Difference between an Entrepreneur and an Intrapreneur - Assignment Example

COMMERCE Q1. What is the difference between an Entrepreneur and an Intrapreneur? Ans. Entrepreneurs are innovative creators of new businesses. They look for suitable opportunities and use them practically to bring new businesses into existence, thereby adding value to the market place. Intrapreneurs are improvers of existing businesses. In their role as managers of businesses, they locate ways and means to improve and expand growth, thereby adding exponential value to those businesses. They act as a go-between the business and its customers, producing value for both parties. Entrepreneurs are bold risk-takers. The new business may be profitable or may turn out to be loss-making. Their level of risk is extremely high as there is no-one else to share the burden, which can literally ‘make’ or ‘break’ them. Intrapreneurs are low-level risk-takers. In their role as employees of a business, their amount of risk-taking is limited by boundaries laid out in advance; they are not permitted to exceed those limits when conducting negotiations that could pose risks to the business. Entrepreneurs have clear visions for their new businesses; they are dogged, determined and rigid about their visions, and respond negatively to any alteration proposals. Intrapeneurs have their own visions about ways to develop the business, but such visions are flexible and adaptable in response to organizational shifts. Entrepreneurs are persons who possess a wide range of skills in different fields. They are termed as ‘generalists.’ Intrapreneurs are ‘specialists’ who possess highly trained managerial skills that enable them to concentrate on ways to improve and develop the business (Lifecollege.org). Q2. Name the three forms of management. Briefly describe each form and explain how they are different. Ans. The three forms of management are autocratic, consultative and democratic. Autocratic managers are persons within the organization with total decision-making powers. They give dictatorial instructions to staff members without bothering to ask their opinion on the matter in hand. Consultative managers take final business decisions, but only after soliciting opinions of other employees and analyzing the matter in hand from the perspective of those views. Democratic managers hand over authority to staff members to finish a task allotted to them. The staff members then proceed to complete the given task on time by employing their own set of work techniques. The staff members are part of the decision-making process. Unlike consultative and democratic management, decisions are taken very quickly in autocratic management as there is no lengthy consultation process involved. As a result, the work is generally finished on time. Motivation to work and developing a sense of belonging to the organization is greater in consultative management and at its highest level in democratic management. This is because employees feel valued that their opinions are taken and acted upon. In autocratic management, managers are bossy persons who dominate the other employees, decreasing their motivation to put in constructive work efforts and making them feel they do not belong to the organization. Staff turnover is highest in autocratic management as disillusioned employees leave or are replaced at a faster-than-normal pace. Such turnover is lesser in consultative management, and least in democratic management where staff satisfaction is maximum (Learnmanagement2.com). Q3. Describe the difference between a market and a target market. Ans. A market is a place where trade of goods takes place in a social environment involving two players (buyer and seller), who find out information and indulge in an exchange of goods or services called ‘transaction,’ on terms of their own choice and decision. The transaction is expected to benefit both players. Markets employ price adaptations to provide information, and are considered efficient in situations where the price of goods or services draws the same amount of demand that the market can supply at that given time (Wikipedia, 2007). An enterprise that wishes to gain entry into a market and later expand its activities, should first concentrate on one of the market sectors that considers most interesting and appealing, because of perceived advantages that compliment the enterprise’s capabilities. The selected market sector is called the ‘target market.’ Some of the perceived advantages include favorable size, impressive growth statistics, less competition, high sales expectations and good profit expectations. Specific information about such perceived target market advantages can be got from market research and analysis. Proper analysis is very crucial, because seemingly advantageous factors may not always turn out favorably; for example, unless the enterprise possesses patent advantage for a product, a perceived larger sector is not necessarily the most lucrative to target if there are many competitors involved. Once an enterprise successfully penetrates the target market, it secures a firm base from which it can safely launch expansion plans into other market sectors. Such plans can be adopted in one of two ways: a product specialization