Business Basics for EntrepreneursBy: Jarie BolanderAn eBook Based on The Daily MBA Series

Business Basics for EntrepreneursContents1 Introduction: Business Basics for Entrepreneurs42 Topic #1: What is Business Anyway?53 Topic #2: Business Structures74 Topic #3: Business Ethics105 Celebration Of Knowledge #1126 Topic #4: Marketing Basics157 Topic #5: Target Marketing188 Topic #6: Marketing Promotion Strategies219 Topic #7: The Basics of Economics2410 Celebration of Knowledge #22811 Topic #8: Accounting Basics3112 Topic #9: Financing3513 Topic #10: Financial Models3914 Celebration Of Knowledge #34215 Topic #11: The Sales Role4516 Topic #12: Business Development4817 Topic #13: Negotiating5018 Topic #14: Tactics, Strategy and Grand Strategy5319 Celebration Of Knowledge #45520 Topic #15: Research & Development5821 Topic #16: Intellectual Property6122 Topic #17: Product Launch / Management6523 Topic #18: Operations / Manufacturing6824 Celebration Of Knowledge #57125 Topic #19: Managing People7426 Topic #20: Doing Business Internationally782Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurs27 Topic #21: Organizational Structures8228 Topic #22: Legal Aspects of Running a Business8629 Celebration Of Knowledge #69030 Bonus Topic: Public Relations9331 Bonus Topic: Starting A Business9632 Bonus Topic: Business Startup ChecklistCopyright c 2011 Jarie Bolander1023

Business Basics for Entrepreneurs1Introduction: Business Basics for EntrepreneursFor me, learning is a series of small steps. Each one, a fragment of the whole. The whole the sum of thefragments. That’s the way Business Basics for Entrepreneurs will approach each topic – small, incrementalsteps leading toward a layered knowledge. Business Basics for Entrepreneurs is designed to be done in15-30 minute pieces. This allows the reader to learn the topics in manageable chunks. The key is to spend15-30 minutes a day engaged with the material.1.1The CoreEach section presents a different topic. The order of the topics is what I consider the logical order requiredto build your knowledge. This approach makes it much easier to grasp concepts that you may not befamiliar with. After every couple of topics, there is a Celebration Of Knowledge (COK), which reviews thepast few topics learning (I hate tests and quizzes. Celebrations are so much better) These are meant asguild posts on your journey – natural places to check in to see how you are progressing.1.2OrganizationThe topics are organized into sections with a total length between 500 and 1500 words (2-5 pages) – justenough to grasp the basics. Each topic has the following sections: Talking Points: The main points of the post. These will generally correspond to the main textheadings. Discussion: The core discussion of the post. The talking points from above will be broadened outand explored. Things To Ponder: Exercises that reinforce the material. Exploring Further: Books, web sites or articles that dig deeper into the subject.1.3Who is this for?A lot of people are scared of business but creative types are down right terrified of it. Creatives squanderopportunity after opportunity because they fear business. This fear stems from their overwhelming desireto just create and not deal with the ugliness of selling their creations. This series is geared toward thebudding entrepreneur that is either an artist, writer, scientists or engineer who struggle everyday to graspthe basics of business and sell what they create. One thing to remember is that business is not that hard– it’s just a different way of thinking. You don’t have to sell out or compromise to be successful. The trickis to understand what you want out of a venture and move towards those goals. The best way to do thatis to get the basics down before you jump in.1.4Time To StartNow that you have the outline of the series, it’s time to begin. Business Basics for Entrepreneurs goesthrough 22 topics (with a couple of bonus ones thrown in at the end, only available in this eBook). At theend of those 22 topics, you will have learned the basics of business and how to manage one. With thesebasics down, practicing management and doing business everyday will feel natural and productive. Let’sbegin!4Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurs2Topic #1: What is Business Anyway?2.1Talking Points An organization consisting of one or more people providing goods or services for the benefit ofcustomers and the community Groups of organizations that produce or sell similar goods or services The transitions that enable producers to sell to customers A legal entity that can generate and consent to contracts in order to produce goods and services Also known as a firm or enterprise All businesses have objectives that are summarized in their mission, vision and values statements2.2DiscussionWhat is business? We interact with them daily, yet putting into words the core of business is daunting.The term business has many definitions from the practice of to the type an entity is engaged in. A businesscan be as small as a single person or as large as a multinational conglomerate. They are as diverse as thepeople who run them. At the core of a business is some goods or services that is offered to customers. Allbusinesses provide some form of product or service to someone. Most, provide them for profit.2.3For our PurposesIt’s important to define what a business is before we discuss how to manage them. All our discussions willtie back to this definition. This series will use the follow definition for a business:Business: An organization of one or more people providing goods or services for the benefit ofcustomers and the community.Notice that our definition does not include profit. This is an important point. Some business dogenerate profit but there are several others (government, education and non-profits) that provide valuablegoods and services for no profit. Without these organizations, society would not function. The principlesin this series will apply to all businesses since, fundamentally, they all serve a customer. Another aspectof the definition is the inclusion of community. All businesses impacts the community. Businesses createjobs, provide essential services and pay taxes. Without a thriving business base, there is no community.That’s why a business also needs to understand its impact on the community. Now that we have definedwhat a business is, we can now figure out how to manage them. The first step is to clearly define what theobjectives are. These objectives are summarized in four statements: Mission, Vision, Values and Mantra.2.4MissionMission statements describe the reason the company exists. It focuses on the present and is used to alignthe firms employees to a common cause and to communicate that cause to the public The mission statementshould clarify the organizations purpose.2.5VisionVision statements describe the future the company wants to pursue. It’s the future state that the businesshas not yet achieved. Most vision statements are long term (10 years or longer). Vision is the big ideasthat the company aspires to.Copyright c 2011 Jarie Bolander5

