Exam 3: Getting Started

You Make the Call-Situation 3 Jay Sorenson of Portland, Oregon, created a product called the Java Jacket, which is a patented honeycombed insulating sleeve that slides over a paper cup containing a hot beverage to make it comfortable to hold. Having introduced the new product to the market, Sorenson has already cut deals with coffeehouses, specialty stores, and convenience stores nationwide. He started the business with $15,000 in 1993, but his 2003 sales were projected to be between $12 and 15 million. Sorenson is now in a position where he would like to continue expanding his business, but he is concerned that large and established competitors could introduce their own variations of the same product. (Source: Don Debelak, "Send in the Clones," Entrepreneur, September 2003, pp. 128-132.)

You Make the Call-Situation 1 Marty Lane worked for a card company specializing in invitations and announcements. Every day for 25 years, he went to an office, sat at a desk, and took orders over the phone. He hated it. He was bored out of his mind. He didn't know what to do. So he began skimming the business opportunities section of the Sunday New York Times. He wasn't sure what he was looking for. At almost 50 years of age, he had few business skills. Accounting was a foreign language to him. He figured that if he ever bought a business, it would have to be one that didn't require much specialized knowledge-something that would be relatively easy to manage. He considered a franchise, but he found that the good ones were very expensive. Then he came across an Italian-bread route for sale. He thought "How difficult could it be to run a delivery route?" He called the phone number in the ad and spoke with the business broker who was handling the sale. It turned out that the route was in Queens, New York, not far from where Lane and his wife, Annabelle, lived. It was a one-person operation. The individual owned the company for 20 years and took home about $65,000 a year. He wanted $200,000 for the business, but he was willing to help finance the deal. If Lane would put $60,000 down, he could pay the balance over five years at 10 percent interest, or about $35,000 a year. That would leave Lane with an annual income of $30,000 until the debt was paid. Combined with Annabelle's salary, it would be enough to make ends meet. If he worked hard, moreover, he could expect his sales, and his income, to grow by 10 to 15 percent a year. It seemed perfect. Lane went to meet with the owner and returned sounding even more enthusiastic. "This is a can't-miss deal," he told his wife. "The guy has signed contracts with all the places he delivers to, and none of them is more than 25 miles from here. I could do the entire route in seven hours." However, Annabelle wasn't buying. "You're not quitting your job until you talk to an expert," she said. Lane agreed to meet with a broker. On the date of the meeting, Lane brought all his paperwork along. He laid out the terms of the deal in great detail. "What do you think?" he asked. The broker said, "Tell me something, Marty. Do you like this business?" He shrugged. "I can't really say. I haven't tried it yet." "What's involved in it besides picking up the bread and delivering it to the stores?" "I'm not sure," he said. "Whatever it is, it can't be that complicated." "What happens if the truck breaks down?" "I don't know," he said. "I guess I'll just work it out." After asking Lane a series of questions along those lines, the broker finally said, "Listen, Marty. You want to know if this deal makes sense from a financial standpoint. That's easy to check. The guy has an income tax return, and his sales are verifiable. This isn't a cash business, after all. He sells to delis and supermarkets. They pay by check. We can go over his expense figures and make sure they're realistic, but my guess is that the deal is OK. If you're asking me whether I could negotiate him down a little, the answer is probably yes." Lane turned to his wife: "See, I told you he'd approve." The broker said, "I didn't approve anything. Only you can do that, and you're not ready to." "What do you mean?" he asked. "You haven't done your homework," the broker said. "You don't know what you're actually going to do in this business, and you don't know if you'll be happy doing it." "How am I going to find that out?" Lane asked.

Core competencies are those resources and capabilities that provide a firm with a competitive advantage over its rivals.

evaluation of the general environment is appropriate only for large firms that have a corporate staff to manage the process.

A differentiation-based strategy usually does not lead to a competitive advantage in business.

Research has shown that most entrepreneurs generate their business ideas by searching external sources of ideas.

An example of an idea for a new startup from an accidental discovery is

What are the four conditions under which a segmented market can erode?

Business guru Peter Drucker stated "Innovation is the specific instrument of entrepreneurship".

Which one of the following change factors was not identified by Peter Drucker as a source of business opportunity?

You Make the Call-Situation 2 Amy Wright is the owner of Fit Wright Shoes, a manufacturer of footwear located in Alice, Texas. Her company has pledged that all customers will have a lifetime replacement guarantee on all footwear bought from the company. This guarantee applies to the entire shoe, even though another company makes parts of the product.

Different types of small business ownership opportunities include all of the following except

Business guru Peter Drucker believes entrepreneurs should consider no more than two or three sources of opportunity to avoid being sidetracked as they prepare to launch or grow their enterprises.

_____ refers to the way entrepreneurs identify new products or services that may lead to promising businesses.

A global trend is characterized by which of the following?

Magazines and other periodicals are excellent sources of startup ideas.

Compare prior work experience with accidental discovery, hobbies, and personal interests as a source of startup ideas.

"Me, too" strategies are used by very few new ventures.

Briefly state the difference between a market and an industry.

As described in the textbook, a Type B idea involves