Sales

Wikipedia, the free, on-line encyclopedia, says, "A sale is the pinnacle activity involved in selling products or services in return for money or other compensation. It is an act of completion of a commercial activity." InvestorWords.com defines sales growth as, "The increase in sales over a specific period of time, often but not necessarily a year."

You sell shoes. A customer tries on a pair. He likes it. You wrap them up for him, he pays you, and he's on his way. You made a sale.

Sales is an activity. Cash flows from it. Growth in sales creates growth in cash. Two other words, "revenue and income, are related concepts, but I don't think they're the same.

Jae Shim and Joel Siegel, in Financial Management (New York: Barron's Business Library, 2000), say:

"The sales budget is the starting point in preparing the master budget since estimated sales volume influences nearly all other items in the master budget. The sales budget ordinarily indicates that quantity in units of each produc the company expects to sell. That number is multiplied by the expected unit selling price to construct the sales budget." (p. 67)

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Cash Vs. Accrual Accounting

Stephen Fishman, in Nolo.com, describes cash vs. accrual accounting this way:

The cash method and the accrual method (sometimes called cash basis and accrual basis) are the two principal methods of keeping track of a business's income and expenses. In most cases, you can choose which method to use. Learn how they work and the advantages and disadvantages of each so you can choose the better one for your business...Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account, to record a transaction...Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.

Example:Your computer installation business finishes a job in November, and doesn't get paid until three months later in January. Under the cash method, you would record the payment in January. Under the accrual method, you would record the income in your November books.

Example: You purchase a new laser printer on credit in May and pay $1,000 for it in July, two months later. Using the cash method, you would record a $1,000 payment for the month of July, the month when the money is actually paid. Under the accrual method, you would record the $1,000 payment in May, when you take the laser printer and become obligated to pay for it.

Go to this site and read the entire article. There's a lot of good information.

Which one you choose is up to you. Me, I prefer to do my business planning on an accrual basis and report taxes on a cash basis. If you do your taxes on the accrual basis, you end of paying taxes on things you haven't actually benefited from yet.

They are measures of two different things. Cash accounting tells you your cash position. Accrual accounting measures the value of your business. You need to track value to see how you are growing or not. You need to track cash to know what you can spend.

The best way to choose between them is ask your account and your lawyer.

What do you think about this? Do you like accounting? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Accounting

According to Wikipedia,

Accounting has been defined by the AICPA as ' The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.'

Most entrepreneurs don't like accounting. They see it as a dry, meaningless, numbers game. Don't believe it. Accounting measures the life's blood of your enterprise.

According to David Halberstam's book on the American auto industry, Henry Ford didn't like accountants because he thought they never did any real work. Real work to him was tangible stuff, like cars. Henry was a genius, but he did have some glaring limitations.

Accounting is extremely important. It's imperative for paying your taxes. But more importantly, it's the way you understand what's going on in your business. To know what's going on with anything, it's important to know where the money goes. Systematic accounting over time helps you know whether you're growing or not and why or why not. Knowing your finances day-to-day helps you make basic decisions.

MoneyInstructor.com adds that

Quite simply, accounting is a language: a language that provides information about the financial position of an organization. When you study accounting you are essentially learning this specialized language. By learning this language you can communicate and understand the financial operations of any and all types of organizations.

According to Rupp's Insurance & Risk Management Glossary (2002) accounting is

A system or method of recording financial transactions and reporting, verifying and analyzing the results. The surveying of pertinent data and subsequent preparation of statements representing the financial condition of an enterprise. The two most common accounting methods are the cash basis and the accrual method.

What do you think about this? Do you like accounting? Go to the Wikipedia article and read the whole thing. And follow the links. And post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Power Law

Power laws are very interesting for entrepreneurs. I never learned about them when I was taking statistics. I learned good old standard, Gaussian statistics, means, modes, medians, standard deviation, variance, etc. These are still valuable but they don't help describe many data distributions.

