The reading level for this article is Novice
The Entrepreneurs’ Chronicle
Issue Five | Friday, August 1, 2003
Editor: Ryan P. M. Allis, University of North Carolina at Chapel Hill
Sponsors: Center for Entrepreneurship & Technology Venturing, The Entrepreneurs’ Coalition
"Make no small plans. They have no magic to stir men’s blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency." -Daniel H Burnham, Great Chicago Architect (1907)
1. Message from the Editor: On This Fifth Issue
2. Business Idea & Opportunity Evaluation
3. The Time of My Life: Teaching Entrepreneurship
4. Financial Vocabulary Glossary
5. Interview with Young Entrepreneur & Author Michael Simmons
This issue is brought to you by Bizfilings.com, our recommended incorporation service. Form Your Corporation, LLC, or Nonprofit Online in Any State. Learn more at http://www.zeromillion.com/bizfilings/.
Message from the Editor
Welcome to the fifth issue of The Entrepreneurs’ Chronicle. This newsletter contains articles on topics related to entrepreneurship, interviews with entrepreneurs, and reviews of books appropriate for the entrepreneur. It is published the first week of every month and brought to you by www.zeromillion.com, the Entrepreneurs’ Coalition, and the Center for Entrepreneurship & Technology Venturing at the University of North Carolina at Chapel Hill.
This month’s issue begins with the article ‘Business Idea & Opportunity Evaluation’ that outlines two models for evaluating your business ideas. Following this we have an article on my experience teaching entrepreneurship to high school students at the LeadAmerica Business & Entrepreneurship conference this past June in Chicago. Finally, the newsletter concludes with a financial vocabulary glossary and an interview with young entrepreneur and recently published author of the Student Success Manifesto, Michael Simmons, a senior at New York University.
If you have any comments, suggestions, or would like to contribute content to be published in the newsletter or online, I encourage you to contact me at email@example.com. Please do feel free to forward this newsletter on to your colleagues and associates. On behalf of the zeromillion.com team I thank you for being a subscriber.
Ryan P. M. Allis, founder
Business & Entrepreneurship Resource
Business Idea & Opportunity Evaluation
by Ryan P. M. Allis
July 29, 2003
In analyzing your business ideas you must be able to pass them through a test to determine if they truly are valid opportunities. All of your ideas must have a demonstrated need, ready market, and ability to provide a solid return on investment.
Is the idea feasible in the marketplace? Is there demand? Can it be done? Are you able to pull together the persons and resources to pull it off before the window of opportunity closes? These questions must be considered and answered.
Opportunity-focused entrepreneurs start with the customer and the market in mind. They analyze the market to determine industry issues, market structure, market size, growth rate, market capacity, attainable market share, cost structure, the core economics, exit strategy issues, time to breakeven, opportunity costs, and barriers to entry. Below are two models that entrepreneurs use to evaluate their business ideas and plans.
Fourteen Questions to Ask Every Time
To evaluate opportunities, entrepreneurs ask the following questions:
- What is the need you fill or problem you solve? (Value Proposition)
- Who are you selling to? (Target Market)
- How would you make money? (Revenue Model)
- How will you differentiate your company from what is already out there? (Unique selling proposition)
- What are the barriers to entry?
- How many competitors do you have and of what quality are they? (Competitive Analysis)
- How big is your market in dollars? (Market Size)
- How fast is the market growing or shrinking? (Market Growth)
- What percent of the market do you believe you could gain? (Market Share)
- What type of company would this be? (Lifestyle or High Potential, Sole Proprietorship or Corporation)
- How much would it cost to get started? (Start-up Costs)
- Do you plan to use debt capital or raise investment? If so, how much and what type? (Investment needs)
- Do you plan to sell your company or go public (list the company on the stock markets) one day? (Exit Strategy)
- If you take on investment, how much money do you think your investors will get back in return? (Return on Investment)
Let’s take the above fourteen questions and term them into an easy model that you can use to evaluate your business ideas you come up with. This is called the RAMP model.
The RAMP Model
Let’s start with the first letter, R, which stands for Return. Return really is return on investment.
RDiscuss Exit Strategy (acquisition or IPO)
R Is it profitable? Will your revenues be higher than your expenses?
