Developing and Testing a Business Model (18 Marks) (LQ)

Osterwalder and Pigneur used these findings to develop the Business Model
Canvas, which provides entrepreneurs with a dynamic framework to guide them
through the process of developing, testing, and refining their business models. The
canvas is composed of nine elements:

1. Customer segments.
A good business model always starts with the customer. The entrepreneur's first step
is to identify a segment of customers who have a clearly defined need. Narrowing
the target market enables a small company to focus its limited resources on serving
the needs of a specific group of customers rather than attempting to satisfy the
desires of the mass market. Creating a successful business depends on an
entrepreneur's ability to attract real customers who are willing and able to spend real
money to buy its products or services.

2. Value proposition.
A compelling value proposition is at the heart of every successful business. The
value proposition is the collection of products and/or services the business will offer
to meet the needs of the customers. The value propositions should be apart from its
competitors such as convenience, service, speed, and so on. Most value
propositions for new businesses come from fundamental macro trends. It is best to
identify and focus on one or two benefits that will make the new business stand out
to customers and motivate them to purchase from the new business. The best way
to develop the key benefits that are at the heart of a strong value proposition is to
listen to customers.

3. Customer relationships.
Customer relationships describe the type of relationship and the level of service that
a business provides to its customers. Not every business provides the same type
and same level of customer service. Each of these business models has a very
different approach to defining the relationship with customers. Each approach is
effective and appropriate for its particular target market.

4. Channels.
In the Business Model Canvas, channels refer to both communication channels
(promotion) and distribution channels (product placement). Communication channels
define how customers seek out information about this type of product which are Web
sites, social networks, blogs, etc. where customers want to get information about
products and services. The distribution channel defines the most effective way to get
products to the customers for this type of business. The entrepreneur must
determine where the customer wants to make the purchase and then determine the
most effective way to get it to the customer at that location.

5. Key activities.
In the business model, the goal is to build a basic checklist of what an entrepreneur
must do to open the business and what activities are necessary to ensure its long-
term success. The development of the business plan will then expand this list into
much greater detail.

6. Key resources.
Human, capital, and intellectual resources will serve as an initial checklist to ensure
that the entrepreneur has identified all key resources necessary to support a
successful launch and to sustain the business as it grows. The business plan
provides the opportunity to explain these in much greater detail and develop all
necessary cost estimates for the financial forecasts.

7. Key partners.
Entrepreneurs cannot expect to become successful all by themselves. The key
partner segment of the business model includes key suppliers, key outsourcing
partners, investors, industry partners, advisers, and all other external businesses or
entities that are critical to making the business model work. Entrepreneurs must build
a network of relationships when launching and growing their businesses.

8. Revenue streams.
The entrepreneur should answer the questions, using the information discovered
based on the above mentioned components.