plan, whereby the product is adapted to suit different market sectors; or a market specialization plan, wherein new products are introduced to existing market sectors (Netmba.com, 2006). Q4. What is meant by the term marketing mix? What does marketing mix consist of? Explain each part of the marketing mix in detail. Ans. The term ‘marketing mix’ was first introduced by Neil H. Borden in 1964, and later honed down to its present definition by E. Jerome McCarthy. According to McCarthy, marketing decisions can be classified into 4 controllable categories – Product, Price, Place and Promotion (commonly called “the 4 P’s”), which constitute the 4 parts of the marketing mix. The 4 P’s represent areas in which the marketing manager can exercise control subject to the internal and external peripheries of the market. Business decisions endeavor to focus the 4 P’s on the clientele in the target market so as to generate perceived value and provoke a favorable response from them. Products are defined as actual, physical goods or services. Decisions about products predominantly include brand name, packaging, quality, safety, warranty and after sales service. Price is the financial sales value of the product. Decisions about price mainly include proposed retail price, cash and credit discounts and seasonal pricing. Place (Distribution) involves the process of reaching the product to the customer. Decisions about it generally include storage, inventory management, transportation, distribution outlets and order processing. Promotion refers to the exposure of information about the product with the aim of educating customers and generating purchase interest in them. Decisions about promotion normally include promotion budgets, advertising, sales promotion and sales force (Netmba.com, 2006). Q5. How can an entrepreneur segment a market? Explain how a retail entrepreneur might segment his/her market. Ans. The concept of market segmentation, which was created in response to fast rising consumer ethnic as well as socio-economic gender variety, is based on the need of entrepreneurs to establish a difference between their products and those of competitors. An entrepreneur can segment a market by separating it into its component parts in a way that can increase profitability without incurring high expenditure in system and sales resources otherwise required for one-to-one marketing. A retail entrepreneur can segment his or her market by classifying customers into groups based on several defining characteristics. Demographic characteristics identify customers’ income, job and education levels. Product Usage characteristics involve employing surveys to get customers’ response to product disposition. Psychographic characteristics recognize epitomizing traits, personal views and lifestyles. Generation characteristics look at people born in the same period of time who have many things in common, such as age, economic influences and effects of culture (for example, the Baby Boomer generation concerned those persons born between the years 1946 and 1955). Geographical characteristics identify people who live in the same area and have similar socio-economic features. Geo-demographic (a combination of demographics and geography) characteristics focus on groups of people living in small geographical areas characterized by similar demographic data (Nelson, 2001). Q6. Explain what is meant by the term gross profit. How does it differ from gross margin? Explain how the entrepreneur can use these two concepts to manage a venture. Ans. Gross Profit is the amount by which revenue is greater than the cost of manufacturing a product or providing a service. It represents a significant source of information about profitability of an enterprise as it insists on the imperative need to overcome and exceed fixed costs incurred (Wikipedia, 2007). At the end of a financial year, Gross Profit is shown as the result of the enterprise’s Trading Account sheet. It is later subject to deduction of indirect costs (such as salaries, rent, taxes and bank interest), to arrive at Net Profit (or Net Loss) which appears as a conclusion to the Profit & Loss Account of the enterprise. Gross Margin is the direct percentage of profit in sales price. It calculates the relationship between gross profit and sales revenue in the form of a percentage (Gross Margin percentage = 100 * {Revenue – Cost of goods sold} / Revenue) [Wikipedia, 2007]. For example, a product costs an enterprise $ 250 to manufacture. The enterprise wishes to make a 50% profit and therefore uses a mark up of 1.5 or 150% to calculate the product’s sale price at $ 375. The gross margin here is 33%, that is, Gross Profit {375-250} = 125 x 100 / 375 = 33%. Entrepreneurs can use Gross Profit as an easy-to-calculate method for their sales persons to arrive at a final sales price by using a fixed mark up (in the above example, cost 250 + 50% (125) = 375). Gross Margin can be used to calculate what part of the enterprise’s sale dollars are profit. In the preceding example, 33% of the sale price is profit (Wikipedia, 2007). Q7. What is the difference between selling costs and cost of goods? Ans. Cost of goods sold is classified under “direct expenses,” whereas Selling Costs are considered as “indirect expenses.” Cost