From Wikipedia, the free, on-line encyclopedia, we find:

A power law is a mathematical formula which states that as a phenomenon increases in scale, it also decreases in frequency. For example, when the size of an earthquake doubles, it becomes four times as rare. When the size of a stock market fluctuation doubles, it becomes 16 times as rare. The exact fraction does not matter; it is the general law that counts. What this law indicates is that there is no such thing as an average size for an earthquake or a stock-market fluctuation. There is no median point around which they all cluster

Go read the entire Wikipedia article and follow its links and references. There's a bunch of stuff I'm reading about it right now.

The entrepreneur needs to know about power laws because they describe a whole bunch of things about the world that Gaussian statistics doesn't touch. For example, how likely is it that the market will exhibit another big crash soon? The answer is not very likely at all because we already had a Big One. Analyses of stock market crashes shows that when you have a big one, another big one is not likely for some time. A lot of little declines precludes a big dip in the near term. Big crashes are rare, but when they happen, their consequences are severe.

And those who've looked into it say that the same things that produce little crashes, produce big ones. So we need to not worry about little crashes, just work to protect ourselves against the consequences of big ones.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Adaptive Control

From Wikipedia, the free, on-line encyclopedia, we find:

Adaptive control involves modifying the control law used by a controller to cope with the fact that the parameters of the system being controlled are slowly time-varying or uncertain. For example, as an aircraft flies, its mass will slowly decrease as a result of fuel consumption; we need a control law that adapts itself to such changing conditions.

Adaptive control is different from robust control in the sense that it does not need a priori information about the bounds on these uncertain or time-varying parameters; robust control guarantees that if the changes are within given bounds the control law need not be changed, while adaptive control is precisely concerned with control law changes.

An entrepreneur is like a pilot. He has to use adaptive controls. As situations change, he or she adjusts his leadership style and actions and plans to adjust to them. The entrepreneur uses robust controls that are unaffected by changes in the world around him.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Self-Organization

Wikipedia, the free, on-line encyclopedia, says:

Self-organization is a process of attraction and repulsion in which the internal organization of a system, normally an open system, increases in complexity without being guided or managed by an outside source. Self-organizing systems typically (though not always) display emergent properties

What's important for the entrepreneur to know about this is that this is the way organizations evolve. They grow in responding to their environment without being dictated to from above. The entrepreneur needs to know this so he or she can promote solid, positive, growth and success.

More about this later. In the meantime, read the Wikipedia article and google Self-organizing. There's a lot of stuff on it.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Efficient Market

For the entrepreneur, an "efficient" market is a market where all information is known and buyers can find out anything and everything in the market place unencumbered by intermediaries.

Whenever one group or person provides value such that people are enabled to do things they couldn't feasibly do without going "through" that person or group, inefficiency results. Take the travel industry, for example.

You used to have to go to a travel agency to get information about flights because the travel agency controlled access to the data through special software. Consumers could get the data, but the search costs were so high it was simply easier and cheaper to use a travel agent. That's where the value was added, and the inefficiency.

The Internet has created a more efficient market for travel. Search costs have moved toward free, so voila--few travel agencies left. Creating inefficiency is a little like kicking the legs out from under a table.

This added efficiency is what's causing entrepreneurs problems monetizing, or making money from, business concepts. "Yeah, but how are you going to monetize it?" is the question. Intermediaries, such as travel agents, who used to create inefficiencies by controlling access to information about flights, have been eliminated or removed to a significant extent.

In the age of the Internet, they no longer add value, except in certain situations. A travel agency that has specialized knowledge about cruises, for example. Or an in-house travel agency which contracts with a given company because it's easier for the company to control the flights their employees can be reimbursed for.

In this environment, entrepreneurs can make money if they create an inefficiency in the market that adds value to a customer's information search. Once this is found, the entrepreneur has to be very agile because change can come quickly and eliminate the advantage the entrepreneur has built for him or herself.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Futurology

Entrepreneurs have to be futurologists. Wikipedia, the free, on-line encyclopedia, defines "futurology" as:

Futures Studies, Foresight, or Futurology is the science, art and practice of postulating possible, probable, and preferable futures and the worldviews and myths that underlie them. Futures studies (colloquially called "Futures" by many of the field's practitioners) seeks to understand what is likely to continue, what is likely to change, and what is novel. Part of the discipline thus seeks a systematic and pattern-based understanding of past and present, and to determine the likelihood of future events and trends.