9. Cost structure.
Fixed and variable costs are necessary to make the business model work. The key
activities, key resources, and key partner components of the plan identify the basic
types of costs and give some estimate of their scope. The revenue streams and the
cost structure of the business model become the framework for developing more
detailed costs that the entrepreneur will incorporate into the financial forecasts of the
business plan.
Entrepreneurial Fire (L.Q)
1. Entrepreneurs as heroes. An intangible but very important factor is the
attitude that Americans have toward entrepreneurs. Entrepreneurs pitch their
ideas to a panel of tough business experts who have the capital and the
connections to make a budding business successful.
2. Entrepreneurial education. Colleges and universities have discovered that
entrepreneurship is an extremely popular course of study. Disillusioned with
corporate America's downsized job offerings and less promising career paths,
a rapidly growing number of students see owning a business as their best
career option. A recent survey by CreativeLive demonstrates the importance
of entrepreneurship education.
3. Demographic factors. Globally, the rate of entrepreneurial activity is highest
among people between the ages of 25 and 44. In the United States, the
number of people in that age range currently is more than 84 million which
provides a strong demographic base for entrépreneurship.
4. Shift to a service economy. The service sector accounts for 82.5 percent of
the jobs and 80.1 percent of the private sector gross domestic product (GDP)
in the United States because of their relatively low start-up costs, service
businesses have become very popular among entrepreneurs. The booming
service sector continues to provide many business opportunities, from
educational services and computer maintenance to pet waste removal and
smartphone repair.
5. Technology advancements. With the help of modern technology such as
portable computers and tablets, smartphones, copiers, 3-D printers, cloud
storage, productivity, communication, and social media apps, even one
person working at home can look like a big business.
6. Independent lifestyle. Entrepreneurship fits the way Americans want to live an
independent and self-sustaining lifestyle. People want the freedom to choose
where they live, the hours they work, and what they do. Although financial
security remains an important goal for most entrepreneurs, many place top
priorities on lifestyle issues, such as more time with family and friends, more
leisure time, and more control over work-related stress.
7. Outsourcing. Entrepreneurs have discovered that they do not have to do
everything themselves. Because of advances in technology, entrepreneurs
can outsource many of the operations of their companies and retain only
those in which they have a competitive advantage. Modern entrepreneurs use
the "gig economy" to purchase the services they need on demand, eliminating
the necessity of hiring staff to perform those duties. Doing so enhances their
flexibility and adaptability to ever-changing market and competitive conditions.
8. The Internet, cloud computing, and mobile marketing. The proliferation of the
Internet, the vast network that links computers around the globe and opens up
oceans of information to its users. Cloud computing, Internet-based
subscription, or pay-per-use software services that allow business owners to
use a variety of business applications, from database relationship
management and accounting, has reduced business start-up and operating
costs. Mobile computing is connecting wirelessly to centrally located
computing system via a small, portable communication device.
9. International opportunities. Although companies once had to grow into global
markets, today small businesses can have a global scope from their inception.
Called micromultinationals, these small companies focus more on serving
customers' needs than on the countries in which their customers live. Small
companies that have expanded successfully into foreign markets tend to rely
on the following strategies:
○ Researching foreign markets thoroughly
○ Focusing on a single country initially
○ Utilizing government resources designed to help small companies
establish an international presence
○ Forging alliances with local partners
Intellectual Capital+Competitive Advantage+Core
Competencies (L.Q)

Intellectual capital is one source of a company's competitive advantage, which

consists of human, structural, and customer capital. The biggest change that
entrepreneurs face is unfolding now: the shift in the world's economy from a base of
functional to intellectual capital. Intellectual capital has three components;

1. Human capital consists of the talents, creativity, skills, and abilities of a

company's workforce and shows up in the innovative strategies, plans, and
processes the people in an organization develop and then passionately
pursue.
2. Structural capital is the accumulated knowledge and experience that a
company possesses. It can take many forms, including processes, software,
patents, copyrights, and, perhaps most importantly, the knowledge and
experience of the people in the company.
3. Customer capital is the established customer base, positive reputation,
ongoing relationships, and goodwill that a company builds up over time with
its customers.

Building a Competitive Advantage

The goal of developing a strategic plan is to create a competitive advantage--the

value proposition that sets a small business apart from its competitors and gives it a
unique position in the market that makes it superior to its rivals. The key to business
success is to develop a sustainable competitive advantage-—one that is durable
creates value for customers, and is difficult for competitors to duplicate. Companies
that fail to define their competitive advantage fall into "me-too" strategies that never
set them apart from their competitors and do not allow them to become market
leaders or tg achieve above-average profits.
Entrepreneurs should examine five aspects of their businesses to define their
companies' competitive advantages:

1. Products they sell. What is unique about the products the company sells? Do
they save customers time or money? Are they more reliable and more
dependable than those that competitors sell? Do they save energy, protect
the environment, or provide more convenience for customers? By identifying
the unique customer benefits of their companies' products, entrepreneurs can
differentiate their businesses.
2. Service they provide. Many entrepreneurs find that the service they provide
their customers is an excellent way to differentiate their companies. Because
they are small, friendly, and close to their customers, small businesses can
provide customer service that is superior to that which their larger competitors
can provide.
3. Pricing they offer. Some small businesses differentiate themselves by using
price. Price can be a powerful point of differentiation; offering the lowest price
gives some customers a great incentive to buy. However, offering the lowest
price is not always the best way to create a unique image. Small companies
that do not offer the lowest prices must emphasize the value their products
offer.
4. Way they sell. Customers today expect to be able to conduct business when
they want to.
5. Values to which they are committed. The most successful companies exist for
reasons that involve far more than merely making money. The entrepreneurs
behind these companies understand that one way to connect with customers
and establish a competitive edge is to manage their companies from a values-
based perspective and operate them in an ethical and socially responsible
fashion.

