Entrepreneurism: Questions and Answers - Essay Example

Entrepreneurism: Questions and Answers What is the difference between an entrepreneur and an intrapreneur? An entrepreneur is a person who is trying things until successful, learning from failures, attempting to conserve his personal resources in executing a profitable venture. (Wikipedia) He is the one assuming the financial risks of the initiation, operation and management of a business (CSUN.edu) An intrapreneur is the person who focuses on innovation and creativity and who transforms a dream or an idea into a profitable venture, by operating within the organizational environment. Thus, an intrapreneur is an inside entrepreneur. An intrapreneur uses the organization’s resources, in contrast with the entrepreneur who uses his own. (Wikipedia) 2) Name the three forms of management. Briefly describe each form and explain how they are different. The three forms of management are: management by a single proprietor, management by partners, and corporate management. In sole proprietorship, the owner assumes all the decision making and liability, as well as takes all the business profit. In partnership, the business partners share in decision making, liability, and profits. In a corporation, decisions are regulated by the board. The corporation has an identity apart from individual owners and assumes liability; income is distributed in proportion to the amount of stocks owned by the shareholders. The difference between a corporation and proprietorship, partnership lies in taxation wherein taxes are smaller for the sole proprietorship and partnership because the profits are reflected as personal income. 3) What does Schumpeter mean by the term creative destruction? Name a modern day form of creative destruction and what are its consequences? Schumpeter’s creative destruction refers to the innovation in design or cutting of manufacturing costs that eventually attract customers away from less efficient products and manufacturers. Wal-Mart is a recent example of a company that has achieved a strong position in many markets, through its use of new inventory- management, marketing, and personnel-management techniques, using its resulting lower prices to eliminate the profitability of older or smaller companies. However, just as the mini-cassette replaced the 8-track, only to be replaced in turn by the compact disc, which is now being undercut by MP3 players, Wal-Mart may well find itself an antiquated company of the past. Layoffs of workers can result in massive unemployment. Workers need to upgrade their skills to be employed by emerging technology-based companies. (Wikipedia) 4) What is meant by the term discount? How can the new venture use a discounting strategy to win customers? Discount is the retail price less a percentage. The new venture can offer discount for volume purchases to attract customers. (BusinessPlans.com) 5) Explain the difference between an elastic market and an inelastic market. Give an example of each. An elastic market is where the supply and demand for a good or service can vary significantly due to the price. Companies that operate in very fierce and competitive industries provide goods or services that are very elastic because these companies tend to be price takers. For example, the airline industry is very elastic because all airlines offer a very similar service. (Investopedia) An inelastic market is where the supply and demand for a product or service are not at all affected even when the price of that good or service changes. An example of perfectly inelastic demand would be a life saving drug for which people will pay any price to obtain. Even if the price of the drug increases dramatically, the quantity demanded would remain the same. (Investopedia) 6) How does Walmart manage to keep its prices on most items lower than the general market? Compare an average product quality and price between Walmart and Neiman Marcus. Walmart is able to keep its prices lower because it outsources cheap products in bulk from China, for example and underpays its staff. Comparison of product prices between Walmart and Neiman Marcus: Walmart Neiman Marcus Diamond stud earrings set in 14 kt yellow gold: $ 68.84 Judith Ripha Olivia Diamond & Mint Quartz Earrings: $ 1,00 6 mm square blue topaz earrings in yellow gold: $49.97 Stephen Dweck Turquoise Drop Hoop Earrings: $ 420 6 mm checkerboard-cut amethyst earrings: $ 24.00 David Yuman Round Garnet Albion Earrings: $990. Light blue aquamarine pear-shaped earrings: $39.97 David Yuman Tweejoux Aquamarine Earrings: $1,100 (Walmart and Neiman Marcus) 7) Describe the difference between a market and a target market. A market is defined as people or organization with needs to satisfy, money to spend, and willingness to spend money. A target market can either be a large or small specific market segment (people or organization) for which the seller designs a particular marketing mix. (Etzel, Walker & Stanton 46-47) 8) Explain what is meant by the term marketing mix. What does the marketing mix consist of? Explain each part of the marketing mix in detail. The marketing mix consists of four variables namely product, price, place (distribution) and promotion. The firm attempts to generate a positive response in the target market by blending these four marketing mix variables in an optimal manner. Product The product is the physical product or service offered to the consumer. In the case of physical products, it also refers to any services or conveniences that are part of the offering. Product decisions include aspects such as function, appearance, packaging, service, warranty, etc. Price Pricing decisions should take into account profit margins and the probable pricing response of competitors. Pricing includes not only the list price, but also discounts, financing, and other options such as leasing. Place Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting the product to the target customers. The distribution system performs transactional, logistical, and facilitating functions. Distribution decisions include market coverage, channel member selection, logistics, and