of goods sold is the largest expenditure account of an enterprise. It is calculated as: Cost of goods (inventory) at the beginning of a financial year + cost of goods purchased during the financial year (less purchase returns and purchase allowances) + freight – in – cost of year-ending inventory (Accounting Coach.com, 2006). Cost of goods sold, when deducted from revenue, results in Gross Profit (or Gross Loss) which has a place in the Trading Account of the enterprise. Selling Costs are expenses incurred by the enterprise during the course of its business operations. Examples of such costs are rent, salaries, sales commission, advertising and promotion, bank interest and depreciation (AccountingCoach.com, 2006). Cost of goods is carried over to the next financial year (closing balance of one year becomes the opening balance of the next), while Selling Costs are subject to the accrual principle of accounting, whereby they appear only during the financing year in which they occur (and not the period during which they were actually paid) [AccountingCoach. com, 2006]. At the end of the financial year, the net total of Selling Costs is reflected in the Net Profit or Net Loss of the Profit & Loss Account (Gross Profit – Selling Costs = Net Profit, or, Selling Costs – Gross Profit = Net Loss). Q8. What is the purpose of cash flow statement? How does it differ from the P&L statement? Ans. The Cash Flow Statement is a shortened version of all the cash transactions (cash received and cash paid) performed by an enterprise over a given period, which may range from a month to a year. Its purpose is to identify the source from where the enterprise’s cash surplus or cash deficit originates. The Cash Flow Statement focuses on 3 specific areas, namely, the enterprise’s operating, investing and financing activities. Operating activities’ cash flow draws attention to any sudden or suspicious change in patterns of sales, cash receipts, accounts receivable and inventory. Investing activities’ cash flow highlights any change in fixed assets such as sales or purchases of land or machinery. Financing activities’ cash flow brings to light any change in the investment sector, such as stocks and shares or borrowing. By monitoring the operating, investing and financing activities, the enterprise’s decision-makers are able to immediately identify when it is opportune to strike deals, or when spending is to be at once curtailed in a certain sector, or when cash discrepancies seem suspicious and in need of immediate investigation. The overall picture obtained by comparison of the previous and current period’s cash balances exposes the true health of the enterprise – if it has been running successfully, the cash balance at the end of the current year will be higher than that of the previous year. The Cash Flow Statement is a part of the Profit & Loss Account. While the former is only concerned with transactions involving cash that is actually paid or received, the latter also includes deferred income and payments which have counter-reference in the assets and liabilities sections of the balance sheet, such as dues from debtors (asset), dues to creditors (liability), rental income due (asset) and bank interest due (liability). The Cash Flow Statement is designed to act as a link between the more detailed Profit & Loss Account and the Balance Sheet, which lays out the main figures without detail (Moneyinstructor.com, 2005). Q9. List three advantages and disadvantages of a sole proprietorship Ans. A Sole Proprietorship represents the least elaborate or complex form of business that is most frequently found. Its first advantage involves formal business requirements. The Sole Proprietor can open a business quickly because the bureaucratic hurdles, such as paperwork and other formalities, are very less and not time-consuming. He or she also incurs minimal legal expenses. The second advantage is that Sole Proprietors enjoy full control and absolute decision-making power. They can retain ownership for any length of time, and choose to sell it or transfer it to their heirs as and when they think it fit and proper from their personal point of view. The third advantage is the absence of corporate tax payments. Sole Proprietors do not incur business taxes that are otherwise payable by corporations. Sole Proprietors are only required to pay income tax on the income generated from their business, within the periphery of their personal income tax payments. The main disadvantage is that, given the fact Sole Proprietors are involved in and responsible for all business transactions, they are personally answerable for all obligations and debts that are acquired by their business. This also includes any business debts or liabilities that are caused by employees of the Sole Proprietorship. The second disadvantage is that Sole Proprietors face very heavy workloads as they are involved in every facet of business, and have to take decisions about each business transaction that is conducted. They do not have the luxury of alleviating their burden by allocating even partial responsibility to other employees. The third disadvantage is that Sole Proprietorships are not perceived as investor-friendly businesses (AllBusiness.com, 2006). Investors tend