You have to think what the future will be like and how you will help your customers play a play a part in that future. Society is changing very fast. Obama's victory wouldn't have been possible in 2004.

A social change is like a noxious weed called "Creeping Charlie." I shoots a vine just below the surface of the ground. Then at some point it pops up above ground and shoots other branches off of it. Left to itself it will destroy your yard by forcing out all the grass.

The point being that as soon as you see it, it's the present. You have to figure out where that vine is going so you can meet the future where it becomes apparent. In a sense, you have to know how to see what isn't there. One way to do this is read magazines and books by "futurists" and learn what might be possible. Then figure out how likely various scenarios are based on your intuition and backed up with data.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Social Capital

The third form of capital, social capital, is basically who and how many people you know. According to Ron Burt:

The player (actor) has social capital: relationships with other players...friends, colleagues, and more general contacts through whom you receive opportunities to use your financial and human capitalStructural Holes; the Social Structure of Competition(Boston, MA: Harvard University Press, 1992, pp. 8-9).

Burt goes on to elaborate:

The social capital of people aggregates into the social capital of organizations. In a firm providing services--for example, advertising, brokerage, or consulting--there are people valued for their ability to deliver a quality product. Then there are the 'rainmakers,' valued for their ability to deliver clients. Those who deliver the product do the work, and the rainmakers make it possible for all to profit from the work. The former represent the financial and human capital of the firm. The latter represents it social capital. More generally, property and human assets define the firm's production capabilities. Relations within and beyond the firm are social capital.

Wikipedia, the free, on-line encyclopedia, says:

Social capital is a concept developed in sociology and also used in business, economics, organizational behaviour, political science, public health and natural resources management that refers to connections within and between social networks as well as connections among individuals. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of modern society, they tend to share the core idea "that social networks have value. Just as a screwdriver (physical capital) or a college education (human capital) can increase productivity (both individual and collective), so too social contacts affect the productivity of individuals and groups".

I'm going to have more say on all three of these forms of capital.

What do you think about this? How's your social capital? Are you flush with it? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Human Capital

Specifically, Ron Burt says:

Second, the player has human capital. Your national qualities--charm, health, intelligence, and looks--combined with the skills you have acquired in formal education and job experience give you abilities to excel at certain tasks.

Adam Smith, in The Wealth of Nations (New York, Random House, Modern Library ed., 2000, p. 306)says:

Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.

Quants don't like it because it's rather smushy. But if the entrepreneur doesn't have any, the entrepreneur isn't going far. I made a series of blog posts about human capital back in October, so I'm not going to say more about them here.

Wikipedia, the free, on-line encyclopedia, has an entry on it, too, so go ahead and read that one. Apparently critics claim that advocates of human capital try to explain everything by it. I don't see anyone seriously doing that, not if their sane and/or serious. There are ways of measuring human capital though, and those are helpful to the entrepreneur. I guess some people will oppose anything.

What do you think about this? Are you flush with human capital? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Financial Capital

Financial capital is money or access to money. Wikipedia, the free, on-line encyclopedia, says:

Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, and investment banking.

The Wikipedia goes on to talk about different kinds of capital.

Basically, you have two sources of money: you, and someone else. I call money from other people, OPM (other people's money). If you can finance your venture with OPM while putting very little of your own money in there, that's the best thing. If you have money yourself or are about to get a big inheritance, that's from you. That's the best kind.

Business failure is most often attributed to undercapitalization. That's the most common noted reason, but it may not be the most important reason. It may be a proxy for any number of other things. The entrepreneur's health, for example. Maybe he or she had a bout with cancer and had to entrust his business to a subordinate who ran it into the ground. So this would be lack of human capital which led to the death of the company.

