BUSINESS DEVELOPMENT

TABLE OF CONTENTS
FW1 - MENTAL IMAGERY FW2 - VISIONING FW3 - CREATIVITY FW4 - MICRO ECONOMY FW5 - MACRO ECONOMY FW6 - GLOBALIZATION FW7 - REAL WORLD FW8 - COUNTRY RATING FW9 - GLOBAL TRENDS FW10 - SECTOR RATING FW11 - BUSINESS IDEA FW12 - FIRST SKETCH FW13 - CONSUMER ANALYSIS FW14 - SUPPLIER ANALYSIS FW15 - MARKETING MIX FW16 - OPERATIONS FW17 - ORGANIZATION FW18 - ACCOUNTING FW19 - FINANCIAL STATEMENTS FW20 - FINANCIAL ANALYSIS FW21 - CASH FLOW FW22 - BUSINESS NAME FW23 - DECISION MAKING PROCESS FW24 - CHECK UP POINT FW25 - COMMUNICATION FW26 - NEGOTIATION FW27 - RAISING MONEY FW28 - PROJECT MANAGEMENT FW29 - MANAGEMENT FW30 - STRATEGY

FW1-MENTAL IMAGERY
YOUR POSITION
Look at the map MAP

1. Image resource 2. Cleaning the subconscious 3. Do it yourself 4. Coaching

INTRODUCTION
Welcome on board! We are starting here. There are three things that you need for starting a biz. You need a vision, you need a powerful lever to go ahead and finally you need an innovative idea. In this first course, we shall show you how to use mental imagery for training your subconscious in order to be successful in your business life. Mental imagery is the first step in the visioning process. Of course, it's quite difficult to explain how mental imagery works. There are not any scientific explanations of these techniques of training. It does not mean that you must not use them. For example, you think every day. However, there is not yet any scientific explanation about the consistency of the thought. Consequently, you have just to apply a lot of recipes: Experience shows that they usually succeed. If you want to hear about the scientific researches regarding mental imagery, you can read the lesson below.

External readings:

Go to Stanford: http://plato.stanford.edu . Click on "table of content", then click on M on the navigator panel. Finally, click on "Mental imagery". You will find here the Nigel Thomas 's article about the scientific history of visualization and mental imagery. You can also read on this site"The Global Mind Power" which provides with another hypothesis.

Duration
Lesson: 1 hour External readings (Including "Stanford" above): 4 Hours Do it yourself: 35 hours Total: About 40 Hours

Objectives
Mental imagery describes the images that you can see in your mind. In this first lesson we only deal with images coming from memories of past events that you have experienced. The objectives are:

-To show you how to create your image resource and to relax. -To show you how to use your image resource for removing the memories of your negative experiences. By the end, your subconscious should be prepared for establishing your business vision.
1. Image resource 2. Cleaning the subconscious 3. Do it yourself 4. Coaching

1-IMAGE RESOURCE AND RELAXATION

We shall show you how to create your image resource and how to use it for relaxing but before going any further, you have to find out your preferred sensory method.

11-Discover your best sensory method

Anyone has a preferred method of perception: people are indeed above all sensitive:

either to what they see (visual) or to what they hear (auditory) or what they feel or touch.

To determine your preferred method of perception, you will make the following exercise. Firstly, here is a list of words. Ask someone to read them to you while you are doing the exercise. A dance A street An apple A kitchen Tulips A valley A lake Courage Thunder A castle

An ink pot A forest Wine Freedom An office

A T-shirt Jazz A river Money A meeting A leather chair

As soon as you hear the word, tick straight away the column that seems to best correspond to what comes immediately into your mind: If an image appears, if you see something in your mind, tick the column V. If you hear a sound or if you repeat the word in your mind, tick A. If you feel a physical sensation or find a taste or smell, tick G.
V A G

* * * *

* * *

* *
Look at the column that is ticked the most. This is your preferred sensory method. Also observe the one that you have only ticked rarely. This is without doubt the sensory method that you use the least. Obviously in the above example, the man who has ticked is a "visual" and secondary an "auditory". This knowledge of your best sensory method will help you for building your image resource.

12-Choose your image resource

-Definition: The image resource is a mental image that is to say an image that you see in your mind when your eyes are closed. This image resource is the memory of a pleasant situation that you have really experienced in the past.

With this banal memory, you have a work to do for transforming it in a strong mental image which is able to make you relive the feelings that you had experienced in the past.

For example, when you have had a painful experience and when you remember it, you feel again, in a weaker way, the feelings that you had already experienced :you shudder again retrospectively, you go pale. On the contrary, thanks to your image resource, you should remember your past pleasant feelings and try to live them again as intensely as possible. I mean that your first task is to choose among the flow of your memories, one very pleasant which can fill up some characteristics: -Your image resource must be a very pleasant image. -Your image resource must be a very quiet image. Consequently, avoid very moving images such as a dance party or a meeting. A situation where you are alone and at rest must be favored.

Down earth advice

Many persons choose the memory of a river as image resource. It could be a good choice because it gives a feeling of quietness. Mountains and green meadows could be also very effective. You must have a strong feeling of identity with your image resource. For this reason, it's always better to choose it in an environment where you have lived for a long time. Once your image has been chosen, try to adapt it to your best sensory method. If you are: o more visual: increase the number of colors in your mental image more auditory: plan for sounds, voices and pleasant melodies than you imagine you hearing when looking at the image in your mind more G: see yourself in your mental image touching things, shaking hands and so on. Imagine smelt and perfume and try to live it.

You will use your image resource in many situations and first for relaxing.

13-Relaxation techniques
You need to learn how to relax because relaxation is the first step of many process in mental imagery and visioning. We shall give you here our personal method that we experience everyday. Its main advantage is to be easy to use with fast results.

Your image resource is the first thing that you need when you are going to relax. Then you have to choose a quiet place for example your bedroom. Make sure there is no noise to interrupt your relaxation. Remain in half-darkness. Lie down if you are in your bedroom or sit in a position that makes it easy to relax if you are in an office. When you are in this situation begin to relax:

-First sequence
Close your eyes. Breathe as slowly and as regularly as possible. Say the formula: I am perfectly calm Imagine your image resource as we have defined it before: For example, a river that flows in the countryside. Mentally develop this image: Look at this image from all sides and try to relive your feelings. It must occupy your whole mind so as not to leave any room for other sensations or ideas.

-Second sequence.
Say the following phrases with your inner voice: My left arm is heavy, my two arms are heavy, my legs are heavy, my entire body is heavy. You should have a vision of your body sinking, disappearing. The aim of this exercise is to make all bodily sensations fade away as much as possible.

-Third sequence
Now let's your image resource disappearing. You should be in a pre-sleep condition. Bodily feeling is reduced to its simplest expression. You think of nothing. Your mind is empty. The drawing 2 illustrates the relaxation process:

As you can see, it's look quite easy. In fact you will need to train: Practice this exercise, several times a day. When you have mastered it, you will be able to reach this relaxed state almost instantaneously: Count in your head from 10 to 1. 10 9 8 7 : carrying out the 1st sequence

6 5 4 3 : carrying out the second sequence 2 - 1 : carrying out the 3rd sequence. By slowly pronouncing 10 9 8 7 up to 1, you will attain the required state of relaxation. Count one month of exercise to reach this automatic mastery. 1. Image resource 2. Cleaning the subconscious 3. Do it yourself 4. Coaching

2-CLEANING THE SUBCONSCIOUS

Right now, you have to use your image resource and the relaxation techniques for cleaning your subconscious from all the negative beliefs which are coming from your past.

21-Analysing reality: Autobiography.

What do you do when you start a new day? You shower and you wash your body. Now, you are starting a new life: You have to clean your reality. Reality is made up of two things: Your past and your present condition Your present condition is influenced by your past. As the past no longer exists, it is above all your memories that explain your current state. You are going therefore to examine your past or more precisely the memories and beliefs that you have of it. Take a pen and paper and write down your life from the beginning. Write down your life chronologically, breaking it down into distinct periods: Childhood, learning period, studies, first job etc. Analyze each period and look for: What you wanted at the time What was your most outstanding feeling For example, look at the following imaginary autobiography of a young man that we shall call John: 1970-1975: I dont remember much of my early childhood. I had 2 brothers and 3 sisters. My mother was very busy. My father came home late and beat us. My little brother was very funny. We had good times together. My sister brought me up and dealt with us, but she complained all the time. I dont have good memories of this period because of my father. 1975-1987: I started primary school. I learned to read, write and count quickly. My teacher was very nice. Later, I wanted to be a building engineer. Overall, I have good memories of school. 1987-1993: I went to high school. I had great difficulty with literature. In 1990, I went to a vocational to become an accountant. I had no friends and the other

students who were often older than me mocked me. I have very bad memories of this period. 1993-2000: I did my military service in the Navy. I liked the open-air life and the sports a lot. After military service, I found a job as a clerk in an insurance company. I dont earn much money and I experience a mediocre life. I dont go out much, I have few friends and I dont have much fun. Make a table to use this analysis: Periods 70 75 75 87 87 93 Would you like to relive this period Why? NO YES NO

93-2000 YES IN NAVY AND NO AFTER Analyze carefully the answers to these questions and look for the true reason. In the periods that you do not like, carefully isolate the past experiences and feelings which were particularly unpleasant. Above all, dont hide anything. As with a psy, recall the shameful events. Tell the truth and the truth will free you. Make a list of these events and prepare you to neutralize them.

22-Use image resource: Association-Dissociation

It's a well known fact that our present behavior is often linked to negative experiences in your past. You have written your autobiography and carefully isolated the unpleasant events. Now, you will neutralize these negative experiences. Just as you wipe data from your computers hard disk, removing unnecessary programs, you should wipe your subconscious, removing all the memories of negative experiences. The first step is to relax. Consequently, do the three sequence of the former exercise. When you are fully relaxed, you imagine a mental screen just like a television screen. Imagine that you Turn on your screen just like a television and relive the negative experience. Vision the image of the experience and relive your painful feelings (humiliation, shame, rage). In this state, you are fully associated to this negative past experience. Now, disassociate yourself: Put yourself in the position of an independent observer of the previous image. Watch yourself act as if you were someone else. It is no longer you on the screen, it is your double! You are just a spectator of what you were doing. Let this dissociated image takes over your mental screen.

The black square shows the negative experience when you are reliving it. It's quite painful. The gray square shows the same experience when you have dissociated from it. On this mental screen, imagine a small square where you look at and relive your image resource (the flowing river for example). Relive it to the maximum leaving the rest of the screen occupied by the negative experience from which your were dissociated. Enlarge the square of your image resource on the mental screen so that the image of the unpleasant experience disappears completely. It will disappear quickly because you are now fully associated with your image resource.

On the drawing, the little blue square represents your image resource which is then enlarged to occupy your entire screen. Proceed like that for all the unpleasant events you have listed. By the end, you will completely clean up your past and your subconscious. Be very careful with the people that were witnesses to your negative experiences. Each time you meet them, you can expect they will remind you of those negative periods: "Do you remember when you made us laugh with your exam? and so on" The cleaning work will be called into question each time you meet them. With a simple look, they will reinstall all your negative beliefs. Only one solution : Dont see them any more, avoid them, eliminate all witnesses to your past lack of success.

23-Surf on troubles
Whatever you do, you will come across difficult experiences in your current situation. For example, you know that an event will go badly. For avoiding to built up a new negative experience, you will cross the event as if you were outside it, as if you were not concerned. For this purpose, you will use the anchoring method that relies on using a stimulation (image or gesture) that automatically provokes an internal representation. For example: Seeing a blackboard (visual anchor) inspires classroom memories. Listening to a song inspires memories of a party (auditory anchoring) . The stimulation may be visual : remove your glasses, auditory : listen to a song, kinesthetic: Tighten your fists. Its aim is to produce when needed the desired emotional state to deal with a given situation. For implementing an anchoring, use the following technique: As soon as you have reached the relaxation stage, keep it and associate a simple movement with your image resource, like for example, clenching the fist. Restart the operation as often as possible to create a conditioned reflex. Subsequently, each time that you need your image resource, clench your fist. This gesture will help you to find it, without having to put yourself in a relaxed state. When you are confronting a painful event, clench your fist, call your image resource. Focus on your image resource and cross the event as though it did not concern you. When the event is finished, all that will remain is a dissociated image and not an associated one that would harm your subconscious. You have not to be involved in unpleasant events. With your image resource, you surf on the events that you do not like!

24-Now rewrite your life!

When you have cleaned your past, you can re-write your personal history eliminating all the negative periods and experiences. This is the history with which you will confront immediate reality. Rather than pulling yourself back, this history will push you forward. Clean the past and the John 's history becomes: 1970-2000: I had some good times with my younger brother. I learned quickly and easily at primary school. The Navy gave me a lot of self-confidence. I am very good at sports and open-air life. I am working for a short period in a financial office. I am making the most of this job to learn some tips useful for starting a biz: I want in the next future to create my own sports business. I am confident: I will enjoy a success story!

Obviously, John must eliminate his bad witnesses: He must not see any more his father, his elder sister who complained all the time or his colleagues at the vocational school. On the contrary, he must get in touch with his brother, his teacher and colleagues of Navy. Positive beliefs make you see reality as a spring to success. Right now, you are free to choose your vision and that vision will transport you in a successful world.

External readings
Go to http://mentalhelp.net . Click on "psychological self help". There is a complementary reading about what you have just learnt. You can also click on "tests" to realize some psychological tests. 1. Image resource 2. Cleaning the subconscious 3. Do it yourself 4. Coaching

Lesson summary
The knowledge of your best sensory method will help you for building your image

Your image resource is a mental image that is to say an image that you see in your mind when your eyes are closed.
resource: This image resource is the memory of a really experienced in the past.

pleasant situation that you have

You will use your image resource in many situations and first for relaxing and for

cleaning your subconscious from all the negative beliefs which

are coming from your past. Once, you have cleaned your past, you can

re-write your personal

history

eliminating all the negative periods and experiences. Rather than pulling yourself back, this history will push you forward. 1. Image resource 2. Cleaning the subconscious 3. Do it yourself 4. Coaching

DO IT YOURSELF:
You have a lot of things to do:

1-First, you must write your autobiography. We recommend you to

reread your bio the day after a good night. Do the job in one shot during a week-

end when you are not disturbed. Look at your old photos. They could ease the remembrance process. Count about 5 hours of full work for this task

2-Make the exercise about the sensory preference and then, choose your image resource. In writing your bio, you have certainly isolated an event

that you would like to relive. Describe completely your image resource. If possible, paint it. Count at least 5 hours for the choice of your image resource.

3-Then, begin the relaxation exercises as described above: Each day,

practice 4 exercises during 15 days. As each exercise could last 15 minutes, it means that you have to plan 15 hours of training within these two weeks. Do not go to the visioning module as long as you are not able to relax in the way we have explained

4-Mastering your image resource, you have to eliminate the negative experiences. You should need about five days for eliminating them but the

duration depends on your life. In the same way, use the anchoring process and also begin to avoid people bearing negative influence. Count about 8 hours to perform the Tasks.

5-Finally, rewrite your life ( Count only 2 hours as you mainly write an
abstract) It means that all these tasks need about 35 hours within a month. When all these tasks have be done, you can enter in the visioning course. 1. Image resource 2. Cleaning the subconscious 3. Do it yourself 4. Coaching

FW2-VISIONING
YOUR POSITION
Look at the map MAP

345 days before opening.

1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

INTRODUCTION
Most of the previous techniques are well known and mental imagery is used by therapists. With visioning, we are entering in an unexplored territory. However, visioning is the masterpiece of all the personal development courses.

Real life example:

Visioning is quite unknown outside the US and the United kingdom. When I delivered this course to executive trainees coming from Africa, my French colleagues were anxious. They feared that the students would think that I was going mad! Of course, the students were quite astonished because they have never heard before about these topics but as a result they were enthusiastic and asked me to develop the course again and again.

Duration
Lesson: 1 hour External readings: 0 Do it yourself: 40 hours

Total: 41 hours

Objectives:
Our objectives are :

-To show you how to define your vision and its "success image". -To teach you the visioning techniques -To give you some tips about managing your vision By the end, you will know how to implement your vision in your subconscious. As a result, you will find yourself transported in a success story.

Real life example:

Universities and business schools ignore visioning. They do not teach how to implement success in your mind. On the contrary, these techniques are intensively taught to sportsmen going to top competitions. Our educational public system trains better the sportsmen than the biz men! 1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

1-DEFINITION OF VISION
The first and most important step for starting a business is to create your own vision. -Definition: Your Vision is what you want to become. Vision commits your personality. It answers the question: "what do you want to do with your life ? What is your mission ?"

11-How to discover your vision.

You have a vision. But you do not know it. You have to discover it in using a self analysis. Look at the following table. It shows that all our lives comprise activities that aim to satisfy requirements as in the table below: Field Activity Requirements or aims

Physical Exercise

Be healthy

Mental Social

Learn

Be educated

Found a family Love and be loved Make friends

Spiritual Do good

Fulfil a spiritual mission

Using this model, try to complete the table. For example, it can be presumed that you are going to put in the mental field: learn management and be educated in business. You will find yourself faced with a table that is yet too general. You have to go to the specifics. To do this, answer the following question: If I had unlimited money and time, what would I really like to become? (requirements or aims column). You will show in your table below your preference and just that. To help you, we will imagine the John s answers

This table, after a long self analysis shows the real aims of John. From these aims it is easy to deduce a vision. John is now able to describe his vision in one single sentence: I want to run a leisure biz to work in open air, have fun and make my friends happy. That is a true vision. You will notice that we have not spoken about accumulating money. Money is not an activity in itself. It is a resource. We have not spoken about the investment needed to start a business. You need, for example, four off-road vehicles, a motor launch, diving equipment, etc. They are also resources. Resources here are not important. Now, you have to do the exercise for yourself. You must obtain one single sentence for defining your vision!

12- How to Create your success image

Using your vision, you should now create your success image. The goal of the success image is to provide with a tool that you will constantly use for implementing your vision in your subconscious.

-Definition: The success image is once again a mental image, like the image resource. Instead of describing a past event that you had experienced, the success image describes a future event that you would like to experience. Look at the drawing 1 which illustrates this definition.

Important warning:
Don't confuse image resource, success image and remote viewing. An image resource describes a past event that you had really experienced. For example, I had really experienced a pleasant promenade on the Thames river some decades ago! A success image is a product of your imagination. It describes an event that you would be happy to experience in the future. For example, suppose that you are a little clerk. Your success image shows you acting as CEO of a big corporate. Of course, that is neither your past situation nor unfortunately your present. It's a fictitious image linked to your vision and your future. Remote viewing is the ability to describe present event which are impossible to perceive with our sensory system. For example, remote viewing had been used by the CIA: People were trained to get a mental image of some secret bases in Siberia. It was the "Star gate program". It is supposed to have been cancelled by 1995 because of its poor results. According to our John 's example of a vision, here is an example of a possible success image for John: I am contemplating a magnificent landscape. I have led a team of customers and friends to the top of Mount Whitney. Glaciers are glittering. The snow is wonderful. I am exhausted but happy. I hear my team applaud me. I surf on an ocean of happiness and success.

As you see, the film should be neither too long nor too complex since you will have to repeatedly watch it. You should now create your own success image: identify it and draw it. Once you have built your image, keep it in the smallest detail and dont change it any more. Our targeted ads could help you because they provide with images of happiness. 1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

2-VISIONING TECHNIQUES
You have now to implement in your subconscious this success image. That is the core job and once again it needs a bit of training.

21-The main process

For implementing your success image in the subconscious, you have to follow a precise process. First you have to relax as we have shown above. When you have gotten a full relaxation, you have to follow three sequences

-First sequence
The eyes are still closed. See your interior mental space as a black screen. Concentrate on this black screen taking at least five regular and slow breaths. Specify the outline of this area so that it resembles a blank television screen.

- Second sequence
Imagine your screen turned on. To make this passage easier, make a habit of pressing together you thumb and index finger ( anchoring), as though you were pressing your TVs remote control. This reflex association should make changing from one screen to the other easier.

-Third sequence
Imagine the mental image of your success. For example, imagine the board of directors. You see your staff entering and leaving. Then imagine yourself coming in and sitting down in your Presidents chair. Everyone is looking at you and is waiting for your message. The following drawing 2 visualizes all this process:

It is important to properly visualize each detail: the boardrooms lighting, its shape, the color of the furniture, the important people who are waiting for you and so on. This image must be mobile as on a television screen. Also imagine what you feel. You will not manage such precision the first time or the second. The important thing is to keep the scenario chosen and carry out the exercise as often as possible. In concrete terms, we recommend that you carry out this exercise every evening before going to bed. The more precision you gain at each exercise, the more this image will seem alive and the more it will happen in reality!

22-Supplementary techniques
The techniques described here will help you to deal with the difficulties of daily life. Just like with visioning, it is important to rigorously follow the procedure and practice as much as possible.

-The specific vision:

You can use the same technique for special events: For example, you have a presentation to make tomorrow before a dozen people. Proceed in the same way as in the two previous stages. For the third stage, imagine the meeting room and those present. You see yourself entering the room and starting to speak. The people listen to you with interest. Your presentation is a great success. Using this training, you will manage easily to vision specific events and you will notice that, in most cases, events will happen just like you imagined them. This observation should encourage you to persevere in your general vision since it shows you the effectiveness of the method in your daily life. The specific vision must always be coherent with the global vision. For example, if your vision includes a boardroom in a luxurious building, a specific vision of a sports race would

have no coherence and would be completely ineffective. For global and specific visions to mutually strengthen each other, they must be part of the same world or scenario.

-Take vitamins:
You take vitamins in the morning for your body, but you have to take vitamins also for your subconscious. For example, read the five quotes and create mental images associated with these five quotes and in coherence with your overall vision: Closing your eyes, say them in watching the images associated with them each morning on getting up. I feel sure of myself Everything I do is easy I am going to progress further today towards the aim that I have fixed myself I had complete control over my future Everyone helps me and likes me There are your daily vitamins! 1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

3-MANAGING THE VISIONING 31-Keep a log

Some of you certainly kept a diary when you were young. You should renew with this habit by keeping a log for your vision. Obviously, dont include any negative experiences! Writing them down would just implement them in your subconscious in contradiction with your objective. On the other hand, describe in detail all your activities and thoughts from day to day concerning your vision. Carefully note all the facts that seem strange, even if they are insignificant. For example, you meet a childhood friend you havent seen for ten years by chance. Note this fact and think about it. It is surely a signal that is part of the realization of your vision. Also note the sentences that you have heard during conversations that have attracted your attention without you knowing why. Your conscious doesn't know why but dont forget that your subconscious is working and that it knows. Analyze these sentences as though they were enigmas. You can find a hidden message for your vision.

Carefully note the dreams that you remember on waking up. Keep your log on your bedside table with a pen to be able to write them down straight away. Indeed, a few minutes after waking up, you will have completely forgotten them. Regularly re-read your log at least once per week. You will be surprised to notice that strange fact get a meaning and that your action is developing quickly like a force that nothing will stop. Thanks to your training, your subconscious like an army of invisible hands is working for your own success, day after day!

32-Keep your way

You must absolutely maintain your genuine vision and its goals. Never downgrade it! Along your course, the original reality is a magnet that holds you back. The vision is a magnet that pulls you forward and You are between them. DRAWING 3

Let us suppose that, as in the diagram above, you are at an equal distance between the two. When you come across a difficulty, you will be tempted to lower your ambitions and downgrade your vision. Acting like this makes you think you are getting closer to the modified vision. You had 10 meters to run, you think that by limiting your ambitions there will only be 7 meters left. This reasoning is false. Rather than getting closer to a vision that is easier to attain, you will on the contrary move away from it, as shown by the diagram below: DRAWING 4

Continue with this way and your present reality will be again identified with the original one. You must maintain your course at all costs. When a difficulty crops up, deal with it in a positive way.