R Time to breakeven (how long before cash flow positive? How long until the company begins to have an aggregate net income)
R Investment Needed. How much money will it take to start-up this venture. Will it be $20,000, $200,000, or $2,000,000?
Now let’s look at A. A stands for advantages.
A Look at cost structure (suppliers, what each element will cost to source or manufacture)
A Barriers to entry (large competitors, regulations, patents, large capital requirements. If there are many barriers to entry, it will be difficult to enter a market. The higher the barriers to entry, the more disadvantaged you will be.
A Intellectual Property. Do you have a proprietary advantage such as a patents or exclusive licenses on what you will be selling.
A Distribution Channel. How will you be selling your product? Will you sell it direct to the consumer via the Internet, sell it to wholesales, sell it to businesses, or sell it to retail stores. If can develop a unique distribution channel this can surely be an advantage.
Now let’s look at M. M stands for Market.
M The Need. Is there a big need for this product or service. Try to avoid ideas that sound cool but there is no real need for. Make sure your product or service fills and need or solves a problem.
M Target market (who are you selling to? businesses? consumers? what demographics?)
M Analyze target market (who are you selling to? businesses? consumers? what demographics?)
M Pricing (what you they charge, what will be the price, will there be a high enough markup).
M Analyze market size
Finally let’s look at P. P stands for potential.
P Risk vs. Reward. How risky is the opportunity? If it is very risky, it there a chance for the business to do very well. Will there be a high reward for the founders and investors if the company succeeds?
P The Team. Is the team right for the business. Do you have knowledge in this area.
P Timing. Is the market ready for your product. You may have a great idea for flying cars, but if consumers are not ready for your product you may not be able to turn your idea into a successful business.
P Goal Fit. Does the business concept fit the goals of the team to create a high potential or lifestyle business?
By using the RAMP model and the fourteen questions above you should be able to do a thorough job analyzing your business ideas and opportunities presented to you.
The Time of My Life: Teaching Entrepreneurship
by Ryan P. M. Allis
July 14, 2003
I’ve been back in Chapel Hill for two weeks now. I came back June 29 from having the time of my life in Chicago. There, I was teaching high school students about entrepreneurship at a ten day conference held at Lake Forest College, about 45 minutes north of the city.
My journey had begun eighteen days earlier in Washington D.C. I had arrived at BWI and was met by a staff member of Lead America, the organization that runs the Congressional Student Leadership Conference that I was a Team Leader (TL) for. I was introduced to a few other TLs and then taken by charter bus back to our hotel in Silver Springs, Maryland, about a thirty minute subway ride from city center D.C.
At the hotel, I picked up my manual and my room key and went up to the third floor to meet my roommates Brad and Athas. Both Brad and Athas were TLs for the business and entrepreneurship conference. Brad must have had arms the size of my legs and a kilt to match his Kilpatrick Scottish heritage. Athas must have talked faster than anyone I ever knew, yet turned out to be an experienced and effective head team leader.
The next morning at 7:45 we met for breakfast and then began training at 8. Over the next five days we went through leadership exercises, inch thick rule and procedure books, and the business curriculum. As this was the first business conference Lead America had done, our experienced group of Team Leaders (four Boston University School of Management seniors, one Babson junior, and myself) was able to help put the final touches on the graduate-level, unique two-hundred page curricula we had for the students.
After five days of training in Washington D.C. we headed off to Chicago. We arrived at Lake Forest College (LFC) and began setup immediately. As college dorms go, we had an immaculate resort as our facility. We arranged and hooked up the office, set up the registration process, finalized the curriculum, put sheet and pillows in the rooms, organized our classrooms, loaded our leadership bins, made a MP3 playlist for pre-event music, visited every one of the field trip sites. We made sure every detail was perfect, down to creating very authentic-looking fake ‘Emergency Exit Only: Alarm Will Sound’ signs for the unmanned doors.
And So It Began
And so it began. After four hours of sleep we rose and headed for the second largest airport in the world, good old O’hare, to find eighty fourteen to eighteen year olds and bring them back to LFC. We made it through that long day without a single one lost, thanks to the help of thirteen Nextel walkie-talkies and the coordination of TL Steve Towler.