Generally we think of undercapitalization as not enough financial capital relative to the amount needed to fund the venture adequately. However, that lack of funds may simply mask a deeper problem. It could have not enough human or social capital.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Ron Burt on Entrepreneurial Capital

Ron Burt, Hobard W. Williams Professor of Sociology and Strategy at the University of Chicago's Booth School of Business, writes:

A player brings at least three kinds of capital to the competitive arena....First, the player has financial capital: cash in hand, reserves in the bank, investments coming due, lines of credit. Second, the player has human capital. Your national qualities--charm, health, intelligence, and looks--combined with the skills you have acquired in formal education and job experience give you abilities to excel at certain tasks. Third, the player has social capital: relationships with other players. You have friends, colleagues, and more general contacts through whom you receive opportunities to use your financial and human capital.(Structural Holes; the Social Structure of Competition(Boston, MA: Harvard University Press, 1992, pp. 8-9)

In evaluating your likely success as an entrepreneur, you can do an appraisal of all three. How about your human capital? Do you have the skills you need to do the job? Are you healthy? If you're sick all the time, how are you going to work 10-12 hours a day to get the thing started. Are you charismatic (you don't have to be)? Do you have the passion for it? Do you have the ability to see things through? What financial capital do you have? Do you have assets you can dedicate to the project or access to it through someone else? Thirdly, what about your network. How many people do you know? Are they likely to do you any good? If you're deficient in any of these aspects, what is your plan to remedy them.

This is the supply side of entrepreneurship. You need to assess your capital in each of these areas, then go on to look at what you will need to be fit as an entrepreneur.

What do you think about this? Post a comment.

Entrepreneurship informs all of my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com./blog and for entrepreneurial writing, go to www.kearneymusicschoolmurders.blogspot.com

Adaptability and Fitness

The free, online Dictionary, www.thefreedictionary.com/adapted, gives this definition for adapted: "To make suitable to or fit for a specific use or situation" as in, "to become adapted: a species that has adapted well to winter climes."

From Wikipedia, we get:

An adaptation is a characteristic of an organism that has been favored by natural selection and increases the fitness of its possessor. The concept is central to biology, particularly in evolutionary biology. The Oxford Dictionary of Science defines adaptation as "Any change in the structure or functioning of an organism that makes it better suited to its environment".

We found the concept of fitness in an earlier blog post. We have some kind of uncertainty principle here: In order to be fit you have to be less adaptable. If you're more adaptable, you are by definition less fit. It's hard to be both fit and adapted at the same time.

What do you think about this? Which are you, more fit or more adapted? Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Aggregator

According to Wikipedia, the free, on-line encyclopedia,

in computing, a feed aggregator, also known as a feed reader, news reader or simply aggregator, is client software or a Web application which aggregates syndicated web content such as news headlines, blogs, podcasts, and vlogs in a single location for easy viewing.

Aggregators pull together more than just news. They pull up books, CDs, automobiles, properties, just about any product or service accessible over the Internet. Go to the Wikipedia article and read the whole entry. It's such a new thing that there isn't a lot of literature on it yet.

What do you think about this? Have you used an aggregator? Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Principal Agent Problem

The principal agent problem arises whenever one person has to motivate another to act in his behalf. Wikipedia, the free, on-line encyclopedia, says:

In political science and economics, the principal-agent problem or agency dilemma treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent. Various mechanisms may be used to try to align the interests of the agent with those of the principal, such as piece rates/commissions, profit sharing, efficiency wages, performance measurement (including financial statements), the agent posting a bond, or fear of firing. The principal-agent problem is found in most employer/employee relationships, for example, when stockholders hire top executives of corporations. Numerous studies in political science have noted the problems inherent in the delegation of legislative authority to bureaucratic agencies.

Entrepreneurs need to care about this because anytime they either hire someone or even ask have a friend work in your business this problem is a 500 pound Gorilla in the room. Whenever you hire a consultant or artist to do some promotional work, there you are.

What do you think about this? You must have been on the other side of this as an employee. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Scalability

Wikipedia, the free, on-line encyclopedia, says:

In telecommunications and software engineering, scalability is a desirable property of a system, a network, or a process, which indicates its ability to either handle growing amounts of work in a graceful manner, or to be readily enlarged. For example, it can refer to the capability of a system to increase total throughput under an increased load when resources (typically hardware) are added. An analogous meaning is implied when the word is used in a commercial context, where scalability of a company implies that the underlying business model offers the potential for economic growth within the company.