to shy away from investing in such businesses where one person runs the whole show. As a result, Sole Proprietors are forced to either use their precious personal assets or borrow loans at high rates of interest whenever they are in need of financing (AllBusiness.com, 2006). Q10. What is the difference between a product’s features and its benefits? Ans. Product Features focus on the product, and only on the product. They explain about the product in detail. For example, Proctor and Gamble’s “Rejoice” Shampoo mentions all the ingredients in detail, as well as directions on how to safely and properly use the shampoo. Product Benefits explain what the product will do for customers, either by offering them a better lifestyle, or by enabling them save money. For example, in case of the above mentioned “Rejoice” shampoo, it carries a declaration that it is a 3-in-1 family shampoo that fights dandruff, assures silky smooth hair and long-lasting fragrance (due to its new formula that contains milky cream and lemon oil). Product Features do not generate sales of the product, whereas Product Benefits do. The former only explains the finer details of the product. Most customers do not pay attention to Product Features as they take it for granted that the product adheres to all the safety rules. Product Benefits immediately catch customers’ attention, as humans (especially females) tend to always look out for ways to better their lives – be it by purchasing a car with a more sleek look (better status symbol), or a Coca-Cola bottle that contains 15% extra for the same price (saving money). Another difference is that Product Features can be transformed into Product Benefits, but not vice versa. This involves innovative publicity that cites a certain Product Feature and goes on to clarify what’s so impressive and attractive about it, and what beneficial results customers can look forward to. For example, in case of a car that comes in a metallic blue color, an adjoining explanation such as, “The impressive metallic blue color of this car enables you to create a clear and lasting impression on your friends, as well it helps you minimize ‘car-wash’ Saturdays!” helps turn the car’s Product Feature into a Product Benefit (Marketing-Course.Co.za). Q11. What does Schumpeter mean by the term ‘creative destruction’? Name a modern day form of creative destruction and what were the consequences. Ans. Creative destruction references to the process of industrial transformation that occurs as a result of new inventions that provoke far-reaching, sweeping changes. The process involves destruction of old fashioned incumbent companies which are replaced by new, innovative ones. The concept was first introduced by economist Joseph Schumpeter in 1942, as an integral part of his imagined image of capitalism whereby new inventions introduced by entrepreneurs was the main factor that promoted long-lasting economic growth, even though at the same time it demolished existing companies that used to exert monopoly domination. A good example of a modern day innovative entry is Wal-Mart. Examples of incumbent companies who have been forced out by innovative new entrants are Montgomery Ward, Kmart and Sears (Wikipedia, 2007). Q12. What is meant by the term ‘discount’? How can the new venture use a discounting strategy to win customers? Ans. Discount is the amount reduced from the list (quoted to customers) price of a product. There are many types of discounts. Quantity Discount is extended to consumers who buy large numbers of a certain product. Cumulative Quantity Discount is a discount that is proportionate to the quantity bought; as the quantity becomes larger, the amount of discount proportionately rises, and vice versa. Seasonal Discount is offered only during certain pre-specified periods of the year, in response to certain holiday seasons, such as Christmas season (say, December 10 to 26 each year). Cash Discount is a reward for pre-payment of bills, offered to those consumers who pay their bills before the date specified in the bills. Trade Discount is offered to other traders as a reward for helping sell a product in their own sales outlets. Promotional Discounts are offered for a specific period during the year (NetMba.com); such a period (usually a week or two), is chosen by sellers usually to get rid of old stocks. A new venture usually experiences cash flow problems, so it would prefer to offer Cash Discounts to encourage pre-payment from customers. It is also new in the market and desires to attract customers, so it would offer Quantity Discounts as well as Cumulative Quantity Discounts that would boost sales and encourage customers to shop there. Q13. Explain the difference between elastic and inelastic market. Give an example of each. Ans. A market is defined as a location where goods or services are exchanged between a buyer and a seller. The behavior of the buyer and seller is governed by the marketing concepts of demand and supply. An increase in the price of a product provokes a fall in demand of customers, as they consume less or look for cheaper alternatives; the greater the level to which demand falls as prices rise, the greater the price elasticity of demand. Supply of some products can be increased in the long run by