To illustrate this fact that may seem obscure, we will take the example of a sailor. A weak breeze slowly pushes his boat towards his destination harbor: Athens. Suddenly, an adverse wind blows up. An unskilled sailor can choose to go towards the closest harbor. In fact, an experienced sailor knows that he can use this wind as a lever. He adapts his sail. He beats windward and he knows he will reach Athens quicker than if he were pushed by a weak breeze. 1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

Lesson summary
The first and most important step for starting a business is to create your own vision. Your vision is what you want to become. Vision commits your personality. It answers the question: "what do you want to do with your life ? What is your mission ?" Using your vision, you should create your success image. The success image is once again a mental image, like the image resource. Instead of describing a past

the success image describes a future event that you would like to experience.
event that you had experienced,

a tool that you will constantly use for implementing your vision in your subconscious. You have now to implement in your subconscious this success
The goal of the success image is to provide with image. That is the core job and once again it needs a bit of training. You must absolutely maintain your genuine vision and its goals. When a difficulty crops up, deal with it in a positive way. Never downgrade your vision! Positive beliefs push reality towards the vision. The vision also pulls along reality.

In the end, the reality must identify with the vision.

1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

DO IT YOURSELF

1-You have to discover your vision and to write it in one single sentence. 2-Then you have to create your success image. Count about 15
hours for these two crucial tasks.

3-Once you have created your success image, you can begin the exercises for implementing it in your subconscious. During

seven days, make the exercise 6 times a day. The next week, make it four times a day. Then, during the two following weeks, make it at least 2 times a day. It means that you have to perform 25 hours of intensive visioning within a month. Don't cheat! Remember that visioning is your key to success. For the future, try to make one exercise every night before sleeping. When you are in trouble, make several exercises every days! Vision, vision, always vision!

4-Open a log and write down your observations.

Globally, these tasks represent 40 hours. 1. Definition of visioning 2. Visioning techniques 3. Managing the visioning 4. Do it yourself 5. Coaching

FW3-BUSINESS CREATIVITY
YOUR POSITION
Look at the map MAP

330 days before opening.

1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

INTRODUCTION
Right now, you have your vision and your success image implemented in your subconscious. You need an innovative idea and be sure that it will not be easy to find it! You must develop your creativity. Business creativity is a core asset. No creativity, no new business! Fortunately, creativity can be improved through hard training.

Duration
Lesson: 1 hour External readings and quiz: 19 hours Do it yourself: 20 hours Total: 40 hours

Objectives
Our objectives are to teach you the main techniques for improving your creativity:

-we shall describe the different techniques. -We shall underline those which are fitted for specific business goals. Thanks for creativity and knowledge, you should get your business idea.
1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

1-GENERAL CONCEPTS

11-Definition:
Creativity is the process of bringing something new into being. This definition must be completed by a quote of the famous French scientist Poincare: Inventions consist in not making useless combinations but in making those which are useful and what are only a small minority. It means that it's not enough to produce new ideas. You must produce operational ideas and not dreams. In our case, the true creativity is the power to invent and design products and services that will ensure the success of your company. What is more, creativity consists in inventing what business you want and you are able to start!

Important warning
Do not confuse your vision, your success image and your business idea! Your vision is a global aim of your life: It enables you to know if you really want to create a business and in what domain this biz could take place: For example tourism is a domain. According to this vision, the success image is just a psychic tool for implementing your vision in your subconscious. Then, according to your vision of working in tourism, you can have the idea to sell private islands. That is a real business idea! What is more, business is constantly a creative activity and it's the only field where creative people can succeed. It is well known that very creative people are often persistent stubborn, and uncompromising! These traits are negative for a career as executive in a big corporate. On the contrary, a person who has absolutely none creativity could have very good chance to get high ranks in any big corporate or administration!

Real life example

Most administrations, many big corporate's and a lot of high business schools should post yellow warning signals at every entrance, marked NO THINKING ZONE.

12-The creative process

Some people believe that creative individuals have inherited a lot of gifts and that they are talented or even genius. It's a wrong idea. Creativity is not a matter of innate potential. As many things in life, creativity is the result of hard work and most of all serious training. The creative process follows four different steps: -Preparation: To train your mind.

-Incubation: To set back from the problem. -Illumination: The idea arises in the mind like a sudden flash. -Validation: You have to check the validity of the idea. We can sum up this process with the following drawing 1 :

There are some other process but we shall adopt this one. The next reading will give you a history of the various views of the creative process, starting with the ancient greeks! We shall now examine for each steps, what are the best appropriate techniques 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

2-PREPARATION
We shall distinguish long term preparation and short term.

21-Long term preparation

Just like for mental imagery and visioning we do not know the real cause of creativity but there are some basic preparations. We give you six advices: -Health: A creative thought depends on a well nourished brain. Since the beginning of history, some drugs are supposed to enhance the brain power. In the old times, it was mainly tobacco. Today, someone recommend to use serotonin and so on. Beware about these drugs. They can produce secondary effects and diseases (such as tobacco !). -Attention: Concentration and attention play a great role in long preparation: it means that you have to constantly think about your vision. You must think at it when you wake up. You must think at it in having lunch. You must think at it in playing tennis or golf. You must

think at it before sleeping. To think constantly about the same thing is a good method for having innovative ideas about it. -Readings: In this course, we give you a method to improve your creativity but it must apply on a content. Readings of basic knowledge's provide with this content. Therefore, you will have to read carefully the lessons about economy. Read everything and as much as you can. Reading constantly improves creativity because when you are reading a book, you always form a mental image of what is happening. As we shall see, mental imagery plays once again a great role in the creativity process. On the contrary, Television does not train creativity and impoverish it because it shows the images and consequently there is nothing left to the imagination.

Real life example:

There is everywhere, even in developed countries, a lack of creativity. Of course, it's due to an ineffective education but it's also certainly due to television. You cannot expect a great creativity of people who spend a big part of their time in looking at soccer games! Of course it's good for any political Power: Remember the Roman formula " bread and circus"! To say the truth, the problem is not only due to the insipid content of television programs. It mainly results of the fact that television does not stimulate the imagination and therefore impoverish the creativity tank in the entire population.

External readings:
For your preparation, we suggest to make some creative readings in order to stimulate your mind. I don't ask you to become a worm book: You have just to visit "Global leader" on this site. You will find here several surveys which deal with new concepts. Secondly, visit the "Spiritual odyssey". That is just pure creativity. We don't ask you to agree or not with the content but just to see how creativity is used. It's a very good exercise to stimulate your mind. -Meet people: Talk with friends and relatives and look at all sources of good ideas. You can get sometimes a word or an idea that could help you in starting the creative process. -Keep a log: Report immediately any idea you have in walking or in talking with everybody. Very often, a good observation of the streets during a walk will give you ideas. -Practice some exercises: To develop your creativity, we recommend the following techniques: Relax. Close your eyes and imagine a familiar object: your dictionary for example. Turn the dictionary around. Examine it from above and from below. Change its

color. Move it away as though it were 10 meters away from you . Bring it back closer. Give it immense dimensions then reduce it down to infinite proportions. Change its shape, turn it into a violin. Make it disappear and reappear. This repetitive mental exercise should prepare you for the following exercises.

22-Short term preparation

Short term preparation means that you are going to have a creative session within a very short period. Consequently, you have to make some precise preparations. We give you three advices: -Choose a motivating environment:The first thing is to choose an environment connected to your vision. For this purpose you have just to imagine it: You have an office that is perhaps old and shabby. Imagine in the smallest detail the office in which you would like to work (lounge, leather chair, vast and functional desk etc.) Each time you enter your real office, see your mental office. You will think more effectively. Then Imagine your advisors: There are certainly people you admire: film stars, politicians etc. Choose two or three and put them in your mental office: They are now your advisors! Then imagine that you are talking to them. Imagine, their arguments. Each time you have to carry out a creative session, go into your mental office and discuss the problems with your advisors! -Increase your intellectual capacities: Top class swimmers imagine that their hands are twice as big as they actually are and that their feet are webbed. This vision helps swimmers go really faster. Just before sleeping, make a relaxation phase and then imagine that your brain is bursting out of your skull and is forming a halo. See yourself like this and you will gain in confidence in your intellectual capacities. Thanks to this new confidence, your capacities will really increase! -Control your breath: we have seen in relaxation and visioning the role of the breath. Right now, we propose a more radical but very effective method. One hour before the creative session, relax and hold the breath for as long as you can. Repeat this exercise and you will feel both a great excitation in your mind and a greater clarity. 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

3-INCUBATION
Incubation is a contingency phase: It means that you have not solved your problem during the creative session. Consequently instead to go on with the problem, it's better to set back from it. It's said that incubation can last minutes, weeks or years! we shall focus on incubation lasting hours and minutes!

31-Incubation lasting hours

An universal technique is simply to go to bed! Let 'suppose that you have a creative session and that you do not find any results. Stop and begin again to morrow. Very often the solution you were looking for is easily found after a good sleep.

32-Incubation lasting minutes

This incubation process takes place within the creative session. When you feel difficult to go further, just stop, go into a pause and make the following exercise: -Call your image resource (A quiet river for example). Vision it and enjoy. -Then, imagine again your mental office and your advisors -You are now ready for beginning a second round of your creative session.

External readings
About preparation and incubation go to: www.enchantedmind.com . Visit the entire site. You will find some complementary explanations and a lot of interesting tests. 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

4-ILLUMINATION
We are now entering in the creative work and we expect to get an illumination. I like this word "illumination" because most often an innovative idea appears like a flash into your mind. It causes a great excitement and a feeling of happiness and pleasure. We shall now review the different methods which are expected to provide you with this illumination.

41-Brainstorming

Brainstorming implies a group of person. In your case, as you are using creativity to get a new idea for starting your business, the group could include some friends and relatives. The principle of any brainstorming session is that participants have to stimulate and inspire each other to create ideas. The purpose is to tap the subconscious mind of the members: One idea will suggest another idea trough the mechanism of association. Participants should feel unrestricted but the ideas should be built on the ideas of others in order to facilitate the association and to use the subconscious rather than a conscious discourse. The more ideas, the better. None of the participants can criticize to any of the ideas that are proposed. Creativity is expected to explode and to bring on the table a lot of exciting new ideas. In the final phase the ideas are selected, improved, combined and the group agree on a final working solution.

Real life example:

Brainstorming is the only mind method taught in schools and used on a large scale in continental Europe and overseas. In the scholar environment influenced by marxism, a "collective" process is always supposed to be more effective than an individual one! Along my career, I have participated to many brainstorming sessions. I have never seen only one creative idea coming out from all these meetings! In fact, the association of words does not work because the participants keep the control of their subconscious and fear to be ridiculous or simply to show their true nature. Consequently, the collective subconscious which should be the real motor of the exercise remains mute. People just bring a shopping list of conscious and reasonable ideas. As we have explained in the history module (See global leader on this site and click on history module), creativity is a solitary work. New ideas are often difficult to communicate and other people generally react by discouraging it: "it would not work, it's a waste of time" and so on. When a group of people is involved, the final product is mostly a consensus that uses old and proven ideas. A consensus is quite the exact contrary of a creative idea. Most discoveries are the work of one person. Of course large project require teams. In fact these projects are broken down into many small tasks and the best way to get creativity is to entrust only one person for each task.

Down earth advice:

Thanks to Freud, Jung and so on, many psy underline the subconscious. We recognize this role and we have emphasized its power in the visioning process ( See above) but it's not a reason to expand infinitely its virtues.

I think that a clear reason plays a major role in the creative process.

42-Mind mapping
Mind mapping has been invented by Tony Busan. In some way, it's like a brainstorming but with only one person: Yourself. You take a paper and you write the subject of your research in the center. Then, you start to think in at random in an inhibited style and you write all the ideas that come around the main subject. Then, for each specific idea you do the same and you write around all the ideas connected with. You rely all the ideas with arrows of different colors and you get the following result:

This map shows a research for discovering a business idea in the tourism field. At first glance, the map only replaces the linear note with a more colorful and pleasant scheme. In fact, the principle is more subtle: The map is expected to reflect the real mechanism of the brain. It means that when you add an idea, you expand in the brain the connections between the cells and open new spaces of creativity. As you can see, the map looks like a network of neurons with their dendrites!

Real life example:

I use mind mapping for preparing a dissertation or for solving a problem. I don't use too much it for finding a new idea.

Mind mapping relies, like brainstorming, on the mechanism of association of ideas. On the contrary, I think that the real creativity must break off these associations which exist in our mind. Nevertheless, we recommend you to use this tool.

External readings
Go to : www.mind-map.com . You will learn in this site how to use mind mapping. Read it carefully.

43-Mind revolution
For creative purpose, I use mainly that I call "mind revolution". You will understand the meaning of the word "revolution". It relies on three movements of the conscious thought: -Going to the extremes: Facing a challenge, you have always to deal with six questions: Who, Why, What, Where, When and how. Dealing with these questions, try to see what would happen if things where going to the extremes. For example, what would happen if life time was infinite and on the contrary, what would happen if life time was only one day? For example, Einstein developed the relativity by thinking what happened when matter traveled near the speed light. The laws of quantum theory rely on what would happen at the limits of small size particles. About business, you can ask what would happen if there is zero staff, or zero capital and so on. -Establish relations between things that dont have any: Look for really absurd connections that no one would have thought of: Dont connect the image of your dictionary with a library. This is a normal relationship that shows no creativity. On the contrary connect this image with the hair of a person. The inventions of Archimedes, Leonardo de Vinci or Einstein were often based on connections that no one else would have thought of. Deconstruct the thought: Most of our ideas or concepts are inserted in a group of ideas which are their companions and which prevent any creative thinking. Consequently, you must dislocate these current associations in order to find new ideas or concepts. In the following drawing, I have two very usual connections. The blue squares show ideas connected to tourism and vacations. As long as I don't deconstruct the way of thinking, any idea of sun will bring an idea of sea or of sand and in fact I don't get any new idea. Let suppose that I put a a second series of ideas without any links with the former. In this example, the second series of gray squares illustrates ideas about justice, offence, trial, jail, convict, death penalty! Now comparing these two series, I relate sea and jail and suddenly I get an illumination: I will sell private island to rich people!

You can see that in this tourism example, I get an immediate result! The idea may be stupid or useless. Anyway it's a new idea and I have gotten it in five minutes. ( in fact this idea exists already!) You can take notice that the process does not imply subconscious. On the contrary, it relies on a reasoning and on the will to dislocate current associations. In fact, I remove ideas from their normal statute and you understand why I call this process: "Mind revolution"! It's very easy to use with fast results.

External readings:
Go to www.mindtools.com . Click on "Creativity tools" and then on "Reversal", "SCAMPER", "Attribute listing", "Random input" and "Provocation". Each tool has its own advantages. You could observe some likeness between "Random input", "Provocation", and "Mind revolution". Nevertheless, each tool is different from the others. 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

5-VALIDATION
All these exercises aim to produce new ideas. It does not mean that these ideas are worth or useful. So after the creative session, you must organize a validation session. In this

case, it could be fruitful to call for a team because right now it's worth and useful to be criticized.

Down earth advice:

Be very careful with the ideas you get very late in the night. When you find it, you are excited and they look very smart. Most of the time, too much coffee and tiredness explain these feelings. On the next morning, when you read your notes, you often realize that you have just reinvented the wheel! Discuss your idea with friends and potential customers: If you get interest and support, it means that your idea is innovative and that you can start the process of studying the project. If your idea is a real technical invention, be very careful about its validation. Do not talk about it all around. In this case, be a discrete person and get a patent to protect your invention. 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

Lesson summary
Creativity is the power to invent and design products and services that will ensure the success of your company. In your case, creativity consists in inventing what business you want and you are able to start! To think constantly about the same thing is a good method for having innovative

In the creative process, focus on mind mapping and mind revolution.

ideas about it. In this course, we have given you a method to improve your creativity but it must apply on a content. Readings of basic knowledge's provides with this content. Therefore, you will have to read carefully the following lessons about Economy. Moreover, read as much as you can. 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

DO IT YOURSELF:

We do not expect that you are right now ready for finding your business idea. You have to train your creativity but you must also apply it on a content because ideas need both creativity and knowledge. May be, you can have a first idea. Then, the learning of basic knowledge's should enable you to improve this first idea. When you feel that you are ready and in a good mood, to get a first idea. It can just be a broad idea. Count about 20 hours for four creative sessions. In fact, it's quite difficult to fix a duration. A good idea can mature a lot of time. On the contrary, It can be a sudden spark but it's impossible to say when it will happen. 1. General concepts 2. Preparation 3. Incubation 4. Illumination 5. Validation 6. Do it yourself 7. Coaching

organize a creative

session. It will need a half day. Use the tools that you have just learnt and try

FW4-MICRO ECONOMY
YOUR POSITION
Look at the map: MAP

310 days before opening.

1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

INTRODUCTION
Economics studies how scarce resources are allocated to meet the unlimited wants of the individuals. Except for free goods such as the air, most of goods and services are produced from limited resources. Micro economy studies how individuals and firms allocate these scarce resources to produce and distribute goods and services -In a market economy, resources are allocated by prices resulting of the supply and demand -In a socialist economy, resources are owned by the government. The government decides the type and quantity of goods to be made. -In a mixed economy, the two precedent allocations are combined in various proportions. Regarding the global failure of the socialist economy, the present module only focuses on the market economy mechanisms. This course follows the main updated US academic standards. Nevertheless, there are many discussions about these topics.

Duration
Lesson: 1,5 hour External readings and quiz: 3,5 hours Do it yourself: 0 Total: 5 hours

Objectives:
In this module, we shall introduce the fundamental notions in micro economy and show how they apply to any business. These knowledge's can also enable you to progress toward the discovery of your own business idea. The objectives of the lesson are:

-To show you how the production possibility frontier illustrates scarcity, opportunity costs and choices.

-To give you the fundamental notions to increase productivity and investment. -To train you with the price elasticity concept within the market analysis. -By the end of the lesson, you will be able to apply these concepts to the creation of your new business.
1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

1-LIMITED RESOURCES
Except for free goods such as air or the sun heating, most goods imply the use of resources. We shall describe these scarce resources and the choices they imply in order to produce different goods.

11-Factors of production
-Definition: The factors of production are the resources used to produce goods and services. These factors include land, labor, capital, and management -Land includes all the natural resources such as acreage and raw materials. In a primitive economy, land is the most important factor of production. For example, the Indians hunt, fish and collect honey or wild seeds. The forest is their main resource to produce the goods required for their survival. This primitive form of economy now only applies to a few tribes in Amazonian, in Borneo or in Africa (the pygmies). Historically however, it was by far the most important. The hunting and gathering economy began 100,000 years ago when homo sapiens was born, and continued until 9000 BC. This date marks the appearance of a sedentary form of agriculture in a few areas of the planet. -Labor includes all the physical work. Labor appears as a large factor of production with the sedentary form of agriculture. -Capital includes tools, machines, factories, equipment and infrastructures. Capital exists in a primitive society. For example, our indians make a few tools out of bone: sabarcans and harpoons. Nevertheless, capital appears as a large factor of production only in the modern time, in connection with the expand of technical progress. Some economists take in account the human capital. It represents all the skills and practical knowledge's embodied in a worker. It can be measured by the level of education and the number of schooling years.

-Management includes managers who organize the previous factors of production Modern economists agree that technology is also a resource. Since the beginning of the 19th and in our developed countries, Land remains quite unchanged, labor increases slowly with respect to the growth of population and Capital raises rapidly: Look at the following drawing.

Economists mainly deal with the quantity of the resources because any quantitative data can be traduced in figures and then can enter in equations and models. I would like to emphasize on the quality of the resource. The next drawing shows that the same amount of capital applied to the same quantitative resource gives very different output according to the quality of the resource.

Down-earth advice
You have mainly to acquire two resources: Equipment and labor. Choices are not too much difficult for equipment because the market applies a ratio between price and quality. On the contrary, the labor resource is very difficult to value because two persons with the same background can offer very different potentialities. We shall give you further advices but right now we recommend you to be very careful about the quality of people you are going to recruit.

12-The law of diminishing returns

-Definition: When increasing amounts of one factor of production are employed with some fixed amounts of other factors of production, the resulting increases of output become smaller and smaller. Let us suppose that the land is a set factor, and let us see what happens when we increase the labor resource: Number of laborers X 0 1 2 Total production Y 0 20 30 Productivity of the work Y/X 0 20 15 Marginal productivity D Y/D X 0 20 10

3 4

35 35

11 9

5 0

When we increase the number of laborers from 1 to 4, production increases from 20 to 35 and the productivity of the work falls (from 20 to 9). If you increase again the number of laborers, the total production will begin to fall. The next drawing shows another example: Labor and land are unchanged and capital increases: The output rises and after a certain point begins to fall.

For example, when you use increasing units of fertilizers on a constant plot garden with unchanged labor, the first unit increases the crop, the following units bring smaller and smaller outputs and the las unit damages the plants and the crop falls!

13-Opportunity cost and Production possibility frontier

As factors of production are scarce and exposed to the law of diminishing returns, you have to make choices between different goods or services. Each choice implies an opportunity cost. -Definition: The opportunity cost is the value of the best alternative that you have to give up because you have made your choice. For example, with the same labor, you can fabricate two tables or four chairs. The opportunity cost of making two tables is four chairs and the opportunity cost of one table is two chairs: Opportunity cost = Unit of good forgone / Unit of good produced.

These information's are illustrated by the production possibility frontier which shows the combination of outputs that you can get from a given number of inputs and the maximum production possible given existing resources and technology. Let's suppose that with existing resource you can fabricate cars and houses

As we move along A B we get less and less cars.The opportunity cost of houses over cars increases. It means that we have certainly used in first the resources better suited for production of cars than for houses. Any point such as the red one in the gray zone means that the optimum is not reached. On the contrary, any goal such as the blue one is unattainable with the existing resources and technology. A shift to the right of the production possibility frontier always implies a change in technology or an increase in resource. This law is valuable for a firm as for the entire economy and the production possibility frontier is used frequently in the business world to calculate the highest combination of resources between different products. Let us suppose that the farm has 4 laborers who are to produce wheat and barley over a fixed surface area. We can draw up the following table: Wheat Barley

Number of Production Number of Production Total employees employees production 0 1 2 3 4 0 20 30 35 35 4 3 2 1 0 25 20 15 7 0 25 40 45 42 35

The middle line represents the optimum and thus the frontier. To increase beyond 45, more land is needed. It would then be necessary to recalculate to see whether it might be advantageous to increase the number of laborers (previous table) to reach a new optimum. Maximum profit (45 in this case) means that all production factors are combined in the most effective way.

Down-earth advice:
In fact, these calculations are far complicated. When you start a business, it's easier to produce only one good or one service. You can diversify when you have gotten a good practice of the management (Of course, this advice does not apply to retail biz).

14-Private,public and merit goods

Among the choices, a community has to decide what type of goods it wants to produce: Private or public goods?

141-Private goods:
A private good has three characteristics: -Excludability: It means that you have to pay to get the good and that you are excluded from the consumption if you do not buy it. For example, if you do not pay a flight ticket, you are excluded of the flight. -Rivalry: It means than one consumer reduces the availability of the good. For example, when you buy a flight ticket, you occupy a seat and thus the number of seats available for the other passengers is reduced. -Rejectability: When you do not like a good, you have the possibility to reject it. For example, you decide to never buy a flight ticket or to never consume soda.

Real life example

I would like to add marketability to these characteristics. As you have seen in my biography, I have invented a book keeping machine for illiterates ( french patent:

INPI 8300095). When I met businessmen, they objected that illiterates are usually very poor and that it was not worth to launch a product with no market. Although my machine could provide huge benefits for the customers in a country such as India, it was not a marketable good. Recall that a private good must meet people with private money.

142-Public goods:
They are available for every body. For example, a free road is a public good. It's not paid by the person who uses it. It's paid by the collectivity. A public good is not a free good like the air or the heat of the sun. It has a cost which must be compensated by a tax. As a result a public good authorizes the free rider principle. A free rider is a person who benefits of a public good and who never contributes to its costs because he does not pay the taxes.