Scalability, as a property of systems, is generally difficult to define and in any particular case it is necessary to define the specific requirements for scalability on those dimensions which are deemed important. It is a highly significant issue in electronics systems, database, routers, and networking. A system whose performance improves after adding hardware, proportionally to the capacity added, is said to be a scalable system. An algorithm, design, networking protocol, program, or other system is said to scale if it is suitably efficient and practical when applied to large situations (e.g. a large input data set or large number of participating nodes in the case of a distributed system). If the design fails when the quantity increases then it does not scale.

Wikipedia goes on to identify some applications: Scalability can be measured in various dimensions, such as:

1) Load scalability: The ability for a distributed system to easily expand and contract its resource pool to accommodate heavier or lighter loads. Alternatively, the ease with which a system or component can be modified, added, or removed, to accommodate changing load.

2) Geographic scalability: The ability to maintain performance, usefulness, or usability regardless of expansion from concentration in a local area to a more distributed geographic pattern.

3) Administrative scalability: The ability for an increasing number of organizations to easily share a single distributed system.

On a personal level, scalability means that your income is not tied too how much you work. Winning the lottery, for example, is highly scalable because you can win millions of $ for basically shelling out $1 for a ticket.

Go read the Wikipedia article and follow the links.

Entrepreneurs should be concerned with scalability on at least three levels.

1) Income scalability: if your income is non-scalable, to earn more money you have to work more hours, unless you get a raise. If it's scalable it means that you can earn more revenue without having to work longer hours. Residential real estate is mostly scalable because their income is based on how much house they sell. Agents work the same number of hours to settle a house no matter what it costs. Actually, it's negatively scalable because cheaper houses usually require more work. Because of this scalability, the only way you can make more money is to sell more expensive houses.

2) Business scalability: your business has to be scalable, that is it must be able to grow seamlessly with the increase in business. Otherwise you'll lose out from lack of fulfillment.

3) Growth scalability: your business has to grow without you putting in more hours. There are only so many hours in a day, so if your business is not scalable, there's a definite limit to growth. And since you often have employees who must be paid, it means you take less and less money from the business.

What do you think about this? Is your income scalable? And what does that mean to you? Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Brainstorming

How do you stimulate employees to come up with creative ideas to make your enterprise a better place to work, more profitable, stronger, etc.? One approach is brainstorming. Like the term "focus group" the term "brainstorming" has been so bastardized that it is often used to refer to coming up with wild ideas, such as "Hey, I just had a brainstorm." Those suffering from epilepsy may take issue with the term, but most of us don't take issue with it. But, despite it's having been homogenized in the culture, it is a specific technique.

According to Wikipedia, the free, on-line encyclopedia,

Brainstorming is a group creativity technique designed to generate a large number of ideas for the solution to a problem. The method was first popularized in the late 1930s by Alex Faickney Osborn in a book called Applied Imagination. Osborn proposed that groups could double their creative output by using the method of brainstorming.

Although brainstorming has become a popular group technique, researchers have generally failed to find evidence of its effectiveness for enhancing either quantity or quality of ideas generated. Because of such problems as distraction, social loafing, evaluation apprehension, and production blocking, brainstorming groups are little more effective than other types of groups, and they are actually less effective than individuals working independently. In the Encyclopedia of Creativity, Tudor Rickards provides the article on brainstorming, summarizing the controversies. He also indicates the dangers of conflating productivity in group work with quantity of ideas.

There have been numerous attempts to improve brainstorming or replace it with more effective variations of the basic technique. Although traditional brainstorming may not increase the productivity of groups, it may still provide benefits, such as enhancing the enjoyment of group work and improving morale. It may also serve as a useful exercise for team building.

Dictionary.com gives this definition of it:

a conference technique of solving specific problems, amassing information, stimulating creative thinking, developing new ideas, etc., by unrestrained and spontaneous participation in discussion.

Entrepreneurs need to know about the approach, whatever the literature may say about it. Go to the Wikipedia article and follow the links.

There are rules for conducting it and countless variations on it. Try it out and see if it works for you. If it seems to be productive, that is it produces some valuable ideas, then it works. If it doesn't, it doesn't and abandon it.

