Strategic Exploration of Entrepreneurial Directions
INTRODUCTION
This simulation is designed to explore the strategic analysis and planning of an entrepreneurial opportunity. This involves you with:
§ Appraising the Opportunity
§ Planning the Enterprise
§ Exploring the Planning Process
§ Knowledge Management
§ Time Management
§ Business Research
§ Financial Issues & Strategy
§ Marketing & Customer Strategy
§ Operational & Resourcing Strategy
§ Funding the Enterprise
Because of time limitations to save time a microcomputer performs most of the necessary calculations and provides you with market research information and business advice. This means that you can concentrate on appraising the opportunities and creating your business plan.
THE SIMULATION
The simulation consist of several elements:
Initial Familiarisation
Appraising the Entrepreneurial Opportunity
Planning the Enterprise
Ratifying your business plan
Comparing and discussing with the other groups
Initial Familiarisation consists of a briefing, reading and analysing the contents of this document and preparing for the task. This preparation might include organising the group, deciding the business objectives for your enterprise and deciding how to approach the task. We suggest that you also become familiar with the computer and software and the information provided with it.
Appraising the Entrepreneurial Opportunity involves using the computer to analyse several entrepreneurial opportunities and deciding which to focus on. This involves researching each opportunity and evaluating their relative strengths & weaknesses.
Planning the Enterprise involves making several business plans and entering these into a planning model that forecasts their outcomes. You must evaluate these outcomes to find the strengths and weaknesses of your plan, what extra information you need and where you might improve your plan.
Ratifying the Plan involves deciding when the plan is optimum or when you feel that there is insufficient time to improve it. When you do this, the simulation software analyses your plan and comments on it. (However, you will not be allowed to ratify any plan until you have produced one that seems viable.)
Review and Discussion: during the earlier stages of the simulation you worked in small groups. For the review and discussion these groups come together and you have the opportunity to compare plans and justify your choice of options. Also, you should consider the risks associated with your plan.
PROLOGUE
Once upon a time there was a final year cross faculty project involving three students - an engineer, a mathematician and a medical student. Between them they developed a device to help with the diagnosis of small children (between two and five years old). They developed the Cuddl-MD - a soft toy with internal electronics that communicate wirelessly with a PC. The PC takes the child's speech and using especially developed and patented speech recognition software translates it. Intelligent software in the PC interprets this and poses questions for child. These are transmitted back to the Cuddl-MD that asks them in an unthreatening way about their ills.
All, this was successfully accomplished, but unfortunately there were two insurmountable problems. First, it was impossible to sterilise the Cuddl-MD between children economically. And, second, there was a degree of screaming and kicking when the child was asked to give up the Cuddl-MD.
THE OPPORTUNITIES
Having done all this work the students were loathed to give up the Cuddl-MD and so decided to think about other markets for it. After much thought it was decided that there were three possible markets:
Early learning for small children
A companion for the aged
A way to help autistic children
In Early Learning, the Cuddl-MD would become the Cuddl-Etoy and provide an intelligent toy that would encourage the child to learn by holding erudite conversations with it.
As a Companion, the Cuddl-MD would become the Cuddl-Epet for the aged. A pet that the old person could converse with and stroke but without the disadvantages or work associated a real animal.
For Autistic Children, the Cuddl-MD would become the Cuddl-Epal and would be infinitely patient with the child, help socialise the child and build its communication and concentration skills.
All these markets would use the same hardware (soft toy & electronics - referred to as the Cuddl-E) but different computer software, instructions and packaging.
THE BUSINESS SITUATION
When analysing the entrepreneurial opportunities you must consider:
Funding
Clicks & Mortar Distribution
Product & Manufacturing
Marketing & Promotion
Human Resources
Physical Resources
FUNDING
The Cuddl-E enterprise must be funded and this can be from these sources:
The Students
Venture Capital
The Bank
The students, despite their time at University still have some savings and these amount to £10,000 each.