Building a competitive advantage alone is not enough; the key to success over time
is building a sustainable competitive advantage. Core competencies are a unique set
ko capabilities that a company develops in key areas, such as superior quality,
customer service, innovation, team building, flexibility, and responsiveness. that
allow it to vault past competitors.
Core competencies become the nucleus of the company's competitive advantage
and are usually quite enduring over time. Markets, customers, and competitors may
change, but a company's core competencies are more durable, forming the building
blocks for everything a company does. Small companies' core competencies often
have to do with the advantages of their size, such as agility, speed, closeness to
their customers, superior service, or the ability to innovate. The key to success is
building the company's strategy in its core competencies and concentrating on
providing value for target customers.
Successful small companies are able to build strategies that exploit all the
competitive advantages that their size gives them by doing the following:
● Responding quickly to customers' needs
● Providing the precise desired level of customer service
● Remaining flexible and willing to change
● Constantly searching for new, emerging market segments
● Building and defending small market niches
● Erecting "switching costs," the costs a customer incurs by switching to a
competitor's product or service, through personal service and loyalty
● Remaining entrepreneurial and willing to take risks and act with lightning
speed
● Constantly innovating

Building a Sustainable Competitive Advantage

USP+Branding (L.Q)

One important aspect of connecting with customers is defining the company's unique
selling proposition (USP), a key customer benefit of a product or service that sets it
apart from its competition. To be effective, a USP must actually be unique—
something the competition does not (or cannot) provide—as well as compelling
enough to encourage customers to buy. Unfortunately, many business owners never
define their companies' USP, and the result is an uninspiring me-too message that
cries out "buy from us" without offering customers any compelling reason to do so.
a successful USP answers the critical question that every customer asks: " What's in
it for me?" A USP should express in no more than 10 words what a business can do
for its customers. Can your product or service save your customers time or money,
make their lives easier or more convenient, improve their self-esteem, or make them
feel better? If so, you have the foundation for building a USP.

The best way to identify a meaningful USP that connects a company to its target
customers is to describe the primary benefit(s) its product or service offers
customers. A business is unlikely to have more than three primary benefits, which
should be unique and able to set it apart. The fewer the number of primary benefits
that a company focuses on, the more intense the connection with those benefits will
be. When describing the top benefits the company offers its customers,
entrepreneurs must look beyond just the physical characteristics of the product or
service. Sometimes the most powerful USP emphasizes the intangible,
psychological, and emotional benefits a product or service offers customers-for
example, safety, "coolness," security, acceptance, and status. The goal is to use the
USP to enable a company to stand out in customers' minds.

By focusing the message on the top benefits and the facts supporting them,
business owners can communicate their USPs to their target audiences in
meaningful, attention-getting ways. Building a firm's marketing message around its
core USP spells out for customers the specific benefit they get if they buy that
product or service and why they should do business with your company rather than
with the competition. Finally, once a small company begins communicating its USP
to customers, it has to fulfill the promise.

Many small companies are finding common ground with their customers on an issue
that is becoming increasingly important to many people: the environment. Small
companies selling everything from jeans to toothpicks are emphasizing their "green"
products and are making an emotional connection with their customers in the
process. Companies must be truthful, however, or their marketing pitches can
backfire and damage their reputations. Consumers are becoming more vigilant in
their search for companies that are guilty of "greenwashing," touting unsubstantiated
or misleading claims about the environmental friendliness of their products.

CREATE AN IDENTITY FOR YOUR BUSINESS THROUGH BRANDING

One of the most effective ways for an entrepreneur to differentiate his or her
business from the competition is to create a unique identity for it through branding.
Although most entrepreneurs may not have the resources to build a brand name as
well known as Google (Google's brand is estimated to be worth more than $109
billion), they can be successful in building a brand identity for their companies on a
smaller scale in the markets they serve. A large budget is not a prerequisite for
building a strong brand, but creating one does take a concerted, well-coordinated
effort that connects every touch point a company has with its customers with the
company's desired image. A strong brand takes the company's story in customers'
minds.

