ALLAMA IQBAL OPEN UNIVERSITY

Entrepreneurship (8503)

Semester: Spring, 2022

Level: M. Com

ASSIGNMENT No. 1
(Units: 1–5)

Tutor’s Name : KHALID JAVAID ANWER

Student Name : SHUJAAT HUSSAIN
Father’s Name : TAHIR HUSSAIN
Address : H-44/24 F.C. AREA LIAQUATABAD NO.4
KARACHI
Mobile No. : +92334-3525426

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Q. 1 What is the First Mover Myth, and what significance does it hold in
the business model?
Ans:

FIRST MOVER DEFINITION:

The first step is a hint or item that gains the upper hand by being quickly
demonstrated with an item or administration. Being first regularly empowers an
organization to lay down areas of strength for client recognition and reliability before
contenders enter the field. Various benefits include an extra chance to complete your
item or administration and determine the market cost of the new thing.
Early movers in an industry are often followed by contenders looking to take
advantage of the prime mover's prosperity and grab a piece of the pie. More often than
not, the prime mover has carved out a reasonable portion of the entire industry and a
strong enough client base to keep up with the majority of the market.

FIRST MOVER MYTH, SIGNIFICANCE IN THE

BUSINESS MODEL:

Basically, first mover advantage can be characterized as the ability of a company

to be in an ideal situation than its competitors because it is the first to perform in a
different classification of items. We find it helpful to consider both solid first-mover
benefits that further develop a piece of the pie or company productivity after a
significant stretch, and those that fall short. Although no advantage lasts forever, firms
that prevail with respect to building strong first-mover advantages are more likely to
dominate their item classifications for a long time, from the early stages of the market
through the path to its development. Coca-Cola in sodas and Hoover in vacuum
cleaners clearly demonstrate both the value and longevity of early success.

However, in any case, when an organization cannot create a solid first-mover

advantage, it can gain several advantages from an earlier pass. The pioneering
efforts of Netscape, which was the first to introduce an Internet program, created huge
gains for investors for a moment, until in 1997, after the rise of Microsoft Explorer, the
stock price fell. Apple gradually declined all the more because it was productive for
quite a long time before tensions from Microsoft and Intel caused significant damage
and forced it to rebuild in the mid-1990s. Whether the end comes out of nowhere or
gradually, the benefits can be incredible enough to turn a short first pass into a
profitable venture and perhaps make it a major destination. Obviously, a business
can choose not to enter another market in any way. Be that as it may, even the edges
of the next in line can look great in contrast to the open door price that means avoiding
the next market. There are hardly any cases of first move fantasy:

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 Amazon
 Yahoo Messenger
 Daraz
 Microsoft
 Android
 Careem

REFERENCES TO COVER THE TOPIC OF FIRST MOVER MYTH:

 https://www.investopedia.com/terms/f/firstmover.asp
 https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage
 https://www.youtube.com/watch?v=hXY-hfxmhig

Q. 2 The entry strategy is more important than the growth strategy. Do

you agree? Discuss.

Ans:

MARKET ENTRY STRATEGIES:

Market penetration techniques provide guidance for organizations to enter global

business sectors. Since there are many strategies that organizations can use to sell
their goods worldwide, they choose the best methodology keeping in mind their goals
and target market. Understanding business sector traversal techniques and their
differences can help determine which methodology offers the most benefits to an
organization.

Market section methodologies are techniques that organizations use to design,

circulate, and transport goods to global business sectors. The cost and level of an
organization's command over dispersion can vary depending on the course of action
it chooses. Organizations usually choose a methodology based on the type of item
they are selling, the value of the item, and whether its transportation requires special
technical care. Organizations can also consider their ongoing competition and buyer
needs.

To choose a successful methodology, organizations adapt their spending plans

to their item ideas, which often works on their revenue expansion options. The three
basic factors that influence an organization's decision on a worldwide market section
system are:

 Marketing: Companies consider which countries comprise their target market

and how they would market their products to that segment.

 Sourcing: Companies choose whether to manufacture, purchase, or partner

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with a manufacturer overseas.