finding alternative sources or boosting production capacity; price elasticity of supply is therefore considered greater as supply can adapt to price alterations to a greater extent in the long term. An example of an elastic market featuring high price elasticity of demand is the luxury goods market where consumer demand falls (they search for cheaper substitutes) as luxury goods prices increase. An example of an inelastic market is the food stuff market. Food is one of the basic necessities of life, so its demand varies very insignificantly in response to price changes; food is price-inelastic (Wikipedia, 2007). Q14. How does Wal-Mart keep its prices on most items so much lower than the general market? Compare and contrast average product quality and product price between Wal-Mart and Neiman Marcus. Ans. Wal-Mart has achieved success by offering ‘everyday low prices.’ The secret to this lies in the low cost structure enjoyed by it. One category of costs (cost of goods) is beyond control, but the other (overheads), is controllable. Given the huge number of Wal-Mart employees, the remuneration paid to them is easily Wal-Mart’s biggest overhead expense. Wal-Mart has succeeded in keeping this expense down by three methods: first, it does not offer any pension plan to its employees; secondly, employees are offered high-deductible health care plans; lastly, it has managed to keep labor unions at bay (Chantrill, 2005); innumerable attempts to unionize Wal-Mart have failed; had they gained a foothold, a continuous struggle for better employee wages and benefits would have ensued, making it impossible for Wal-Mart to maintain low prices in the face of mounting employee-related costs. Wal-Mart stocks store (also called generic) brands of products. These are low price substitutes to high brands. The products are manufactured under private labels by the lowest bidders chosen by Wal-Mart, and the goods are marketed exclusively in Wal-Mart outlets. Their products range from foodstuffs (notable brands are ‘Great Value’ and ‘Peter Pan’) to apparel (‘Athletic Works,’ ‘George,’ and ‘Life’), footwear (‘Faded Glory’), toys (‘Kids Connection’), and home furnishings (‘No Boundaries’) [Wikipedia, 2007]. By choosing low cost products, Wal-Mart saves heavily on cost of goods. This factor, combined with just-above-the-minimum wages to employees, no employee pension and the absence of labor unions enables it to continually maintain a low price structure. Neiman Marcus is an upscale store that stocks high quality, reputed brand products. Its product range includes apparel (notable brand ‘Neiman Marcus’), accessories (‘Kate Spade,’ ‘Neiman Marcus’), beauty products, decorative home furnishings (‘Horchow,’ ‘Neiman Marcus’) and jewelry (Wikipedia, 2007). Due to high cost of brand goods, high wages and better employee benefits, the price structure at Neiman Marcus is very high. This has led it to be nicknamed “Needless Markup.” (Wikipedia, 2007). Q15. Explain the term ‘sustainable competitive advantage.’ Identify an entrepreneurial company in your city and describe its sustainable competitive advantage. What does this firm do, or what must it do, to sustain its advantage? Ans. An enterprise attains Competitive Advantage (CA) in a market when its revenue surpasses all its costs (including cost of capital). Such an enterprise is said to have Sustainable Competitive Advantage (SCA) when it is not possible for others to copy its revenue-generating methods and positions. The difference between CA and SCA is that the latter supplies a long-run advantage that cannot be easily reproduced. The three factors that are instrumental in attaining SCA are product organization and managerial process, strong market position and consistent, well-oriented path dependency (Wikipedia, 2007). A prime example in my city is Coca Cola which possesses a distinct advantage in its greatest asset – its brand name. It has established a very strong market position that is not easily replicated. It must retain its strong compliance with the above mentioned 3 instrumental factors to sustain its advantage. Q16. Why is it smart for a venture to develop multiple revenue strings with its existing customers? Explain several strategies you would use to create multiple streams of income. Ans. Creating multiple streams of revenue is based on the concept that diversification of investments is a sure way of ensuring that assets are protected. By this definition, a smart venture strives to set up different sources of revenue so that its cash flow in general is not endangered. By developing multiple revenue streams, the normal rises and falls in cash flows can be effectively controlled. The strategy a venue must adopt to develop multiple revenue streams is to offer allied products or services, whose use is linked to the main product or service offered to customers. For example, a dealer selling antiques can add interior design services, jewelry or paintings; a travel agency can add a hotel and tours section that could arrange hotel accommodation and tours for customers; or a sportswear store can offer a range of camping and boating equipment (Moses, 2003). Q17. What is the difference between a partnership and a corporation? Explain the types of partnerships and corporations, listing