That evening I was the MC for the Opening Session and gave a pep-talk to get the students excited about what as to come. The following morning, after working until 3am, I gave a 45 minute speech to the students in the McCormick Conference Hall. It was the first speech of such length that I had ever given and it was a tremendous experience. I received some great feedback on the speech and my style and in the heat of the deadline created material for a good speech entitled, ‘Opportunity Recognition and Evaluation’ that I will surely be able to use many times again. This was a big accomplishment for me as, just one year ago, I would have been nervous and shaking throughout the full lecture. Through my first semester communications class, the Carolina Entrepreneurship Club, and this I had overcome the nervous-when-speaking-in-public syndrome that affects so many.
The next nine days passed like they were two. After Leadership Immersion Day we headed into the Simulation. Each TL group broke into two teams of seven and each team came up with an opportunity and then a business plan for that opportunity. The field trips included the Sears Towers, Ravinia Park, Navy Pier, the floor of the Chicago Board of Trade, a beach party on Lake Michigan, and the Museum of Science and Industry.
The conference also featured some amazing speakers including George Foreman Grill maker David Sabin from Salton Industries (did you know they paid Foreman $137.5 million to use his name?) and the Bahamian Ambassador Gilbert Morris, among many others.
To end the conference, each team presented their idea to all of the students and then, based on peer-evaluations, the top three presented to venture capitalists and received some very useful feedback. Although my two teams, at least in my opinion, both deserved to be in the top three, it seemed that the simpler business concepts with the likable personalities got the student vote. My teams’ businesses were both technology-based had bit more complex models. One wanted to connect every home with ‘smart’ appliances that could be controlled from a central console over a wireless network. The other wanted to build a school network that would increase efficiency in education and improve parent, teacher, and student communication by putting textbooks, tests, grades, attendance and scheduling online in a web-based portal. Perhaps this result can relate to real life as often the idea that can be explained fully in thirty seconds will be easier to raise funding for than the idea that is just as good but takes ten minutes to relate.
What I Learned
Only by teaching does one really learn the material. Through teaching entrepreneurship I added quite a bit to my knowledge about entrepreneurship and business. I learned about Porter’s Five Forces, additional types of alternative financing, new distribution models, the marketing wheel, and a new type of break-even analysis. Just as important, however, was my learning about people and leadership. I learned how to relate and connect to younger teenagers. I learned how to handle a position of authority. I learned how to write a forty-five minute speech in two hours. I learned teaching styles. I learned that if you know what you are talking about and can gain someone’s trust, he or she will follow you. I learned how to inspire and motivate. I learned how to understand motives and read the body language and tone of a person. I learned how to build rapport and relationships. And I learned how to go ten days with forty hours of sleep.
It was fun. It was an entrepreneurial experience. I had the time of my life teaching those kids and seeing them take an idea and build it into a full business plan in eight days. It was uplifting knowing that maybe what I did or what I said just might make a difference in a few lives. Maybe I’ll hear from Jonathan Dermer or Brandon Washington or Ashley Marchetta or Kris Paascila in a few years with news of a promotion or that they’ve launched their flagship product or that they’ll be taking their companies through an Initial Public Offering next week. Maybe I won’t. It will be worth it regardless. The relationships I built, the people I met, the hard and soft skills I learned, the opportunities I had&ldots;it was three of the best weeks of my life. I’m off to Boston Thursday to do the same thing for ten more days. I cannot wait!
Note: I would wholeheartedly recommend going to a CSLC conference to any high school student and absolutely encourage any college student to apply. For more information on the Lead America programs, you can visit http://www.lead-america.org.
Financial Vocabulary Glossary
By Ryan P. M. Allis
Below is a listing of financial vocabulary with easy to understand definitions. This list will include common accounting, investing, and business terms. Hopefully this glossary will be helpful for students, aspiring entrepreneurs, and those entering business who have never had a formal business education.
Revenue – what you earn
Expenses – what you spend
Net Profit – Total revenue minus total expenses
Net Income – same as net profit
COGS – the cost of goods sold. What you pay for what you sell.
Gross Income – Total revenue minus COGS
Gross Margin – same as gross income
Depreciation – reduction in value over time
Appreciation – increase in value over time
EBITDA – earnings before interest, taxes, depreciation, and amortization
Bond – debt instrument through with companies and governments can raise money
Accounts Payable – money you owe for products and services already received
Accounts Receivable – money owed to you for products/services already delivered
Cash Flow – the in and out of money to/from your business
Equity – ownership in a company
Vesting – earning equity over time instead of all at once
Option pool – a percentage ownership in your company set aside at founding for those who may come aboard later.
