ENTREPRENEURSHIP 101

Notes

 Business Plan – a comprehensive paper that details the situation analysis, objectives, strategies and
tactics and how to monitor and control the enterprise.

 The Marketing Plan

Value Proposition (VP) – simply states why a customer should buy a certain product or service.
Tips on how to create an effective value proposition to the target customers:
1. Prepare a situation analysis that details the problem(s) of the customers.
2. Make your VP straight to the point, simple and specific.
3. Highlight the value of your product or service.
4. Adapt to the language of your market.
5. Add credibility-enhancing elements.
6. Differentiate your value proposition with your competitors.

Unique Selling Proposition (USP) – refers to how you will sell the product or service to your customers.
Tips on how to create an effective USP to the target customers.
1. Identify and rank the uniqueness of the product or service attribute.
2. Be very specific.
3. KISS (Keep it short and simple).

 Customers
- Customers are the lifeblood of the business. These are the people who buy the products or
avail the services of the entrepreneur. Their thoughts, feelings and experiences shape the
decisions of the business.
- Customer Requirements – are specific features and characteristics that the customers need
from a product or a service. These requirements are where the business opportunities
originate, which entrepreneurs must be aware for them to come up with a good product
features that suits the customer’s need. Entrepreneurs must know who buys, and what,
when, where, how and most importantly why they buy.

 Market Segmentation – the process of grouping similar or homogenous customers according

to demographic, psychographic, geographic and behavior.

a. Demographic Segmentation – (also called socioeconomic segmentation) is the process of

grouping customers according to relevant socioeconomic variables for the business venture.
 Income Range and Social Class – represent the purchasing power of the market.
*Socioeconomic class of the Phil. according to SWS in 2011
- Class A & B - P1,857,000/annum - 1%
- Class C - P 603,000/annum - 9%
- Class D - P 191,000/annum - 60%
- Class E - P 62,000/annum - 30%
 Occupation – the customer’s daily routine where products can be properly
positioned.
 Gender and Age Group – because the life cycle of customers and their gender
influence their buying behavior.
*Sample grouping
- Baby - Adults
- Adolescent - Married Couples
- Teenagers - Single Parents
- Tweens - Senior Citizens
- Young Adults
b. Psychographic Segmentation – the process of grouping customers according to their
perceptions, way of life, motivations and inclinations.
 Perceptions – a process wherein an individual receives external stimuli
using the five senses.
 Way of Life – will give an overview of what products or services can best
suit the problems of the customers that is happening in daily basis.
 Motivation – can either be psychological (involves customer’s
preferences) or physiological (involve the needs of the person).
Motivations are also affected by their aspirations and deprivations.
 Inclinations – involve preferring one product over another as a result of
gaining a refreshing experience when using the product.

c. Geographic Segmentation – simply grouping customers according to their location.

d. Behavioral Segmentation – process of grouping the customers according to their actions.

 Occasions – drastically affect the customer’s buying behavior.
  Desired benefits – an efficient way to know customers because it
determines the exact needs of the customer and offer the most suited
product or services for them.
 Loyalty – the result of maintaining satisfied customers.
 Usage of products or availment of service – a behavior that describes to
the entrepreneur how often a product is being used or the services are
being availed.

Marketing research will not be complete without talking directly to the target customers.

Four most common methods of collecting data from target customers:

1. Interview – one of the most reliable and credible ways of getting relevant information
from the target customers.
- Two (2) types of interviews;
1. Unstructured interview – informal and does not follow specific
set of questions.
2. Structured interview – employs specific set of questions and
produces quantitative data.

2. FGD or Focus Group Discussion – commonly used by market researchers to

capture qualitative results from target customers. It is a process of mining customer and
noncustomer experience and insights about a specific product or service.

3. Observation – a method where researcher documents the behavioral patterns of

people or of the objects or events without necessarily requiring them to participate in the
research process. Observation is reliable because it allows the researcher to see the
real and actual behavior of customers rather than hearing what they need to say.

4. Surveys – the process of getting answers from a sample of respondents derived

from a particular population.
- Two (2) types of surveys;
1. Traditional survey – via telephone, face-to-face interaction or
snail mail.
2. Online survey – through internet like e-mails, websites or
social media sites.

The Marketing Mix: the 7 P’s of Marketing

- a widely accepted strategic marketing tool that combines the original 4P’s
with additional 3P’s in formulating marketing tactics for a product or service.