Branding involves communicating a company's unique selling proposition to its target

customers in a consistent and integrated manner. A brand is a company's "face" in
the marketplace, and it is built on a company's promise of providing quality goods or
services to satisfy multiple customer needs.
The Connection Between Branding and a USP
Guidelines for Building the Credibility of a Website (L.Q)
Apsh, cpeu, peso

Accu-people-skills-honest,
contact-profes-easy-update,
Policy-error-seal-secure

Guidelines Tips

1. Allow visitors to verify easily the Include references, which you should
accuracy of the information on cite, from credible third parties to
your site. support the information that is present
on your site.

2. Show that there are real people List a physical address for your
behind your site. business and post photographs of your
store or office or the people who work
there.

3. Emphasize the skills, Tell visitors about the experts you have
experiences, and knowledge of on your team, their credentials, and their
the people in your company. accomplishments.

4. Show that honest, trustworthy In addition to posting photographs of the

people stand behind your site. owner and employees, including brief
biographical sketches that might include
“fun” facts about each person, their
hobbies, and like to their blogs.

5. Make it easy for customers to One of the simplest ways to enhance

contact you. your site's credibility is to include
contact information in a highly visible
location, a physical address, a
telephone number, and email
addresses.

6. Make sure your site has a Online shoppers access a Website’s

professional look. quality from the first few seconds,
focusing on layout, navigation, search
tools, images, grammar, and spelling,
while reflecting the company’s unique
personality.

7. Make your site easy to use — Sites that are easy for customers to use
and useful. and that are useful to them score high
on credibility.
8. Update your site regularly. Visitors tend to rate websites that have
been recently updated or reviewed
higher than those that contain outdated
or obsolete information.

9. Prominently display your Visitors perceive marks to sites that

company’s private policy. display a meaningful policy—and follow
it — as more credible than those that do
not.

10. Be vigilant for errors of all types, Typographical errors, misspellings,

no matter how insignificant they grammatical mistakes, broken links, and
may seem. other problems cause a site to lose
credibility in customers’ eyes.

11. Post the seals of approval your Seal of approval from third parties
company has won. confidence that an online company is
reputable and trustworthy.