Real life example:

In France, highways have toll gates. A german who travels in France uses the highway as a private good because he has to pay a ticket to enter. In Germany, the highways are for free. It means that the highway is a public good and its cost is compensated by the taxes paid by the german taxpayers whatever they use or don't use the good. In these circumstances, when I use a german highway, I am a free rider because I don't contribute to the taxes and however I enjoy the benefit of the public good.

143-Merit and de-merit goods:

A merit good produces positive externalities. It means that a global benefit for everybody is added to the private benefit that you get in acquiring the good. For example, education services or health goods are merit goods: When you buy a course you get a private benefit but the community as a whole gets also a benefit because educated people contribute to the welfare of the society. On the contrary, tobacco and drinks are de-merit goods because they produce negative externalities. When you consume tobacco, the negative externalities is the rising cost of health diseases for the entire community. Normal and inferior goods: See further Price elasticity Primary, secondary, tertiary goods: See further income elasticity. Spiritual and material goods: Go to "new growth theory" in Global Leaders.

Down-earth advice:

Public opinion more and more scrutinizes negative externalities such as pollution and so on. In a business, you are already exposed to some conflicts with the staff and the suppliers. In addition, don't be exposed to the public anger! Avoid to start a biz with negative externalities. Be very careful with pollution or toxic matters. Today, pollution is everywhere a very emotive topic. 1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

2-HOW TO PRODUCE
When you have decided what goods or service to produce, you have to define: -how to use the existing factors of production in order to get the maximum output. It means: How to rise the productivity. -How to extend the factors of production in order to increase the production possibility frontier. It means that you have to invest.

21-Productivity
-Definition: the productivity is the conversion of a defined resource into goods and services. It's usually expressed in ratio of a factor of production to outputs. An improvement of productivity can be realized by achieving more output for the same input or by achieving the same output from less input. Examples: -Land productivity: In situation 1, one ton of wheat is produced by one acre of land. We have: one ton of wheat/one acre = 1. In situation 2, two tons of wheat/one acre = 2. We can say that the productivity of one acre of land has doubled from situation 1 to 2. -Labor productivity: In situation 1, the production of one ton of wheat requires 200 working days. In situation 2, the same production requires only 100 working days. We have: 1000kilos/200 = 5 and in situation 2, 1000kilos/100 = 10. We can say that the productivity of labor has doubled from situation 1 to 2. -Capital productivity: In situation 1, a machine produces 1 boot in one hour. In situation 2, a machine produces 4 boots in one hour. We can say that productivity of capital has been multiplied by 4 from situation 1 to 2. You have to take notice that in all these examples, we have not extended the factors of production. The productivity means that the existing and unchanged factors produce more inputs. The cause of this increase is just the creativity of the manager.

22-Investment
-Definition: Investment is the extend of the factor of production. Nevertheless, this concept only applies to the extend of land and capital. It's not applied to the extend in labor. When you recruit more laborers, you don't invest. On the contrary, when you purchase new tools or new machines, you are supposed to invest. Of course the extend of capital always improves the productivity of labor. Moreover an extend of capital very often implies a high creativity (technical progress) and enables to make a jump in production. It means that capital and technology are linked and increase the production possibility frontier:

Down-earth advice:
Follow the right lane! -First you increase productivity of your existing factors of production. It does not cost you any money. It just costs you to think. Recall that thought is the sole unlimited resource! What is more, thought and creativity, thanks to education, benefit of the law of increasing returns! Scrutinize your organization: Are your existing tools fully employed 24 hours/24? Is your staff idle or over busy? It's worthless to extend labor or to implement new machines while existing people and machines are not yet optimized. -When you have improved productivity, you can expect to increase your revenue. Right now save this revenue and use it to invest. It's now time to extend your capital and may be your labor. When you invest, do not search to extend one unit with the same added units. Make your best in order to benefit of change in technology. We have seen that creativity boosts the output of any investment. When you add a machine, benefit of the updated technology. When you add one unit of labor, lift the qualifications in order to benefit of the rising trend in human capital. The next drawing illustrates this advice: When you add immediately capital to labor, you get a lower output than when you increase productivity before to invest.

23-Specialization
-Definition: Specialization occurs when a firm concentrates in making one good or one service in order to improve its productivity. Example: Let us suppose that there are two farms, each producing 1.5 tons of wheat and 100 liters of milk with 250 hours of work. Each farm divides his time as follows: Production 1.5 tons of wheat 100 l of milk Mickey's farm 100 hours 150 hours = 250 hours Farm B 150 hours 100 hours = 250 hours

In order to ensure the subsistence of these 2 farms, we need an overall total of 3 tons of wheat and 200 liters of milk, for which we have 500 hours of work available. Given these figures, it would be in Mickey's best interest to specialize in wheat, whereas B should specialize in milk. Then, Mickey produces the required 3 tons of wheat in 200 hours while B produces the required 200 l of milk in 200 hours. Finally, the two farms spend 400 hours instead of 500.

Time is saved due to the fact that Mickey benefits from B's productivity for milk, and B benefits from Mickey's productivity for wheat. This exchange spreads the results of productivity gained in one farm to the other farms. We shall see the same phenomenon occurring in international exchange when all the production costs of a country have an absolute value that is higher than the production costs of the other country.

Down-earth advice:
One frequent mistake for a new biz is to realize by itself all the tasks required to produce goods and services. For example, beginners buy expansive printer machine to make copy and so on. In general, rent the services that you need and specialize on your core business. For example: let' suppose that your business is to sell hamburgers: You will not cultivate wheat to make up your own bread; you will not pay people to produce meat; you will not transport the stuff; you will not have your own advertisement and accounting staff! I hope you will focus on your core business: Selling hamburgers to the customers. Look at the next drawing:

The best businessmen are those who just assemble different inputs to provide an output. In so doing, they benefit from the productivity accumulated along the value chain. Of course it means that you choose very carefully your suppliers in order to get the best quality price ratio available on the market.

24-Concentration
I just mention it because it does not interest to much a new business. -Definition: Concentration improves productivity when the most productive units acquire the less productive's. In fact mergers are not always effective and some of them result in decrease in specialization and then in productivity.

25-Division of labor
-Definition: Division of labor is a type of specialization inside the firm: The production of a good is divided into separate tasks each performed by specialized unities. As a result, the productivity of labor is increased because each unity is better trained and because the global organization follows up a logical process: Assembly line.

Down-earth advice:
As you know, there are a lot of criticisms against Division of labor but you are not obliged to take them into account! In many industrial business, division of labor and assembly line are the best ways to reduce the costs per unit and to offer a competitive price on the market. When you create your business neglect fads and only concentrate on your goals!

26-Economies of scale and costs

-Definition: When productivity, specialization, concentration, and division of labor result in a fall of the cost per unity produced, it is said that the firm realizes an economy of scale. The economy of scale depends on the structure of costs. There are two types of costs: -Variable costs: They depend on how many goods are being made. They include the wages paid to the shop floor workers, the cost of raw materials and parts used in the manufacturing process and the cost of fuel, and energy. -Fixed costs are independent of the amount of production. Fixed costs include the manager salaries, the rent, insurance, and interest paid on loans, and the amount of depreciation put aside to replace work out equipment. -Average cost or unit cost is calculated by dividing the total cost by total output.

When the production increases, the average cost decreases. For example, let us suppose you product 10000 bottle of soda. Your variable cost per bottle is $2. Your fixed costs are $10000. When you increase the production, your average cost evolves as follow: PRODUCTION--------10000-----20000------90000 VARIABLE COSTS----20000-----40000-----180000 FIXED COSTS--------10000-----10000------10000 TOTAL COSTS--------30000-----50000-----190000 AVERAGE COST----------3---------2,5--------2,1 Of course, the average cost cannot go below the variable cost. In this example, the variable cost remains constant. It means that there is not any productivity. The fall of the average cost is only due to the economy of scale. The next drawing shows two situations with the same output and variable costs. As you can see, profits are delayed when the fixed costs are high.

Clearly, it shows the importance to limit the fixed costs especially in a new business.

Down-earth advice:
Never be stuck on fixed costs! I would like to see you in a little office rented for few bucks, making your own back office, and working on a table instead of a luxurious desk.

Too much people who create a business just want to get a social statute. They are just eager to look big. These guys would have better to leave business right now. Business means profits: Fixed costs are the worst enemies of profits.

External readings
Go to www.accel-team.com . This web site focuses on the labor productivity and contains a lot of interesting readings, notably about the Taylor's scientific management. It provides also many tips to improve motivations and productivity. 1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

3-HOW TO DISTRIBUTE: THE MARKET

The market is the meeting of supply and demand in a free economy.

31- Supply, demand and price.

311-Supply:
Supply is the amount of a good that the producers are willing to sell at a given price. The law of supply holds that other things equal, the quantity supplied will rise as the price rises and will decrease as the price decreases. This law is illustrated by the supply curve (SS) that has two different moves: A change in price results in a movement along the curve. It means an increase in quantity as the price rises and a decrease on the contrary:

A shift means that a change in cost results in a new supply curve:

312-Demand:
Demand is the amount of a good that the consumers are willing and able to buy at a given price. The law of demand holds that other things being equal, the quantity demanded will rise as the price decreases and will decrease as the price rises.

This law is illustrated by the demand curve (DD). A change in price results in a movement along the curve:

A shift in the demand curve means that a change in income or taste results in a new demand curve:

313-Market price:

The equilibrium occurs at the price in which quantity demanded equals quantity supplied. It is the equilibrium market price. For example, let us suppose that the intentions to buy and sell wheat can be summarized as follows: Amount on demand,in tons Price in $ Amount on offer, in tons 1 000 2 000 4 000 7 000 10 000 150 130 100 80 50 6 000 5 000 4 000 3 000 1 000

The graph below illustrates the equilibrium based on the data in the table above:

Supply and demand even out when the two curves meet, for a price of 100$ per ton. A surplus occurs when quantity supplied exceeds quantity demanded. A shortage occurs when quantity demanded exceeds quantity supplied .r Consumers surplus appears in the blue zone: It means that consumers who were prepared to pay $130 or $150/ one ton enjoy a price of $100.

Producer surplus appears in the red zone: It means that producers who were prepared to sell at $50 or $80/one ton enjoy a price of $100. The description applies to a large number of sellers faced with a lot of buyers. None of the players are able to develop an individual strategy to alter the supply and demand diagram. Nevertheless we can find some specific situations:

314-Specific situations:
Monopoly: If there is a single seller, selling only one product. This situation is very rare in liberal countries. In state countries, the regulations authorize a single public company to produce a certain item. He has no competitors and therefore fixes an arbitrary price and levies an income from the consumers. Oligopoly: There is only a small group of sellers. They can either agree to maintain high prices or have a price war, that finally benefits the consumer (for example, price war between airlines). Prices which result from government regulations bring the following consequences: Price ceiling: The government prohibits the sale of a product above a certain price. This kind of practice results in a decrease in offer, chronic shortages and queues. Price floor: The government prevents a price from dropping below a certain level. This policy results in a surplus of the product concerned. For example: having a minimum wage prevents employers from recruiting all job seekers, which in turn results in unemployment. All these measures of price control have harmful effects on the citizens.

Down-earth advice:
Of course, never enter a sector which is under price control or State monopoly.

External readings and quiz:

About supply and demand we recommend four readings: Go to www.econweb.com . Click on"intromacro", then on "intro macro sample site", then on "courses topics" and finally on "supply and demand". You will find here animated graph and an on line quiz. Go to ecedweb.unomaha.edu . Click on"lesson and standards", then on "direct links to lessons" and finally on "demand and supply on line" by Kim Sosin. Go to aem.cornell.edu . Click on "course list" then scroll to 415 and click on "chapter". You will find here a power point presentation with a lot of interesting slides.

32-Marginal utility

Price expresses the equality of supply related to demand but does not help to understand why consumers are prepared to pay this price. Then we must take a look at the notion of utility -Definition: Utility can be defined by the amount of the product that saturates a requirement. For example, let's suppose that 4 items of food are usually required to saturate the requirement of eating. In fact the consumer does not attach the same value to the first item as he does to the 4th. The first is essential to his survival whereas the 4th is simply an improvement. It means that for a given amount of a product which saturates the requirement (total utility), the value of each unit of the product (marginal utility) decreases as the requirement gradually becomes saturated To express this decreasing utility, we use a conventional measure called the util. Then we, can evaluate the decrease of 4 items of food which satisfy the total requirement. First item: 3 utils, second item: 2 utils, Third item: 1,5 util, Fourth item: 0,5 utils. Since the first item is worth 3 utils, the total utility should be 12 utils. In fact the consumer is only prepared to consume 7 utils. Let 'us now suppose that a consumer has a choice between books and food: One book costs $8 and an item of food $2. Moreover, one book represents 4 utils and the second book still 4 utils.

The consumer will go on demanding more items of food as long the number of utils of an item of food remains higher than the ratio of its price divided by the price of a book multiplied by the number of utils of the book. For example: First line: 3 utils = $2 / $8 * 4 utils = 1 Here, the consumer gains 2 utils (3-1) by consuming one item of food. The last line we see: 0,5 utils = $2 / $8 * 4 utils = 1

Here the consumer loses 0,5 util. It is therefore not in his interest to demand any more item of food. When we consider the economy in general , we realize that the marginal utility of goods which correspond to the basic requirements like foods drops rapidly. This phenomenon explain the difference in price elasticity and income elasticity.

33-Marginal profit analysis

In the same way, we have now to explain why a producer is prepared to sell at a given price. -Definition: A company has interest to produce and to sell an additional unit as long as its selling price is above or equal to its marginal cost. For example, in the next drawing you can see that the marginal cost increases rapidly because of the law of diminishing return. When this marginal cost is equal to the price (line 3) a competitive firm must stop to sell because its global profit is going to fall.

Down-earth advice:
As you can see in the drawing above there is yet a global profit line 5 when you sell one unit more but it is lower than line 4. Be careful because many people are just interested in the increase of your turnover, and notably staff, sale force paid on commissions and suppliers. They often push you to increase the turnover arguing that the company is yet making profit. Recall that your goal is to maximize your profit and not your turnover.

Nevertheless, it can be wise to maximize the turnover when you want to take a bigger share of the market in order to dissuade new competitors to enter: See marketing module.

34-Price elasticity
Price elasticity is a fundamental concept in microeconomics.

341-Price elasticity of demand.

Definition: Price elasticity of demand measures the change in demand to a given change in price. It is measured by the following equation:

For example, the price of a ton of wheat increases from 80 $ to 100 $. The percentage of price change is 20 %. The amount of wheat demanded falls from 4 000 to 2 000 tons. The percentage of change in quantity is 100 %.

A coefficient above 1 indicates products for which demand is elastic: The quantity demanded drops more than proportionally compared to the price increase. A coefficient below 1 indicates an inelastic demand: when you are suffering, you buy drugs even if the price goes up.

342-Price elasticity of supply.

Definition: Price elasticity of supply measures the change in supply to a given change in price The equation is the same as for demand: Percentage change in quantity supplied / Percentage change in price. Elasticity depends of the good. For example, fresh fish product are inelastic because if their prices fall, the supplier has to sell instead to lost all its production. On the contrary, product which can be stocked are elastic because suppliers may wait in order to get better prices.

343-Cross elasticity of demand

Definition: Cross elasticity of demand measures a change in demand for one good to a given change in the price of a second good Percentage change in quantity demanded of good A / percentage change in price good B. If the result is positive, the two goods are substitutes. If it is negative, the goods are complements.

344-Income elasticity of demand.

Definition: Income elasticity of demand measures the change in demand to a given change in income. Once again the equation is: Percentage change in quantity demanded / Percentage change in income. If the result is negative, the good is said inferior. Thanks to a rise in income, people buy less of this good and more of a superior substitute. If the result is positive the good is said normal. People use an increase of income to buy more of the good. The Engel law is an application of the income elasticity as a whole. Definition: When Income increases, the relative value placed on primary goods ( farming, mining, fishing) decreases, the relative value placed on secondary goods (clothing, housing, cars) remains constant, and the relative value placed on tertiary goods ( Services, insurance, education) increases. For example, the relative value of goods which corresponds to quickly saturated requirements, like food or clothing, drops rapidly. On the other hand, cultural items or items linked to education (books, television etc.) are much less rapidly saturated and therefore retain a high relative value. Now, let us suppose that a country's GDP increases from 100 to 375. The value of primary, secondary and tertiary sectors changes as illustrated below. DRAWING 15

Down-earth advice:
This evolution is quite important for a new business: -If you start a farm or a business related to food or primary goods, you must know that you are entering a market where the prices are constantly decreasing and which occupies a relative part less and less important in the economy as a whole. -If you enter in the secondary market in producing some goods like appliances or furniture's coming from the industry, your expected market will grow at the same pace than the whole economy and will keep a constant relative place. -We recommend you to start a biz related to tertiary goods, such as hostels, tourism, leisure's, sports, education. In so doing, you will enter in a market which is constantly growing at a pace higher than the whole economy. It's easier to get a slice in a growing cake than in a decreasing one. Recall that general observation before to make up your mind.

345-Knowledge elasticity:
For any given income, the knowledge elasticity measures a change in demand to a change in the level of education: To know more about this relation illustrated by the Pince Curve, go to "new growth theory" in global leaders.

External readings and quiz.

Visit www.tutor2u.net . Click on "elasticity" and then on the different modules regarding price elasticity. Go to bized.ac.uk . Click on "learning material", then on "economics" then on "bized question bank" and finally on "market elasticity" to get a complete quiz. 1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

Summary lesson:
production possibility frontier shows the maximum possible production with existing resources. Each resource is exposed to the law of diminishing returns.
The

Productivity, investment, and creativity raise the input coming from resources. Firm strategy and organization such as specialization, concentration, division of labor result in economies of scale
and contribute to lower the costs. Free market organizes the distribution of production. The equilibrium price occurs on a market at a price in which quantities demanded equal quantities supplied.

Price elasticity measures the change in demand or in supply to a given price. Income elasticity measures the change in demand to a given change in income. Knowledge elasticity measures the change in demand to a given
change in education. 1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

DO IT YOURSELF
Just use these readings for stimulating your creativity. For example use the Reversal technique and state that the resources are not scarce but unlimited. Examine all the consequences of such a statement. Then go to "New growth theory" in "Global leader" and see how this idea is developed! The time required has been already counted in the creative session of " FW3Creativity".

1. Limited resources 2. How to produce 3. How to distribute 4. Do it yourself 5. Coaching

FW5-MACRO ECONOMY
YOUR POSITION
Look at the map: MAP

307 days before opening.

1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

INTRODUCTION
Macro economy studies how the national economy changes and how it increases.

Duration Lesson: 1,5 hour External readings: 3,5 hour Do it yourself: 0

Total: 5 hours

Objectives:
The objectives of the lesson are to give you the fundamentals about :

-Gross domestic product. -Growth. -Business cycles -Monetary and government policies. By the end you will be able to discuss about these topics and to relate them to your own biz project.
1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

1-GROSS DOMESTIC PRODUCT

In most countries, the Gross domestic product (GDP) is the official measure of the economic output because it is the best basis of the well being of the citizens in a given country.

11-Definition:
-Definition: Gross domestic product (GDP) is the total final value of all the goods and services produced in a given country, in a year. The following clarifications are necessary:

111-Gross production:
It is a gross measurement because it includes the total amount of goods and services produced regardless the fact that some of which are simply replacing goods that have depreciated.

112-Domestic production:
It only includes goods and services produced within a given country regardless of the citizenship of the people owning the companies in this given county.

So it differs of the gross national product (GNP): For example, the US GNP includes the value of goods produced by Us citizens in China or in Brazil.

113-Product:
It only includes what was produced during the year. So, do not confuse GDP an wealth. For example, you own an estate bought for $100 million which earns $10 million per year: The estate is a wealth or a stock and does not enter in the GDP calculation. The $10 million you earn each year is a production and is included in the GDP. GDP measures the production of a nation but not its wealth. Of course the production obtained each year increases the wealth i.e. the stock accumulated since the beginning of time. In year 1 your wealth was 100 million. In year 2, supposing you had consumed none of the production obtained, your wealth would have increased to 110.

114-Final production:
The term final production is very important: To simplify matters, let us suppose that there is a national economy made up of 2 companies. The first, A, manufactures steel, and has a production level of 100 $,The second, B, manufactures food tins from steel bought from A. Its production level is 150 $. We do not add 100 and 150 $ to obtain the final production. GDP is calculated according to the diagram below: DRAWING 1

GDP is therefore 150 $ and not 250 $. It indicates final production. It does not count intermediate production twice (in this case the steel used to make the tins).

115-Real GDP or GDP at constant prices:

Changes in GDP from one year to another reflect changes in the amount of goods but also changes in their prices. Economists use a deflator to suppress the effect of a change in price. They obtain a real GDP, or a GDP at constant prices, that only reflects the change in the output of good and services and consequently the growth or the decrease of the economic effectiveness.

12-How the GDP is used.

GDP is the final production. The national accounting shows how this final production is used. The final production is used into four components: Consumption spending, Investment spending, Government spending, and Exports minus Imports.

121-Consumption spending (C):

It consists of consumer spending's on goods and services. It is divided into durable goods, non durable goods, and services. Durable goods are goods used for several years such as cars, furniture's, computers, and so on. Non durable goods are goods used for a short time such as food and clothing. Services include all the services such as consultancy fees, medical care, travel fares and so on. For a new biz it is interesting to focus on the sector repartition of the consumption spending (C) that is to say the household spending.

Real life example:

The repartition of the US household spending in 1900 and in 1999 at constant market prices, is shown below: -----------------------1900----------------1999. Alcohol and tobacco-----27%----------------7% Food--------------------19%----------------10% Clothing------------------6%-----------------7% Durable goods------------3%----------------11%

Energy-------------------9%-----------------19% Services-----------------36%----------------46% TOTAL------------------100%----------------100% As the volume of household expenditure is, at constant market prices, 5 times higher than 1900, it does not mean that americans eat less than in 1900. It just means that the increase in income has been used to buy more services. The proportional share of food decreases and on the contrary those of services and durable goods increase.

122-Investment spending (I)

It includes the purchase of tools and equipments used in the production of others goods, such as factories, machines and the building of new homes. It includes also the changes in the level of inventory: Suppose that a company has in its inventories of raw materials, parts, and finished goods a value of 100 at the beginning of the year and a value of 130 by the end of the year: The difference of 30 is an investment spending and enters in the calculation of I. You have to take notice that investment must be preceded by savings. GDP= consumption+ saving It means that savings equal investment and that the level of investment will depend on savings.

123-Government spending (G)

It includes public consumption of goods and services such as defense, schools, police, roads and so on. It does not include transfer payments such as social security because the use of this money has already been counted in the consumption spending.

124-Export/import:
One part of this final production is exported but on the contrary we have to take in account the imports. Exports minus Import can give a negative or a positive result. Finally, we get the following equation.

13-Sector repartition of GDP

The above equation shows how the final production is used but it does not tell us from where this production is coming. For this purpose, economy is divided into sectors: - Agriculture, forestry and fishing.

- Manufacturing - Production and construction excluding manufacturing. - Services For each of these sectors, we calculate the money spent on making the goods and the money received from the sales of the goods. Then, we calculate what value is added by each sector: for example, 5% of the final production (GDP) is coming from the agricultural sector. Then we can write the following equation: GDP= value added by agricultural sector+ value added by Manufacturing sector+ And so on It is very important to know the sector repartition of the GDP : With technical progress, the share of agriculture and manufacturing diminishes in the total GDP, while the share of service increases: For example, agriculture accounted for 11% in US GDP by 1900. It accounts to day for only 2%.