levels of service. Promotion Promotion decisions are those related to communicating and selling to potential consumers. Since these costs can be large in proportion to the product price, a break-even analysis should be performed when making promotion decisions. It is useful to know the value of a customer in order to determine whether additional customers are worth the cost of acquiring them. Promotion decisions involve advertising, public relations, media types, etc. (QuickMBA.com) 9) Explain how can an entrepreneur segment a market. Explain how a retail entrepreneur may segment his market. An entrepreneur can segment a market according to economic status or spending capacity, occupation, education, gender, or age group. A retail food products entrepreneur may segment his market according to dietary requirements by offering food products for the diabetics, the hypertensives, the obese, the elderly, toddlers, preschoolers, graders, and teens. 10) Explain what is meant by the term sustainable competitive advantage? Identify an entrepreneurial company and describe its sustainable competitive advantage. What does the firm do to sustain its advantage? One entrepreneurial company uses data mining to sustain its advantage. It analyzes transaction data which tell what the customer has done. Psychologists proved that past behavior is the best predictor of future behavior. Purchase data that are current demographic data, customer satisfaction levels, customer preferences, and purchase intentions are mined for marketing purposes. 11) Why is it smart for a venture to develop multiple revenue streams with existing customers? Explain several strategies to create multiple streams of income. Multiple revenue streams bring in more profits while they make the business more exciting both to the entrepreneur and his customers. For example in the entrepreneur’s web site, he can invite ads and the advertiser pays him for the number of visits received through the web site hyperlink. Referrals and affiliate programs operate with this same principle. Providing free emails, games, and information such as news, articles, and directories bring value to the web site and attract more customers. (Peachpit.com) (12) Explain what is meant by gross profit. How does it differ from gross margin? Explain how the entrepreneur can use these two concepts to manage a venture. Gross profit is synonymous with gross margin, determined by subtracting cost of goods sold from net sales. It is the amount of money that is left after the cost of goods sold is subtracted from the net sales. It is a key figure in the entire marketing program. The entrepreneur must plan very well his gross margin in order to sustain his business viability. (Etzel, Walker & Stanton 353, G5) 13) What is the difference between selling costs and costs of goods sold? Selling costs are market-influenced pricing set by the producer to allow the middleman to add a reasonable markup and still sell at a competitive retail price. Costs of goods sold is the value of the merchandise sold during a given period, calculated by adding the value of the goods at the beginning of the period to the net cost of what is purchased during the period, and then deducting the value of whatever remains at the end of the period. (Etzel, , Walker & Stanton 338, G3) 14) What is the purpose of a cash flow statement? How does it differ from the P&L statement? A cash flow is an accounting presentation showing how much of the cash generated by a business remains after both expenses (including interest) and principal repayment on loans are paid. A projected cash flow statement indicates whether the business will have cash to pay its expenses, loans, and make a profit. Cash flows can be calculated for any given period of time, normally done on monthly or yearly bases. (CSUN.edu) The Profit and Loss (P&L) statement is also known as a "statement of profit and loss", an "income statement" or an "income and expense statement".   The statement of profit and loss follows a general format that begins with an entry for revenue and subtracts from revenue the costs of running the business, including cost of goods sold, operating expenses, tax expense and interest expense. The bottom line (literally and figuratively) is net income (profit). (Investopedia) 15) What is the difference between a partnership and a corporation? Explain the different types of partnerships and corporations, advantages and disadvantages for each. Partnership is a legal relationship existing between two or more persons or entities contractually associated as joint principals in a business. (CSUN.edu) Corporation is a form of organization that provides its owners and shareholders with certain rights and privileges, including protection from personal liability, if proper steps are followed. Corporations may take a number of forms, depending on the goals and objectives of the founders. Types include C, S, and nonprofit corporations. Corporations are regarded as “persons” in the eyes of the law and may thus sue and be sued, own property, borrow money and hire employees. (CSUN.edu) The advantages of a partnership are: easy to set up, larger pool of expertise, more sources of venture capital, low start up costs, and partners control decision making. The disadvantages are: unlimited liability of at least one partner, limited business continuity, difficulty in raising capital, divided authority, and difficulty in finding suitable partners. (Michigan.gov) The advantages of a corporation are: limited liability, ease in raising capital, transferable ownership, a legal entity apart from the owners, business existence is continuous, may draw on expertise of others. The disadvantages are: closely regulated, extensive record keeping, expensive to organize, and double taxation. (Michigan.gov) 16) What are the tax advantages of a partnership structure? The owners report income and expenses on personal income tax returns and pay taxes on net income (gross total minus expenses).  