The three students are cousins and have a mutual Great Aunt (Aunt Eugenia or Aunt-E) who is very wealthy having created and run several companies. Aunt-E may be willing to provide venture capital but will require equity. The amount of venture capital that Aunt-E provides will depend on the share of the business she owns and the attractiveness of your plan. Also, as Aunt-E is now retired and rather bored, she is willing to provide advice and comments on your business plan (but only to a limited extent).
The bank is another source of funds and may provide loans and overdrafts. But, it is unlikely it will provide the bulk of the funds you need.
CLICKS & MORTAR DISTRIBUTION
The Cuddl-E can be sold either by a web site, through conventional retail outlets or both.
Web Sales
If the Cuddl-E is to be sold via the web a site must be set up and hosted and payment methods decided. There are the following options:
Basic Information only
Basic Credit Card site
Full Shopping Cart site
Basic Information only is the cheapest site to set up but customers cannot order online. Rather they must order via mail and send payment with the order. This site will cost £500 to set up with monthly hosting costs of £10.
Basic Credit Card site costs a little more but Credit Card orders are possible. These are processed through a third party who ensures secure payment and charges a 10% commission. This site will cost £1000 to set up with monthly hosting costs of £10.
Full Shopping Cart site is the most expensive site to set up and run but it provides full Credit Card facilities and the bank commission on these is only 2%. This site will cost £5000 to set up with monthly hosting costs of £100.
If you decide to sell via a web site you must make delivery within four weeks of order and set a price that includes delivery costs.
Retail Sales
This involves selling the Cuddl-E to suitable retail outlets or wholesalers at a substantial discount. The outlets will hold inventory and sell the product to their customers.
If you decide to sell via retail outlets you must set a price for the retailers and a recommended retail price. You may sell to the retailers via wholesalers or directly using your own sales people or agents. Also, you may offer prompt payment discounts.
THE PRODUCT & MANUFACTURING
Components
The Cuddl-E consists of the following components that are bought and assembled:
Soft Toy
Electronics Sets
Software (on CDROM)
Instructions for Use
Packaging
Soft Toy is a teddy bear or similar. (The range you can offer are one or more of three types of teddy bear (standard, pink and brown), a cat, dog, rabbit and mouse.)
Electronics Sets consist of an electronic module inserted into the soft toy, a mains power supply (to recharge the Cuddl-E) and an interface to plug into the microcomputer and provide wireless communication between the Cuddl-E and the microcomputer. These are purchased ready assembled as complete sets.
Software (on CDROM) consists of the software required to code and decode the signals to and from the Cuddl-E, for speech recognition and voice synthesis and to provide appropriate conversation with the child or elderly person.
Instructions for Use explain how to set up and use the Cuddl-E.
Packaging consists of a box for the Cuddl-E. There are two types: a plain box and a box with fancy printing and this should increase retail. Besides the display boxes there are outer packages - one for direct sales via the web and the other (holding four Cuddl-Es) for shipping to retail outlets or wholesalers.
Assembly
To make a Cuddl-E, the back seam of the Soft Toy is slit and the electronics inserted. The seam is refastened and the Cuddl-E tested. Finally the Cuddl-E, the mains power supply, microcomputer interface, software and instructions are placed in the packaging.
Outworkers employed by you can assemble the Cuddl-E or a local factory can make them for you. If you use outworkers you must purchase the raw materials and schedule production. If you get the local factory to make them, it will purchase the raw materials and schedule production. However, with factory production you have less control over the scheduling you will need about two weeks extra finished inventory.
MARKETING & PROMOTION
You will need to select the market to sell to, the distribution channel(s), how to promote it to these. Promotion, as appropriate, includes:
Direct Selling
Advertising
Public Relations
Web Design
Point of Sale Display
Packaging
Direct Selling involves using a sales person or agent to sell to retail outlets and ensure that they purchase and stock your Cuddl-Es. If you only sell via the web or distribute through wholesalers you will not need a sales person or agent.