Business Basics for Entrepreneurs2.6ValuesValues are what the business believes in. Values define how they want their employees to behave. Thecompanies values are how it conducts business and how it treats employees, customers and the community.These tenets guide the everyday operations of the business so that the mission can be sustained and thevision can achieved. Without a well defined mission, vision and values a business will be impossible tomanage. These statements are the guiding principles in which all business decisions are made.2.7MantraGuy Kawasaki (see below for the whole article) likes mantras instead of a mission statement. His thinkingis that a mantra is easily remembered, short and focuses on your real core. Mantra’s need to be shortsince they are an object of concentration during a prayer, mediation or incantation. Having a well craftedmantra that is easily remembered is a great addition to a formal mission statement.2.8Things To Ponder1. What’s the Point? Visit some of your favorite businesses and figure out why they exist. Do theyhave a mission statement? What do they stand for? Ask the owner what they think.2. Work for Free: Think about what you would do for free. What organizations do that? Would youwork there for free?3. Community Impact: List three or four businesses that have both positive and negative communityimpact. What keeps both types in business? Write a sentence as to why they are positive or negative.4. Mission, Vision and Values: Look up some mission, vision and values statements and choose thebest and worst. Write a paragraph on each one explaining why they work or totally miss the mark.5. Mantras: Research some corporate mantras. How do they compare to the mission statement?Which is easier to remember?2.9Exploring Further Wikipedia business Sample mission statements A good description of corporate values Guy Kawasaki Mission vs Mantra6Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurs3Topic #2: Business Structures3.1Talking Points Non-Profit vs For Profit has tax and ownership implications Sole-Proprietors (including a partnership) controls their own destiny including any liability. Limited Liability Companies (LLC) vary state by state. They provide liability protection to owners. S Corporations are limited to US citizens and a limited number of stock holders. Limited Liability Partnerships are usually reserved for professionals like lawyers, doctors, venturecapitalists or architects Corporations issue stock and have a board of directors that provide oversight.3.2DiscussionSelecting a proper business structure can be daunting. There are so many tax, liability and investorconsequences that sorting through it all can make your head spin. Before you settle on a specific structure,you should seek advice of a lawyer or business professional just to make sure you have not missed anything.This topic will go over the different structures and what they do. Things to consider when choosing astructure include:1. Is it for Profit or Not? This will determine your tax status, ownership and how your governanceis setup2. What is the Liability Profile: Liability is anything that you could get sued over. Protectionagainst liability can either be the entity has limited liability or you have insurance to cover anyissues.3. Will you have Partners? If you plan on having partners, then you need to consider who ownswhat, the management structure and responsibilities.4. Do you need Investment? Outside investors will want some control over their investment. If it’sa company that requires venture capital, then they most certainly will want a Delaware corporationand a board seat. Other investors may just want to be “silent investors” which means they wantperiodic updates but don’t worry too much about the day to day operations.5. Will you Operate and Grow or Just Hold Assets? Some structures are ideal for holdingassets (like real estate or an investment pool) while others make it possible to operate and grow abusiness. The tradeoff usually has to do with taxes (losses due to depreciation) and investors (takinginvestment to build a product).Keeping those questions in mind, lets take a look at the structures you have to choose from. They are:3.3Sole-ProprietorIs a single person business. You don’t need to file anything with the state or federal government to start.You just start doing business. There are local permits or licensing depending on your city, county or state.In this structure, the business and the person are one. That means that all losses, profits and liability arethe owners.Copyright c 2011 Jarie Bolander7

