets

Cash outflows include:

◦ Losses
◦ Purchase of assets
◦ Increase in:
◦ Accounts Receivables
◦ Other assets

77
‫‪ISC‬‬ ‫التدفق النقدي‬
‫‪Cash Flow‬‬

‫توضح مصادر النقدية واستخداماتها خالل فترة معينة‪ ،‬و تشتمل على األجزاء الرئيسية التالية‪:‬‬
‫◦ صافي النقد من األنشطة التشغيلية‪Net Cash Flow from Operating Activities.‬‬
‫◦ صافي النقد من األنشطة االستثمارية‪Net Cash Flow from Investing Activities.‬‬
‫◦ صافي النقد من األنشطة التمويلية‪Net Cash Flow from Financing Activities.‬‬

‫صافي التدفق النقدي = التدفق النقدي الداخل – التدفق النقدي الخارج‬

‫‪Net Cash flow = Cash inflow – Cash outflow‬‬
 ‫قائمة التدفقات النقدية‬
‫‪ISC‬‬ ‫‪Cash Flow Statement‬‬

‫نقد اول المدة‬

‫‪A‬‬ ‫‪Beginning Cash‬‬

‫‪B‬‬ ‫التدفقات النقدية الداخله‬

‫‪Cash inflow .‬‬

‫التدفقات النقدية الخارجه‬

‫‪C‬‬
‫‪Cash outflow.‬‬

‫‪ =A + B - C‬نقد اخر المدة‬