14-The income approach

The final production has for counterpart a final income. The production enables people to earn an income rewarding the contributions they have brought. It means that GDP can be described according to the following equation: GDP= National income The national income is made up of the following components: -The wages which are paid to the labor force -The rents which are paid to those who supply the land or the natural resources. If a stock of land with a value of 100 produces an income of 10, an extend of the value of the stock (150) will produce an income of 15 and so an increase of 5 of the GDP. In the olden times and with the feudal system, the rent was an important revenue: landowners lent the acreage's to farmers who paid allowances. Because of this importance, the classic economists spent a lot of time to explain the mechanism of the rent. To day few people get rent. Farmers own their acreage's. The only modern real rent is the amount of royalties paid each year to the oil people in the Middle East. More generally natural resources and raw materials today only play a marginal role in economic growth.

Real life example:

Japan or Singapore do not posses raw materials, but their expansion was among the fastest in the world.

North Korea has raw materials (coal, hydroelectricity). South Korea has none. South Korea has benefited of high growth. North Korea is one of the poorest country in the world. The relative proportion of raw materials involved in production is constantly decreasing. This is firstly because we can use substitutes and synthetic alternatives for raw products (such as rubber) and secondly because the aim of technical progress is to use less and less to obtain the same result. -The interests that are paid to the persons who provides the Capital. -The profits that reward the persons who implement and manage labor, land and capital. In fact the profit is also the final income of all the people who engage their own capital such as the farmers, craftsmen, small biz, self employment and so on. As for the rent, the distinction between interest and profit is quite academic in the modern world . -The taxes which are paid to the government. Finally we obtain the following equation: GDP= Wages+ Rent+ Interest+ Profit+ taxes In adding rent, interest and profit under the sole category of profit we can write: GDP= Wages + Profit + Taxes Finally, with the different approaches, we get three equations: -How final production is used:

GDP= Consumption +Investment + Government + Ex-Im

-Where final production comes from:

GDP = Value added by the main sectors

-What incomes have been earned to get this final production:

GDP= wages + Profit + Taxes.

The last equation is interesting because it relates the terms with the resources and factors of production: Labor force, Land and natural resources, Capital (equipment and tools). We shall use this equation when we shall explain the mechanisms of economic growth. The next drawing 2 shows the circular flow of GDP as we have just described it:

15-GDP per capita

GDP measures the power of a nation but it in no way measures the well being of individuals living in this nation: -Definition: GDP per capita measures the amount of goods and service each person can enjoy. It is given by the following ratio: GDP per capita= GDP of the country/Population of the country. If GDP grows and if the population grows faster, each person is going to be impoverished instead of doing well. For example: Let' suppose 2 countries A and B with the same GDP of 1000. If one has a population of 100 and the other 10, GDP per capita ( or per head) is as follows:

People living in country B have ten times as much production and are 10 times better off than those living in country A. It means that we have to divide the GDP by the population to get a real measure of the well being of individuals living in a country.

Real life example:

Regarding GDP per capita, there are huge differences: -Between countries: For example, GDP per capita in the USA is $34,000 and GDP per capita in Mozambique is $150! -Between regions inside a same country: For example, GDP per capita in France is $22,000 but an inhabitant of Paris gets $34,000 while an inhabitant of Beziers only obtains $16,800 -Between individuals inside a same region. In the same town a professor could get $140,000, and an unskilled worker $14,000! GDP per capita is just an average but it gives a good indication about the well being of people in different countries. 1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

2-ECONOMIC GROWTH
-Definition: Economic growth results from an increase in the GDP. The growth of the GDP is measured by its annual percentage increase: the growth rate.

21-The growth rate

Let 'suppose that the GDP follows these figures: Year 1: 7500; Year 2: 8000; Year 3: 8400; Year 4: 9000. The growth rates are 6,7% in year 2, 5% in year 3 and 7,1% in year 4. Now you have to take in account the change in price: Let' suppose that the price rises by 1% every year. Then the growth rate of the real GDP at constant prices are 5,7%, 4% and 6,1%. The average growth rate over this period is: 5,7 + 4 + 6,1 / 3 = 5,3. With such a growth rate, the GDP of 7500 in year 1 will amount 15000 in year 13, 30000 in year 26, 60000 in year 39, 120000 in year 52, 240000 in year 65, 480000 in year 78, 960000 in year 91, 1920000 in year 104!!! In supposing this growth rate constant it means that in 104 years the initial GDP (7500) will increase 256 fold!

It looks incredible but it's right! We always underestimate the power of the compounding rates over a long period.

Down-earth advice:
You can calculate how long it takes GDP to double by dividing the growth rate into the number 70: If growth rate is 2%, the GDP will double every 35 years: 70/2=35. It means that the average rate of growth is the most important thing in economy for improving well being.

Real life example

During 25 years (from 1960 until 1985) the GDP of Japan grew at a rate of 5,8%. Today, the GDP of China increases by a rate of 9%. Of course, it is difficult to maintain such growth rates over a long period but most developed countries have increased five or tenfold their GDP from 1900 until 2000. On the contrary, many countries do not benefit of any growth rate. For example, thanks to the marxist economy, the GDP of North korea registers negative growth rates: -26% in 1994, -17% in 1995, -17% in 1996! As a result the GDP falls in four year from $20 billions to $10 billion! North korea is not the sole case: As a result inequalities between countries are rising at exponential rate. We have to explain the cause of the level of the growth rate.

22-The causes of the growth rate

Recall from FW4 the production possibility frontier (PPF). The PPF is obtained when all the resources are optimized. In this situation there is no margin for growth. To get growth the PPF must increase. The increase of the PPF has only two possible causes: The available resources increase or/and the technology changes significantly. The growth is said extensive when the resources increase, and intensive when the technology advances.

221-The labor force

It grows with a high birth rate and a lower mortality. Without a doubt, production increases by the growth of the active population and the consequent increase in the amount of work done. Nevertheless, Recall that when only one factor grows, you are rapidly exposed to the law of diminishing returns. In the real life, when the labor force increases without any increase in capital, the labor productivity is exposed to decrease. It means that the rise of population is a poor lever.

What is more, the real growth per capita will fall when the growth rate of the GDP is inferior to the growth rate of the population. If the number of slices of a cake increases more rapidly than the size of the cake itself, your share will be smaller and smaller. This situation is experienced by many undeveloped countries. The countries with the lowest increase of GDP per capita are those with the highest birth rate.

222-The capital increases with the investments:

Economists agree on the fact that Well being (rise of GDP per capita) mainly depends on the extend of capital and the productivity.

Down-earth advice:
To improve the growth of your business focus mainly on productivity in first and then on the extend of capital (investment). Add an unit of labor force only when the next extend of capital is exposed to the law of diminishing returns. In fact, as technology is always improving, a new unit of capital rises the labor productivity and avoid to recruit more unit of labor force: For example suppose you have two trucks with two drivers. Improvement in truck technology will allow you to have only one bigger truck and only one driver for a growing output. Others things being equal the growth rate is also related to the yield of investment what is to say the capital output ratio. This ratio depends from the sectors. Let's suppose a GDP made up as follows: 80 for C and 20 for I. Let's suppose that we know the breakdown of I (S in the graph) between the different sectors:

If we know the average rate of yield applied to each category of investment, we can calculate the likely growth rate of GDP. For example: Investing 100 in farming gives a revenue of 5, i.e. 5 %. Therefore:

For industry, the rate is 10:

For trade, the rate is 20:

For the service, the rate is 50:

The total is therefore: 2.8 In year 2 GDP has grown to 102.8. We discover the fact that the breakdown of investment and its capital output ratio are more important than its total amount: An investment of 10 instead of 20 concentrated on services would have resulted in a growth rate of 5%, retaining the yield hypotheses below.

Down-earth advice
It means that you have to carefully evaluate the capital output ratio of any investment and that you have to invest in the sectors that bring the higher yields. The next drawing 3 summarizes the growth process as we have just described it.

1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

3-THE BUSINESS CYCLE

GDP never increases in a linear, continuous way. It grows like that: DRAWING 4.

GDP is the result of a complex balance between aggregate supply and aggregate demand, investment, savings etc. All these elements influence each other, but not at the same time.

Short-term fluctuations such as inflation and recession are unpredictable, and never end.

Real life example:

The last recession began in spring 2000 with the tech burst and a fall in stock markets world wide. For the first time since the oil shocks, Europe, Japan, and the USA, faced with a simultaneous recession. The Bush administration gave money back to the tax payers and raised the public expenditures. Recall that this recession followed up ten years of continuous growth in the US.

31-Inflation.
When the aggregate demand is higher than the available supply, inflation occurs. -Definition: Inflation is an increase in the general price level. It has two causes: costs and excess of money. -Costs of production: When all the costs of production go up, the companies are under constraint to rise their selling prices. A general cost increase may come from a rise of wages, from higher taxes or mostly from a sudden rise in some raw materials such as crude oil.

Down-earth advice
When you are expecting a rise of raw material, it's wise to purchase them in advance and to increase your inventories. -Excess of money: When the amount of money grows faster than the growth of the supply, there is an excess demand and prices will go up. For example, investments which are not financed by savings can boost the inflation because it always exists a certain time before a factory becomes productive. Wages paid to build the factory are spent immediately, but the extra production will only appear later, for instance in a years time. Consequently the demand grows faster than supply. Inflation often appears at the end of a fast expansion of the economic activity.

32-Recession and unemployment

When the aggregate supply is higher than the demand, a recession occurs. It means that consumers save more and that the savings are not used to invest. Companies then have too much production capacity, which means they fire personnel and stop recruiting. As a result the wages should diminish. In fact, trade unions and government want to maintain the level of the wages. As a result a surplus occurs as we have seen in the microeconomics: unemployment increases.

The lack of flexibility is the cause of unemployment in the short run and the lack of competencies in the long run: With technical progress, the companies do not need any more unskilled workers in our developed countries. As a result a lot of people with low capacities cannot be employed and only received a public help for a living. It means that Public education systems have not been able to forecast this evolution and to find new ways in order to help these people to expand their capacities.

Down-earth advice:
Recession offers a good opportunity to clean the staff: Fire ineffective people. On the contrary, keep the employees who have accumulated human capital. It's not compassion, it's just sound management. A recession is short and even if these persons are under employed, it's better to keep them than to recruit new people when the expansion is coming again. Do not wait the boom to recruit: You should pay higher wages than at the beginning of the expansion cycle. Anyway, lift the qualifications to increase the human capital in your enterprise.

33-Stagflation.
The Phillips curve is a relationship which says that when inflation rises, unemployment diminishes and vice versa. This curve should justify the Keynesian idea that the increase of demand with supply of money and low interest rates is the best way to fight recession. Unfortunately in the 1970s we got both a high level of inflation and unemployment. The main explanation of this phenomenon was certainly in the growing share of the structural unemployment (see above)

34-The multiplier
Keynesian have focused on the multiplier of investment as a tool to fight the recession. Definition: An increase in investment has a multiplier effect which is calculated as follow: Initial investment * output multiplier = Final output The output multiplier is defined as: 1 / (1-Marginal propensity to consume). If people used to save 20% of their income, the marginal propensity to consume is 0,80. In this case the output multiplier is equal to: 1 / (1- 0,80) = 1 / 0,20 = 5

For example, let's suppose the government decides to finance an investment of 500 million. The workers earn 500 and they spend 80% that is to say 400 in shopping. This spending of 400 is an income for the retailers. In turn the retailers spend 80% (320) in dining out. The 320 become income for the owners of restaurant who spend 80% (240) in movie and so on. When all the effects are summed up, output spending in retail, restaurant, movie and so on will amount 2500 according to the formula. Initial investment: 500 * Output multiplier: 5 = 2500. It's looks magic but in fact we shall see the same phenomenon with the velocity of money: (See further). Nevertheless, the multiplier is a good tool when there are both idle resources and a low propensity to import.

External readings:
Go to www.royalbank.com . Click on "starting a business" and then on "business cycles" . This site provides advices for new biz and notably how to face the business cycles.

Down-earth advice:
Some business are very exposed to business cycles: household furniture's, motor cycle vehicles, appliances and so on because it is always possible to postpone the purchases. On the contrary, The activities in education, insurances, medical drugs and food are not correlated with the business cycle. 1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

4-MONEY
Money is the medium of exchange to buy and sell goods and services. Money is not just cash. When economists speak about measuring the money supply they also mean checking account balances and money market funds.

41-The money equation.

Changes in money supply cause direct changes in GDP: The amount of money available affects the size of the economy, according to the following formula:

GDP is determined by the money supply multiplied by its velocity. Velocity is the number of times the money supply circulates through the economy. For instance, the US money supply is $1 trillion and this $1 trillion circulates through the economy eight times a year. Since $1 trillion multiplied by eight is $8 trillion, GDP would be equal to $8 trillion.

42-Monetary policy
A nations central bank is a "bank for banks". The Central Bank influences the economy in three main ways:

421-By changing interest rates

Banks borrow money from the central bank at a discount rate and lend it to their customers at higher rates. If the discount rate is lowered, the difference between the banks loan rate and the price they get from the central bank is higher. This in turn encourages banks to make more loans to businesses and to consumers. The more loans there are, the higher the money supply in the economy. Companies borrow to invest. When interest rates rise, new investments must be more profitable than the increase in interest rates for the profit expected from them to remain the same. A rise in interest rates therefore decreases investments and, as a consequence, the aggregate demand. When interest rates rise, consumers are also encouraged to save instead of spending. This also helps decrease demand. Rising interest rates are therefore the sign of a recession in the next few months. Lowering interest rates has the opposite effect and therefore suggests a coming expansion.

422-By buying and selling government securities

The central bank trades government securities on the financial markets, buying and selling the governments own Treasury bonds. These trading transactions are called open market operations. When the central bank purchases government securities from the public, it places more money in the hands of the public who sold them; money supply increases. When investors buy government securities sold by the central bank, money supply decreases.

423-By changing the reserve requirement of financial institutions.

The central bank requires financial institutions such as banks and brokers to keep on hand a set percentage of the cash deposited by customers. This cash is called a reserve. When Central Bank requires a higher level of reserves, banks cannot loan as much money; and money supply decreases.

Down-earth advice:
When interest rates start to rise: Reduce your investments, do not try to increase production. Ruthlessly track down all your expenditures. In the next 6 months to 1 year, your company will go through turbulence's. Sales are going to drop and you will only be able to maintain current profit levels by reducing costs immediately. When interest rates start to drop: It's the right time to invest, to recruit sales staff and to advertise etc. In the next few months, the economy is going to enter a phase of expansion. Make sure you are ready to make the most of it.

You should constantly be on the look out for changes in interest rates. Rates are published daily in financial newspapers. Make a note of any changes every 2 weeks so that you don't wake up once it's already too late. The Central Bank uses all the means at its disposal to increase or decrease the amount of money in circulation in the economy. Economists all agree on the two points below: When the amount of money decreases too much, this can cause a deep depression, i.e. a considerable drop in GDP. When the amount of money increases more quickly than the GDP growth rate, this creates inflation, i.e. a general increase in price levels.

Inflation, i.e. a general increase in prices, can be predicted by means of the following equation ( measures the percentage of increase):

For example, if M increases by 10 %, GDP by 3 % and velocity by 1 %, inflation will be: 10% - 3% + 1% = 8% 1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

5-THE GOVERNMENT
We must modify the GDP equation once again to include Government expenditure or, more generally, public sector expenditure, G. GDP can be definitively expressed as follows:

Overall, G levies taxes on households (tax, compulsory contributions etc) and takes out loans (the National debt). With these revenues, the Government: Pays the civil servants who work for the various State departments, Distributes aids to guarantee a minimum income for all (Welfare State), Invests in public infrastructures: roads, bridges etc.,

In some countries, the Government also invests through the public companies it controls, Finally, the Government has a regulatory role.

51-The increasing role of the State

In the course of the 20th century, the proportion of State expenditure as a percentage of GDP increased substantially in all industrialized countries. In the USA, the State's proportion represented 10 % of GDP before the First World War. Today, the figure has increased to 35 %. In some countries, it well exceeds 50%. There are three reasons for this increase: The world wars have a substantial part to play. The effort required for the Second World War caused the State's proportion of GDP to increase to 50% in the USA. At the end of both wars, the State's proportion fell but still remained higher than its pre-war level. The acute economic crisis of 1929 was used to justify the States voluntary intervention in economic regulation. Keynesian theories stressed the importance of public control to be able to fight unemployment effectively, at a time when unemployment had reached a record high. A growing number of citizens want the State to guarantee a minimum level of security for all. As a result, expenditures on health and the pension systems constantly increase. GDP growth has also contributed to this phenomenon. The more people's revenue increases, the easier it is to withhold a larger proportion of it, which would otherwise have been allocated to savings. This is why the State's share in GDP is higher in rich countries than in poor countries. It is difficult to levy taxes from people who do not even have sufficient food to live on.

52-The State as manager of kingly services

It is logical for the State to pay the civil servants who perform tasks for the State that private employees cannot carry out. A State needs judges, a police force and soldiers to ensure the countrys internal and external security. It would even be desirable for those carrying out difficult or arduous tasks to be better paid. On the other hand, some services such as education or health could probably be performed more efficiently if they were managed by the private sector.

53-The State distributes social revenues

The State levies taxes from people with medium and high incomes to distribute to the poorest inhabitants, thus guaranteeing them a minimum revenue. Nevertheless this policy is

limited because the Laffer curve shows that when taxes are too much increased, their receipts fall rapidly.

Redistribution is also practiced by the State in an even more harmful way in favor of groups of marginal producers: Subsidies are distributed to companies which would disappear if we let the normal market rules prevail: Certain categories of farmers, fishermen and some industries . The cost of these subsidies is levied from the taxpayers.

Down-earth advice:
Some companies in Europe are specialized in the search of public grants and subsidies. They often recruit executives who only have to look for them in using their relations. What is more, some companies are just created to benefit of a public grant and when they have gotten it , they just disappear! Do not try to copy these people! They can do that because they have close relations with some policy makers and high civil servants: This monkey business functions like a a circular flow of corruption: corruption----subsidies---more corruption and so on! Avoid the economic sector where these sharks are operating. As they are fueled with subsidies, you cannot compete with them.

54-The State as an Investor

It is logical to invest in domains such as bridges, roads, military equipment. All these investments have positive externalities for the economic players. It is also necessary:

That the reason for the investment is justified. That projects do not cost twice as much as originally stated.

These two conditions are not a matter of economics but politics: Capacity of the voters to choose the projects which should be given priority. Ability of the voters to monitor the way they are carried out.

To invest, the government must borrow: The total amount of borrowing is called the national debt and its percentage to the GDP is the debt ratio.

55-The State and its regulatory function

Generally speaking, the State puts laws into practice once they have been voted. This is done in the legal framework in which all economic activity belongs. The Government's regulatory function is also very important. A Government has the authority to set certain prices. For instance, it sets a minimum wage level and can also set floor and ceiling prices in certain cases. It prescribes countless regulations that interfere in the life of companies and households: Rules on pollution, on competition, on whether or not to allow foreign products to enter the country (quotas), on trade unions.

Down-earth advice:
No more! no more, please! When regulations increase too much (notably the labor regulations or the taxes) the only way is to lock out the biz and to fly away! Thanks to globalization ( next lesson) it's nowadays easy to move the capital. Once again, do not be stuck. Be always prepared to move. If you are interested in these topics about macro-economy, you have below a complete resource.

External readings:
If you are interested by these topics, we recommend you to go to the site http://cepa.newschool.edu/heat dedicated to the history of Economic Thought. You will find here all the theories of the most famous classic and modern authors about macro economics. As it is a very large site, do not devote more than 3 hours to these readings. 1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

Summary lesson:
Gross domestic product is the total final value of goods and services produced in a given country in a year. To get this final production you have to remunerate the factors of production with wages, interests, and profit. The total income distributed equals in a year the total production. The growth of GDP occurs when the factors of production are better used

Productivity and investment are the main tools to improve GDP per capita.
(productivity) or when they are extended (investment in capital). The GDP never increases in a linear way. It registers fluctuations which cause inflation or unemployment. The monetary policy enables to limit these fluctuations. On the other hand these fluctuations can be amplified or balanced according to the government policy. 1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

DO IT YOURSELF
Use the knowledge's you have just gotten to clarify your vision: -Are you in a sector which is likely to expand? -Have you put enough knowledge and creativity into your project? -Is the economic situation in your country friendly to business? -Have you begun to think about the administrative and legal hurdles?

They must be printed in your mind and in your subconscious.

Periodically, read and read again the down-earth advices. 1. Gross domestic product 2. Economic growth 3. The business cycle 4. Money 5. The government 6. Do it yourself 7. Coaching

Humor never hurts: If youve ever been bored sitting in Econ 101 youll enjoy this refreshing explanation by Yoram Bauman, "the world's first and only stand-up economist." I llike how he differentiates between

macro and micro: Microeconomists are people who are wrong about things in specific. Macroeconomists are people who are wrong about things in general.

FW6-ECONOMIC GLOBALIZATION
YOUR POSITION
Look at the map MAP

304 days before opening

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

INTRODUCTION
The International macroeconomics course is summarized under the title: Economic globalization. It's a short lesson because we provide you with many useful readings.

Duration
Lesson: 0,5 hours External readings: 9 hours

Do it yourself: 0 Total: 9,5 hours

Objectives:
Our objectives are to improve your business knowledge and therefore, to give you some fundamentals about:

-Trade -Balance of payment -Exchange rates -Economic Globalization. By the end, you will be able to discuss these topics and to recall them with respect to your own project.
1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

1-TRADE
Trade must now be introduced into our GDP equation:

E stands for exports and i imports. The percentage of exports may be very high. It makes up 50 % of the GDP in some countries. If net exports are positive, the nation has a positive Balance of Trade. If they are negative, the nation has a negative Balance of Trade.

11-Protectionism and free trade

Some countries try to protect their own markets. This policy, called protectionism, uses barriers to keep out imports. Barriers include high tariffs (taxes on imported goods) and quotas. In actual fact, protectionism leads to very poor results and penalizes a country's growth. In accordance with Ricardo's argument, exchange is beneficial when the price of goods in country A differs from the relative price of the same goods in country B.

USA Price Product A Product B Relative price A/B 20 $ 10 $ 2

JAPAN Price 6$ 2$ 3

Here, the United States would be better to specialize in product A, and Japan in product B. If the price of product A in Japan was 4 $, the ratio A/B would be the same as in the United States, and there would be no benefit from an exchange. If the countries decided to specialize in this way, employees in the USA who lose their jobs in the product B sector will be able to find new jobs in sector A. It has been calculated that due to custom duties in B sector, the production cost of one job is between 10 or 20 times higher for the consumer than the cost due to the loss of this one job. Free trade is the best way to improve global growth and well being.

External readings and quiz:

Go to www.plea.org/teachers/trade/index.htm and explore the whole site. You will find here many courses and quiz regarding the international trade. It takes about three hours to explore all the site. Visit the international economic study center: http://internationalecon.com . Click on "international trade theory and policy analysis". It's a fruitful course. 1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

2-BALANCE OF PAYMENTS
Nations keep track of their international transactions by means of the Balance of Payments (BOP). The BOP registers the current account which keeps track of goods and services (exports minus imports) and the capital account which keeps track of physical and financial assets flowing into the country. Current account Credit Debit Balance

1. Goods exported 2. Goods imported Balance of trade 1 and 2 3 Fees and royalties received 4. Foreign investment income Balance of current account 1 and 4 Capital account Change in assets abroad Change in foreign assets within the country

300 350 - 50 30 10 - 10

90 100 + 10

Balance

=0

When the current account is negative, you must increase what you borrow to other nations. The Capital flow coming from borrowing gives a positive capital account. It's just like a cash account. When you borrow your cash account increases. When the current account is positive, the rest of the world must borrow from your country to pay the difference. Capital flow out of your country gives a negative capital account. For this reason, the balance of payments will always be zero. When one account is positive, the other account is negative by the same amount. 1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

3-EXCHANGE RATE
-Definition: The exchange rate is the rate at which one countrys currency is converted into anothers.

In January 1999, 1 U.S. dollar could buy 115 Japanese yen, or 62 percent of one British pound. One countrys currency is worth more than another when it is in demand. Trading requires currency to pay for goods and services: When the United States needs to buy English clothes, importers sell US dollars and buy British pounds to make payments in British currency. Demands for currency for attractive investments: Higher relative interest rates in the United States prompt purchases of bonds by foreigners. Demands for a safe haven: People in trouble in their own country send their money offshore, buying other countries currencies. Lower inflation in some countries attracts money from other countries.