Business Basics for Entrepreneurs3.4PartnershipOne or more persons that agree to engage in a common business activity is called a partnership.Traditionally, these are professional people (lawyers, doctors, architects, etc.) that form a firm to practicetheir craft. It’s similar to a sole proprietor except there are multiple people. The same losses, profits andliability rules apply. There are Limited Liability Partnerships (laws vary from state to state). The LLPis similar to an LLC (see below) except the limited partners don’t run the day to day operations of theLLP. They are complicated to setup and usually reserved for investment funds and the professionals listedabove.3.5CooperativesThese entities are groups of people who come together and run the business like a democracy. All decisionsare made as a group of equals. Most states have specific laws on how to form a co-op. Check with yourstate for specifics. This type is not that common, so consult a lawyer for specific questions.3.6Limited Liability Company (LLC)As the name implies, the LLC protects the owners from liability. If your business may have liability issues,then an LLC or Corporation is your best bet. These entities are created state by state, so check yourstate LLC laws. Each state has different tax laws as well as reporting requirements. This structure hasmostly replaced the S-corporation since it’s easier to setup and manage. From a tax perspective, LLC’s aretreated like partnerships (or sole-proprretors) where the loss and profit are passed through to the owners.Usually, an LLC is managed by an appointed manager that takes care of the day to day operations. Otherowners can be involved in the business but typically play an advisory role or no role at all.3.7C-CorporationC-corporations are the most formal of the structures. They require a board of directors, annual meetingsand stockholder reports. A corporation is basically a separate legal entity that stands on it’s own.Which means it can sign contracts and own assets. It can go on forever as long as it meets reportingrequirements. Corporations are also taxed separately from the owners which is referred to as “doubletaxation”. Corporations issue stock and can have a wide variety of different stock types including commonand preferred. These entities are the preferred structure for raising money via venture capital or the publicmarkets.3.8S-CorporationLike the C-Corporation, it has to elect a board of directors and have annual shareholder meetings. Thereis a limit to the number of owners and who can own stock. For example, a company cannot own stock inan S-Corp. The profits and losses pass through to the owners like an LLC, so there is no double taxationlike a corporation. The S-Corp is not used as much since the LLC provides the same benefits with lessoverhead and restrictions.3.9Non-ProfitsAs the name implies, this structure does not make a profit. More specifically, any profit is put back intothe organization. There are many different types of non-profits. They are governed by the IRS code501(c). The most common is 501(c) 3. Another thing about a non-profit is that the assets are owned8Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneursby the non-profit. There are no stockholders. Everything is done for the beneficiaries of the non-profit.Therefore, if the non-profit stops operations, the assets must be donated to another non-profit.Now that you understand the specific types of entities, go ask yourself the questions about and seewhich one fits your business. Remember that setting up the right structure is important. If you have anyquestions, seek advice from a lawyer.3.10Things To Ponder1. Write a paragraph on your businesses most likely liability. How big a deal is it? What structuremight protect you the best?2. List three for profit and three non-profit businesses. Write a sentence or two as to why they choosethat structure.3. Look up your states LLC laws. How do they compare to the rest of the US? What state would bethe best place to start an LLC from a tax view, operating view or liability view?3.11Exploring Further Great chart on Business Entities Business Structures post on The Daily MBA Nolo Press article on the different business structures This IRS site has a great article on tax implications for businesses IRS 501 C codeCopyright c 2011 Jarie Bolander9

