These are my subject notes for the UTS subject
'Engineering Enterprise', which used to be a core subject for the Bachelor Engineering degree. Hopefully someone else can get use out of them.
The Business Plan
- A written business plan shows stakeholders where the business is going and how to get there. It also analyses the internal and external environments to determine the competitive edge.
- Opportunity based entrepreneurship are driven by the founder's personal interests. They are usually found in the high technological and business services sectors.
- Necessity based entrepreneurship are driven because no other avenues for work can be found. They are usually found in the consumer driven (restaurants) and social services (security) sectors.
- There are three avenues of product development:
- Creator develops a new transformational science or technology that is brought to market.
- Integrator acquires core products and combine them to develop value-added products and services.
- Adopter acquires products and tailors them to local needs.
Strategic Analysis
- The competitive analysis of a business involves:
- Suppliers: Are there enough suppliers to meet current and future demand? Are all the products roughly the same? Are they easy to substitute?
- Substitute: Is it easy to switch to a substitute product? Is the substitute market growing? Does the substitute have an advantage over our product?
- Entrants: Is it easy to enter in our market? Are there economies of scale or huge start-up capital required? Are there knowledge or regulatory requirements?
- Customers: Are the customers close by? Do they need the product? Have they already got a similar product, and if so will they be willing to switch?
- Competitors:How much market share do the competitors already have? Can the market support another business? How competitive is the pricing?
- Pareto's 80/20 rule states that 20% of your customers will provide 80% of the revenue. It is vital that the business identifies these ideal customers and concentrate on meeting their needs.
- Demographics are customer characteristics that are measurable and objective. They include demographic population size, composition (age, sex, race) and geographic location.
- Pyschographics are more important as it aims to determine the personal values and attitudes of the market. It classifies customers according to social class, personality type and lifestyle.
- The environmental analysis involves:
- Political influences includes government and industry regulations, restrictions and standards that must be followed.
- Economic influences involve determining whether economic indicators such as inflation, interest rates, unemployment, GDP growth, and market seasonality are favourable.
- Societal influences includes population, cultural values, geographical density, and concerns of the populace.
- Technological influences involve determining whether the pace of innovation and technological convergence is favourable.
- The internal value chain is:
Purchase -> Inbound logistics -> Operations -> Distribution logistics -> Sales -> Services
- The external value chain is:
Suppliers -> Business -> Customers
- Vertical integration is where one business acquires another in the same market. It increases the risk because the business is now heavily invested in the same industry.
- Horizontal integration is where the business purchases a supplier or customer business.
- The SWOT analysis takes into account:
- Strengths: What are the major competencies of the business compared to competitors?
- Weaknesses: What are the weaknesses of the business compared to competitors?
- Opportunities: What existing products can be extended to new markets? What new products do the existing market need? Is there an opportunity to bring a new product to a new market?
- Threats: Are the prices for supplier products increasing? Are there new regulations or technologies that threaten the existing business? Is the customer base shrinking?
- It is important that a business excels in one or more major competencies. They can be:
- Features: Range and distinctiveness
- Innovation: Development of new products
- Quality: Regularly and reliably meets customer needs
- Intellectual capital: Patents and IP
- Financial resources: Lots of money to spend
- Distribution: Reach customers where ever they are
- Service: Customer issues are dealt with efficiently and effectively
- Efficiency: Operation is efficient compared to competitors
- Brand: High brand recognition
- Price: Competitive price compared to competitors
- Types of market opportunities are:
- Market penetration (Existing Market, Existing Product). Easiest to get into.
- Market development (New Market, Existing Product)
- Product development (Existing Market, New Product)
- Diversification (New Market, New Product). The riskiest opportunity.
Direction
- The mission statement is the summary of the business as it stands now. It is generally derive from information in the business plan. The mission statement answers the following questions:
- Who are our customers?
- What are the customers' needs?
- How do we solve the need?
- The vision statement aims to predict the future position of the business. It is where the business wants to be. It answers the following questions:
- Who will the customers be?
- What will their needs be?
- How will we solve those needs?
- Objectives are developed by converting the mission and vision statements into specific performance targets and results. They are the destination. Objectives should be SMART (Specific, Measurable, Assignable, Realistic and Time-related).