Exchange rate movements are crucial for companies involved in international trade.

External readings:
Visit once again http://internationalecon.com . Click on "international finance theory and policy analysis". You will find a very complete course about the balance of payment and the exchange rates. 1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

4-THE CONTENT OF INTERNATIONAL EXCHANGES

international trade enables technical progress accumulated in one country to be spread to all other countries. Between 1960 and 1995, world trade increased from 24% to 42% of international GDP. The proportion of the value of technological goods in international exchanges overall increased as follows between 1976 and 1996: 1976 Technological goods Raw materials Secondary goods Miscellaneous 33 % 45 % 21 % 1% 100 % 1996 54 % 24 % 18 % 4% 100 %

Technological goods are goods involving a high research effort. South Eastern Asian countries are extremely successful since they opened up to the international market. Their success is also due to their capacity to equip themselves with a good technology. Direct private investment reinforces this trend. Direct private investments by multinationals are largely to thank for the spread of the most recent technologies. The Middle East and Africa (not to mention the Eastern block) where foreign investment was greatly hindered have remained poor. International trade is mutually beneficial, especially for the poorest countries who can profit from technology and knowledge gained elsewhere. Just as knowledge spreads between production units in the same country through exchange, knowledge spreads from one country to another for the same reasons by means of international trade. Governments who oppose the spread of technical progress by imposing customs duties and quotas seriously penalize their population.

Down-earth advice
International trade is a good opportunity for any new business but you have to be careful about bad payers or suppliers. I recommend you to establish a close relation with your banker if you intend to develop export or import. Your banker has correspondents in foreign countries and can provide you with useful information's. What is more, all trading operations must imply letters of credit and others means to ensure that you will be paid. In any transactions, always put your banker between you and the foreign customer or supplier. Your banker is your guarantee. If the banker does not want to play this role, it means that he fears a bad end of the transaction. In this case you have better to follow his advice and to give up the deal. 1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

5-GLOBALIZATION
-Definition: Economic globalization is the increasing world integration through trade, financial flow and knowledge. More precisely it means that factors of production are used on a world scale. There are also cultural, political and environmental dimensions of globalization. This broaden field explains the emotive force of the concept. About these topics, click one "global leaders" and then on "globalization" on this site. The word globalization has really begun to be in common usage since the 1990s in connection with advances in electronic communications, and with a strong increase of private capital flows from developed to undeveloped countries.

The Globalization of factors of production implies: -Capital: Direct foreign investment have increased mainly towards East Asia. Transnational corporate's relocate their plants abroad in order to get the better allocation of factors. -Labor: Workers move from one country to another in order to get better wages.

Down-earth advice:
On the other hand, in many business, cheap labor force can be taped from anywhere in the world. For example, with internet you can order paperwork in Philippines and receive the output on your computer. Cost could be ten fold lesser than the same work ordered in your country. -Knowledge: Direct foreign investments bring technical innovations and better management. On the other hand, world wide web brings the knowledge resource available for every body at low costs. However, It is yet too soon to appreciate the real effect of globalization on growth and productivity on a world scale.

External readings and power point presentation:

Go to www.imf.org/external/ . Click on "site map" and then on "globalization". You will get a full course about globalization. Go to www.newsbatch.com/globalization.htm . You will get here a full account of the discussions about globalization with a description of the main actor role such as world bank, World trade organization and international monetary fund. Go to www.wri.org . Click on "publications and multimedia", then on "power point" and then on "global trends". You will get here a presentation and in clicking on the slide, you will obtain the full text. 1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

Lesson summary:
Protectionism reduces the productivity of nations and jeopardizes well being.
When balance trade is positive, capital account is negative and vice versa. As a result, the balance of payments is always equilibrated. Exchange rate fluctuations are crucial for companies largely involved in international trade.

Globalization enhances the share of international exchanges in the world economy. 1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

DO IT YOURSELF
Use these knowledge's and readings for improving your personal credibility in the business community. Use it also for stimulating your creativity in order

to get

your business idea.

1. Trade 2. Balance of payments 3. Exchange rate 4. Content of exchanges 5. Globalization 6. Do it yourself 7. Coaching

FW7-WORLD ECONOMY
YOUR POSITION
Look at the map MAP

300 days before opening

1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

INTRODUCTION
In this module, we shall apply the economic concepts you have just learned for describing the world economy. It means that we shall give you the big pictures of the world economy detailed by regions. it's the real world and the real market.

Duration.
Lesson: 1 hour External readings: 2hours Do it yourself: 0 Total: 3 hours

Objectives
This world economy course describes the repartition of wealth between different countries and regions. The objectives of the course are:

-To give you the big pictures about world and regional GNI, world and regional population and finally to compare the GNI per capita in different regions. -To explain how these results are connected to the degree of freedom and knowledge in each country.
Warning : About the sources of tables and stats, we invite you to report to : Economic stats-World Bank: www.worldbank.org/data. Population stats: UN: www.un.org/esa/. The world economy analysis is based on the GDP. The Gross Domestic Product (GDP) is the sum of the entire final production obtained in a given year by a country. GDP measures the economic power of a given country. However, the figures in this survey are based on the GNI (Gross national Income) in accordance with new World bank definition: Go to www.worldbank.org/data

1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

1-THE BIG PICTURES 11-World GNI

The world GNI attains 39,305 $Billion in 2004. The world economy relies on three main regions: USA: 12,150 EUROPEAN UNION ( 25 countries): 12,000 JAPAN:4,750 The USA, the European Union and Japan represent 73,5% of the world GNI (72.5 in 2001). The world economic power is highly concentrated. You may take notice that the above regions only represent 13% of the world population.

Real life example:

You cannot imagine how many top people are blindly ignorant about these figures. Sometimes ago, attending an executive board, I heard people dealing with economic development and what to do to increase it. I just asked " Do you know what is the figure of the world GDP?". It was a profound silence. Surprisingly, none was able to answer this question!

12-Main economic powers

The fifteen main economic powers are the following in 2004: USA: 12,150; Japan:4,750; Germany: 2,490; China: 2,130; United Kingdom: 2,020; France: 1,860; Italy: 1,500; Canada: 900; Spain: 880; Mexico: 700; India: 680; Korea: 670; Brazil: 550; Australia: 541; Netherlands: 515. These countries represent 82% of the GNI and 55% of the world population. -China stands far behind the US. -Because of 70 years of communism, Russia is a small economic power. Russia has 140 million inhabitants, but its GNI is quite equal to that of the Australia with only 20 million inhabitants!

13-Income repartition

The Global GNI pictures the economic power. GNI divided by total population gives GNI per capita. This indicator represents the well being of the population. However, it is an average that does not take into account inequalities of income within a country. Nevertheless, it enables us to make comparisons and to measure the capacity of a society and an economy to satisfy its citizens needs According to the World Bank, the world economy is divided into the following income groups (In % of World population): 1-Low Income= $825 or less:------------------- 37% 2-Lower Middle Income= $826 to $3,255:-------- 38% 3-Upper Middle Income= $3,256 to $10,065:------ 9% 4-High Income= $10,066 or more:----------------16%. High and Upper Middle income groups represent 25% of the world population. The percentage of poor people (Lower Middle Income en Low income) attains 75% and concentrate in South Asia and in Africa. For example, the situation in Sub Saharan Africa is catastrophic: The GNI per capita only reaches $355 in 2004 (Except South Africa)

Real life example:

Most of the students coming from undeveloped countries do not know the place of their own country regarding this repartition. Once, I gave these figures to a class formed by young executive coming from the third world. They were astonished : " We have followed many courses in economics both in our universities and in yours" They said " However, it's the first time we discover these figures!"

External readings
In order to check periodically all these big pictures, I recommend you to visit the following sites owned by the international institutions such as the World Bank, the International monetary Fund or the United Nations: www.worldbank.org www.imf.org www.un.org I also recommend you to read "The Economist", a british newspaper which gives these information's quite on a weekly basis. www.economist.com 1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

2-THE CAUSES: FREEDOM, KNOWLEDGE 21-False causes

Third world activists often underline different causes such as North South divide, raws materials, and so on. All these explanations do not stand under a close examination: The North South divide is not valid unless we consider the South American countries as not belonging to the South! 320 million Latin Americans (zone between 4 and 10000$) have an income per head that is higher than that of 320 million Europeans. Raw materials do not explain the different levels of development either. Japan, the 2nd most powerful economy in the world, has no raw materials. Africa has a large supply of raw materials, but most African countries are poor. Income per head in countries with abundant petrol supplies in Africa and the Middle East is mostly below 2500 $. In fact, Freedom and knowledge are the only factors that explain these differences between GNI per capita.

22-Freedom
Out of the 6.5 billion inhabitants that make up the worlds population in the year 2004, 2.3 billion live in free societies, 1.5 in partially free societies and 2.2 in countries ruled by dictators or totalitarian regimes. We shall show that a constant correlation exists between level of freedom and level of development. 85% of the world wealth is concentrated in free countries.

221-Positive correlation
Whatever the region or the culture, every country with a GNI per capita above $3,250 ( Upper Middle Income ) is a free country ( With the exception of Saudi Arabia ). These countries are found in: -North America (USA, Canada) and Western Europe. -South Asia and the Pacific : Japan, South Korea, Taiwan, Singapore, Hong Kong, Australia and New Zealand. -Latin America : Mexico, Chile, Argentina and Uruguay. -Central Europe : Croatia, the Czech Republic, Hungary, Slovenia and Poland. Among the free countries, the only big one that is far to be developed is India

222-Negative Correlation
With the exception of China, all countries ruled by dictatorships cannot even be included in graphs because their value is too insignificant. The lowest GNI per capita are found in countries that have suffered or are still suffering from dictatorships.

-African countries in the sphere of influence of the former USSR recorded catastrophic results (GNI per capita 2003 in $: Source Worl Bank Atlas): GNI/capita World ranking Ethiopia Burundi Eritrea Angola Mozambique Mali Madagascar 90 100 190 740 210 290 290 208 206 197 149 195 187 187

Ethiopia was ruined by Mengistus bloody Marxist dictatorship. Its economy should have taken off again, but endemic wars in the horn of Africa form an obstacle to its recovery. -The same applies to South East Asia, where the 3 countries with GNI below $ 500 are communist or former communist countries.(GNI per capita 2003 in $: Source Worl Bank Atlas) GNI/capita World ranking Cambodia Laos Vietnam 310 320 480 183 179 164

-In Latin America, apart from Cuba for which no statistics are available, Nicaragua because the former communist dictatorship is the only country alongside Haiti with a GDP below $ 750.(GNI per capita 2003 in $: Source Worl Bank Atlas) -The same applies to the former USSR countries. Whilst Marxism claimed to improve the peoples happiness, we can see the catastrophic results of 70 years of communism in the table below.(GNI per capita 2003 in $: Source Worl Bank Atlas) Russia: Belarus: Ukraine: Uzbekistan: Georgia: 2610 Turkmenistan: 1120 1590 Armenia: 970 420 830 Azerbaijan: Kyrgyz Tajikistan: 950 810 330 190

However, these countries are not at all short of raw materials. Their enterprising and creative spirit has simply been stifled for too long.

Regarding no communist dictatorships, there are no statistics available for Afghanistan, Myanmar, Iraq, North Korea, Libya, Somalia, etc. Except for Saudi Arabia (approximately $8 000 per head) all these countries have low GNI per head.(GNI per capita 2003 in $: Source Worl Bank Atlas) Algeria: Syria: Equatorial Guinea: Congo: 1890 1160 930 640 Sudan: Rwanda: Chad: Sierra Leone: Niger: Congo (K) 460 220 250 150 200 100

Cameroon: 640 Togo: 310

We can see that a high proportion of African countries are concerned by these statistics, which goes to prove the following statement: African countries are not poor because they are in Africa. Africans are poor because they often live under dictatorships. Obviously, economic development and well being are linked to freedom. Why would the degree of freedom explain the levels of development? It is because freedom is closely related to knowledge and therefore also to technical progress, which is the source of economic power. Of course Individuals deprived of freedom cannot create. The following itinerary results:

Freedom -->Knowledge --> Development This trilogy is the basic equation for development.

External readings
Go to www. freedomhouse.org . This site provides with an updated overview and regional surveys of freedom in the world.

23-Knowledge
In order to illustrate this golden rule, we shall show that knowledge is both connected to freedom and to the level of development. We have 5 criteria by which to measure knowledge:

231-Education rate
It is impossible to use this criterion. In fact, authoritarian regimes indoctrinate young people, and schools are often privileged locations for this indoctrination to take place. These

countries thus have statistics indicating high education rates, but they have no relation to reality. Children who spend 10 hours at school every day, listening to teachers belonging to unique political party, receive less education than children who spend only one hour at school per day, but who are taught in a positive way.

232-Number of scientists per 1 000 inhabitants

The second criterion must also be interpreted with caution because the stats about the number of scientists are issued by the States themselves. What is more, scientists who work in dilapidated laboratories are not as effective as those working in pleasant environments. Bearing this reservation in mind, this criterion gives us the following results for the top 10 countries (In 2001): Number of scientists and engineers per million inhabitants Japan Sweden USA Norway Russia Australia Denmark Switzerland Germany Finland 4 909 3 826 3 676 3 664 3 587 3 357 3 259 3 006 2 891 2 799

These countries include three out of the five principal world powers: the United States, Japan and Germany. We can see that all these countries are free and enjoy high levels of development ( Except Russia)

233-Illiteracy rate
Illiteracy rate generally distinguishes rates for men and women. We have established a single rate without such discrimination (2001): Highest rates as a % of total population Nigeria: 85.0

Burkina Faso: Afghanistan and Gambia: Senegal: Ethiopia: Guinea Bissau: Mali and Benin: Nepal: Bangladesh, Cambodia and Chad:

77.5 65.0 64.5 64.0 63.0 61.5 60.5 60

All these countries are just emerging from dictatorships or remain ruled by dictators. All suffer of very low levels of development

234-Numbers of computers connected to internet for 10000 inhabitants (In 2001)

USA: Finland: Norway: New Zealand: Sweden: Denmark: Australia: Canada: The Netherlands: Singapore: Switzerland: 1 939 1 218 899 703 670 631 567 540 517 452 429 Austria: Great Britain: Belgium: Israel: Japan: Germany: Estonia: Hong Kong: Ireland: France: 338 321 313 225 208 207 206 162 159 131

Once again, these figures show the excellent performance achieved by the Scandinavian countries.

235-Countries that export the most technology (In 2001)

Country % of exports of advanced technology

Philippines: Singapore: Malaysia: Ireland: USA: Thailand: Netherlands: Great Britain: Rep. of Korea: Japan:

71 59 54 45 33 31 30 28 27 26

Countries such as the Philippines, Malaysia and Thailand export the most advanced technology. This means that they accept to acquire knowledge through foreign investments in their economy. It also means that these countries are still in the race for progress. As a result, they benefit of high growth rates. All these countries are free or partly free. 1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

3- GLOBAL SUMMARY
By examining various factors ( GNI per capita, freedom, knowledge) we can form a new classification of countries. Developed countries: 1. Scandinavian countries 2. North America, Japan 3. Singapore, Oceania (Australia, New Zealand) Countries heading in the right direction: 1. South Korea, Thailand, the Philippines 2. Chile, Central America ( Mexico ) 3. India Authoritarian countries with positive development prospects: 1.China 1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

Lesson summary
Analyze carefully all this data in order to clarify your business idea. When imagining your products, services or markets: In the short term, think about:

North America China

Over ten years, think about

India

Anyway, Keep focusing on China because of its demographic weight and fast growth.

don't invest in a country that is not engaged in a right direction regarding freedom and knowledge.
More precisely, 1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

DO IT YOURSELF
Once again, use these knowledge's for stimulating your creativity Begin to deliver short speeches about these topics to your relatives and friends. It should be a good training for increasing

your personal visibility.

1. The big pictures 2. The causes 3. Global summary 4. Do it yourself 5. Coaching

FW8-COUNTRY RATING WORLD GUIDE

YOUR POSITION
Look at the map MAP

298 days before opening

1. Methodology 2. Results 3. Do it yourself 4. Coaching

INTRODUCTION
The country rating world guide completes the real world in giving a specific appreciation country by country. It covers the countries where I have worked and sojourned and also those I just visited. Taking in account my experience, even a short visit gives me enough facts to formulate a rough appreciation. As a result, this unique country rating world guide covers 132 countries. It is constantly updated. Country leaders who want to be rated or who think that their present rating could be updated can ask me a new survey: About the conditions, see Global Coaching.

Duration
lesson: 1 hour readings: 2 Hours Do it yourself: 0 Total: 3 hours

Objectives
Its objectives are:

-to provide you with a simple and easy tool in order to rate each country according to its potential regarding a small biz investor.
1. Methodology 2. Results 3. Do it yourself 4. Coaching

1-METHODOLOGY
This practical guide has nothing to do with the country rating established by the big rating agencies which are dedicated to institutional investors such as bank making loans in foreign countries: A good rating indicates that regarding some big pictures, the country will be able to pay back its loans. Although such a global rating could be useful, it does not fit to a small investor who needs more sensitive or qualitative information's such as the behavior of opinion toward small business or the quality of human relations between boss and employees. Consequently, our Rating takes mainly in account: -Security of goods and persons: Countries suffering from civil or foreign wars are systematically rated with red stars. -Legal protection of properties and ability to repatriate money. -Infrastructures such as power energy, telecom's, roads, airports and so on. -Ratio cost quality of the labor force. -Governance behavior toward business: I cannot recommend a country where State regulations and heavy tax pressure prevent any biz to expect a reasonable profit! -Economic prospects such as the size of internal market and /or the openness to foreign trade. It's difficult to weight each condition. It means that the rating reflects a global appreciation rather than a mathematical notation. I underline the fact that this rating only applies to small business. A transnational corporate can invest in a dog state because it has some means of pressure on the local authorities: For example, oil and gold mining corporate's are currently investing in countries which are rated with three or four red stars by us! With this reservation, the guide applies both to the citizens who want to invest in their own country and to the foreigners who aim to implement their new biz in a foreign country.

Considering globalization the appreciation tends to be the same: Nevertheless, in our short comments, we take notice of the difference (notably in case of necessary or compulsory joint ventures). Each country is rated with stars. -Five blue stars: -Four blue stars:

*****

mean the best possible conditions to start a new biz.

**** mean very good conditions. *** mean good conditions.

-Three blue stars: -Two blue stars: -One blue star:

** mean acceptable conditions.

* mean that it is worth to invest but you can meet some hurdles. * mean inversely that we do not recommend to invest in this

-One to five red stars: country.

A + or a - added to the stars introduces a slight differentiation between countries with the same number of stars. 1. Methodology 2. Results 3. Do it yourself 4. Coaching

2-RESULTS
1-USA: *****+ : USA of course! The imperial kingdom of free enterprise. The big States such as Calif or Texas should be privileged. If you need a cool environment, move to the rocky mountains States such as Colorado, Montana or Arizona. 2-United Kingdom: ***** : The grand mother of free biz. Certainly, the best place if you intend to export toward the entire world (In this case, London has to be chosen). Just some figures: the number of days strike amounts 1% of the total of working days against 6% in the european community. The labor cost represents 50% of the german cost! Quite all the costs such as energy show the same trend! 3-Canada, Australia: ****+ : Canada is close to the States. Australia offers the best living conditions in the world ( Sydney and Perth notably). 5-Ireland: **** : A celtic tiger! Best location in the Euro land. The lower cost of labor in the entire European Union. 6-New Zealand: regulations.

****- : Same comments as for Australia. Beware about ecological

-Japan, Singapore, Hong Kong: ****- : Japan is a mature economy with a weak banking sector. The high rate of Singapore and Hong Kong are justified by their openness to the huge chinese market. Anyway, recall that a good implementation could take a lot of time and money. -Switzerland, Luxembourg, Andorra, Liechtenstein, Monaco: ****- : These rating are due to the high GDP per capita and the banking network. To be implemented in such countries give a quality label (in Swiss notably) 15-China ***+ : A lot of uncertainties and risks but it's worth to assume because of the market size. A joint venture with chinese partners is quite necessary. -India: ***+ : India has the biggest domestic market in the world but there is too much bureaucracy. As for China, you should need a joint venture and a lot of patience. On the other hand, investment in India is less risked than in China because the political situation of the biggest world democracy is quite stable ( maybe influence of religion and british education of the high establishment). What's more: huge growth rate: 10%! -Spain: ***+: Spain has benefited of the European community and registers a high growth rate. There is a lot of small business opportunities in the Costa del sol with increasing residential retired persons coming from the entire Europe. 18-Sweden, Norway, Finland, Denmark, Netherlands, Iceland: *** : A lot of State regulations and a slow growth in all these old countries. It's compensated by the staff quality due to a very high level in education standards. What is more, polite and civilized relationship are prevalent between the boss and the trade unions. Integrity is emphasized and corruption quite nonexistent in the Nordic countries. I just come back from a short trip in Iceland: the highest GDP per capita in Europe. Only 300,000 inhabitants! -France, Italy, Belgium: *** : France has good infrastructures, good quality of staff but the opinion and the elite are not inclined too much toward small biz. Middle class suffers with increased labor regulations and taxes pressures. As a result, thousands of french entrepreneurs have crossed the channel or even gone to America. However, with the defeat of the socialists a new era is coming and thanks for the new right wing government, I have been able to upgrade the rating. Italy suffers from its south part and has registered a slow growth during the last ten years. Nevertheless, the new reforms can boost the growth. Invest only in the north part.

Belgium is central in Europe with low regulations. It's the headquarter of European Union and NATO. It appears to be a good location with a people very friendly to small business. -Germany, Austria: *** : Global standards are decreasing. Obviously, Germany suffers from its eastern former communist part: People were more trained to denounce than to work hard! What is more, german labor costs are the higher in Europe.

The socialists and the so called Green party (It means in fact, hard leftists and former communists) have kept the political power and, in my opinion, the economic and social prospects are not good. However, remind that Germany represents the biggest market in Europe. 29-Mexico, Thailand, Poland, Czech Republic, Slovak Republic : ***-: Mexico is a fast growing economy which benefits from EFTA, a friendly biz new government, large internal and external Markets. I make up some mental reservations about the revolutionary tradition ( "commandant Marcos" and so on) and consequently about the motivations of unskilled workers. With Singapore, Thailand is the best location in South East Asia and a very safe place. Poland is the best guess in eastern Europe. 34-Hungary, Portugal, Greece, Brazil, Mauritius, Dominican Republic, Chile: **+ : A lot of emerging countries very inclined to business with sound stability, good or medium infrastructures, and free export Zone: Well adapted for small business. Brazil was the best location in South America. Friendly people and government, dynamism and the kindness of the population, first class infrastructures in the southern area, large internal market, huge prospects, few State regulations (Private police and so on). Unfortunately, the recent change in political power brings a lot of uncertainties. -Ukraine, Russia, Estonia, Lithuania, Latvia: **+: You will need a joint venture in these countries. The quality of management Russia calls for reservations. However, all these countries benefit of high growth rates. -Philippines:

**+

: A friendly country with a large domestic market.

47-Slovenia, Croatia, Romania, Bulgaria : ** : Slovenia and Croatia could offer new opportunities for ecological tourism. Romania and Bulgaria entered the European Union by 2007 and presently enjoy high growth rates. 51-Bahamas, Gibraltar, Jersey, Cyprus, Malta, Panama: **- : A group of small countries specialized in banking and off shore business with limited opportunities except in tourism. -Maldives, Seychelles, French Antilles, St Marteen, St Barth, Tonga, Cooks Islands, Easter Island: the world!

**-

: Only tourism in these countries. Maldives is the best sea resort in

65-Argentina, Ecuador, Guatemala, French Guyana: *+:: It's a pity to see Argentina in such a position but there is something wrong with this country. Ecuador and also the so fascinating Guatemala may offer better opportunities. There are also a lot of business to do in French Guyana in connection with the launching of satellites and the discovery of the amazonian rainforest.