Business Basics for Entrepreneurs4Topic #3: Business Ethics4.1Talking Points Maximizing shareholder wealth at what cost Ethics knows no boundaries, be it physical or emotional Just because it’s legal does not make it ethical. The MBA Oath is a great start The shift to maximizing stakeholder value4.2DiscussionEthics is an important part of any profession. The way practitioners of the art behave says volumes aboutthe profession. When it comes to business, there has been a serious lack of an ethical cannon. This hashurt the profession. Ethical standards form the foundation in which a profession is built on. Without aclear ethical cannon, anything goes. This “free for all” is ripe for gaming and breeds behavior that soilsthe profession.4.3Leadership Has ResponsibilitiesThe manager is someone who people follow. The example she sets ripples throughout an organizationas well as the community. Poor behavior and loose ethics creates environments where it’s acceptable tocheat, lie and steal as long as the ends justify the means. As unethical attitudes proliferate, other people,outside of management, copy these behaviors. Inevitability, the environment reaches such a toxic statethat institutions start to breakdown.4.4The Shift to Corporate Social ResponsibilityThere has been some debate as to the real purpose of a business and now it should interact with society.Milton Friedman’s 1970’s article in The New York Times Magazine stated that “there is one and only onesocial responsibility of business–to use its resources and engage in activities designed to increase its profitsso long as it stays within the rules of the game, which is to say, engages in open and free competition withoutdeception or fraud. ” Many people disagree with this approach since it really does not take into account thebroader impact of a business or industries operations. The best example is global climate change and howthe selling of fossil fuels affects the worlds climate. The impact of maximizing oil company profits has leadto global climate change that injuries society in irreversible ways. Corporate Social Responsibility (CSR)has increasing appeal to shareholders because of the social shift to being more sustainable. Some europeancountries (like Denmark) have a CSR law that requires companies to either state their CSR policy or listthat they don’t have one. CSR has its critics. The main argument being that some corporations will haveCSR programs just for Public Relations (PR) reasons. Not exactly the most ethical way to behave.4.5Self RegulationThe MBA Oath movement has brought the debate about business ethics back to the individual. Companiesare made up of individuals and if those individuals behave ethically, then the company will behave ethically.This makes a lot of sense since a company is really not a living, breathing thing. It’s a construct createdby law to hold assets and engage in actives that benefit it’s creators. The MBA Oath transcends the10Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurscorporate structure and puts the responsibility for ethical behavior on the people running it. Their mainethos is to “create value responsibly and ethically.” The voluntary oath has eight points that center aroundthe responsibility of a manager to society, company and individual workers. Individuals have to make thechoice to behave ethically. No law or outside regulatory body can truly enforce ethical behavior. It has tocome from the individuals sense that behaving ethically is good for society and good for business.4.6Things To Ponder1. Write a paragraph on your ethical foundation. Where do you think it came from?2. Research three ethical dilemmas like a whistleblower, turning in an alleged criminal or using poorlywritten contracts to swindle. How would you handle the three you researched? Why do you thinkthe persons involved did what they did?3. Recount three times where someone has broken your trust or did something unethical to you. Howdid you feel? What part of the behavior gave you the most problems?4. Look up three companies you do business with. Do they have a corporate social responsibility policy?5. List three business leaders you respect and admire. What are their ethics?4.7Exploring Further Wikipedia page on business ethics Milton Friedman’s article on Social Responsibility of Business Center for Business Ethics at Bentley Ethics World The MBA OathCopyright c 2011 Jarie Bolander11