the advantages and disadvantages of each. Ans. The main difference between a partnership and a corporation concerns the liability factor. Partners are personally liable for all debts and obligations of the firm. In case of a corporation, only its assets are liable for claim by creditors; the personal assets of its shareholders are not liable. Secondly, for income tax purposes, the IRS does not look at a partnership as a separate entity from its partners, while it does look at corporations as separate entities not linked to its shareholders (Johnston, 2001). There are 3 types of partnerships. General Partnership is one where all partners have equal rights and responsibilities, with each one being totally liable personally for any debt or obligation incurred by the firm. In a Limited Partnership, one general partner is totally liable personally for all debts and obligations, while the other passive partners are not involved in the firm’s management and their liability only involves their investment in the firm. A Limited Liability Partnership (LLP) or Limited Liability Limited Partnership (LLLP) has the same features as a Limited Partnership except that the liability arising out of wrongful actions of some partners cannot be attached to other innocent partners (Mould, 2004). General Partnerships are the most disadvantageous because all the partners are totally and personally liable for the debts and obligations that arise. Limited Partnerships and LLP/LLLP are better prospects as in the case of the former, passive partners safeguard their personal assets, while in the case of the latter, innocent partners are totally absolved from the wrongdoings of other partners. There are 5 types of corporations. A Public Corporation is a distinct legal entity that is owned by its stockholders; its shares are traded publicly and it is free to have any number of stockholders whose personal liability only involves the value of their shares in the corporation. A Close Corporation is similar to a Public Corporation except that it is allowed to function only in certain States within the U.S; its stock is not traded publicly, and it is allowed to only have 30 to 50 stockholders. S Corporations are similar to a Public Corporation except that they enjoy special tax concessions (they avoids ‘double taxation,’ that involves paying taxes at corporate level plus personal level). A C Corporation is a standard business corporation that has to comply with tax regulations contained in Subchapter C of the tax code. A Professional Corporation (PC) is formed essentially to undertake professional services such as practicing law or medicine (Larson, 2004). The advantage of a C Corporation is that a limited number of stockholders are able to retain effective ownership without encountering interference from a large number of stockholders (as in a Public Corporation); an advantage that is also enjoyed by the professional stockholders of Professional Corporations. S Corporations have the advantage of avoiding payment of double taxation. Q18. What are the tax advantages of a partnership structure? Ans. The IRS does not consider a partnership as a separate entity from its partners. Income or loss earned by a partnership form is considered as income or loss to its partners, and for tax purposes, it has to be paid at the end of every calendar year. The main advantage that a partnership enjoys occurs when the firm posts a loss during a calendar year. The losses are allowed to be passed down to the partners of the firm, thus reducing their personal taxable income (Johnston, 2001). Q19. What is the difference between a S Corporation and a C Corporation? List the advantages and disadvantages of each. Ans. C Corporations are defined as standard business corporations that are required to adhere to the tax regulations contained in Subchapter C of the tax code. S Corporations are similar to C Corporations except that they enjoy the advantage of not paying double taxation. The main difference between them is taxes. C Corporations have to pay double taxes – at corporate level (the C Corporation has to pay income tax), as well as at personal level (its stockholders have to list all earnings from the Corporation in their individual income tax returns). S Corporations enjoy special tax status in the eyes of the IRS. They do not have to pay income tax at corporate level; their income is considered as passed on to their stockholders, who are obliged to list all earnings from the Corporation in their individual income tax returns. The second difference is that employees of S Corporations, who are also stockholders in it, are allowed to receive their monthly remuneration (as employees) in the form of profit, instead of salaries. By doing this, employees avoid paying Social Security and Medicare taxes that are otherwise due to be paid on salaried income. The third difference is that when a S Corporation is sold, the taxable gain on such a deal is lesser than the taxable gain on the sale of a C Corporation (Spardata.com, 2005). S Corporations are more advantageous that their C counterparts where taxation during their operational life is concerned. C Corporations tend to be more advantageous when they are sold. Q20. What are the various sections of a