69-Bolivia, Peru, Madagascar, Gabon, Benin, Lao, Vietnam, Malaysia, Indonesia: * : Limited prospects in Andin countries. Thank to its new democratic president, Madagascar should emerge from the grand corruption of former dictatorship: Good opportunities exist in import export and once again in tourism business. Thanks to oil business, Gabon is a peaceful African emirate. Benin could be a safe basis to export towards Nigeria. Laos and Vietnam are still two communist countries but they show a real openness to foreign investments. However, bureaucracy and corruption are prevalent in these two countries. With its 80 million inhabitants Vietnam could offer serious opportunities in the near future. Due to the islamic pressure, Malaysia and Indonesia have been downgraded. 78-French Polynesia, French Caledonia: *- : Thanks for a special statute, you get the french infrastructures and legal protection without the States and taxes regulations! What is more, there is a friendly population and a very well oriented local government. Unfortunately, it 's quite far from everywhere. Many possibilities remain in tourism business. -Serbia, Macedonia, Bosnia, Albania, Georgia, Armenia: *- : Dim economic prospects. However, these countries could enter in the european community. Right now, we shall cross the red line: 86-Israel: *: A very friendly country, with high tech opportunities. Unfortunately no investment prospects during war time. -Jordan: *: Jordan is the best business location in the entire Arab Middle East: Friendly and reliable people, total security, good infrastructures and a strong inclination toward small business. Although Jordan does not possess oil and raw materials ( except salt and phosphates), the GDP per capita is one of the higher in the arab world. According to our theory, this situation illustrates the fact that creativity, good governance and friendly business are more important than any raw materials! Unfortunately, the Hachemite Kingdom is threatened by the islamists. 88-Dubai, Abu Dhabi, Sharjah, Oman: ** : You should need a joint ventures in Emirates. The former note was justified by First class infrastructures, good working force coming from the entire world and many possibilities in fine and luxury goods business. Due to the increase of Islamism, I have downgraded these countries-. -Turkey, Tunisia, Morocco, Egypt, : enter in the European community.

**: Same comments as above. Turkey should not

-Ghana, Mali, Senegal, Ethiopia, Kenya: ** : These countries have gotten a democratic governance. Unfortunately, infrastructures are very bad (Power, Telecom, Roads, and so on). Labor is cheap but you have interest to include a vocational training module in any investment. However, workers have a good spirit and you can get a very motivated staff. There are some opportunities in tourism in these countries: Sea resorts in Senegal; the coastal castles in Ghana; Timbuktu, the Dogon and Mopti area in Mali; a lot of fascinating

sites in Ethiopia and finally games in Kenya. Except Senegal and Kenya where tourism business has been developed for long, all these possibilities remain largely unexploited and are waiting for investors. -South Africa, Namibia, Tanzania : ** :As a result of the Joburg summit, I heavily downgrade the rating of South Africa and Namibia. In my opinion, the next african tragedy will take place in these two countries due to the propagation of the Mugabe racist policy. Insecurity for white farmers is growing in the region. 104-Suriname, Fiji, Comoros, Mayotte, Djibouti, Burkina, Niger, Cameroon, Central africa:

*** : Political instability, Grand corruption, bad economic prospects.

-Nepal, Tibet, Burma, Cambodia, Togo, Mauritania, Ivory coast, Chad: *** : Special situations and remnant civil wars. Ivory coast which represents 40% of the West African GDP is entering in an obscure ethnic war. 121-Colombia, Iraq, Algeria, Yemen:****: Fierce civil wars. Countries very dangerous for westerners. -Iran, Cuba, Syria, libya, Saudi Arabia, Lebanon *****: Rogue States! I have downgraded Saudi Arabia since it appears more and more as the mother State of muslim fundamentalism: 131-Burundi, Sudan:

***** : No comments.

Down earth advice:

This rating corresponds to a long term global trend: In 2030, 3.1 billion inhabitants overall, i.e. 1/3 of the world's population, will enjoy good incomes. North and South America and Europe will retain high standards of living. Central Asia and the Middle East will remain poor. The situation in Africa will be catastrophic. In terms of your market, bear in mind Pacific, Asia and North America. Economic activity will be centralized in this huge area. You can complete this view with the CIA famous web site:

External readings
Go to www.cia.gov/cia/publications/factbook/index.html This guide gives detailed information's about every country in the world.

Go to www.stay-in-canada.com .This web site is dedicated for living and traveling in canada. Then, according to the specifics of your own project, you have to further investigate and in many cases, you could ask information to the national chamber of commerce. The following web site gives you a directory of the chambers of commerce in the entire world: www.chamberofcommerce.com 1. Methodology 2. Results 3. Do it yourself 4. Coaching

Lesson summary
Report to the above guide. 1. Methodology 2. Results 3. Do it yourself 4. Coaching

DO IT YOURSELF
Read often your world guide and move to the next module which is a trek in the future! 1. Methodology 2. Results 3. Do it yourself 4. Coaching

FW9-GLOBAL TRENDS
YOUR POSITION
look at the map MAP

296 days before opening.

1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

INTRODUCTION
Global trends is based on futurology. Futurology combines researches about the demographic, economic, politic and scientific development of humanity.

Duration
Lesson: 1hour External readings: 3hours Do it yourself: 0 Total: 4 hours

Objectives
Our objectives are:

-To give you a world market picture by 203O. -To show you the main trends leading the world.

By the end, you will be able to insert your business idea in a prospective trend.
1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

1-BASIC ASSUMPTIONS
We have chosen 2030 as our temporal horizon. We can describe the world as it will be in 2030 with a little margin of uncertainty, as far as the principal aggregates are concerned (population, economy, GNI etc.)

Important warning:
Futurology is based on current facts. It analyses these facts. It extends them into the future. The further away the horizon, the less precise and valuable the forecast. We are relatively sure about what will happen tomorrow. It is absurd and of no use at all to imagine what might happen in 2500 years? Through our experience of the past 30 years, we can anticipate the coming 30 years. In fact, most of the people who are reading these lines will still be alive in 2030. For older people, this horizon is more likely to concern their children or, if not, their grandchildren. We must also define our perspective, adopting the following hypotheses: -We maintain the low probability of a China-US conflict. In 2030, China's GNI will still be lower than that of the USA and China cannot make up for this difference by forming alliances since its two main neighbors (Japan and India) are opposed to its regime. -We expect that the islamic surge will going on until 2030. -As a result, we think that a limited globalization and a containment policy (Against Islamism) will shape the international scene in 2030. 1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

2-THE BIG PICTURES 21-Population

According to the updated projections of the United Nations ( Revision 2004Medium scenario ), the population will attain 8.2 billion in 2030. It will grow to 9 billion in 2050. Then it should stabilize and begin to decline after 2100. Go to www.un.org.

and www.un.org/esa/population/unpop.htm. Consider the next drawing (In million): DRAWING 1 Years----------------- 2005-----2030-----2050----- 2100 Medium scenario------6,464----8,199----9,075---- 9,000 High scenario-----------6,464----8,784----10,696--- 18,000 Low scenario ---------- 6,464----7,618-----7,679-----5,000 The regional repartition is given by the next drawing ( Population in Million and share of world population in % ). The country composition of regions is based on the FWA analytical regions and may differ from common geographic usage. Go to annex 1 : Classification. DRAWING 2 Years------------------------- 2004---------------2030 Wider Europe-------------------799 (12%)---------763 (9%) North America------------------330 ( 5%)----------400 (5%) Latin America-------------------561 ( 8%)----------722 (9%) Oceania-------------------------33-----------------42 Sub total-------------------- 1723 (25%)------1927 (23%) South East Asia----------------555 ( 8%)----------700 ( 9%) North East Asia---------------1,524 (23%)-------1,542 (19%) South Asia------------------- 1,478 (23%)-------2,044 (25%) Central Asia----------------------63 ( 1%)-----------75 (1%) Sub total--------------------3,620 (57%)-----4,361 (54%) Middle East and North Africa----386 (6%)---------- 585 ( 7%) Sub saharan Africa ------------751 (12%)--------1,328 (16%) Sub total--------------------1,137 (18%)-----1,912 (23%) Gross total------------------6,480 (100%)---8,200 (100%) The ten most populated countries are/or will be ( In million ): -In 2004: China (1,315), India (1,103), the European Union (470), the USA (298), Indonesia (222), Brazil (186), Pakistan (157), Russia (143), Bangladesh (141), Nigeria (131). These ten countries represent 64 % of the world's population -In 2030: India (1,449), China (1,346), the European Union enlarged to Balkans and Turkey (605), the USA (360), Indonesia (270), Pakistan (262), Brazil (235), Nigeria (217), Bangladesh (205), Ethiopia (136). These ten countries will represent 63 % of the world's population

These figures shows some evolutions in the share of the different regions: 1-Globally, the net increase to come (8200-6480=1720) will exclusively occur in under developed countries. It will be mainly composed with Asian : 42% (Mostly Indian and Malays) and black african 33%. 2-The share of Wider Europe will fall from 12% in 2004 to 9% in 2030. 3-The share of Asia (57% in 2004) will diminish in 2030 (54%). Inside Asia, Indian, and Malays will increase at the detriment of Chinese. 4-The share of Sub saharan Africa (12% in 2004) will increase to 16% in 2030. Sub saharan Africa will have an higher growth than any other region.

22-Economy
221-World GNI
The world GNI attains 39,305 $Billion in 2004. It is expected to reach 94,290 in 2030. Consider the next drawing: GNI in $Billion, population in million, income per capita in $. DRAWING 3 Years---------------------------2004---------- 2030 WORLD GNI ---------------------39,305---------94,290 Population----------------------- 6,480-----------8200 World income per capita--------- 6,065---------11,500 This economic trend implies an average growth rate of 3.4% over 26 years. Compared to the population growth rate 1%, it means that the world income per capita will increase by 2.4% per year over the period.

222-Regional repartition
The next drawing shows the evolution of the main economic zone in % of the world GNI. According to our classification, the detailed figures, region by region, are in Annex 2. DRAWING 4 ---------------2004-------------------------------------2030

1-The world economic power will be concentrated around the Pacific ocean: North America, Oceania , North and South East asia will get 67% of the world GNI. 2-North America ( USA and Canada ) will keep quite the same share of the world GNI as in 2004. 3-North East Asia ( China, Korea and Japan) will grow from 19% to 30% ( The same share as North America in 2030 ). We also take notice of the emergence of South Asia ( In fact mainly India ) as a new major partner in 2030. This global growth of Asia is made at the detriment of the European Union. 4-The area dominated by authoritarian societies ( The Islamic world and Africa) will only get 3.5% of the world GNI with 34% of the world population 5-The European Union share will fall from 31% to 19% in spite of the enlargement to the Balkans and Turkey. The fifteen major economic powers are/or will be ( In $Billion ): -In 2004: USA: 12,150; Japan:4,750; Germany: 2,490; China: 2,130; United Kingdom: 2,020; France: 1,860; Italy: 1,500; Canada: 900; Spain: 880; Mexico: 700; India: 680; Korea: 670; Brazil: 550; Australia: 541; Netherlands: 515. These countries represent 82% of the GNI and 55% of the world population. -In 2030: USA: 26,000; China: 18,000; Japan: 6,990; India: 4,760; United Kingdom: 3,320; Germany: 3,100; Korea 3,100; France 2,500; Russia: 2,215; Canada: 1,950; Italy: 1875; Spain 1550; Mexico 1,520; Australia: 1,500; Brazil: 1,190. The countries represent 84%of the World GNI and 52% of the population. At first glance, the major economic powers will not change too much: The USA will remain the first economic power. Only one country, Russia, will enter the club. On the other hand, the ranking differs with China, India and Korea outpacing most of the European countries.

223-Income repartition
The Global GNI pictures the economic power. The income per capita (GNI/Population) represents the well being of the population. According to the World Bank, the world economy is divided into the following income groups: Low Income= $825 or less; Lower Middle Income= $826 to $3,255; Upper Middle Income=$3,256 to $10,065; and High Income= $10,066 or more. The next drawing shows the repartition of the world population (In %) into these income groups in 2004 and 2030. DRAWING 5 -----------------2004---------------------------------2030

These stats picture some important evolutions. 1-in 2030, 34% of the world population, will be on an income that exceeds $10,000 per capita (16% in 2004) 2-The most important fact is the growing Middle class: High and Upper Middle income groups will represent 61% of the world population in 2030 ( 25% in 2004). For example, China and India's middle class will sharply increase (650 million expected in China by 2030). In turn, this greater middle class will mean a consumption explosion and will boost the world economy. 3-As a result, the percentage of poor people (Lower Middle Income en Low income) will decrease from 75% to 39% and will concentrate in South Asia (Except India) and in Africa.

Large segments of the world population will endure a greater poverty than in 2004. For example, the situation in Sub Saharan Africa will be catastrophic: The GNI per capita ( $355 in 2004-Except South Africa ) will drop to $290 in 2030. 1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

3-WORLD OVERVIEW
The world in 2030 will be divided into three areas: 1-A Globalizing area (51.5 % of the population, 74.5% of the world GNI) with a growing middle class. 2-A backward area dominated by Islamism ( 34.5% of world population and only 3.5% of world GNI) with low incomes, economic regression and chaos 3-A declining area (European Union and South America: 14% of the world population and 22% of the world GNI). The pole between Asia and North America will definitely have the major influence. This situation gives us quite a different picture from the familiar one. In 2004, the world was based on three main centers of wealth: North America, Western Europe and Japan. In 2030 the world's center of gravity will move towards Asia and North America. 1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

4-THREATS AND OPPORTUNITIES 41-Threats

411-Ecological threats
-We have no control over the major danger represented by the deforestation in the third world. In just a few hours, deforestation can cause land to disappear through storms, as well as leading to desertification, with all its consequences on food, and on climate. Arable land is an organic composite that is probably unique in the universe. It took millions of years to make this humus. In a few hours, through excessive deforestation, we would destroy something that is as precious as the air we breath. On a world scale, between 1990 and 1995 that is to say in 5 years, we destroyed 500 000 km2 of forests, i.e. the equivalent of the surface area of France.

At this rate, the Amazonian rainforests in South East Asia and Central Africa will be seriously damaged by 2030, with irreversible consequences for the climate. 3 000 000 km2 of forests risk deforestation between 2000 and 2030, i.e. the equivalent of 6 times the surface area of France! The problem of water will be a serious threat in the entire North Africa Middle East region, as well as in part of Central Asia. Solutions exist, but the authoritarian nature of the governments in these regions is likely to hinder the process of putting them into practice. Further permanent causes of local conflicts will result.

412-Political threats
In 2030, the world will be freer but will still include localized zones of authoritarianism, economic regression and chaos. We forecast an arch of instability along a line going from South East Asia to Western Europe and confronting free societies and the authoritarian Islam. In Asia, Islamism will be blocked through local wars and repression of separatism. On the other hand, Islamism will progress in Western Europe and Africa where it will not encounter too much resistance. By opposition, North America and North East Asia (China) belong to the same paradigm: globalization and the experts consensus does not expect any major conflict between these two regions before 2030.

42-Opportunities
Clearly, we have known more discoveries from 1945 until today than since the beginning of mankind until 1945. This high flow of discoveries will boost the future growth.

421-Some expected advances

All the future technical progress from here to 2030 is yet in the laboratories because it needs decades to go from the basic research to the marketing of the new products. We may only list some likely developments: -Computers: The computing power is following a curve of exponential growth. Artificial intelligence is yet embedded everywhere in today's society ( Medical devices such as electrocardiogram machines and credit card fraud detection software). Before 2030, computers will be embedded in the environment and into materials such as clothing and eyeglasses. Images will be written directly on human retinas ( Today, the military are using this technology in modeling virtual reality environments) -Nano technologies and Biotechnology: Devices from internet to direct computer-tobrain connections will enhance the human ability. Nanotechnologies can replace used organs in compliance with the general trend extending the duration of life. -Genetics: Work will mainly concentrate on prevention of diseases and on prostheses. We will manage to invent prostheses that make it possible to cure certain types of blindness. Advances should also be made for the paralyzed. The possibility of improving intellectual

capabilities of individuals by means of genetics no doubt relies in a more distant future. On the other hand, genetic researches could be slowed down by ethical restrictions. -New energy sources : One of the future challenges is achieving nuclear fusion that can provide mankind with an unlimited supply of energy. Moreover, the industrial development of satisfactory electric vehicles will take place in the years to come. -Space exploration: A landing on March can be expected by 2030. However, many people are questioning about the scientific outcomes of space exploration that consumes big money. -Weaponry : Non lethal weapons based on the use of microwaves that temporarily disrupt the conscious faculties of the enemy would be developed. These non-lethal weapons could represent an amazing progress in the history of humanity, by avoiding the killing inherent to conflicts.

422-Consequences on world power

The knowledge will be concentrated in the Free societies. For more than half a century, the US has led the world in scientific discovery and innovations and they will maintain their predominance by 2030. However, Asian nations are rapidly increasing their ability to train their own scientists and engineers. The role played by Europe will probably be less important for three reasons: The excessive weight of the State in education and research; the limitations of outdated regulations and the religious misgivings about work in genetics. the European Union will be slipping behind Asia. Of course, the countries affected by the islamic obscurantism will be completely out of any scientific competition.

423-Ethical advances
In 2030, a great deal of basic evolution will have taken place in the most advanced countries: North America and the Scandinavian countries, Japan, Australia, The latest repressive structures will have disappeared. Education will be rid of all the negative beliefs. Paid work will progressively disappear: Individuals will work as consultants, suppliers of services or as shareholders. Leisure will dominate.

External readings
We invite you to compare our results with the CIA Global trends 2020 . The CIA Survey results in five scenario: Davos world, Pax Americana, A new Caliphate, and the cycle of fear. In our opinion, it does not take enough in account the Islamic driver.

1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

Lesson summary
Make careful note of these forecasts

to finalize your business idea. North America. Economic

In terms of market bear in mind Asia and activity will be centralized in this huge area.

Take notice of the global advance in knowledge's. 1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

DO IT YOURSELF
Just go on in searching your business idea 1. Basic assumptions 2. Big pictures 3. World overview 4. Threats and opportunities 5. Do it yourself 6. Coaching 7. Appendix

ANNEX 1 Definition of majors areas and Regions

The country composition of regions is based on the FWA analytical regions and may differ from common geographic usage. According to FWA classification, the following areas include: 1-Wider Europe: The European Union (25) + Iceland, Switzerland, Norway, Romania, Bulgaria, Serbia, Croatia, Macedonia, Bosnia, Albania, Russia, Ukraine, Georgia, Moldova, Belarus, Armenia, Turkey. 2-European Union: In 2004, the 25 countries + Iceland, Switzerland, and Norway. In 2030, the precedent + Romania, Bulgaria, Serbia, Croatia, Macedonia, Bosnia, Albania, and Turkey. 3-Far Eastern Europe: Russia, Ukraine, Georgia, Moldova, Belarus, Armenia.

4-North America: The United States of America, Canada, Bermuda, Greenland, Saint-Pierre-et-Miquelon. 5-Central America and the Caribbeans: Mexico, Belize, guatemala, Nicaragua, El Salvador, Honduras, Costa Rica, Panama, Antigua and barbuda, the Bahamas, Barbados, Dominica, Dominican republic, Cuba, Grenada, Jamaica, St Kitts and Nevis, St Lucia, St Vincent and Grenadines, Trinidad and Tobago, Haiti, Anguilla, British virgin islands, Cayman islands, Montserrat, Turks and Caicos islands, Puerto Rico, US virgin islands, Aruba, Netherlands antilles (Curacao), Martinique, Guadeloupe, St Barth and St Martin. 6-South America: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela, French Guyana. 7-Oceania: Australia, New Zealand, Melanesia (Including Papua New Guineas), Micronesia, Polynesia. 8-South East Asia: Myanmar (Burma), Lao, Cambodia, Vietnam, Thailand, Brunei, Singapore, Malaysia, Indonesia and the Philippines. 9-North East Asia: China (Including Hong Kong and Taiwan), Japan, the two Koreas and Mongolia. 10-South Asia: Afghanistan, Pakistan, Bhutan, India, Nepal, Bangladesh, Sri lanka and Maldives. 11-Central Asia: Azerbaijan, Kazakhstan, Uzbekistan, Turkmenistan, Tajikistan, Kyrgyz. 12-Middle East and North Africa: Mauritania, Morocco, Algeria, Tunisia, Libya, Egypt, Sudan, Israel, West Bank, Jordan, Saudi Arabia, Yemen, Oman, Emirates, Bahrain, Qatar, Kuwait, Iraq, Syria, Lebanon, Iran. 13-Sub saharan Africa: All the African countries minor North Africa, Sudan and Mauritania.

ANNEX 2 Regional repartition of GNI, Population and incomes per capita

The next drawing shows the evolution of the GNI (In $Billion), population (In Million) and incomes per capita (In $) region by region. DRAWING 8 Years-------------------------2005------------------2030 ---------------------GNI-----Pop-----Inc-----GNI-----Pop-----Inc North America---13,050---330---39,500---28,100---400---70,300 Oceania------------ 640----33---19,390-----1,750----42---41,700

Central America---- 880---186----4,730-----2,170---238----9,151 Far Eastern Europe- 580---203----2,857-----3,360---158---21,265 North East Asia--7,565---1,524---4,963---28,400---1,542--18,417 Whom China-----2,130---1,315---1,619---18,000---1,346--13,370 South Asia-Islamic 180-----375-----480------350-----595-----590 India---------------680---1,103-----616----4,760---1,449---3,285 S East AsiaIslamic- 365-----246--- 1,480-----940----- 310---3,030 S East Asia---------420-----309----1,360----1,525---- 390---3,900 -no Islamic Middle East and NA-790----379-----2,084----1,482----575---2,577 Israel --------------120------7----17,140-----228------10---22,800 Sub Saharan Africa -250----704------355----- 370---1,278-----290 South Africa-------- 165-----47-----3,510---- 330------44----7,500 Central Asia----------60-----63-------950-----220------75--- 2,930 European Union--12,000---470----25,530---18,235---605---30,140 Balkans and Turkey- 425--- 126-----3,370 South America---- 1,090--- 375-----2,900----2,070---484----4,280 Gross total--------39,305--6,480---6,065---94,290--8,195---11,500

FW10-SECTOR RATING GUIDE

YOUR POSITION
Look at the map: MAP

294 days before opening.

1. Methodology 2. Results 3. Do it yourself 4. Coaching

INTRODUCTION
The sector rating guide is based on the forecasts about the world situation in 2030. It covers 20 main sectors. Taking in account the expected advances in knowledge, it enables you to have a rough appreciation about the future of these sectors. Our purpose is to stimulate your creativity. You have to get your business idea by the end of this course!

Duration
lesson: 0,5 hour External readings: 14,5 hours Do it yourself: 0 Total: 15 hours

Objectives
Our objectives are:

-to provide you with a simple and easy tool in order to forecast the future of each sector. -To give you some knowledge's about the real content of each sector. -To stimulate your creativity Keep in mind that by the end of this course you should have your business idea. It's not worth to go further if you have not got it.
1. Methodology 2. Results 3. Do it yourself 4. Coaching

1-METHODOLOGY
This practical guide is not dedicated to institutional investors such as bank and very large corporate's. It is dedicated to small business like yours. Consequently, our Rating takes mainly in account global trends and some specific conditions.