Business Basics for Entrepreneurs5Celebration Of Knowledge #1Welcome to your first Celebration Of Knowledge (COK). I came across this term in of all places a motorcycletraining class. The instructor had the same aversion to tests as I do. So, he created the Celebration OfKnowledge to celebrate that you know instead of what you don’t. Each of the COKs has questions thatare based on the previous posts since the last COK. The answers are included as well. Now, lets celebratewhat you learned!5.1According to the Daily MBA, what is the definition of a business?A To make as much money as possibleB To maximize shareholder wealth.C An organization of one or more people providing goods or services for the benefit of customers andthe community.D An organization that produces goods and services for sale to customers.5.2What are the three statements that broadly define a business?A Mission, Vision and EthicsB Vision, Values and CommunityC Ethics, Values and Business planD Mission, Vision and Values5.3In terms of taxes, what is the difference between a C-Corporation and an SCorporation?A C-Corporations are taxed separate from individuals.B S-Coroporations are taxed separate from individuals.C There is no difference.D C-Corporations pass through profits and losses to their owners for tax purposes.5.4Which part of the IRS Code deals with non-profits?A 505 (A)B The non-profit business codeC 501 (C)D 401 K12Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurs5.5CSR stands for:A Collect Samples and ReceiptsB Corporate Social ResponsibilityC Center for Social ResponsibilityD Corporation for Scientific Research.5.6The main ethos of the MBA Oath is:A Create value responsibly and ethically.B Win at all costs.C Create value for shareholders.D Business is meant to build products and services to sell.Copyright c 2011 Jarie Bolander13

Business Basics for Entrepreneurs5.7Answers1 C2 D3 A4 C5 B6 A14Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurs6Topic #4: Marketing Basics6.1Talking Points A market is anyplace where goods and services can be exchanged The Marketing Mix (The 4 P’s): Product, Price, Promotion and Place Find the customer pain and cure it profitability Marketing focuses on the needs of the customer while sales focuses on the needs of the company. Define the product by curing the customer pain then confirm the market really exists. Marketing is not an exact science. It’s a mix of data, trends and gut.6.2DiscussionElmer Wheeler has the probably the most famous sales line: sell the sizzle not the steak. If sales sellsthe sizzle then marketing figures out the cut. Marketing is all about customer needs not convincing themto buy it (well, maybe a little of that too). The traditional foundation of marketing centers around the 4P’s: Product, Price, Promotion and Place. These 4 components are essential to any marketing plan.There are others (See the Seth Godin reference below) but for our discussions, we will focus on these.6.3ProductBefore you can sell anything, you to define and build something. The product or service is what you wantto sell to customers. The features, functions, look and feel need to be well defined to meet your customersneeds. Many a product has failed because it was ill defined. Getting the product or service right willrequire understanding:1 What do they do now?: Understanding the present state will reveal gaps of opportunity. Askquestions about what the customer does now. Chances are, you will start to see what they can’t see– places where a properly defined product can fit in.2 Who are their customers?: If your gadget or service helps your customer service their customers,then get to know their customers. How do they use the existing product? What pain to they feel?3 Survey the entire ecosystem: This includes looking at everything that might interact with yourproduct. This can sometimes be tough but strive for completeness since there are hidden gems to befound.6.4PricePrice is a sticky wicket. Coming up with a price that is both profitable yet competitive is an art. Mostpricing centers around two methods (there are others but these are good for now):1 Cost Plus Pricing: Cost plus pricing is just that. You figure your cost and then add some percentmargin on top. This type of pricing is usually done with well established, commodity products.Industry norms usually dictate the margin.Copyright c 2011 Jarie Bolander15