What do you think about this? Have you ever gone to a store which is in disarray? Hard to find stuff which increases the search cost. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Search Costs

Economist.com gives the following definition:

The cost of finding what you want. The economic cost of buying something is not simply the PRICE you pay. Finding what you want and ensuring that it is competitively priced can be expensive, be it the financial cost of physically getting to a marketplace or the OPPORTUNITY COST of time spent fact-finding. Search costs mean that people often take decisions without all the relevant INFORMATION, which can result in inefficiency. Technological changes such as the Internet may sharply reduce search costs, and thus lead to more efficient decision making.

Forbes Financial Glossary has a more formal definition of it:

Costs associated with locating a counterpart to a trade, including explicit costs (such as advertising) and implicit costs (such as the value of time).

In a related term, Information Costs, Forbes says:

Transaction costs that include the assessment of the investment merits of a financial asset.

The entrepreneur wants to do what he or she can to reduce the cost of finding their product or service. Automobile websites can significantly reduce the cost of searching for a car. Sellers of cars can reduce the time and expense of finding a buyer. Google can reduce the time required to buy a ticket.

Search costs could be time costs or effort costs. Imagine an elderly woman, call her Gloria, who needs a walker to get around her retirement home. Gloria has agreed to have dinner with a younger, more mobile, friend, call her Sylvia. Imagine Gloria sitting waiting for Sylvia to come down for dinner. Sylvia arrives and says, "Are you ready?" Gloria says, "I don't know, is the dining room open yet." She's sitting just a few yards from the door but it's a real effort for her to get over there. Sylvia, the younger one, goes over and looks and says, "Yes, let's go in." And go.

The message here is that for the Gloria, the woman in the walker, the cost of searching for information whether the dining room is open, is higher because it's more difficult for her to move around. It's cheaper for the friend, Sylvia, who can just walk over there and look.

What do you think about this? Have you ever gone to a store which is in disarray? Hard to find stuff which increases the search cost. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Service

Wikipedia says:

A service is the diametrically opposed non-material counterpoise of a physical good. A service provision comprises a sequence of activities that does not result in ownership of the outcome, and this is what fundamentally differentiates it from furnishing someone with physical goods. Service provision is a process that creates predetermined benefits by effectuating either a change of service consumers, a change in their physical possessions or a change in their (in)tangible assets.

By composing and orchestrating the appropriate level of resources, skill, ingenuity, and experience for effecting specific benefits for service consumers, service providers participate in an economy without the restrictions of carrying stock (inventory) or the need to concern themselves with bulky raw materials. On the other hand, their investment in expertise does require consistent service marketing and upgrading in the face of competition which has equally few physical restrictions.

Providers of services make up the Tertiary sector of the economy.

Actually, I prefer the previous version's wording which said: "A service is the non-material equivalent of a good." There are some other differences in wording which I don't think improved it, but the change in phrasing from "non-material equivalent" to "diametrically opposed" is unfortunate.

To my mind, there aren't opposites in the world. Day and night, early and late, east and west: these are complimentary states of being not oppositional states of being. They all go to make up the reality around us.

Products and services are products. The first is tangible, the second intangible. One is a "product product," the other a "service product." We treat each the same when we conceptualize starting a business. Each has an originator, a medium, and a consumer, whether some one's providing healthy, nutritious meals to the home bound elderly or whether the "product" is selling basketball shoes to inner city youth.

What do you think about this? I'd like to know. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Vertical Integration

From Wikipedia, the free, on-line encyclopedia, comes this:

In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies are united through a hierarchy with a common owner. Usually each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need. It is contrasted with horizontal integration. Vertical integration is one method of avoiding the hold-up problem. A monopoly produced through vertical integration is called a vertical monopoly, although it might be more appropriate to speak of this as some form of cartel. Andrew Carnegie actually introduced the idea of vertical integration. This led other businessmen to using the system to promote better financial growth and efficiency in their companies and businesses.

The article goes on to describe other stuff about vertical integration. Read the whole piece and follow the references and links.

This is more outmoded now. It's important to know about for the vocabulary, and many companies are still vertically integrated. Anecdotal information suggests that many companies are flattening out. They're realizing that vertical integration is not necessarily of greatest benefit. And you can look like a big, vertically integrated company but just be bunch of smaller units, each independent, but agreeing to work together where it is in their interest to do so.