11-Global trends :
1-The global trends take in account the elevation of the GDP per capita. In 2030, 3.1 billion inhabitants overall, i.e. 1/3 of the world's population, will be on an income superior to $10,000, i.e. an income comparable to that of Spain or Greece today. Today, only 872 million inhabitants get $10,000 and more per capita. As we have learned in the economic module, it means that we shall observe: -The fast growth of services and trade. -The unchanged relative situation of the secondary industry. -The relative decrease of the primary sector. 2-The global trends take also in account a fast growth in education. It could have heavy consequences on the future consumption of goods and services. Many empirical observations show a new evolution based on a distinction between spiritual goods and material goods. -Material goods satisfy physiological or basic requirements: Eating, drinking , housing, moving and so on. -Spiritual goods satisfy Reason, Ethics, or Esthetics: It can be a book, a fine painting, a music festival, and any increase in knowledge and Ethics. This distinction does not correspond to the primary, secondary and tertiary goods that we have just examined above: For example, a Japanese bunch of flowers belongs to the primary good (horticulture) but is nevertheless a spiritual good because it satisfies mainly Esthetics and meditation. On the contrary, an X movie although it belongs to the tertiary goods is nevertheless a material good because it only satisfies basic instincts. Considering these definitions, I have observed a relationship between the level of education and the proportion of spiritual goods into the final goods: Educated people consume more spiritual goods than uneducated who consume mainly material goods.

For example, let's suppose two categories of people having the same given high income: People with low education will consume furniture's, appliances, yacht, luxurious cars, noisy music. With the same income, high educated people will save much more and consume antiques, books, library, museums, classical music, cultural adventures and so on. Consequently for any given income, the quantity of spiritual goods consumed increases according to the rise in education. With the rise in education, it means that we shall observe: -The fast growth of educational, esthetical and ethical goods and services. -A rapid decrease of material goods such as cars, noisy engines, fast food, bad clothes, basic requirements and so on.

12-Specifics conditions fitted to a small business

-The capital required: We do not take in account some interesting sectors like space exploration, development of new aircrafts and so on. Of course you could act like a subcontractor to the large companies involved in these business but it's not possible to focus on such expectations. The same observation applies to power sector because it implies huge investments -The state of the Research and Development: Some new sectors could emerge in the next decades. As our horizon is 2030, we only focus on the sectors which are already identified today. -The openness to the market: We do not recommend to invest in sectors that will remain regulated by the States. For example, we do not take in account the weaponry sector. Nevertheless, I do not ignore that the Defense department more and more calls for small applicants in some sensitive domains:

Real life example

For example, even a private person like me has been invited to apply to procurements in sensitive domains by the US Defense Department! It's difficult to weight each condition. It means that the rating reflects a global appreciation rather than a mathematical notation.

13-Rating method
Each sector is rated with stars. -Five blue stars: -Four blue stars:

*****

mean the best possible expectations.

**** mean very good expectations.

-Three blue stars: -Two blue stars: -One blue star:

*** mean good expectations.

** mean acceptable expectations.

* mean that it is worth to invest but you can meet some hurdles. * mean inversely that we do not recommend to invest in this

-One to five red stars: sector.

A + or a - added to the stars introduces a slight differentiation between sectors with the same number of stars. 1. Methodology 2. Results 3. Do it yourself 4. Coaching

2-RESULTS
1-Education:

*****+

Education is a world challenge: In poor countries, the bulk of young people will far exceed the financial and human capacities of traditional education. School enrollments will decline and the number of illiterates will grow up. In developed countries, despite large financial resources, the traditional education gives more and more bad results. The cause of this situation is the following: Among most all-human activities, education is one, which has never taken advantage from technical progress. We teach and we learn nowadays as in Socrates century. People have to meet in a single place, on a rigid time schedule, and to follow always the same out-dated content. This traditional system needs highly paid faculty and brick and mortars requiring large investments. The entire government budgets in poor countries would not be sufficient to provide education for an increasing amount of young people. It means that the public approach is going to bankrupt and that the sector will be largely opened to the private sectors in the next years. Fortunately, with the Internet , new tools and methods are available. Consequently, everybody expect a huge development of this sector. Beside the child education, the long life training will be developed too. As the investments are not heavy, this sector is a new el dorado for new biz investors. 2-Tourism:

*****

World statistics have registered about 630 millions of international tourists in 1999. With the current trend, you can easily expect about 1,3 billion by 2010. It means huge investments in hotels, sea resorts, cultural tourism an so on. What is more, this sector is adapted to small investors and I could state that every body,

whatever the money he has, and whereby he lives, should be able to start a biz tourism in the next years. What is more, remember that thanks to automation, leisure will dominate in the most advanced countries: Japan, Australia, North America and the Scandinavian countries. 3-Services for aged:

*****-

Of course, service for aged will represent a growing market: Nurse, house for retired and so on. It could be profitable but beware of the regulations. What is more, it's not a pleasant job. 4-Security biz:

****+

With insecurity, there is a growing market for security agencies and body guards. No large amount of money required but this market is often monopolized by retired police officers. 5-Home desk equipment:

****

Paid work will disappear in the most developed countries. Individuals will work as consultants, suppliers of services or as shareholders. It means that we shall observe the starting of a new market dedicated to the furniture's for home working people. 6-Cultural shows and museums:

****-

According to the trend in tourism this sector could be also very profitable: Nevertheless it needs some special skills. 7-Fine food:

***+

In the fine food retailer or restaurant business, you can expect a fast development. Of course tourists have to eat and with the higher level of education and well being, more and more customers will swift from the fast food to fine shops and restaurants. 8-Antiques:

***

As old and beautiful objects become more and more scarce, the antique shops will thrive in the next years. Better educated people like to buy scarce and beautiful furniture's rather than to get the cheap stuff sold in large stores. Nevertheless, be aware that an antique shop could require a large amount of money for the starting. -Cobotics-Nanotechnologies-Biotechnologies-Genetics:

***

These advanced sectors could be rated with five stars but only people with a scientific background can take advantage of them.

External readings
Go to www.cobotics.com and learn about the intelligent assistants devices! Go to www.foresight.org . Click on "Nanotechnology" then click on "For a general reader" and finally on "Unbounding the future". There is a good free book about this advanced domain. Go to www.bio.org . Click on "About bio" and then on "Guide to biotechnology". You will find here a full survey about all the economical applications of biotechnology. As for genetics, there is maybe a niche for small laboratories but once again you need a good expertise or a leading partner. 13-Ecological biz:

**+

There are maybe some opportunities in the southern countries. In developed countries, many business have already invested in this domain: As a result the Thames river is more clean today than it was fifty years ago. 14-GMO-Seaweed:

**

These new technologies have a bright future. If you are located in the Pacific area or in a country with large sea-shore, it could be fruitful to think about the seaweeds. Of course, it needs some specific knowledge's but it can be a pleasant and profitable business.

External readings
Go to www.kentuckyamerican.com . Enter in clicking under the seeds icon and then click on "Up date GMO". This web site gives a short survey of the advantages of GMO. Go to www.noamkelp.com . Click on "Seaweeds field guide". This site shortly describes all the opportunities offered by the marine crops of seaweeds and other algeas. Go to : http://keoz6.com/ Description: Science Vertical Portal -Water systems:

**

Due to massive deforestation in the third world, the problem of water supply will be a serious threat in the entire North Africa and Middle East region, as well as in part of Central Asia. There are long range opportunities in light and manual pumps and systems. 17-Sports:

**-

With the extend of leisure, Sport articles should represent a growing market. On the other hand, elevation in education levels could favor individual sports rather than collective such as soccer's or base ball. On the decrease: 18-Classical Agriculture:

**

Except the vineyards producing fine wines and except some very specific and expansive products, you have better to not invest in agriculture. 19-Raw materials:

***

Except for gems, gold and diamonds, we shall use less and less raw materials. We shall use substitutes and new artificial resources base. 20-Breedings:

*****

GMO's, seaweed cultures and new bio technologies should enable us to replace meat as food and to definitively shut down breeding farms and slaughter houses that dishonor the idea that we have, at least here, of ecology and ethics.

External reading
Go to the university of central arkansas and its small business advancement national center: www.sbaer.uca.edu . Click on industry profiles. You will find 34 surveys about different branches of business with a complete description of their markets, threats and opportunities. It could give you an ultimate help for having your business idea! 1. Methodology 2. Results 3. Do it yourself 4. Coaching

Lesson summary
The sector rating guide is based on the forecasts about the world situation in 2030. It gives a rough appreciation about the future of 20 main sectors. Taking in account the expected advances in well being, education and knowledge, it recommends to mainly focus on

education, tourism, and services for

aged and security. Cobotic, nanotechnologies, bio technologies, genetics, seaweeds, GMO can offer bright opportunities for skilled people.

You have to get your business idea by the end of this course!
Our purpose is also to stimulate your creativity. 1. Methodology 2. Results 3. Do it yourself 4. Coaching

DO IT YOURSELF
You must have your business idea before the next working station. It shall be a validation course for your idea. Read or revise again

FW3

and take the time to

organize some creative

sessions!
1. Methodology 2. Results 3. Do it yourself 4. Coaching

FW11-YOUR BUSINESS IDEA

YOUR POSITION
Look at the map MAP

287 days before opening

1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

INTRODUCTION
This course provides you with a new tool for assessing your business idea value. The aim of the previous courses and notably the creativity course was to bring you to the point of having a business idea. We can expect that you have gotten a first business idea. You have now to check this first business idea.

Duration
Lesson: 0,5 hour External readings: 1,5 hours Do it yourself: 1 hour Total: 3 hours

Objectives:
Our objectives are:

- to give you some tools for validating a business idea. -To indicate the ideas that you should have better to avoid. - to indicate the ideas that are going nowhere or that can be prohibited. -To introduce the idea of franchising.
1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

1-WHAT IS A BUSINESS IDEA

Most of the new business just produce an existing good and service and start their operations in an existing market. Obviously, if your idea is just to produce an existing product and to sell it in an existing market, it 's not a good idea. A large company can copy for extending some production line but a small business has few chances to succeed if it is unable to bring something new whatever it could be.

11-The competitive advantage principle.

It means that your good or service must have a competitive advantage either because it fills up a new need, either because it has a lower price, either because its brings better quality or service. A competitive advantage can come from: -A new good or service: If a new good satisfies a need, it has a competitive advantage. -A new technique for producing the good or service: It can result in a lower price or a better quality. -A new organization: It can also result in a lower price and a better quality. -A new market: It can be a geographical market, for example due to a new location. It can be also a new segment added to an existing market: For example, your product target a younger customer or due to a better service a new bracket of income. In short, whatever the product, you must add creativity. The economics module showed you that creativity and knowledge are the only real economic values.

12-A new good or service:

A new good or service is definitely innovative and unique. Most of the economic progress comes from the discovery of new goods and services as the telephone, the electricity, the TV, the car and so on. Is this new good an invention or an innovation? This first question is quite important.

121-An invention:
An invention looks very good but unfortunately, it's not the easy way for starting a business. Firstly, your invention must fill up a need that other people have: What need does your invention meet? Inventors are very creative people and they had fun in inventing. Too often they do not care about the need. They love their invention and they become quite blind toward common reality. Our society is fueled with inventions that do not serve any needs and which are just good for fun.

Secondly your invention must have a potential market: Many inventions fill up a need. Unfortunately, they are not marketable.

Real life example

It was just the case of the book keeping machine I had invented. It corresponded to a need. Unfortunately, it had no market since illiterates were deprived of solvency ! Thirdly, you have to get a patent. There are a lot of files to complete and a patent attorney currently asks several thousands $ to make up the application and follow the patent process. Then, you have to realize a prototype and it can cost an undefined amount of money. Once you have the prototype, you have to test its. It means that you are obliged to engage big money without knowing if your new product will meet a real market! Finally, you must be conscious that most often a new product requires new machines for its manufacturing process and consequently large investments and a big capital. What is more the process could be very length and be sure that you cannot perform it within one year. May be you will need two or three years. In my opinion, if your business idea is a real invention , you should have better to get the patent and then to sell it and to get royalties from a big corporate.

Down earth advice

You perform all the process for getting a patent. Then you negotiate with a technical college for realizing quite for free the prototype. Once you have the prototype you can market a big company for selling your patent. Beside the royalties, you can ask a part of the stock to benefit from the development of your invention.

122-An innovation
More often, an innovation is an improvement brought to an existing product. For example, you change the weight or the shape in using new materials. You change the color. You add new functions and so on. Sometimes, the innovation can also be patented. In most cases, you can also realize by yourself a little prototype. You test it and if it works you go ahead. There is now some easy ways to realize a prototype:

External readings

Once again go to www.sbaer.uca.edu and click on "The national collegiate inventors and innovators alliance" Then click on "Rapid prototyping". There is a process open to people who are yet engaged in scholarship. In this case, an innovation is a good support for starting a new biz. What is more, you know that there is an existing market.

13-A new technique for manufacturing the product .

In this case, the product is the same but you invent a new machine or a new material along the manufacturing process. We find again the same problem as for a new product: Invention or innovation. However, there is a difference. In this case, there are a lot of plants or factories that could benefit from your invention or innovation.

14-A new organization

You bring a new organization either in the manufacturing process or in the distribution. For example, Ford has not invented the car but he has invented the assembly line that is to say a new organization. It resulted in a lower price and a large increase of the global market. This new organization provides you with a competitive advantage: either you offer a lower price, either you offer a better quality for example a better service.

15-A new market

You find a new market or a market where demand currently exceed supply. For a retailer, who sells the same products as his competitors, a new location can be a competitive advantage. Another way is to be open all the night. In the two cases, he has gotten a new market and a competitive advantage. For example, the Internet becomes by itself a new market for home based business. 1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

2-ASSESSMENT OF YOUR BIZ IDEA

The aim of the previous lessons was to bring you to the point of having an idea. You have this idea. What is its value? For the present moment, you only need to check if your idea can get a competitive advantage. It does not mean that it is a good idea. It just means that it's worth to go on in

making more studies. Other crucial questions such as the market size, the profitability and the competition should be studied in further lessons because they require more studies. We must advance step by step. To value your idea, we shall use two easy tools that I have invented for you: the idea assessment matrix and the risk assessment matrix. As most of the tools used in business management, these two matrix are mainly based on rules of thumb and have no scientific meanings!

21-Idea assessment matrix

1-Look at the following table: The first column just describes what your idea is. The second column indicates a note for each category of idea and the third column enables you to position your own idea according to its category. Consequently, you get a first note. For example, if your idea is a new product, you get 8. If it's an existing product you get 0! IDEA --------------------NOTE ----------------------YOUR IDEA New product -------------10----------------------------?----+ new organization New product --------------8-----------------------------?----Existing product ----------6-----------------------------?-----+ innovation--------------------------------------------------+new organization Existing product ----------4-----------------------------?-----+ innovation Existing product ----------2-----------------------------?-----+ new organization Existing product ----------0-----------------------------?-----You have noted your idea. 2-Proceed now as follow: -If you target a new location: Add

5 to an "Existing product".

4 to an "Existing product+ new organization"; Add 3 to an "Existing product + innovation"; Add 2 to an "Existing product+ innovation +organization"; Add 1 to a "New product"
-If you target a new segment whatever it can be: Add

Do not matter about this grid. It's the result of a quite complex reasoning. Anyway, as a result, your global note must be ranked between

0 and 10.

For example, if your idea is positioned on "Existing product + new organization" you have gotten 2 as your first note. If thanks to this new organization, you can get a new segment, you add 4 and your global note is 6. 3-Report now your global note in the following matrix: DRAWING 1

Below 5: Your idea is a bad one 5 and 6: It's a medium idea 7 and 8 : It's a good idea 9 and 10: It's a great idea Of course as for any tool, you must also exercise your judgment: May be you have gotten a great idea about the steel industry or the space exploration but it requires huge capital requirement and you will never be able to collect the money! Do not be stuck with a bad idea. You should lose your time. Instead of losing your time, go back to the creativity module and search for another idea. Of course your vision must remain unchanged. However this easy to use matrix must be completed by a risk assessment matrix.

22-Risk assessment matrix

Let 'us imagine that you have discovered a new product in order to cure a health disease. You get 8 as first note. What is more thanks for this new product which is not too much

expansive, you can target a new segment of deprived people. You add 1 and you get 9. Fine! you have gotten a great idea! Unfortunately, there is just a little problem: your new product is a medicine plant which is cropped in a Columbian jungle infested with "bandoleros"! Ok it was a great idea but you have better to look for another one! It means that beside the financial or commercial risks that you are ready to assume, there are some specific risks. For example, Banks, currency traders and jeweler' are currently exposed to hold up. It's not only a matter of insurance. It's a matter of life or death. You have to assess these risks because, as in our previous example, they can transform a great idea in a bad one. For assessing these risks you will proceed as follow: 1-Firstly, you identify their high or low probability. 2-Secondly, you estimate the impact of each risk. You can distinguish the accident, the disaster and the catastrophe. With an accident, your biz will go on as usual. A disaster implies a long recovery and a catastrophe means that your business is terminated. 3-Once you have finished this analyze, you draw up your risk assessment matrix. Look at the next drawing. DRAWING 2

As you can see, it's a easy to use tool. You write in each square the risks you have listed according to their probabilities and their impacts.

Down earth advice:

If most of your risks are situated in the upper right square: highest probabilities and highest impacts, you should have better to choose another business idea! It's the first lesson of this drawing!

External readings
About insurances, go to www.chamberbiz.com and click on "Insurance Center". Go to: www.versicherungvergleich.info German insurance site offering private health and life insurance comparisons.

23-Regulation assessment matrix

In the present world , there are everywhere so many regulations that we are obliged to consider them before going forward: Let's suppose, you have a great idea; it does not present any specific risk beyond the commercial or financial risks that you are ready to assume; time seems magnificent; you

make up extensive and costly studies and at the end, when you are beginning to implement your biz, just imagine a little grumbling bureaucrat who just says : " No , I do not allow you to make that!" It means that you have to drawn up a regulation assessment matrix just like you have done with the risks: -Firstly, you have to get information's about the regulations existing or forecasted in your country and in your business project sector. It must be a hard work because these regulations are so complicated that even the civil servant are more often unable or unwilling to explain you. Do not read it by yourself, it could drive you mad! Each time, you are uncertain, put a lawyer in your corner! -Secondly you identify the low and the heavy regulations: A low regulation means that you can cope with it. If you have not a licence driver, it's easy to get it. On the contrary, heavy regulations means that you meet a barrier: for example let's suppose that a State diploma is required for doing a specific business. If you have not this diploma you can give up your great idea! -Thirdly you drawn up the following matrix and your position you idea. DRAWING 3

If your idea is located in the upper square, you have better to search another one. It would be worthless to go on in exploring an idea that sure you could not realize.

External readings:
There are some sites about regulations: For the united States, go to: www.irs.gov , www.businesslaw.gov and www.business.gov

For the United kingdom, Go to www.inlandrevenue.gov.uk . For others countries you have better to check with your chamber of Commerce or finally with an attorney

24-Presentation of your biz idea

Once you have gotten a good idea, you have to describe it and in some way this description is by itself a final validation test: One idea which cannot be described in a simple sentence is a no mature idea or worst a bad idea! Your idea must be contains in ten to fifteen words. No more! 1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

3-POOR IDEAS
Once again, you have to take notice of our advices regarding some sectors that are not friendly for a new business.

31-Ideas that you have better to avoid

-Agriculture, breeding and food industries.
You risk constant problems with hygiene, environment or human and animal health norms. Consumer protection covers drugs, food and beverage,tobacco and so on. As these regulations become more and more complex, we recommend you to be careful with the idea to start a business in these areas.

-Potential detrimental environment effects.

Be aware of any business which could result in detrimental environment effects. Associations and people are more and more sensitive about ecological threats and any business resulting in pollution must be carefully scrutinized.

-Mining.
Except the gems and gold mining or trading, the business based on raw materials have in general a poor yield despite the big investments they usually require. Remember that the only profitable raw material is the one between your ears!

-Industries based on unskilled labor force

Never base a business on the exploitation of non-qualified workers or workers of low potential: The value of something is equal to the intelligence and knowledge it contains. The value of a company is equal to the value of the people who work there. The value of an illiterate worker is negative. A non qualified worker will bring you no value whatsoever, but you can be sure he will bring you a whole host of problems. Machines that are out of order due to maintenance errors, accidents in the workplace, constant problems with factory inspectors.

32-Ideas that you must absolutely prohibit.

-Start a business in a rogue State:
If you live in a poor country that is nevertheless democratic and honest, develop your export activities. On the other hand, if you live in a corrupt country (totalitarianism, lack of freedom, regulations, tax oppression etc) leave it and create your company abroad. Do not forget the following notions: The market is a world market. A corrupt country is a jail cut off from the world market. In a jail, your idea will come up against the walls of impossibility. Consequently, escape from the jail and join the world market!

-Criminal activities:
Drugs, prostitution, sale of weapons, corruption must be combated. These activities always lead to misfortune and, more often than you might think, to sudden death! 1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

4-FRANCHISING
If you are really unable to find a new idea, you have the possibility to explore franchising. Franchising consists mainly in selling a good or a service in using a trademark invented by a central supplier. A franchise avoids you to check a new idea but before to buy the franchise, you have to follow the same steps as for any business. Of course the central supplier often provides you with a package including financial projections and so on but you have better to check by yourself.

There are many web sites about franchising and I have selected the followings:

External readings
Go to www.sba.gov . Click on "Starting your business" and then on "workshop" and finally on "workshop franchise" Go to www.entrepreneur.com and click on "Franchise zone". You will find here most of the available franchises with their required price. Go to www.bestfranchiseopportunities.com This web site provides you with many of the franchise companies and business opportunities that are heating up the franchise industry. 1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

Lesson summary
Your business idea must offer a competitive advantage either because it fills up a new need, either because it has a lower price, either because its brings better quality or service. A

competitive advantage comes from:

If a new good has a competitive advantage.

-A new good or service:

-A new technique for producing the good or service: It can result

in a lower price or a better quality.

-A new organization: It can also result in a lower price and a better quality. -A new market: It can be a geographical market, for example due to a new
location. It can be also a new segment added to an existing market: for example, your product target a younger customer or due to a better service a new bracket of income. In short, whatever the product,

you must add creativity

According to these principles, you can assess your business idea in using the idea assessment matrix, the risk assessment matrix, and the regulation assessment matrix.

Beware of primary sectors such as agriculture or mining that imply many threats, poor creativity, vast number of unskilled labor and heavy regulations. Prohibit any illegal or criminal activities! Remember that franchising can be a solution if you are deprived of any new idea. 1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

DO IT YOURSELF
1-Drawn up your idea assessment matrix, your risk assessment matrix and your regulation assessment matrix.
Following our advices, it could take no more than one hour (It does not take in account the time for collecting the regulations). Once your idea is validated, describe it in

one sentence.

2-If you have the need to a patent, you must immediately set up the application
in going to the following site:

Useful link:
If you are living in the US, go to the official site of patent: United States patent and trademark office: www.uspto.gov . You can file your application on line. Click on ""Apply to a patent on line". This site gives also a list of registered patent attorney. Remember that applying for a patent is a very difficult task. Of course, you can do it by yourself but if you have some money I recommend you to get an attorney.

3-Once your idea is validated, you have achieved a hard task. Now you have to

establish a first sketch of your business. It's the next course and a crucial module. 1. What is a biz idea 2. Assessment of your biz idea 3. Poor ideas 4. Franchising 5. Do it yourself 6. Coaching

FW12-FIRST SKETCH
YOUR POSITION
Look at the map.

MAP

285 days before open.

1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

INTRODUCTION
You have gotten a business idea. You must transform it into a first sketch. In short, this quick sketch enables you to determine if your business idea is realizable by you. Have you the financial capacity to realize it? Is the idea profitable? You must answer to these two crucial questions before engaging you in more complex studies.

Lesson: 1 hour External readings: 0 Do it yourself: About 21 hours Total: 22 hours

Objectives:
Our objectives are to show you:

-How to draw up a first description of your product and organization according to your business idea. -How to estimate your financial capacity for realizing it and the profitability. By the end, you will know if it's worth to go ahead and to begin more extensive studies. In case of positive answer, you will implement the first steps of your business plan.
1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

1-FIRST SKETCH: DEFINITION

The sketch describes: - your service or your good in connection with your expected market and your competitive advantage. -The organization and the skills you need. -The costs and the financial capacity required. -The profitability.