12. Make sure customers know that To effectively conduct business online,
their online transactions are companies must ensure that customers’
secure. credit card transactions are secure.
Building an Entrepreneurial Team: Hiring the Right
Employees (L.Q)
As a company grows, the people an entrepreneur hires determine the heights
to which the company can climb — or the depths to which it will plunge. Experienced
managers understand that the quality of their workforce affects the companys ability
to thrive. The problem is particularly acute for small companies,which usually cannot
afford to match the salaries and benefit packages their larger rivals offer employees.
Half of all small business owners say that they can find few or no qualified applicants
for job openings.
The decision to hire a new employee is an important one for every business,
but its impact is magnified many times in a small company. One new employee
represents a significant investment and a significant risk. In a small company, one
bad hiring decision can poison the entire culture, reduce employee productivity, and
disrupt any sense of teamwork. Hiring mistakes are incredibly expensive, and no
company, especially small ones, can afford too many of them. The higher the
position is in an organization and the longer the tenure of the person who holds that
position, the higher the cost associated with replacing a bad hire. Replacing a bad
hire often leads to burnout among existing employees, who must pick up the slack
left by the vacancy. In addition, the poor work habits of bad hires are highly
contagious, can infect everyone in the company (especially in a small company), and
are difficult to eradicate. The most common causes of a company's poor hiring
decisions include the following:
● Managers relying on candidates' descriptions of themselves rather than
requiring candidates to demonstrate their abilities.
● Managers failing to follow a consistent, evidence-based selection process.
Employers often rely on intuition when making hiring decisions.
● Managers failing to provide candidates with sufficient information about what
the jobs for which they are hiring actually entail, which results in a job-skill
mismatch.
● Managers are so desperate to fill a position that they hire candidates who are
not as qualified as they should be. The result is almost always an expensive
hiring mistake for the company.
 ● Managers failing to check candidates' references.
● A weak employer brand, which limits the size and quality of the applicant pool
and reduces the probability of making a good hiring decision.
● Managers succumbing to pressure to fill a job quickly.
The following guidelines can help entrepreneurs become employers of choice
and hire winners as they build their team of employees.
● COMMIT TO HIRING THE BEST TALENT Smart entrepreneurs follow the old
adage "A players hire A players; B players hire C players." They are not
threatened by hiring people who may be smarter and more talented than they
are. They recognize that doing so is the best way to build a quality team.
● ELEVATE RECRUITING TO A STRATEGIC POSITION IN THE COMPANY
The recruiting process is the starting point for building quality into a company.
Assembling a quality workforce begins with a sound recruiting effort. By
investing time and money in the crucial planning phase of the staffing
process, entrepreneurs can generate spectacular savings down the road by
hiring the best talent.
Look inside the company first. A Promotion-from-within policies within a company
encourage employees to upgrade skills and produce results, as entrepreneurs
understand their work habits and company culture.
Look for employees with whom your current can identify. Hiring young women for
social media in a women's shoe company fits, but not for makeup sales targeting
middle-aged women.
Encourage employee referrals. Companies are offering bonuses to employees for
referring valuable candidates, as employees act as reliable screens, and recruiters
rank candidates hired through employee referrals second in quality, addressing
talent shortages.
Make employment advertisements stand out. Getting employment ads noticed in
traditional media is becoming more difficult due to the overwhelming presence of
other company ads.
Use multiple channels to recruit talent. Newspaper ads still dominate job postings,
but businesses are successfully attracting candidates through the internet, social
media, and career-oriented websites to broaden their recruiting network.
Recruit on campus. College and university campuses remain an excellent source of
employers, particularly for entry-level positions, and small companies, as they serve
as prime recruiting grounds.
Forge relationships with schools and other sources of workers. Internships and co-op
programs can be excellent sources which provide low-risk opportunities for
businesses to test-drive potential employees, observe work habits, and potentially
hire top performers for permanent positions post-graduation.
Recruit “retired” workers. Retired workers with lifetime work experience and strong
work ethic can be valuable assets to entrepreneurs and small firms, providing a
solution to labor issues.
Consider using offbeat recruiting techniques. Entrepreneurs are employing
innovative recruiting techniques to attract the necessary workforce for their
expanding businesses.
Offer what workers want. Job candidates consider compensation and benefits, but
other less tangible factors also significantly influence their decision to accept a job.
Creating an Organizational Culture That Encourages
Employee Motivation and Retention (L.Q)***

A company's culture is the distinctive, unwritten, informal code of conduct that

governs its behavior, attitudes, relationships, and style. In many small companies,
culture is as important as strategy in gaining a competitive edge. Culture has a
powerful impact on the way people work together in a business, how they do their
jobs, and how they treat their customers. Company culture manifests itself in many
ways—from how workers dress and act to the language they use. A company's
culture has a powerful influence on everyone the company touches, especially its
employees, and on the company's ultimate success.

An important ingredient in a company's culture is the performance objectives an

entrepreneur sets and against which employees are measured. Effective executives
know that building a positive organizational culture has a direct, positive impact on
the financial performance of an organization. The intangible factors that make up an
organization's culture have an influence, either positive or negative, on the tangible
outcomes of profitability, cash flow, return on equity, employee productivity,
innovation, and cost control.

Sustaining a company's culture begins with the hiring process. Beyond the normal
requirements of competitive pay and working conditions, the hiring process must
focus on finding employees who share the values of the organization. The result is a
team of people who give their best ideas and efforts to the business.