1. PRODUCT – any physical good, service or idea that is created by an entrepreneur or an innovator in
serving the needs of the customers and addressing their existing problems.
3 Level Concept of products or services:
1.1 – Core benefits of the product or service
1.2 – Physical characteristics of the product or service
1.3 – Augmented benefits of the product or service

2. PLACE – refers to a location or the medium of transaction. A strategic location depends on the
nature of the business and the primary target market. It can be in a physical location or
in a cyber-location.

3. PRICE – is the peso value that the entrepreneur assigns to a certain product or service after
considering its costs, competition, objectives, positioning and target market.
*Pricing Strategies;
3.1 – Bundling – refers to two or more products or services in one reduced price.
3.2 – Penetration Pricing – refers to setting low prices to increase market share,
but the entrepreneur will eventually increase the price once the desired
market share is achieved.
3.3 – Skimming – the opposite of penetration pricing where prices are initially
high and then they are lowered to offer the product or service to a wider
market.
3.4 – Competitive Pricing – refers to benchmarking prices with the competitors.
3.5 – Product Line Pricing – refers to pricing different products or services within
a parallel product array using varying price points.
3.6 – Psychological Pricing – considers the psychology and positioning of pricein
the market.
3.7 – Premium Pricing – refers to setting a very high price to reflect elitism and
superiority.
3.8 – Optional Pricing – refers to adding an extra product or service on top of the
 original to generate more revenue.
3.9 – Cost-based Pricing – the basis of markup is the cost of sales.
3.10 – Cost plus pricing – the markup is based on a certain percentage of cost.

*Two (2) classification of costs;

1. Variable costs or Controllable costs – are directly proportional to the of
products manufactured or to the number of services performed.
2. Fixed costs or Uncontrollable costs –are costs not directly proportional to the
manufacturing of product or performance of the service, like cost of
equipment, rental costs and utilities.

4. PROMOTION – involves presenting the products or services to the public and how these can
address the public’s needs, wants, problems, or desires. The main goal of
promotion is to gain attention. Key marketing messages for promotion can be the
following;
(1) value proposition or unique selling proposition
(2) product or service image
(3) business image
(4) business values and philosophy

*Promotional Tools
4.1 – Advertising – through television, radio, internet, prints (magazines,
newspaper, posters, signages or flyers), or Out-of-home (billboards,
buses, bus stops, trains, train stations or taxis).
4.2 – Selling – act of trading a product or service for a price or a fee.
4.3 – Sales Promotions – short-term promotional gimmicks wherein practical
incentives and appealing activities are incorporated to entice the
customers to buy the product or avail of the service, like sales discount,
raffles, contests and games, promo items trade fairs or exhibits, or
rewards.
4.4 – Public Relations – image building initiatives of the entrepreneur to the
name of the business reputable to stakeholders, such as the target
customers, government agencies, business partners, media and the
public. Example of PR strategies includes, press conferences, launching
events, social responsibility events, lobbying, web public relations.

5. PEOPLE – as people play a vital role in servicing customers even though the entrepreneur sells only
the physical good, as it is not just about the quality of the products but also how
employees serve customers and employees become a major influence in the customer’s
buying behavior.

6. PACKAGING – it is how the product or service is presented to customers or the overall service.
Packaging is very important as it establishes the brand’s identity, as well as its unique
selling proposition. Therefore, elements such as color, shape, size, materials, font and
text, and graphics must be considered.

7. PROCESS – defined as a step-by-step procedure or activity workflow that the entrepreneur or

employees follow to effectively and efficiently serve customers.

Brand Management
- is the supervision of the tangible and intangible elements of the brand. The tangible elements
include the product itself, its packaging, its price and its location while the intangible elements
include the perception and relationship of the customers with the brand.

Brand – refers to the identity of a company, of a product, of a service or of an entrepreneur. It is a

symbol of promise or assurance from the entrepreneur that what it purports to the customers will
happen. It is also the marketing element that sticks to the mind of the target customers and the
public.

Branding – the process of integrating the strategies formed from the marketing mix to give an identity
to the product or service.

Brand Name - an important element of a brand which is a major differentiator against the competitors.
The following characteristics of a brand name should be considered;
a. Unique
b. Extendable
c. Easy to remember
d. Can describe the benefits of the product or service
e. Can describe a product category
f. Can describe concrete qualities
g. Positive and inspiring
 Product Development
Product Development – the process of developing, testing, and commercializing a product or
service with the ultimate objective of solving the problem of the primary target market.