 Control: When presenting their products in international markets, companies

decide whether to enter the market independently or to cooperate with other
businesses.

MARKET GROWTH STRATEGIES:

A growth strategy is an action plan that will allow you to achieve a higher level
of market share than you currently have. Growth strategies can also be long-term. As
a plan of action, your growth strategy should include the following components:

 Goal: What do you want to achieve?

 People: How is each department impacted by your goal?

 Product: Is your product positioned to help you achieve your goal?

 Tactics: How will you work toward your goal?

Your growth strategy needs to be communicated across your organization so

everyone is on the same page and can share ideas about the plan. As Mail chimp
saw in its 2014 all-hands meeting, teams can be uneasy if they don't understand the
company's strategy.

If you are clear about your growth strategy and the path to achieving it, teams
will feel like they can contribute to the company's success. Defining the strategy
definitely worked in Mail chimp's favor: today the company has an estimated annual
revenue of more than 700 million dollars.

TYPES OF GROWTH STRATEGIES:

There are four classic types of growth strategies, and companies may use one
or more of the following.

 Product development strategy: Growing your market share by

developing new products to serve that market. These new products should either
solve a new problem or add to the existing problem your product solves.

 Market development strategy: Growing your market share by

developing new customer segments, expanding your user base, or expanding
your current users' usage of your product. This strategy is sales-focused.

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 Market penetration strategy: Growing your market share by

bundling products, lowering prices, and advertising — basically everything you
can do through marketing after your product is created. This strategy is often
confused with market development strategy, but the approaches are distinct in
emphasizing either sales or marketing.

 Diversification strategy: Growing your market share by entering

entirely new markets. Rather than expanding within your existing market, you’re
launching into the unknown with new products or services in a new market. This
strategy is often the riskiest but can have huge rewards if successful.

CONCLUSION:

As I would see it, market penetration technique is a higher priority than market
development. At the time you entered into another business or new arrangement. You
can track many pros and cons of the item and business. You have new associations
and issue arrangements and in addition proceed with income for a generally
commissioned business to fill the market and likewise know a little in your computers
whether you will not know about market rules, issues and more in the event that you
want to fill first in the market. about the opposition. I agree that the market pass
system has a higher priority than the development process.

REFERENCES TO UNDERSTAND STRATEGIES OF MARKET:

 https://www.indeed.com/career-advice/career-development/market-entry-
strategies
 https://emerhub.com/insights/choosing-best-market-entry-strategy-emerging-
markets/
 https://www.appcues.com/blog/growth-strategies

Q. 3 Innovation in business ideas can lead to immense socio-economic

growth, discuss.

Ans:

INNOVATION:

Progress can be seen as a turn of events and the use of ideas and
innovations that further develop work and products or improve their creation.
Progress in new creative advancements that are practical, savvy, open-minded and
go a long way in financial turnover given the felt needs of the nearby populace.
Promotion can help in financial improvement in the following ways:

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 Creation of new products and services people need: Innovation creates new
products and services in response to unmet market needs and demands.
Innovation enables access to the products and services people need to be
productive.

 Innovation contributes to economic growth: New innovative businesses are

hiring employees. In this way, innovation creates jobs and these economic
opportunities elevate and support communities by increasing the quality of life and
the overall standard of living. Business innovations like new age cab aggregators
like OLA and Uber have provided new job opportunities to people. They have
helped to raise the wages that taxi drivers receive, thereby raising economic
status.

 Socio –Economic empowerment: Innovative products can too be helping to

empower marginalized people e.g innovations like the Smokeless Stove can help
reduce indoor air pollution (IAP) which improves women's health. Innovative
products such as water ATMs also help reduce the burden on women in areas
where access to safe drinking water is a problem.

 Policy Innovations: In the context of governance, more in development country

policy innovations can improve the socio-economic status of target beneficiaries.
For example, innovative products such as Kisan credit cards help farmers avoid
informal loans that carry usurious interest rates. Policy innovations such as the
Heath Worker, a trained community health activist selected from and accountable
to the community itself, have been credited with improving social indicators such
as the Infant Mortality Rate (IMR) and Maternal Mortality Rate (MMR).