Venture Capital – investment money raised from firms that invest in high potential ventures in exchange for percentage ownership in a company
Angel Investor – a private high net worth individual who will invest money in medium or high potential ventures in exchange for percentage ownership in a company
Asset: something you own that has value
Liability: something you owe for
Owners’ Equity: The value of what the shareholders/owners have put into a company
Appreciating Asset: something you own that is going up in value
Depreciating Asset: something you own that is going down in value
Balance Sheet: a financial statement that keeps track of assets, liabilities, and owners’ equity.
Balance Sheet Formula – assets minus liabilities equal owners’ equity
Income Statement – a financial statement that keeps track of revenue, expenses, and profit.
Income Statement Formula – Revenue minus expenses equals net profit.
Cash Flow Statement – a financial statement that keeps track of all the money that goes in and out of your business.
IPO – initial public offering, selling part of your company on the stock market in exchange for investment capital in your business
In any area of life, if you do not understand the associated vocabulary you will not be able to succeed in it. If you plan to be a business owner or an investor, be sure you are very familiar with all of the above terms.
Interview with Michael Simmons, author of The Student Success Manifesto
1. Please tell us a little bit about yourself, your experience, and your background in business.
I am the author of “The Student Success Manifesto (http://www.successmanifesto.com)”, which has been endorsed by educators, entrepreneurs, professionals, students, and best-selling authors Mark Victor Hansen and Stephen Covey. I have been a keynote speaker, workshop facilitator, and panel participant on the topic of youth entrepreneurship at conferences from California to Washington D.C. As a student at the Stern School of Business at New York University, an author, teacher, speaker, and award-winning entrepreneur, I am able to deliver a unique perspective that connects with audiences.
I have written popular articles on student entrepreneurship that have been published by Entrepreneur.com, College Bound Magazine, and Whizteens in Business (a book on youth entrepreneurship). I co-founded my first business, Princeton WebSolutions (PWS), a web development company, when I was sixteen years old. For the year 2000, Youngbiz Magazine rated PWS the #1 youth-run web development company in the nation. In addition, I am the winner of three entrepreneur of the year awards from NFTE, Fleet, and the National Coalition for Empowering Youth Entrepreneurship.
2.What does your company do and where is it located?
The Extreme Entrepreneurship Education Corporation is an empowerment epublishing company targeting the over 70 million strong of Generation Y. Today’s youth aren’t just tomorrow’s future, they are one of today’s most untapped assets. We maximize the power of youth by leveraging our generation’s competitive advantage – technology – to create and market multimedia, interactive ebooks.
3. What is the legal structure of your business? Why did you choose this?
We are an LLC primarily because our lawyer strongly recommended it.
4.How many employees does your business employ?
5.How was the business model of the company developed?
After starting a web development company and attending college, I realized that a lot of students could benefit from basic principles of success distributed in the right way. This right way, I believe, is ebooks. Our generation is extremely technology savvy and the software/hardware for ebooks is improving at an exponential rate, while the actual usage of ebooks by the population is rising steadily.
6. Was your company financed by venture capital, private investment, loans, or personal funds?
7. Were you the founder of the company?
8. Do you feel your company has a distinct corporate culture? If so, would you describe it?
I feel that the company definitely has a distinct culture. We are in a unique set up because my girl friend is my business partner. We both work full-time on the business and we also live together. As we grow, we are going to have to pay special attention to the corporate culture.
9. Describe some of the obstacles you have encountered along the course of building your company? How were these overcome?
The largest obstacles I’ve had to face are invisible ones. They have been the people closest to me who want the best for me trying to persuade me away from my path of passion and purpose. These obstacles are hard because they change us without us even knowing it. I’ve overcome this by writing in my journal at least 1 hour a day to organize my thoughts and make sure I’m doing the right things for the right reasons.
While I have faced many other obstacles, all of them have been defeatable with optimism, persistence, and creativity.
10. How important do you feel the proper advisors are in ensuring an young entrepreneurs success?
Proper advisors are crucial, in my opinion. I have around 40 people that I can go to for advice on various topics. As youth, we are especially advantaged, because older people are extremely willing and interested in helping us succeed if we are pro-active.