There's no hard and fast rule about what's better. It's all about the enterprise and how things work best for it. In many industries the old value chain that held these vertically integrated companies together has been blown up by the shift to the virtual economy.

You need to think long and hard about how your company should be organized.

What do you think about this? I'd like to know. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Business Partnering

According to Wikipedia, the free, on-line encyclopedia,

Business partnering is "the development of successful, long term, strategic relationships between customers and suppliers, based on achieving best practice and sustainable competitive advantage." (Lendrum, T., The Strategic Partnering Handbook, A Practice Guide for Mangers, McGraw-Hill, Nook Company, 1997, ISBN 0074708791.)

This is crucially important for entrepreneurs, particularly in the early stages of their business when they need all the help they can get. It's also important as you're trying to cut costs to control costs and boost sales. grow.

You have to have partners. Partners allow you to fulfill your responsibilities to your customers, but if you work to develop them they will give you an information and opportunities you would never have been able to realize otherwise. It just makes business more fun if you go through it with somebody else.

What do you think about this? I'd like to know. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Culture and Spirit

Back in June, I wrote this:

Those who manifest the entrepreneurial spirit, display five common traits, says an article in Entrepreneur.com. They are: (1) passion; (2) "positivity" or positive thinking; (3) adaptability; (4) leadership; and (5) ambition. There are other characteristics noted, but these work very well. I'll have more traits to list next time.

Since then, I came across this, from the Institute for Enterprise Education. It was up as of May 17, 2008, but I tried to find it on the web, and it couldn't be found. For what it's worth, the address is www.entreplexity.ca/cfe/constituents.htm.

The IFEE lists "Six Constituents of an Entrepreneurial Culture":

1. The most effective way to change an existing organizational culture is by creating individual units on the edge of organizational structures.

2. In order to transform existing cultures, we must first begin with the mindset of its people. By identifying their individual meanings, beliefs and values and combining these with their interests, strengths and talents, we can begin to align the person's individual purpose with the leader's compelling vision.

3. The entrepreneurial vision must be powerful enough not only to sustain this transformation, but must also inspire confidence and trust by allowing each of these units enough freedom and flexibility in order to develop, grow and compete in today's complex, chaotic and rapidly-changing global environment.

4. As individual profit centres, each unit provides opportunities for more effective resource allocation and a stronger customer focus.

5. Employees think and act as entrepreneurs, leading to a greater degree of involvement and freedom to create their individualized networks.

6. As the number of these entrepreneurial units increases, more leaders are needed to drive these enterprises. A strong entrepreneurial culture creates leaders from within.

The page goes on to display a visual representation of what it calls "entreplexity," which I suppose is shorthand for "entrepreneurial complexity," which is trademarked.

There's a lot to think about in here. If you want to create an entrepreneurial culture, this is a good place to start.

Words such as "develop," "grow," "think," "act," "creating," "inspire," "trust" resonate well with me.

What do you think about this? I'd like to know. Post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Understanding

Wikipedia, the free, on-line encyclopedia, describes understanding as

A psychological process related to an abstract or physical object, such as, person, situation, or message whereby one is able to think about it and use concepts to deal adequately with that object. An understanding is the limit of a conceptualization. To understand something is to have conceptualised it to a given measure.

Understanding is key for entrepreneurs. Entrepreneurs have to understand themselves. They have to understand people. And they have to understand the world around them.

Now the self, the world, and other people are not static. They're always changing, more so as we go forward. So entrepreneurs have to develop the tools to re-understand all of the above almost every day. If they don't, they'll be swimming upstream in a rapids.

What do you think about this? I'd like to know. And post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Thinking like a Warrior

Entrepreneurs face challenges. Challenges are what make real entrepreneurs come alive. "May we live in interesting times," says one observer. These times are certainly interesting.

To Abigail Adams, a founding mother and wife of John Adams, the founding father, is (as carefully as I can paraphrase it) attributed the following words: "These are the times when genius loves to live." Well here we are. An entrepreneur thinks like a warrior rather than as a victim. A victim, when faced with adversity, says, "Why does this have to happen to me?" A warrior says, "Let's see what I can do to overcome this." Think like a warrior, folks, who sees problems as obstacles to overcome.