 Innovation promote efficiency: Innovation promotes efficiency by reducing the

time and cost of doing business or any other non-commercial activity in general.
Innovation can thus lead to major socio-economic benefits and can help reduce
public expenditure that can be better spent elsewhere. The use of innovative
mobile technologies and biometric authentication can improve the efficiency of
service delivery; reducing leakages, reducing the probability of fake recipient etc.
An innovative mobile application can provide a solution to improve service
delivery.

CONCLUSION:

Pakistan is currently ranked 99th in the Global Innovation Index (2011-2021).

However, Pakistan lags behind on several innovation parameters such as low R&D
investment, patent filing scores and lack of sufficient research publications.
Pakistan today needs a powerful innovation ecosystem such as research
institutions; it should also include idea incubators, accelerators, technology parks, a

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strong intellectual property rights regime, balanced regulatory systems and

strategically designed standards.
The private sector must be involved in fostering a culture of innovation through
increased spending as well as sponsoring innovation through corporate social
responsibility (CSR).

REFERENCES TO UNDERSTAND THE TOPIC:

 https://www.theglobaleconomy.com/Pakistan/GII_Index/
 https://www.theglobaleconomy.com/rankings/gii_index/
 https://www.drishtiias.com/mains-practice-question/question-71

Q. 4 Explain and differentiate between the revenue model and cost

model.

Ans:

REVENUE MODEL:

A revenue model determines how a business will charge customers for a

product or service to generate revenue. Revenue models prioritize the most efficient
ways to make money based on what is being offered and who is paying for it.

Deciding how you will generate revenue is one of the most challenging
decisions for a business, aside from coming up with what you will actually sell.You
want to make sure you're accounting for production costs, worker wages, what your
consumers are willing to pay, and that you're generating enough to continue business
operations. You also want to make sure your strategy matches what you're trying to
sell.

Different revenue models help you set your business on the right path. In this
post, we'll outline which ones they are and how to choose the right one for your
company. Revenue models are not to be confused with pricing models, which is when
a business considers the value of products and target audience to set the best
possible price for what it sells to maximize profit. Once a pricing strategy is set, the
revenue model will determine how customers will pay that price when purchasing.
Knowing where your money comes from and how you get it makes it easier to predict
how often it will come.

There are different revenue models that businesses use, some well-known revenue
models are as follows:

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 Recurring Revenue Model

 Affiliate Revenue Model
 Advertising Revenue Model
 Sales Revenue Model
 SaaS Revenue Model (Software as a Service )

COST MODEL:

A cost model is a technique or structure for deciding the total value contributed to
the transportation of an item or administration. The degree and details of the cycle
may vary depending on the circumstances, however the goal of all cost evidence is
to trace an accurate method for evaluating account input for correlation with account
revenue. This is the basic phase of assessing the capabilities of a specific company,
determining price tags and generally evaluating productivity.

The benefits of cost visualization are tied to how it illuminates your strategic
approaches, especially in the pricing and smoothing space. Information is power and
anyone interested in running a business should be looking for it at every open door.

 Set profitable prices: Perhaps the clearest benefit of cost proofing is

guaranteeing a benefit for every item or administration your organization offers.
Tracking complete expenses can be an uncertain recommendation, especially for
suppliers of staggering and multi-layered administrations. A careful evaluation of
all the costs during the cycle will allow you to know what kind of return you can
expect from the speculation.

 Limit risks of innovation: Cost proofing isn't just about evaluating existing
cycles, it's also an incredible tool for projections. Organizations can use cost
models to assess the productivity of specific items with respect to learned secrets
and current market price tags. While this strategy is more than a little flawed, it
can tell you if an idea has potential or, on the other hand, if it's not worth the time
to start putting resources into it.

 Save on supplies: Since cost visualization is associated with differentiating

and measuring costs at every stage of the creation interaction, it can also help you
focus on amazing open doors for savings. Finding the "points of failure" in the
chain, whether it's the efficiency of a particular division or spending on particular
materials, can help you thin out your tasks and further develop respect.