Nurturing the right culture in a company can enhance a company's competitive

position by improving its ability to attract and retain quality workers and by creating
an environment in which workers can grow and develop. As a new generation of
employees enters the workforce, companies are discovering that more relaxed, open
cultures have an edge in attracting the best workers.
Modern organizational culture relies on several principles that are fundamental to
creating a productive, fun workplace that enables employees and the company to
excel.
1. HIRING FOR CULTURAL FIT: The best companies know that the only way to
sustain a winning culture is to continue to hire people who for into and support
it.
2. RESPECT FOR WORK AND LIFE BALANCE: Successful companies
recognize that their employees have lives away from work.
3. A SENSE OF PURPOSE: One of the most important hobs an entrepreneur
faces is defining the company’s vision and then communicating it effectively to
everyone the company touches.
4. A SENSE OF FUN: A workplace that creates a sense of fun makes it easier to
recruit quality workers and encourages them to be more productive and more
customer-oriented.
5. ENGAGEMENT: Employees who are fully engaged in their work take pride in
making valuable contributions to the organization’s success and derive
personal satisfaction.
6. DIVERSITY: Today, businesses must recognize a rich mix of culturally
diverse workforce gives the company more talent, skills, and abilities from
which to draw.
7. INTEGRITY: Employees want to work for companies that stand for honesty
and integrity.
8. PARTICIPATIVE MANAGEMENT: Company owners and managers must
learn to trust and empower employees at all levels of the organization to make
decisions and take the actions they need to do their jobs well.
9. LEARNING ENVIRONMENT: Progressive companies encourage and support
lifelong learning among their employees.
What & why the business plan + benefits of creating a
Business Plan (S.Q)

● A systematic, realistic evaluation of a venture's chances for success in the

market
● A way to determine the principal risks facing the venture
● A "game plan" for managing the business successfully during its start-up
● A tool for comparing actual results against targeted performance
● An important tool for attracting capital in the challenging hunt for money

In today's global competitive environment, any business, large or small, that is not
thinking and acting strategically is extremely vulnerable. Every business is exposed
to the forces of a rapidly changing competitive environment, and in the future, small
business executives can expect even greater change and uncertainty.
Entrepreneurs' willingness to adapt, to create change, to experiment with new
business models, and to break traditional rules have become more important than
ever.

A business plan is a written summary of an entrepreneur's proposed business

venture, its operational and financial details, its marketing opportunities and strategy,
and its managers' skills and abilities. Most potential investors and lenders insist on a
business plan as an essential step when considering funding an entrepreneurial
venture. A business plan describes the direction the company is taking, what its
goals are, where it wants to be, and how it intends to get there. It captures a full
picture of the business model and all of the planning and preparation an
entrepreneur undertakes when starting a business. The plan is written proof that an
entrepreneur has performed the necessary research, has studied the business
opportunity adequately, and is prepared to capitalize on it with a sound business
model.

A business plan serves two essential functions. First, it provides a battery of tools for
mission statements, goals, objectives, budgets, financial forecasts, marketing plans,
and entry strategies to help entrepreneurs subject their ideas to one last test of
reality before launching a business and serve as benchmarks to evaluate the
progress of the business as it grows. A good business plan also helps an
entrepreneur lead the company successfully through the challenging start-up phase.

The second function of a business plan is to attract lenders and investors. A

business plan must demonstrate to potential lenders and investors that a venture will
be able to repay loans and produce an attractive rate of return. They want proof that
an entrepreneur has evaluated the risk involved in the new venture realistically and
has a strategy for addressing it. Unfortunately, many small business owners
approach potential lenders and investors without having prepared to sell their
business concepts. The best way to secure the necessary capital is to prepare a
sound business plan. The quality of an entrepreneur's business plan weighs heavily
in the final decision to lend or invest funds. It is also potential lenders' and investors'
first impression of the company and its managers. Therefore, the finished product
should be highly polished and professional in both form and content.
Niche Strategies (S.Q)
Entrepreneurs should be aware of some cautions with a niche strategy:

● Entering a niche requires adaptability in your initial plan. While developing

their business models, entrepreneurs can misjudge what customers need
within a niche market. Unless they are willing and able to adjust their business
models to react to the realities of the market niche, the business will fail if it
does not offer the customers what they want.
● Niches change. Even if an entrepreneur evaluates the market correctly in the
beginning, niche markets (like other markets) change over time. Success in a
niche requires that entrepreneurs adapt as the market changes. Too many
entrepreneurs get stuck doing the same thing or offering the same product
while their customers' needs and wants evolve. Even though it is a niche, the
market is not isolated and is subject to the same forces and trends that can
impact any market.
● Niches can go away. Although many niches can last for years, no market is
forever. Niches can dry up sometimes quite suddenly. Again, adaptation can
offer some hope, but if the decline is too rapid, niche businesses can fail.
● Niches can grow. Although significant growth in a market may not sound bad,
it can attract more competitors. If a niche market grows large enough, it can
attract some very large competitors. At some point, the entrepreneur's cozy
market niche can become quite crowded. Eventually, it may no longer be a
true market niche, which requires that the entrepreneur adapt his or her
business strategies to meet this more competitive market. Increased
competition forces prices downward, while at the same time, the costs of
business may go up due to increased marketing costs, greater expectations
from customers, and higher labor costs due to more competition for qualified
employees.
Building a Bootstrap Marketing Plan (S.Q)