11. Have there been any organizations that have helped your business grow? If so, what are they?
National Foundation for Teaching Entrepreneurship – http://www.nfte.com
NYU Stern School of Business – http://www.stern.nyu.edu
Youth Venture – http://www.youthventure.org
Operation Enterprise – http://www.amanet.org/oe
12. What have been the keys in bringing your company to the level it is at today?
We are still a very small, but growing company having just launched our first product. We have gotten to this point by extreme persistence, vision, and willingness to make unconventional choices.
13. Has technology played a role in your business? If so, how?
Technology has definitely played a large role. As a virtual epublishing company, technology has helped us:
1. Create interactive web site
2. Create innovative ebooks
3. Use software (ACT, Quickbooks) to automate our business.
14. Have you made any mistakes along the way that you have learned from? If so, would you describe them?
My largest mistake has been not preparing and planning enough for what could go wrong. This repeated mistake cost my partner and I over $10,000 in a matter of a few months in high school.
Now, before I do anything I do a pre-mortem by making a list of what could go wrong and how I could avoid it happening.
15. Did you envisage being an entrepreneur, business owner, or CEO as a younger person or did your position occur by happenstance?
The position occurred happenstance. When I was 16, my friend and I created a web site and submitted it to the search engine. We hadn’t really planned out a full business. We wouldn’t have known how to. A few weeks after submitting the site to the search engines, we got our first client for $1,000. With that momentum, we devoted our resources to making the company growing.
16. What books and resources would you recommend to fellow entrepreneurs?
Napoleon Hill: Think and Grow Rich
Robert Kiyosaki: Rich Dad, Poor Dad
17. What advice would you give to a young person that wants to one day succeed in business?
I would say to follow your passion and purpose ABOVE the conventional path. Too often, I see people follow their ‘plan B’, which is not something they’re passionate about.
18. What trends and changes do you see occurring in business today?
I see startup costs getting lower for entrepreneurs as a result of technology.
I see the rate at which change occurs increase exponentially.
19. How important do you consider networking and building contacts to be for an entrepreneur’s success?
Networking as a rule of thumb is extremely important. Key to networking is being very willing to give. I spend a large part of time strategically volunteering for individuals and organizations that I would like to build relationships with.
20. If you could pin it down to just one thing, what is the one most important thing you have learned about business?
Success comes from wanting something bad enough and being willing to work hard enough to get it.
21. What value do you put on formal and informal education for a future businessperson? What do you see the importance of a college degree as being? An MBA? What part of your current knowledge did you gain in an academic setting and what part in the real world?
I think that the academic setting can be a very powerful platform to success. However, to leverage this platform as an entrepreneur, I think we need to be creative and pro-active. Student entrepreneurs can use the fact that the school has a stake in their success to their advantage by leveraging the school’s resources to become one of its major success stories.
22. Any final advice for young entrepreneurs, businessmen, or businesswomen just getting started?
I believe anybody can be extremely successful if they follow their passion and purpose full-heartedly, above all else.
This concludes issue five of The Entrepreneurs’ Chronicle. We’ll see you in September. Please do feel free to forward this on to your colleagues and associates. If you would like to subscribe, please visit http://www.zeromillion.com/echronicle/.
If you would like to contribute content, become involved with the zeromillion.com team, make suggestions, or provide feedback please feel free to contact us at firstname.lastname@example.org.
This newsletter is published by www.zeromillion.com with support from the Entrepreneurs’ Coalition (www.entrecoalition.org) and the Center for Entrepreneurship & Technology Venturing at the Frank Hawkins Kenan Institute for Private Enterprise at the University of North Carolina at Chapel Hill (www.cetv.unc.edu).
Comments/Suggestions: Email email@example.com
Contribute Content: Email firstname.lastname@example.org
Contact Publisher: Email email@example.com
Archives online at: http://www.zeromillion.com/echronicle/
Entrepreneurship Discussion Forum: http://www.zeromillion.com/community/
"Thinking is the hardest work there is. That is why so few people engage in it." – Henry Ford
We wish to thank Broadwick Corporation for allowing us to use its email list management software IntelliContact Pro at no charge. If you are looking for a web based system to manage and send out your permission-based email lists, we encourage you to learn more about the software and sign up for a 15 day trial at http://www.intellicontact.com.