DIFFERENCE BETWEEN REVENUE AND COST

MODEL:

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Both revenue and gross margin costs play a vital role in helping organizations
assess what is going on in their organizations. Businesses can use these two
monetary estimates to understand short- and long-range assumptions. Regardless, it
should be noted that there are significant areas of difference between income and
expenses, and we should focus on these areas below to get a broader view of the
two instruments:
Revenue in Gross Margin Cost in Gross Margin

Definition

The revenue is defined as the total The cost is defined as the total
income a business receives from expenses that are incurred in the
selling a good or service to its production of goods or services by
customers. any individual or organization.

Effect on the Gross Margin

If the revenue increases, it will lead If the cost increases, it will lead to a
to a rise in the gross margin. On the fall in the gross margin. On the other
other hand, a fall in revenue will lead hand, a fall in cost venue will lead to
to a decrease in the gross margin. an increase in the gross margin.

CONCLUSION:

There are various signs of contrast between income and expenses. Be that as
it may, the two of them play an extremely urgent job in discovering the monetary
condition of any organization. At this point, it's critical that partners are familiar with
this data so they can move toward reducing expenses and expanding revenue. They
play a colossal role in the overall turn of events and development of the company,
both in the short and long term.

REFERENCES TO UNDERSTAND THE TOPIC:

 https://www.youtube.com/watch?v=yzZqnMbzWXw
 https://blog.hubspot.com/marketing/revenue-model
 https://www.techtarget.com/whatis/definition/revenue-model
 https://www.isixsigma.com/dictionary/cost-
model/#:~:text=A%20cost%20model%20is%20a,for%20comparison%20again
st%20value%20output.
 https://www.youtube.com/watch?v=ojuluv45YMw
 https://www.youtube.com/watch?v=WkxuPxe6BLU

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Q. 5 Outline, with examples, steps in building proforma financial

statements.
Ans:

When it comes to making business decisions, a lot comes down to numbers.

To get closer to key partners, get financial backers and definitely plan, you really want
to show that your ideas are being tested.

While specific fiscal summaries, such as cash records, payroll statements,

income explanations, and annual reports help provide verifiable insight into a trade
show, they often lack the ability to predict while they want to know what's in store. As
such, experts typically turn to assumptions and currency projections to guide their
arrangements and answer basic “imagine a where” questions. Star-shaped fiscal
summaries are a typical type of conjecture that can be useful in these circumstances.

Here's a closer look at what expert formal fiscal summaries are, how they're
created, and why they're an important part of monetary independent management.

PROFORMA FINANCIAL STATEMENT

A proforma fiscal summary use speculative information or presumptions about

future qualities to extend execution over a period that hasn't yet happened.
In the course Financial Accounting, proforma fiscal summaries are
characterized as "budget reports anticipated for future periods. They may likewise be
alluded to as a monetary gauge or monetary projection."
The course noticed that these projections can be utilized "as a portrayal of
what the budget summaries for the business will seem to be over a specific
timeframe, on the off chance that the suppositions made while setting them up turn
out as expected."
Since the expression "proforma" alludes to projections or gauges, it can apply to
various fiscal summaries, including:
 Income statements
 Balance sheets
 Cash flow statements

Whether you’re trying to interpret pro forma financial statements or prepare them,
these projections can be useful in guiding important business decisions. In fact,
business owners, investors, creditors, and other key decision-makers all use pro
forma financial statements to measure the potential impact of business decisions.

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PROFORMA FINANCIAL STATEMENTS USED

In general, the examination of fiscal reports is used to determine more

likely that the organization will be exposed for a predetermined period. While it
provides knowledge of the organization's verifiable well-being, the pro forma
fiscal report focuses on its future. As a result, these reports can be used in a
number of ways, including analyzing risk, projecting speculation, and showing
expected results before the end of the exposure period.