- Strategy determines how the organisation will achieve the objectives. The strategy should be outlined in the business plan.
- The Strategic management process can be defined as follows:
- Analyse the internal and external environments
- Develop the mission and vision statements
- Set the objectives
- Formulate the strategy and plans
- Implement the plan through projects and business operations
Pricing
- The pricing structure of a product can be:
- Controlled: External entity (such as government) will offer regulated pricing or guidelines.
- Demand: Prices reflect the value of the product to the customer. If is solves an expensive problem then the product can demand a high price.
- Competitive: Similar products are used as a price benchmark.
- Cost-plus: Products are priced according to how much it costs to develop plus a profit margin. Ensures that money is made but not necessarily that they will sell.
- Premium: Products are priced higher than competitors because of perceived benefits.
- Direct or Variable costs are those which are directly related to the amount of product produced. These are typically material and labour.
- Indirect or fixed costs are those which are incurred regardless of how much product is produced. These include administration, utilities, R&D, and Factory costs.
Marketing and Sales
- Key Performance Indicators (KPI) are important to measure marketing and sales. Small increases in sales conversion and repeat purchases can lead to large increases in profit.
- A sales pipeline is used to identify individual sale opportunities for a specific product. It helps the seller sort and track the progress of 'sales opportunities', not 'accounts'.
- A sales opportunity should be measurable ($ amount of the sale) and dated (expected date of closure). It will then undergo the following stages:
- Suspect evaluation: A potential customer has been found and they have contacted us or we need to contact them.
- Prospect evaluation: The prospect is evaluated in terms of demographics and psychographics.
- Needs evaluation: Determine collaboratively what the customer needs
- Opportunity evaluation: Determine what opportunities exist with the customer. Can we sell our product to them to solve their need?
- Commitment: Get a solid commitment from the customer.
- To elicit the needs of the customer, we use a combination of the following question types:
- Background questions uncover facts about the organisation and their environment
- Problem questions identifies problems, difficulties or dissatisfaction about the current environment
- Implication questions help build the seriousness of the problem so that it becomes large enough to take action
- Solution questions focus the buyer on the solution and help them develop part of it. It also reduces objections as the buyer is explaining how the solution can help them, convincing them of the value of the solution.
- Attitude questions uncover the individual needs and serves the buyers own self-interest. These questions uncover motivations.
- Commitment questions determine where the seller is in regards to the sale. Good questions are answerable with a yes or a no. You can determine whether the customer is ready to commit when they go from 'whether' to implement the solution to 'how' to implement it.
- The objective of negotiation is to develop a Win-Win situation. A solution should ideally be reached through objective standards and reasoning, not threats or pressure.
- A list of tradables should be written up, prioritised and understood in terms of flexibility. These are effectively the bargaining chips of the negotiation. Alternative solutions should be established to ensure there is no pressure to commit to an agreement.
Operations
- The five C's of credit are:
- Character (credit history)
- Capacity (ability to meet credit obligations through operating cash flow)
- Collateral (pledged assets in case of default)
- Capital (financial reserves)
- Conditions (general economic conditions of industry)
- The three types of business entities are Service, Retail/Wholesale and Manufacture.
- Types of organisational structures:
- Simple: The founder is no longer the sole employee. Founder does managerial and critical tasks while employees perform other duties.
- Functional: Employees do specialised roles and are partitioned into functional groups. Delegation of authority is given to functional managers.
- Matrix: The organisation is split into line managers (for projects, products or demographic) and functional managers. Each employee has two managers to report to, with line managers handling most of the daily management tasks.
- Divisional: Each division has it's own self-contained functional units. Each division competes for funds. Economies of scope can be created by sharing resources between divisions.
Calculations
Industry margins
Gross income = Sell Price - Cost of Goods Sold (COGS)
Gross Margin = (Sell Price - COGS) / Sell Price
Break even analysis
Revenue = Sell Price * Sell Volume
Gross Margin = (Revenue - COGS) / Revenue
Contribution Margin = (Revenue - Variable Costs) / Revenue
Break even point = 0 = Revenue - (Variable Costs + Fixed Costs)
Liquidity ratios
Working Capital = Current Assets - Current Liabilities
Current Ratio = Current Assets / Current Liabilities