Sequential steps in product development;

1. Developing a product or service description – simply describes how a product or service
works and how it benefits the customers.

2. Creating a prototype – simply creating a prototype of a product or service.

Prototype – is a preliminary model or sample of a new product or service that is created
to test a product concept or service process.

3. Testing the prototype – a vital process before an actual product or service is launched in the
market and will uncover the final loopholes that need to be fixed before
commercialization.
*Testing methods that an entrepreneur can apply to test prototype;
1. Focus group discussion
2. Legality and ethical test
3. Safety test
4. Product costing test
5. Component test
6. Competitor’s product/service test

4. Validating the market

Validation of market acceptability – the process of finding out if the intended primary
target market will be buying the product or availing the service.

 Operations Plan

Operation Plan – is an important part of the business plan because it simply states the details in
operating the business.
Operations Management – controls the implementation of the business plan.

4 M’s of Operation

1. Methods – the process to be followed in effectively manufacturing or delivering a product or

service.

Manufacturing – is the process of translating raw materials into finished good that are
acceptable to the customer’s standard.
It consists of three (3) elements:
a. Inputs – the materials or ingredients to be used in creating the
product.
b. Process – the transformation phrase where inputs are
processed by manpower and machines to come up
with the final product.
c. Output – the final product of the process stage, which is
intended to be sold to target customers.

Distribution Method – the process of bringing the products or services to customers.

Payment Process – the process of payment whether it’s through credit cards,installment
plans or a simple accounts payable or pautang.

2. Manpower – as the business grows, the entrepreneur needs the expertise of qualified
employees that can handle operational functions, so that he or she will be free
form daily activities and can thus focus on the strategic and management
functions of the business.

3. Machines – described as the “best friend’ of manpower in producing goods and services.
4. Materials – materials and supplies that are used in processing product or used in service.
It can be;
(1) manufacturing own products or offer services.
(2) outsourcing of manufacturing or service activities to a third party.
(3) purchasing own product or service from present suppliers.

Outsourcing – the process of appointing a third party manufacturer to do the

manufacturing operations of the business.
 Financial Plan

- considered as one of the most difficult part of the business plan as it involves accounting
procedures, rules and reporting policies.

Capital – the money that will be allocated by the entrepreneur to establish a business.
*Personal savings
*Through banks or financial institutions

Revenue – the output of a sale wherein the sales price exceeds the costs to produce the
product or render the service.
- Earned Revenue – when the product is already sold or service has been rendered
regardless if the business is paid in cash or credit.
- Deferred Revenue – when the product or service has not yet been delivered or sold but
the customer already paid in advance.

Factors Affecting Estimation of Revenue

1. The economy and the external primary target market.
2. The external competitors.
3. the internal business.

Computation of Gross Revenue

1. Compute for the market universe or total market

Market size = total number of customers X number of times the customers buy the
product or avail the service per year X average amount per
purchase/service availment.

2. Compute the market share of the competitors

Market share = Market size X Estimated percentage market share

3. Plan to capture remaining market share

Remaining market share = target annual market share X Estimated market share

4. Prepare a realistic five-year projected annual revenue

Financial Statement

The income statement, balance sheet and statement of cash flow are the basic financial
statements that should be religiously prepared, monitored and analyzed by entrepreneur no matter
what type of business they are in. these are tools that help them direct their business decisions to be
strategic and effective.

Income Statement – a financial statement that details the computation of net revenue by
deducting cost of sales, expenses and taxes from the gross revenues
generated.

Balance Sheet – a core financial statement that describes the financial position of the business.
The balance sheet is composed of three (3) elements:
(1) assets – represent the resources of the business that are expected to have
future economic value. It ca be;
a. Current Assets – are mostly the liquid assets that can be exchanged to
cash within one year.
b. Noncurrent Assets – are long term assets that can be converted to
cash for more than one year.
(2) liabilities – are what the business owes to another person, financial
institution or any creditor.
(3) owner’s equity or capital – is the funds allocated by the entrepreneur to run
the business.

ASSETS = LIABILITIES + OWNER’S EQUITY

Cash Flow Statement – a financial statement that estimates projected cash flow to ensure that
cash balance is positive all the time.