One of the main purposes of ace form messages is associated with

navigation and key arrangement efforts. For example, you can create pro forma
budget reports that reflect the results of three speculative situations for your
business. By doing so, you can direct a side-by-side correlation of potential
results to find out what's great and drive your arranging interaction.

CREATING PRO FORMA FINANCIAL STATEMENTS

The general procedure for creating proforma budget reports is essentially

not unique in relation to ordinary proclamation. The difference lies in the
assumptions and changes made about the various contributions, while the
arrangements and estimates continue as before.

Explicit strategies are used for these numbers in each case. For example,
a percentage trade measurement strategy involves deciding on future expected
trades and tracking patterns across accounts in proclamations. This is regularly
used in proforma production internally.

Other individual details such as cost of goods sold can also be predicted
effortlessly as it can be expected to develop relatively with the stores. Details
such as the cost of an annual assessment usually do not change linearly with
offers. For the most part, stable organizations can estimate the cost of personal
duty as a salary level before fees.

All things considered, the method associated with creating a genius

money record is similar to creating a typical money record. Similarly, as
expected, the method associated with the preparation of pay statements and
income formulation turns out. It contrasts when you start anticipating various
details and finding out what these projections mean for your main interest.

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BEYOND THE NUMBERS

The real value of the pro forma explanation goes beyond the numbers
that show. These reports give key partners, financial backers and loan officers
a hunch they are expected to simply decide and plan decisively. Directors and
individual supporters can also benefit from creating ingenious formal
explanations that allow them to understand the various elements affecting
special units.

Keep in mind: There are limitations to creating budget summaries in the

form. As these reports depend on assumptions, they should not be taken as
true. Rather, they can illuminate choices using theoretical information in light
of authentic patterns.

Taking an online course like Financial Accounting can help you

understand how to create and decipher different types of financial statements
so you can see the meaning in them. Students enrolled in the course will learn
the language of accounting and learn how to create fiscal statements and
metrics to agree on basic choices.

TYPES OF PROFORMA STATEMENT

There are four main types of proforma statements. While they all fall
into the same categories income statement, balance sheet, and cash flow
statement they differ based on the purpose of the financial forecast.

 Full-year proforma projection: This type of pro forma projection takes up to

 accounting for all of your financials for the fiscal year to date and then adding in
the projected results for the rest of the year. This can help you show investors or
partners what the business finances could look like by the end of the fiscal year.

 Financing or investment pro forma projection: This type of proforma

it may be courting investors or trying to convince your business partners of
the value of an equity investment or additional financing. In that case, you
can use a pro forma financing projection for your case. It takes into account
the injection of cash from an external source, plus any interest payments
you may have to make, and shows how this will affect your business's
financial position.

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 Historical with acquisition pro forma projection: This type of proforma

projection looks at the past financial statements of your business and the past
financial statements of the business you want to buy. It then combines them to
show what your finances would have looked like if you had done the business
combination (or merger) earlier. You can use this scenario as a model of what
might happen in the future if you buy a second business and restructure it now.

 Risk analysis pro forma projection: Looking at both the best and worst
case scenarios will help you make financial decisions based on the issues you
may face in the future. For example, what happens if your main retailer raises
prices like they did last year? Or how will the proposed new equipment purchase
transaction affect you in the long run? Risk analysis allows you to take the future
for a test drive and try different outcomes.

CREATING A PROFORMA INCOME STATEMENT

There are five steps to creating a pro forma income statement:

 Set a goal for sales in the period you’re looking at. Let’s say you want to
increase your income by $18,000 over the course of one year.

 Set a production schedule that will let you reach your goal, and map it out
over the time period you’re covering. In this case, you’ll want to earn an
additional $1,500 income every month, for 12 months.

 Plan how you’ll match your production schedule. You could do this by growing
your number of sales a fixed amount every month, or gradually increasing the
amount of sales you make per month. It’s up to you—trust your experience as
a business owner.

 It’s time for the “loss” part of “Profit and Loss.” Calculate the cost of goods
sold for each month in your projection. Then, deduct it from your sales.
Deduct any other operating expenses you have, as well.