Business Basics for Entrepreneurs2 Value: Value pricing looks at the value to the customer. This value could be the worth of eachfeature or how much the customer saves by using your product. The trick here is to figure out whatthe customer values and how much it’s worth to them.Competitors also have a lot to do with price. Your product or services price must be competitive orthe value so significant that your customers will pay the premium. Companies do “price themselves out ofthe market” by poor pricing practices.6.5PromotionNow that you have a great product with stellar pricing, you now need to tell people about it. That’s whatpromoting is all about. Traditionally, this meant big budget, multimedia (print, TV) promotion campaignsor roll outs. Now, the savvy marketeer targets her promotion to the exact people that will buy (more onthat in Target Marketing). Promotion is all about leaving a positive impression on your customers thatyour product or service fills a need, cures their pain or satisfies a want. The marketing message can be “inyour face” or subtle. Either way, it’s all about leaving a positive (or negative competitor) impression.6.6PlacePlace is the market where you sell your product. Properly defining the place takes more effort than youmight think. Markets are composed of submarkets. Those submarkets break into still more sub-submarkets.This goes on until you segment down to the individual (which nowadays gets easier to do). We will dealmore with place when we discuss Target Markets. Place also includes competitors. A couple of items totake a look at related to competitors include:1 Current Product Offerings: Take a look at the present state of the market and figure out whatis out there. Try and narrow down the features to their core. Then, expand from there.2 Competitor Roadmaps: If you can get ahold of them, see where they are heade3 Their roadmaps may be customer driven or maybe technology driven but it should signal the directionthey think the market is going.6.7Start Where it Makes Sense. Iterate as RequiredThere is no logical order to applying the 4 P’s. Their application depends on how you approach yourproduct development. Some companies only focus on particular places, so place is clearly defined. Othersmight have technical expertise in a product category. Wherever you start, you need to understand themall (and then some). Iteration is part of the game. It will happen early and often even once the productis well under development. It’s a constant so plan accordingly.6.8Things To Ponder1 Choose a product that you recently bought. Write down the 4 P’s for it.2 Look around your life and define a pain you feel. What product or service would cure that pain?Write a paragraph description of the product or service.3 Research the market size for your favorite product or service. How is it defined? What submarketsare also included? What’s not included?4 Find a product that was a complete flop. Why did it fail? Which of the 4 P’s were lacking?16Copyright c 2011 Jarie Bolander

Business Basics for Entrepreneurs6.9Exploring Further Copyblogger Marketing Basics The Daily MBA: Writing Effective Marketing Requirements Marketing Sherpa Marketing ProfsCopyright c 2011 Jarie Bolander17

Business Basics for Entrepreneurs7Topic #5: Target Marketing7.1Talking Points Target marketing deals with Place and how it’s segmented Product definition is intertwined with place because of the customers needs Before you target, you need to know the Total Available Market (TAM) Primary research deals directly with customers while secondary relies on government and industrydata Segmenting markets allows for focused products. Just because a target market exists, does not mean customers will buy anything.7.2DiscussionNow that we know the basics of marketing, it’s time to focus on specific markets that your product orservice will address. A target market is a specific market segment that your product or service addresses.It’s your main customer base. Knowing their characteristics allows you to create targeted products thatappeal to their unmet needs (or pain). Vital to this target market selection process is to define what youare creating.7.3Product DefinitionA good definition of your product offering allows you to ensure that the target market you are focusedon really has the need you want to satisfy. Many a marketeer has missed the mark by a poorly definedproduct attacking a target market where the customers did not care. Define your product in great detailso that you can see if it really fills a need. This is an iterative process, so you may refine your productdefinition as you interact with your target market.7.4Who Might Buy This?Along with your product definition, you need to take a guess as to who may buy it. A rough guess is bet

Business Basics for Entrepreneurs 1 Introduction: Business Basics for Entrepreneurs For me, learning is a series of small steps. Each one, a fragment of the whole. The whole the sum of the fragments. That’s the way Business Basics for Entrepreneurs will approach each topic { small