Taxes are computed at owners’        personal tax rates which may be less than corporate taxes. (Michigan.gov} 17) What is the difference between an S corporation and a C corporation. List advantages and disadvantages of each. A C corporation is usually formed by the transfer of money, property, or both by prospective shareholders in exchange for stocks in the corporation.  An attorney is usually hired to file all papers necessary to incorporate. (Michigan.gov) An S corporation is similar to a C corporation in most ways except for how taxes are applied. While a C corporation is a separate tax-paying entity subject to double taxation, an S corporation uses pass-through taxation. This means that the corporation itself does not pay taxes on its profits and losses, and all taxes are instead paid by the owners/shareholders, based on the profits and losses distributed to them. (QuizLaw.com) The advantages of an S corporation are: no double taxation, and business losses can be offset against income of owners. The disadvantages are: restrictions including only one class of stock; non resident aliens cannot be stockholders; only up to 75 stockholders who are individuals, estates of individuals, and certain types of trusts; operates in calendar year for tax reporting; life and health insurance for stockholders are treated as taxable income. 18) List three advantages and disadvantages of sole proprietorship. The advantages of sole proprietorship are: easy to set up and low start up costs, owner controls decision making and all profits are retained by the owner, and easier to terminate. The disadvantages are: inexperience of the owner, difficulty in raising capital, and unlimited liability such as owner assumes all debts. (Michigan.gov) 19) What are the various sections of a business plan? What guidelines should an entrepreneur follow when writing the summary of the business plan? A business plan has the following sections—executive summary; company summary including ownership and start up data; location; service or product description; market analysis and segmentation; marketing strategy; sales forecast; milestones; break-even analysis; projected cash flow and balance sheet. The executive summary must be brief but covering the objectives, keys to success, and risks. (BPlans.com) 20) What should be included in the company information section of the business plan? Why should the entrepreneur discuss the ownership structure of the firm? The company information should include ownership; start up details including expenses, assets, cash balance, inventory and total budget requirement, investments by partners, liabilities, and total capital; location, and facilities. It is important to discuss the ownership of the firm so as to encourage future investors. (BPlan.com) 21) What is the difference between a product’s features and its benefits? A product’s features refer to its distinct functional capabilities. For example, the electric fan can also have a radio and a night lamp.. These features produce added benefits in addition to the main function of the electric fan. Aside from providing cooling effect, it also provides illumination at night and entertainment (radio music), information (radio news). 22) What is meant by the term barriers to entry? How should the entrepreneur write about barriers to entry in the business plan? Barriers to entry are factors that hinder an entrepreneur to start his business like economies of scale and capital requirements. In writing about this in his business plan, the entrepreneur must articulate the issue and then present recommendations or solutions to address the issue, identifying possible sources of funds. 23) How should an entrepreneur identify a target market? What is meant by the term demographics? A target market is identified by segmentation and there are several kinds of segmentation such as geographic, demographic, psychographic, and behavioral. Demographics are a common basis for segmenting consumer markets, strongly related to demands, and are easy to measure. The most popular characteristics used alone or in combination for demographic segmentation are age, gender, family life-cycle stage, income, and education. (Etzel, Walker & Stanton 156) Example of a demographics pie chart (CSUN.edu) 24) What challenges are involved in the acquisition of venture capital? What pressures does a venture capital have to contend with? Venture capital is not suitable for all entrepreneurs. Venture capitalists are most interested only in ventures with high growth potential, as only such opportunities are capable of providing the financial returns and successful exit event within the required timeframe (3-7 years) that venture capitalists expect. Venture capital is most suitable for businesses having large up-front capital requirements which cannot be financed by cheaper alternatives such as debts and loans. That is most commonly the case for intangible assets such as software, and other intellectual property, whose value is unproven. In turn this explains why venture capital is most prevalent in the fast-growing technology and life sciences or biotechnology fields. (Wikipedia) 25) How can the business plan be useful in recruiting talented people to serve in the ventures management team? A good business plan convinces talented people that the entrepreneur will not be wasting their time and money because the plan has identified the demand for product or service, the mechanisms for profit, competitive advantages, and marketing strategies. References BPlans. Retrieved February 23, 2007 from http://www.bplans.com. CSUN. Retrieved February 23, 2007 from http://www.csun.edu Etzel, Michael J.; Walker, Bruce J., and Stranton, William J. Marketing International Edition. Singapore: McGraw-Hill, 2001. Investopedia. Retrieved February 23, 2007 from http://www.investopedia.com Michigan. Retrieved February 24, 2007 from http://www.michigan.gov Neiman Marcus. Retrieved February 24, 2007 from http://www.neimanmarcus.com QuickMBA. Retrieved February 24, 2007 from http://www.quickmba.com QuizLaw. Retrieved February 24, 2007 from http://www.quizlaw.com Walmart. Retrieved February 24, 2007 from http://www.walmart.com Wikipedia. Retrieved February 24, 2007 from http://en_wikipedia.org Read More