 Prepare your pro forma income statement using data you’ve compiled in the
prior four steps.

One note: your pro forma statements will be much more accurate if your
bookkeeping is up to date. That way, when you project future periods, you’re basing
it off the reality of your business today.

 Example pro forma income statement:

Rosalia’s Reliable Recordings

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2021 (current) $ 2022 $ 2023 $

Sales Revenue 20,000 38,000 48,000

Cost of Sales (10,000) (19,000) (24,000)

Gross Profit 10,000 19,000 24,000

Operating Expenses

Rent 1,000 1,000 1,000

Web hosting 600 600 600

Advertising 3,000 4,000 5,000

Total Operating Expenses (4,600) (5,600) (6,600)

Operating Income 5,400 13,400 17,400

Net Income 5,400 13,400 17,400

CREATING A PROFORMA CASH FLOW STATEMENT

You do a proforma income statement just like you would a typical income
statement. This means taking the data from the salary explanation and then using the
income articulation arrangement to plot where your money is going and what you'll be
close to at any given time. This main form of declaration can be essential to a larger
estimate of income utilized for navigation.

Your projected income can provide you with several experiences. Assuming it's
negative, it means you won't have enough money available to sustain your business,
as your continued direction suggests. You will have to make intentions to get the
money and repay it.

Then again, if the net income is positive, you can expect to have enough extra
money around to take care of your credit or save for a big business.

 Example pro forma cash flow statement

Mickie’s Murakami Museum

2021 (current) $ 2022 $ 2023 $

OPENING BALANCE 16,000 17,000 19,000

CASH RECEIVED FROM

Donors 85,000 87,000 92,000

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2021 (current) $ 2022 $ 2023 $

Souvenir Shop 1,000 900 800

Total Cash Received 86,000 87,900 92,800

CASH PAID FOR

Supplies 34,000 36,000 37,000

Rent 24,000 24,000 24,000

Income Tax 8,000 8,600 8,800

Total Cash Paid 66,000 68,600 69,800

Net Cash Flow Operations 20,000 19,300 23,000

CREATING A PROFORMA BALANCE SHEET

By drawing on info from the income statement and the cash flow statement,
you can create pro forma balance sheets. However, you’ll also need previous
balance sheets to make this useful—so you can see how your business got from
“Balance A” to “Balance B.”

The balance sheet will project changes in your business accounts over time.
So you can plan where to move money, when.

 Example pro forma balance sheet

Daily Dumpling Deliveries

2021 $ 2022 $ 2023 $

ASSETS

Current Assets

Checking Acct. 13,000 16,000 19,000

Savings Acct. 35,000 41,000 45,000

Accounts Receivable 4,000 2,000 2,000

Inventory 14,000 17,000 21,000

Total Current Assets 66,000 76,000 87,000

NON-CURRENT ASSETS

Production Equipment 14,000 14,000 14,000

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2021 $ 2022 $ 2023 $

Car 9,000 9,000 9,000

Total Non-Current Assets 23,000 23,000 23,000

Total Assets 89,000 99,000 110,000

LIABILITIES & EQUITY

Current Liabilities

Accounts Payable 10,000 9,000 11,000

Line of Credit 21,000 19,000 18,000

Total Current Liabilities 31,000 28,000 29,000

Non-current Liabilities

Loan 40,000 36,000 32,000

Total Liabilities 71,000 64,000 61,000

EQUITY

Owner’s Capital 35,000 35,000 35,000

Retained Earnings 45,000 56,000 65,000

Total Equity 80,000 91,000 100,000

Total Liabilities & Equity 151,000 155,000 161,000

Once you’ve created your proforma income statements, and cast your eyes
forward to the future of your business, you can start planning how you’ll spend your
money. It’s time to create a small business budget.

REFERENCES TO UNDERSTAND THE TOPIC:

 https://online.hbs.edu/blog/post/
 https://bench.co/blog/accounting/pro-forma-financial-statements/
 https://www.youtube.com/watch?v=QDC2m8NPuBU
 https://www.youtube.com/watch?v=39VcG6S8r8Y

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