Advertising involved building awareness of your offering to retailers and, if appropriate, your web site.
Public Relations involves providing newsworthy stories to the press via a PR consultant. If you decide to do this you can do it when you launch the product, just before Christmas or at both times.
Web Design involves the flashiness of your web site. The web site development costs described so far assume that site is quite utilitarian. But for extra cost you can add graphics, music, animation etc.
Point of Sale Displays are posters to help attract customers to your Cuddl-Es in the retail outlets.
Packaging may be a clear fronted, fancy box or a plain box.
HUMAN RESOURCES
The enterprise must be staffed in these areas:
Executive
Administrative
Accounting
Selling
Production
Executive staff consists of the three students and each of whom must be assigned a different functional directorship (Finance, Marketing & Operations). Besides deciding functional responsibility you must decide their salary. Initially, until the workload becomes too great the three directors will do all the work. Eventually, staff will be hired to do the administrative, selling, accounting and production work.
Administrative staff is responsible for answering the phone, filing & record keeping and handling web orders. Semi-retired people or reasonably intelligent school leavers may do this on a full time or part time basis.
Accounting staff is responsible for invoicing customers, paying suppliers, paying staff & outworkers, keeping books, completing VAT returns and producing annual accounts. This will be done by bookkeepers (employed by you) or by your accountants for a fee.
Selling staff is responsible for selling to the retail outlets and only will be employed if you decide to sell to these. You may employ the sales person or you may use an agent (who is self-employed and paid on the basis of sales made and the number of outlets.)
Production staff makes the Cuddl-E and only will be employed if you use out-workers (working in their own home)).
Administrative, accounting and selling staff are employed when the workload warrants it.
PHYSICAL RESOURCES
You will need equipment and accommodation for the enterprise. Equipment consists of:
Office Equipment
Production Equipment
Transportation
Office Equipment consists of furniture, phones and computer hardware. The amount required depend on the number of workers (part times will share). It is up to you to decide whether you will opt for basic equipment (bottom end computers and second hand furniture), middle (middle end computers and basic office furniture) or top (powerful computers and deluxe furniture). Further, you can decide to lease or buy.
Production Equipment consists of a microcomputer to test the Cuddl-E. If outworkers make the Cuddl-E, each outworker needs a microcomputer. This can be purchased or leased for them or you can pay them extra to use their own microcomputer. If the local factory makes the Cuddl-E, it will use its own equipment.
Transportation consists of cars for the executive staff and, possibly, sales staff. These can either use their own cars and be paid on a mileage basis or new cars can be leased.
Accommodation ranges from a small office to a large office. Accommodation needs depend on staffing.
PLANNING
Planning involves making several planning decisions and obtaining business advice and information. When you have done this, the microcomputer will forecast the impact of the decisions and provide the required information & advice.
Planning Clock
As in the real world, forecasting the impact of decisions and getting information takes time. Here, each time you confirm and submit your decisions and information requests, a month will pass and you incur costs of £500.
This means that you must prioritise your activities. As your plan develops it should improve; however, time will be passing and costs mounting. So, you must balance improving knowledge and your plan against being fast to market.
As a guide, starting in January, we suggest that you should spend at least five months planning and be concerned if you need to spend more than eight. In other words, you should not ratify your plan before June or delay ratification much beyond August (you must ratify the plan before the start of November). However, having said this, the actual timing is up to you and it is quite possible that you may require more or less time to create your plan. Further, it may be better to think and discuss carefully before you decide on a month's plan rather than rush ahead and test different plans.
Ratifying the Plan
When you are happy with your plan, or have run out of time, you must ratify it. When you do this you will be required to enter the plan that you feel is best and allocate functional directorships to the three students. After you do this, your plan will be evaluated, commented on and Aunt-E will tell you whether she will let you have the venture capital you want or not.