What do you think about this? I'd like to know. Read the entire Wikipedia article and the references cited there. Also Google it. And post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Semiotics

From Wikipedia, the free, on-line encyclopedia, we have:

Semiotics, also called semiotic studies or semiology, is the study of sign processes (semiosis), or signification and communication, signs and symbols, both individually and grouped into sign systems. It includes the study of how meaning is constructed and understood.

One of the attempts to formalize the field was most notably led by the Vienna Circle and presented in their International Encyclopedia of Unified Science, in which the authors agreed on breaking out the field, which they called "semiotic", into three branches:

Semantics: Relation between signs and the things they refer to, their denotata.
Syntactics: Relation of signs to each other in formal structures.
Pragmatics: Relation of signs to their impacts on those who use them. (Also known as General Semantics)
These branches are clearly inspired by Charles W. Morris, especially his Writings on the general theory of signs (The Hague, The Netherlands, Mouton, 1971, orig. 1938).

Semiotics is frequently seen as having important anthropological dimensions, for example Umberto Eco proposes that every cultural phenomenon can be studied as communication. However, some semioticians focus on the logical dimensions of the science. They examine areas belonging also to the natural sciences - such as how organisms make predictions about, and adapt to, their semiotic niche in the world (see semiosis). In general, semiotic theories take signs or sign systems as their object of study: the communication of information in living organisms is covered in biosemiotics or zoosemiosis.

Syntactics is the branch of semiotics that deals with the formal properties of signs and symbols. More precisely, syntactics deals with the "rules that govern how words are combined to form phrases and sentences." Charles Morris adds that semantics deals with the relation of signs to their designata and the objects which they may or do denote; and, pragmatics deals with the biotic aspects of semiosis, that is, with all the psychological, biological, and sociological phenomena which occur in the functioning of signs.

Why should entrepreneurs care about this? Simple. Because they're interested in what things mean to people. They want their products to be labelled, "tagged" such that they mean something significant in people's lives.

The classic example of a marketing blunder was to market the Chevy Nova, a car, in Spanish. Nova, in Spanish, means "No go." So they were selling a car that they said wouldn't start. That's definitely a No Va.

Or, you don't want to call your product something that means "Stupid idiot" in some language outside of English.

Anyway you need to think about what things mean to people. You may actually find out something about what things means to you.

What do you think about this? I'd like to know. Read the entire Wikipedia article and the references cited there. Also Google it. And post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. The ideas in it supply the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.

Disruptive Technology

Wikipedia, the free, on-line encyclopedia, says a disruptive technology is

A disruptive technology or disruptive innovation is a technological innovation that improves a product or service in ways that the market does not expect, typically by being lower priced or designed for a different set of consumers. A disruptive innovation ignores the currently popular definition of what counts as quality and creates a new definition.

Disruptive innovations can be broadly classified into low-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption (i.e., consumers who would not have used the products already on the market), whereas a lower-end disruptive innovation is aimed at mainstream customers for whom price is more important than quality.

Disruptive technologies are particularly threatening to the leaders of an existing market, because they are competition coming from an unexpected direction. A disruptive technology can come to dominate an existing market by either filling a role in a new market that the older technology could not fill (as cheaper, lower capacity but smaller-sized flash memory is doing for personal data storage in the 2000s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has largely replaced film photography).

In contrast to "disruptive technology", a "revolutionary technology" introduces products with highly improved new features into the market, such as the automobile or telephone. A "sustaining technology or innovation" improves product performance of established products. Sustaining technologies are incremental.

The literature tells us that innovations that are successful generally don't require users to completely change what they're doing. The best ones are those that help people do what they are already doing but more conveniently, easily, or cheaply. for example, accounting software allowed millions of tax payers who already did their own taxes to do them better and more quickly. That doesn't mean there can't be some learning to do.

What do you think about this? I'd like to know. Read the entire Wikipedia article, then post a comment.

Entrepreneurship 2.0 is my entrepreneurship course. It supplies the life's blood of my professional activities: teaching, writing, and real estate. For entrepreneurial real estate go to www.yourstopforrealestate.com/blog and for entrepreneurial writing to www.kearneymusicschoolmurders.blogspot/com.