business plan? What guidelines should an entrepreneur follow when writing the executive summary to the business plan? Ans. The various sections of a Business Plan are the following. Executive Summary is a summation of the highlights of the Business Plan, and it is designed to provoke interest in those reading it to know more about the business. Company Description lays down the mission statement, history and legal structure. Products and Services contain description of products, production facilities, price structures and delivery framework. Operations mention about location, staff, suppliers, insurers and risk assessment. Financial contains information about profit and loss account, cash flow statement, break-even analysis and debt schedule (Zahorsky, 2007). The entrepreneur should see that the following questions are addressed when writing the executive summary of the Business Plan: Entity’s full name, address, contact information and brief history; Name of entrepreneur and names of management team; Mission statement; Products, target market, competitors; existing capital, forecast of additional capital requirements; Investor returns: what is being offered to attract investments? (Volker, 1999). Q21. What should be included in the company information section of the business plan? Why should the entrepreneur discuss the ownership structure? Ans. The company information section of the business plan should include 4 sub-sections: Mission Statement, detailing the aim of the business and what it hopes to achieve in sales and profit during the first 3 years; Company Overview, mentioning the entity’s full name, address, contact information, products, production facilities, target market, target audience, sales team, delivery framework, warehouses; Corporate History, detailing the date of establishment, details of owners, capital structure, entity’s track record and accomplishments; Legal Structure, confirming whether it is a sole proprietorship, partnership or corporation (Zahorsky, 2007). An entrepreneur should discuss ownership structure because the information is important to two very important business partners – suppliers and investors. Suppliers need to know who they are dealing with, if the owners are reliable and able to pay their dues on time. Investors use the information to decide whether the enterprise is perceived as having a bright or dim future, and by association, if it is safe to invest money in it. Q22. What is meant by the term ‘barriers to entry’? How should the entrepreneur write about barriers to entry in the business plan? Ans. Barriers to entry refer to the obstacles or difficulties faced by a business when it plans to enter into a specific market. These barriers include tedious government regulations concerning issue of licenses and permits; existence of statutory monopolies established by the government which effectively makes competition illegal; monopolistic patent power exercised by competitors for vital products; presence of customer loyalty to strongly established brands; economy of scale where large and powerful entities can manufacture goods at low cost and translate that advantage into low sale prices; predatory pricing where large entities with strong financial structures sell their products at a loss so that the low prices drive out new competition; heavy advertising campaigns of brands which enhance sales and prevent entry of new brands (Wikipedia, 2007). In the business plan, an entrepreneur should frankly admit that barriers of entry do exist in the target markets. He or she should proceed to give full details of each barrier and how his or her business plans to overcome it. A logical and impressive explanation is crucial for the simple reason that if the barriers seem insurmountable, then there is no sound economical reason for the business to be established at all. Q23. How should an entrepreneur identify a target market? What is meant by the term demographics? Cacographic? Ans. A target market is perceived to have specific advantages that compliment the enterprise’s products and its capabilities. An entrepreneur can identify such advantages by conducting a thorough research and analysis of the target market. The main factors that such research and analysis should cover are size (whether it is large enough to accommodate a new product and a new competitor), growth statistics (review of track record, has the growth been continuous and impressive, or very slow and near stagnant), level competition (details of competitors, their perceived strengths and weaknesses, is it feasible to expect fresh competition to survive), sales expectations (what is the sales forecast for his products at least for the first 3 years), and profit expectations (what is the profit forecast for the first 3 years) [Netmba.com, 2006]. Demographic characteristics involve detailed analysis of the customers prevailing in a specific market segment. Such characteristics include the customer’s name, what is his or her education level, where he or she works, the nature of the job (Nelson, 2001). Cacographic means exhibiting the essential attributes of bad spelling or bad handwriting or both (Wiktionary). Q24. What challenges are involved in the acquisition of venture capital? What pressures does a venture