Marketing is the process of creating and delivering desired goods and services to
customers and involves all of the activities associated with winning and retaining
loyal customers. The "secret" to successful marketing is to understand what your
target customers' needs, demands, and wants are before your competitors do; to
offer them the products and services that will satisfy those needs, demands, and
wants; and to provide customer service, convenience, and value so that they will
keep coming back.

Although they may be small and cannot match their larger rivals' marketing budgets,
entrepreneurial companies are not powerless when it comes to developing effective
marketing strategies. By using bootstrap marketing strategies — unconventional,
low-cost, creative techniques — small companies can wring as much or more "bang"
from their marketing buck.

An effective bootstrap marketing campaign does not require an entrepreneur to

spend large amounts of money, but it does demand creativity, ingenuity, and an
understanding of customers' buying habits.

A sound bootstrap marketing plan reflects a company's understanding of its

customers and acknowledges that satisfying them is the foundation of every
business. It recognizes that the customer is the central player in the cast of every
business venture. According to marketing expert Ted Levitt, the primary purpose of a
business is not to earn a profit; instead, it is to identify and attract customers. If an
entrepreneur focuses on this purpose and uses good sense to run the business,
profits will follow. In other words, profits are the outcome of creating value for your
target customers.

Á bootstrap marketing plan should accomplish three objectives:

1. It should pinpoint the specific target markets the small company will serve.
2. It should determine customer needs and wants through market research.
3. It should analyze the firm's competitive advantages and build a bootstrap
marketing strategy around them to communicate its value proposition to the
target market.
5C (S.Q)

Lenders and investors refer to these criteria as the five Cs of credit: capital, capacity,
collateral, character, and conditions.
Capital
A small business must have a stable capital base before any lender will grant a loan
as they represent a capital investment. Most lenders refuse to make loans that are
capital investments due to the limited return potential and potential loss. Common
reasons for rejection small business loan applications include undercapitalization
and too much debt. investors ensuring entrepreneurs have invested enough money
to survive the start-up period.
Capital
Capacity is another word for cash flow. Lenders must be convinced of a company’s
ability to meet its regular financial obligations and to repay the bank loan, and that
takes cash. Small businesses often fail due to lack of cash rather than profit. It is
possible for a company to be earning a profit and still run out of cash. They expect a
company to pass liquidity tests and closely study its cash flow position to determine
its capacity for success.
Collateral
Collateral includes any assets an entrepreneur pledges to a lender as security for
repayment of the loan. If an entrepreneur defaults on the loan, the bank has the right
to sell the collateral and use the proceeds to satisfy the loan. Bankers view an
entrepreneur’s willingness to pledge collateral (personal or business assets) as an
indication of dedication to making the venture a success. Entrepreneurs must sign
personal guarantees for all business loans, stating they will be personally liable for
all bank loans.
Character
Before putting money into a small business, lenders must be satisfied with the
owner’s character. An evaluation of character frequently is based on intangible
factors like honesty, competence, and ability. This evaluation plays a critical role in a
lender’s or investor’s decision. Banks are utilizing social media posts from platforms
like Facebook, LinkedIn, and Twitter to evaluate the character of potential clients.
They aim to assess management quality as most small businesses fail due to poor
management, helping them avoid lending to high-risk entrepreneurs. Preparing a
solid business plan and a polished presentation can convince lenders and investors
of a successful entrepreneur.
Conditions
Banks consider factors of loan request conditions, including market growth,
competition, location, ownership form, and loan purpose, influence the owner's
chances of receiving funds. Another important condi-tion influencing the banker’s
decision is the shape of the overall economy, including interest rate levels, the
inflation rate, and demand for money. Although these factors are beyond an
entrepre-neur’s control, they are important components in a lender’s decision.

The higher a small business scores on these five Cs, the greater its chance of
receiving a loan. Wise entrepreneurs keep this in mind when preparing their
business plans and presentations.