capitalist have to contend with in his/her career? Ans. The challenges involved in acquisition of venture capital are contained in 4 groups: Management team – the recipient company should convince venture capitalists that they have a strong, highly qualified, vastly experienced management team, who are perceived strong enough to guide the company to its mission; Products and Services – venture capitalists must be led to recognize that the products are not normal, but special, new, creative and solely owned by the recipient company; Target Market – venture capitalists must be convinced that the target market is conducive to successful penetration by the recipient company’s products; Return on Investment – it is vital that venture capitalists find that the return on investments offered by the recipient company are in keeping with, or better than, similar prospects in the business, and that such returns will prove attractive to the passive investors whom the venture capitalist represents (and whose ultimate approval is absolutely necessary) [Rodrigues, 2006]. The first area of pressure that a venture capitalist faces is to be absolutely certain that the recipient company poses a favorable investment prospect. To counter this, he or she has to make a detailed study and analysis of the business plan. The second area of pressure is the necessity to keep in close and constant touch with the recipient company management after investment, to prevent them from indulging in investor-unfriendly actions. This is nearly physically impossible to achieve as venture capitalists hold many investment portfolios involving recipient companies located in different places around the country. The last area of pressure is the constant worry that the recipient company’s business plan may have set out an unrealistic and unachievable mission backed by fictitious sales and profit forecasts (Cook, 2005). Q25. How can the business plan be successful in recruiting talented people to serve on the venture’s management team? Ans. The executive summary of the business plan should be logical, sound and impressive so that it will attract talented people to work in the venture. Such talented people will analyze the mission statement, product and services, target market and projected sales/profit, in order to decide, based on their good knowledge and professional experience, whether the venture has a promising and successful future, thereby making it attractive to link their careers with. The names of owners or board members are also important because well-known business names, by way of association, will tend to attract talented recruits who would be thrilled to work in the same environment as those great people. Information about competition is also very important as the prospective talented recruits are well are of the strengths and weaknesses of top competitors in the field, and they can decide whether the company’s products and services are really unique and strong enough to compete favorably in the target market (Volker, 1999). References used: Anon. 2006. Advantages and Disadvantages of Sole Proprietorships. Retrieved February 28, 2007, from AllBusiness.com Web site: Anon. 2007. Barriers to Entry. Retrieved March 2, 2007, from Wikipedia Web site: Anon. 2005. C Versus S Corporation. Retrieved March 2, 2007, from Spardata.com Web site: Anon. N.d. Cacographic. Retrieved March 2, 2007, from Wiktionary.com Web site: Anon. 2006. Cost of Goods Sold. Retrieved February 28, 2007, from Accountingcoach.com Web site: Anon. 2007. Creative Destruction. Retrieved March 1, 2007, from Wikipedia Web site: Anon. (N.d.). The Difference between Features and Benefits. 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Retrieved February 28, 2007, from AccountingCoach.com Web site: Anon. 2007. Sustainable Competitive Advantage. Retrieved March 1, 2007, from Wikipedia Web site: Anon. 2006. Target Market Selection. Retrieved February 28, 2007, from NetMBA Web site: Anon. 2005. Your Accounting Statement of Cash Flows. Retrieved February 28, 2007, from Moneyinstructor.com Web site: Chantrill, Christopher. 2005. Wal-Mart: America’s Economic Secret Weapon. Retrieved March 2, 2007, from American Thinker Web site: Cook, John. 2005. Venture Capital: Venture Capitalists Who Miss and Tell. Retrieved March 2, 2007 from Seattle Post-Intelligencer Web site: Johnston, Brock R. 2001. Starting your Business: Legal Issues to Consider. Retrieved March 2, 2007, from Clark Wilson LLP Web site: Larson, Aaron. 2004. The Corporation. Retrieved March 1, 2007, from ExpertLaw.com Web site: Moses, Jeffrey. 2003. Diversifying Revenue Streams. Retrieved March 1, 2007, from NFIB.com Web site: Mould, Chrissie. 2004. What are the types of Partnership? Retrieved March 1, 2007, from PowerHomeBiz.com Web site: Nelson, Charlie. 2001. Market Segmentation. Retrieved February 28, 2007, from Foreseechange.com Web site: Rodriguez, George. 2006. Can Your Small Business Attract Venture Capital Financing? Retrieved March 2, 2007, from PowerHomeBiz.com Web site: Volker, Mike. 1999. The Executive Summary. Retrieved March 2, 2007, from Sfu.ca Web site: Zahorsky, Darrel. 2007. Create A Money Winning Business Plan Outline. Retrieved March 1, 2007, from Small Business Information Web site: Read More