Down earth advice:

A business idea can be great. It does not mean that you are able to realize it. May be you have gotten a great idea about the steel industry or the space exploration but it requires huge capital requirement and you will never be able to collect the money! The fist sketch just takes place after the business idea. It corresponds to a logical progression. Look at the John progression: -Firstly, he has a vision: "I want to create a large open air tourism company" -According to this vision he has a business idea: "I want to set up a travel agency near the Perito Moreno glacier to show visitors round the glacier". We can expect that this business idea is good: It should be good if john has a competitive advantage: For example, john has practiced mountain climbing for years and he can lead the tourists in some place which are inaccessible's for other agencies.

Secondly, there is a market: For example there are visitors all along the year and due to his competitive advantage john can target another segment of this market: experienced alpinists. Clearly, John must now describe his idea into a sketch: What is the service really provided? Is it a week trek in the mountains or a daily trip to the glacier? What is the organization he needs? Does he need a large office and a lot of vehicles and drivers? What are the starting costs? Does he get the financial capacity for covering these starting costs? Is the idea profitable? According to some quick calculations how much profit could he get in such a business? 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

2-DESCRIPTION OF THE GOOD OR SERVICE

Of course, in this description you will constantly target the customer benefit. You must constantly put yourself in the customers' shoes and know what he really wants, and the price he is prepared to pay. The marketing study must identify this problem. For the time being, you should know roughly what type of customer you will target. Secondly, along this description you will constantly keep in mind your competitive advantage. It means that all the benefits you provide to the customer must be focused on this competitive advantage. Clearly, you must enhance this advantage. You must therefore describe: -The nature of the service or product. -The value it brings to the customer. -The life of the product. -The product guarantee, the after sales service and so on. In our John example, a visit to a glacier can be a weekly trek or just a daily trip. Let 'suppose that it's a daily trip. you must then give details of what the customer wants in the form shown in the table below:

WHAT THE CUSTOMER WANTS: - The customer wants to set off from his hotel at 7 a.m.

THE SERVICE TO PROVIDE: Meet him at the hotel reception area.

- The customer wants to have a cup of Serve him a cup of coffee during the journey. coffee. - The customer wants to talk. - The customer wants to stop for a break. - The customer wants to drink an aperitif. . AND SO ON. You give details about the service. You time each sequence. You draw up an overall schedule for the day. You will have to modify this description according to the further studies but at this stage, you must have a detailed hypothesis. 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching Make conversation with him. Include this in you timing. Provide drinks and biscuits.

3-ORGANIZATION
-Once you have chosen your offer and identify the tasks it implies you have to note down the means required next to each task: Transportation to the glacier, lunch, duration of the visit and so on. Go back to the previous table about the glacier visit SERVICE - Meet the customer - Serve coffee - Make conversation - Serving an aperitif The guide must speak several languages as well as being educated. The driver serving the aperitif must be trained. Ice box, drinks HUMAN MEANS A driver and a guide MATERIAL MEANS A vehicle A flask of coffee

-Once you have described your core offer, you have to think about its environment: For example, you must implement a light organization for accounting , invoices, bank relations and so on. Any light organization may imply a secretary with fax, telephone and computer. What is more, it needs also a location. In short, you list all the tasks and means and you break each problem into its components parts. -Then you have to think about some possible hurdles: The John's project can harm environment, disturb wild animals or bring troubles to local population. John must study the product or service's conformity with regulations ( the service must respect national park regulations). Is the guide job regulated? does he need an official diploma. What are the insurances to subscribe and so on.

Down earth advice

Beware of these regulations that many people ignore. Take care of them right now. A great business idea can only fail on some specifics point that the promoter had forgotten to check up. The french use to say that the devil is into the details. 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

4-COSTS
We suppose that you have identified the tasks and all the means you need such as equipment, human resources and so on. Then you will estimate the costs of these different means in distinguishing the start up period and then the running period.

41-The grid costs

411-Identifying the costs
According to your description of the tasks and means, You list all your costs per unit, per month, and then on several months in distinguishing the start up period and then the running period. In the travel agency example, let's suppose that we have the following costs in $: -Rent a location in town: 600 per month -A secretary for administrative work: 1000 per month

-A driver: 200 per month -A guide: 600 per month -Consumables: 1150 per month -A computer: 1000 (Purchase price on catalog) -A vehicle with little equipment: 20200 (idem) -Promotion: 10000 during the starting period for launching the product.

412-Starting and running costs

In this example, we suppose that you will not get cash receipts during the six first months. It's the starting period. All the costs during this period should be covered by the money you bring for starting a biz. On the contrary, by the end of this period you will get receipts from the customers. It is the running period. The costs occurring during the running period are calculated on 12 months. -Human resource You can now list the human resource, together with their Cost, using the previous list. The costs can be calculated approximately from the labor market situation and social regulations. item---- monthly cost---- starting cost---- running cost Secretary ---1000----------- 6000----------- 12000 Driver---- ----200------------ 1200------------ 2400 Guide --------600------------- 3600----------- 7200 Total---------1800------------10800-----------21600 -Consumables Consumables disappear as soon as they have been used, such as , renting of the premises, energy, petrol, drinks, coffee Item-------- monthly cost--- Starting costs--- running costs Renting----------- 600------------ 3600------------ 7200 Consumables----1150------------ 6900----------- 13800

TOTAL:-----------1750------------10500-----------21000 -Equipments Carry out the same calculation for Equipments, i.e. goods you can use for several years item---------- quantity--------- catalog cost------- Total cost 4/4vehicle --------1---------------20000------------ 20000 Thermos ----------5 ------------------ 20-------------- 100 Ice box -----------5 ------------------ 20-------------- 100 Computer ---------1---------------- 1000 -------------1000 TOTAL-------------------------------------------------21200 -Total cost Categories------- Starting period------- Running period Human resource------10800----------------21600 Equipments--------- -21200--------------------- 0 Consumables : -------10500----------------21000 Advertisement:------ 10000----------------------0 TOTAL--------------- -52500---------------- 42600 This evaluation shows that you must have $52500 in cash for covering investments and costs during the starting period. If we add the miscellaneous (10% of the former total), we reach $60000.

42-Cost analysis
Once you have done that, I pretend that in fact you have done nothing! you have just set up a shopping list. Any low skilled person should be able to do the same job. Of course, these costs are certainly too high compared to the money you can invest. Disheartened, you will give up. This hopeless scenario affects 9 out of 10 promoters. As you are following a training, you will therefore think differently: You have to show your creativity.

-Firstly examine any item and ask yourself the following question: What service is provided for the customer? How much is the customer prepared to pay for this service? What benefit do I gain from this cost? By asking questions in this way, you will notice that certain costs are unnecessary. -Secondly examine the price of each item. There are the catalog price for the equipments and the market labor salaries for the human resource. Now, apply to these costs the following golden rules: -Equipments: Whenever I can, I rent. If I can't rent, I buy second hand on the international market. You would be surprised to find just how many machines are for sale for peanuts! -Staff: I only hire people on open-ended contracts. I try to use temp agencies. I make use of teleworking: It exists today on the market self employed secretaries or drivers. -Globally: Whatever the mean (Equipment or staff) I do not buy, I do not recruit: I just assemble. I only pay a material or a person for the period I need them. If you apply these golden tips, be sure, you will halve the costs of your operations. Instead of 60000, you will finally reach 30000! 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

5-FEASIBILITY TESTS
We reach now a critical moment. You must now check that you have the financial capacity to realize the project and secondly that it has a reasonable profitability. If the project does not answer both to these two questions, it should be worthless to go on with detailed studies going nowhere. I will give you two quick tests for answering these crucial questions:

51-Financial feasibility: The starting equity/starting cost ratio.

The starting equity/starting cost ratio is an easy tip that we have invented for simplifying your job. Let us imagine that you have $10 000 to invest from your savings. According to your calculations, the Starting project cost is: Below $10000: No problem. You are in the good lane.

Between 10 and 15 000: It is certainly possible to delay some payments. No real problem. Between 15 and 20 000: You need Associates. You will have to find extra money from friends and relatives. If you have already some hopes in this domain go ahead. Between 20 and 30 000: Go back to your business idea and make some changes: For example, Instead of taking visitors round the Perito Moreno glacier 50km from the town, organize hiking to show them the lake and its wildlife. You can take notice that your vision remains unchanged. Above 30 000$: Go straight back to the creativity module. Your business idea cannot be realized and there is no point continuing. Keep your vision because you should never spoil it but find a new business idea.

It means that whatever your savings S, the evaluation method is very straightforward: Starting costs less than 150% of S: Go ahead Starting costs between 150% to 200% of S: Look for associates. Starting costs between 200% to 300% of S: Bring change to your business idea. Starting cost above 300% of S: Find another business idea.

You can think that this method is conservative because it does not take in account venture capital and bank loans. In fact, a bank only lends 1$ per 1$ of your personal equity. You will never be able to borrow 3$ for 1$ of equity!

Down earth advice:

Do not believe in the fairy tales. Statistics show that for a start-up like you, the chances of obtaining a loan are about 0.5%! What is more, the formalities are very lengthy. Do not allow 1 year to create your business, it is more likely to take you 2 or 3 years! Do not think that the fact to begin little condemn you to remain small for ever. Constantly keep in your mind the following facts: -$1 that makes 20% a week turns into $13 000 after a year: $10000 would therefore earn you $ 130 million in a year! -Small equity x Creativity = Big money. Everything depends on your creativity. Creativity is in fact the real big equity that you need!

52-Profitability feasibility: The running costs/selling price test

For testing the profitability, people use frequently the break even analysis. You will find it in further module. For the present moment you have not yet a detailed market study or a detailed analysis of all your producing costs. You need a quick test to just see if you are in the good way or in the wrong one. For this purpose, we currently use the Running cost/Selling price test or alternatively the Running costs/Customers test. -Firstly, just take the total of your yearly running costs. In our example 42600. -Secondly observe the average price on the market for the type of service you intend to sale. In our example, let's suppose that a day trip to the glacier is currently priced $60 per person. -Then just apply the following formula: 42600 /60= 710. This means that you must have 710 customers to recover your total running costs without making any profit. With 700 customers you go in red. With 720 you begin to make profit. Now let's suppose that the total number of visitors in the entire area amounts 600 per year! It means that you will never reach 710 visitors and that your project has not any chance to get a profitability. -If you are alone on the market because your product is new, you have not any average market sale price. -In this case, determine an expected number of visitors. You can have an idea about it according to your production capacity. For example, with one vehicle, you can only manage two visitors per day. If the season lasts 6 months, it means that you can manage: ------------ 2 visitors* 20 days a month* 6 months = 240. -Then, apply the formula: 42600/ 240= 177 This means that you must price $177 per person the day trip to the glacier for recovering your total running costs without making any profit. Obviously, this selling price is not reasonable. It's not worth to spent your time in more complex studies. You have to reduce your costs and may be to change your business idea. 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

Lesson summary
You have a business idea. You must establish a simple first sketch. This sketch describes the good or the service you will offer. It gives a short description of the organization required and lists the tasks and the means It enables you to estimate the cost of all the means. The grid cost analysis distinguishes

starting costs and running costs. Starting

Finally, you can check the global feasibility of your project: The

equity/ Starting cost ratio enables you to check your financial capacity to do the project and the Running costs/Selling price ratio provides you
with a quick test about its profitability. 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

DO IT YOURSELF
You have to establish:

1-A description of the good or service

good or service:

you are going to offer.

2-A description of all the tasks you have to perform for offering this 3-A description of all the means you need for starting and then running
the biz: Consultants, human resources, equipment etc

4-A short description of your organization 5-A grid analysis of the costs:
It's the difficult part of the job and you need to collect some information's around you: -About

human resources.

Make a list of self employed staff you might need: Lawyers, accounting firms . Ask about their fees.

Pay a visit to temp agencies. Ask about their tariffs.

Useful links
About consultants, go to: www.score.org . This site provides list of consultant in every domain and the volunteers of Score who are mainly retired executives can provide you with free advices trough e-mails. Look at the large temp agencies and ask for their prices: www. manpower.com and www. kellyservices.com -About

material and equipments

Ask your local chamber of commerce for second hand equipment.

Useful link
Go to www.ebay.com and click on "Business and industrials". You will find here all type of materials and equipments to buy for a dime!

6-Then do the two feasibility tests. If their results are positive, begin
to write down your sketch. You will use it for writing your executive summary which currently is the opening of your business plan.

7-Open your business plan.

Your business plan is your road map. It is made up of chapters and spreadsheets. Along your next studies, you will enter their results in the right chapters. What is more you will use the spreadsheets for your calculations. The best way is to use some stuff already existing on the web. I have selected for you the following sites:

Useful link
go to www.planware.org . Click on "business planning freeware" and download a free business plan frame. For the present moment, just include your business idea in a first chapter. Add right now a second chapter titled "Business description" and report inside the description of the tasks, the short organizational sketch and your grid analysis. Theses papers should be removed or modified ,step by step, with the further courses. This job could take 20 hours or more according to your project. A complex project could take three times more: The grid cost analysis needs frequently a long time.

Of course computers facilitate but the analysis for reducing the costs currently take a bit of time! 1. First sketch: Definition 2. Description good or service 3. Organization 4. Costs 5. Feasibility tests 6. Do it yourself 7. Coaching

FW13-CONSUMER ANALYSIS
YOUR POSITION
Look at the map MAP

274 days before opening.

1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

INTRODUCTION
The american marketing association: www.marketingpower.com defines market research as: "The systematic gathering , recording, and analysis of data about problems relating to the marketing of goods and services". Consumer analysis is an important part of this marketing research. Without marketing research, it is quite impossible today to start any business. Consumer analysis is the first step of any marketing research.

In this module, our objective is to develop your skills in consumer analysis.

Duration
Lesson: 2 hours External readings: 3 hours Do it yourself: 20 hours Total: About 25 hours

Objectives:
Consumer analysis allows you to identify your prospect and segment market. The objectives of this consumer analysis lesson are to give you the fundamental notions about:

-Customer benefit. -Customer profile. -Market customer. By the end , consumer analysis techniques will enable you to establish your market segmentation.
1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

1-CUSTOMER BENEFIT
The product must bring a benefit to the customer. Customer benefit = Sales= Profit. No customer benefit, no profit. -Definition: A customer benefit is the value your product or your service gives to the customer. The customer benefit is not the Unique Selling Advantage (USA). The customer benefit is included in the USA, but it focuses on the point of view of the customer and not of the

investor. It implies that you put yourself in the shoes of the customer. It means that the customer benefit is a more precise concept than the USA. There are two types of customer benefit: Functional and psychological benefits.

11-Functional benefit
A functional benefit is measured in money, time, duration, or physical measures: Examples: -The product is cheaper than another one: The benefit is measured in money. -This new machine saves the consumer 50% of his time: The benefit can be measured in hours or minutes. -This car has a duration twice another car: The benefit is measured in years. -This chair is lighter than another one ( ten kilos instead of twenty). It occupies less space (One square meter instead of two): The benefit is here calculated with physical measures. As time and space can be converted in money, a functional benefit is quite important for a business man. If your corporate sells its products to other corporate's ( business to business) you must emphasize the functional benefit.

12-Psychological benefit
A psychological benefit gives to the customer a pleasant feeling such as self esteem, feeling of power, pleasant view and so on. Examples: -This product looks attractive and beautiful: Beauty depends on subjective choice. -This big and expensive car allows you to enjoy speed: As traffic regulations limit speed, the benefit is only a feeling of power. For starting a business, we recommend to focus on the functional benefit that does not depend on fads. It does not prevent you to add further some psychological benefits. The next drawing shows a product offering both functional and psychological benefits.

As a good or a service offers different kinds of benefits. You have to rate them from 1 (low) to 5 (very high) according to their importance for the customer. Of course a low price is rated 5 because it represents a greater benefit to the customer than a high price. In the next drawing the product offers a low price (functional benefit) and is quite attractive (psychological benefit). On the contrary, it does not save any time: It can be a fashionable gadget.

Once again, try to forget your own point of view. May be, you think that your low price is an important benefit but in asking around you, you will realize that the customer emphasizes on the time saved, thanks to your product. This analysis is important because it allows you to target your advertisement on the benefits which really matter for the customers.

13-High and low involvement benefits

Now, we have to examine another topic: Are these functional or psychological benefits quite important for the customer. It means that we have to distinguish low and high involvement products. Definition: If a consumer pays attention to buy a product, then it is considered as a high involvement product. If he does not pay too much attention, there is a low involvement product.

Of course, all the expensive products are always high involvement products: Flats, cars, antiques and so on. Nevertheless, some inexpensive products can be said high involvement products: For example, the consumers pay attention in buying cheap drugs because health is an important stake. What is more, this feature depends also on the customer: For example, a fashionable dress is a psychological benefit but it becomes also a high involvement item for a theater actor who is mainly judged on his appearance. So, it is always fruitful to bring some high involvement topics to your product. For example, if you can assert that your yogurt contains specific vitamins, you bring a high involvement feature to a quite basic product. It enables you to differentiate your product from the competition and to charge a high price. Finally, the product which gives the greater benefit to the consumer must gather both three characteristics: Functional benefits, psychological benefits, high involvement features.

In this drawing, the big circle represents a star because the product combines both functional, psychological and high involvement benefits.

14-User and purchaser benefit

During this analysis, you have to distinguish the user and the purchaser In business to business, You sell a big computer or a software to the heads of the corporate and you are not keeping in touch with the final consumer. Nevertheless, you have to emphasize on the user benefit because the head will not buy a product deprived of benefits ! In business to consumer, you sell to a wholesaler or a retailer. Of course you must emphasize on the final customer benefit but you have also to take in account the wholesaler or retailer benefit. These business intermediaries should mainly focus on some functional benefit such as margins or time saving in the delivery of the product.

Real life example:

Times ago, the french chickens were scarcely presented on the German market. Nevertheless, the final consumers were currently saying that they preferred the french chickens because they were gusty.

One asked me to deal with this problem. After a close examination, I realized that the german wholesalers were reluctant to buy french chickens because the product was packaged in box weighting twenty five kilos. As they employed young people in their stores, they had better to buy to the Danes who packaged their chickens by ten kilos only. When the french producers adopted this packaging, their sales began to shoot up on the german market. 1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

2-CUSTOMER PROFILE
The customer profile is deduced from the customer benefit. It includes also the customer buying process. Definition: The customer profile describes the characteristics of the customer who could really benefit of your product or service. Clearly, if you intend to sell fun boards, your customer profile is not those of aged persons!

21-Customer characteristics
You can start by defining your ideal customer and list all characteristics you will expect in this profile: -Business to consumer: The main characteristics are quite unlimited: Geographic area, age, sex, income, level of study, employment and so on. So keep close to your benefit analysis and just list the characteristics that correspond to the benefits you offer: If you sell bathing suit, you will not care for people living in north pole. If you sell fur clothes, do not loose your time with the characteristics of people living in Central Africa! -Business to business: The main characteristics are the company size, the products or services, the level of technology, the turnover, the staff number, the location and so on. You must describe the required customer profile according to your product or service Example: What's the customer profile for fun board -Demographic characteristics: 15 to 25 years old, male, healthy -Economic characteristics: Student or young professional, not less than $30,000 income coming from parents or work. -Social characteristics: Middle and upper-middle class.

-Geographical area: North America, Australia, Northern Europe. -Special interests: Sport like and sea like. You just have to Think in order to define your customer profile: Of course, he is a young man. He has good money because you cannot afford to buy a fun board when you are short for your daily living. So, you can expect that he comes from developed countries. Obviously, he likes sports and sea very much. Why do you need all these characteristics? The response is that you need the larger information to channel effectively your advertisement: For example, the fact to know where he is located will conduct you to advertise mainly in english and in sportsmen newspapers.

22-Customer buying process

According to your customer profile, you have to focus on the customer buying process. It is not the same thing to buy a candy, a car or a real estate. You have to emphasize on the following aspects. I call it the DTHP process: -Who is the decision making person? In business to business, the purchaser may be a top ranking executive: The more hierarchical levels involved, the more difficult the sale. In business to consumer, the buying process could imply on person or the entire family. The same observation applies: The more individuals or groups involved, the more difficult the sale. -At what time or period, does he buy? Consider frequency and regularity of the purchases. Some business follow seasoning periods such as the toys, the bathing suit. This period can be short: For example, the selling of flowers on sunday, or the clothes during the discount periods. -How does he buy: The buying decision includes the following process: -The customer becomes aware of a need: The need could originate from an impulse (candy) or from a recognized deficiency (such as a refrigerator) -The customer begins to explore how meeting the need: He reads newspapers, yellow pages, and so on. It is very important to know how does he explore to target advertisement channels. -According to the need and his income, the customer refines the buying criteria and defines a budget. -He narrows the field of his choice in comparing quality/price ratio. He could need physical touch or face to face interaction such as a test drive. -Finally he closes the sales. In many process, he needs to be helped by a salesman!

How does he pay: Does he use cash, check, or credit card? Does he ask for times payment? Does he need a loan? If you could link some financial services to your product, such as times payments, it should give you a high advantage especially for expensive items.

External readings:
The decision making process is simple for a soda, more complicated for a car: Click on: www.smartcarguide.com . This reading will show you that the buying process for a car implies twenty different steps! Click also on: ecommerce.vanderbilt.edu then click on "student project", then on "filing the gap in online retailing" and finally on "buying process". This reading compares the buying process in physical world and on line, for books, clothes, flowers, and cars. As you could see, there is a gap in the on line buying process because the customer does not get any physical touch. The best way to get information about the buying process of your product is to talk with the retailers. You don't need a questionnaire or a customer form. Take it easy: just talk with people in an informal way, have chat about the weather, and ask some short questions to collect right information's. 1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

3-MARKET CUSTOMER
You do not intend to sell to only one person. So knowing the customer profile, you have now to group all the persons sharing the same profile: It is your market customer Definition: A market is a group of customers ( or prospects ) sharing the characteristics which cope with the benefits offered by your product or service. Example: -There is a group of persons eager to travel: there is the tourist market. -There is a group of persons who use car. There is the car market. Then we have to separate undifferentiated markets and market segments.

31-Undifferentiated market
If your product brings benefits to everyone, you can treat the market as a whole. For example, anybody whatever his age, sex or revenue drink soda. Nevertheless, you have to take notice of the geographical area. For a retailer, the soda market is around his shop. For Coca cola, that is the entire world.

32-Market segments
In most cases, inside a broad market, you have to differentiate segments. It means that the market segmentation is one of the most basic concept in marketing. -Definition: The market segmentation is the process of splitting customers within a market customer, into different groups sharing some specific characteristics. Compare with the definition of the market customer. The important word is the adjective "specific". Among the common characteristics of your market customer, you only focus on some "specific characteristics". Examples: -If your project is to manage an hostel, the tourist market is your customer market but it is not very useful. The tourist market includes cruisers, hostels, tour trip, trekking and so on. Within the tourist market, you have to study the hostel market and inside this broad segment the specific one which corresponds to the benefit your hostel will offer ( Is it a five stars or a two stars hostel? is it located on sea shore or in the Rocky Mountains?) -We have defined above the customer profile for fun board and consequently our customer market. Right now, we will focus on only one geographical characteristic. It means, for example, that we only focus on North America and inside it on USA. In doing so, we isolate a market segment within our broad market. With a segment you can execute your advertising activities to yield your business targets. Without a segment, you risk wasting money. Once again, three major variables are used : - Geographic segmentations divide the market by country, region and city: It is often a good starting point to begin with a single geographical territory. Once you have completed the segmentation for it, you can test the applicability to other and larger areas. - Demographic segmentations divide the population on measurable variables such as age, sex, income, educational level and so on, - Psychological segmentation is often quite difficult and needs costly surveys.

External readings:
The next reading shows a list of detailed criteria currently used: Click on www.businessplans.org . Click on "business planning resources" and then on "segmentation". You will find here many ideas about possible criteria. Some of them could apply to your product. In using them, you will be able to narrow your segment. Anyway, each segment must be:

-Homogeneous: It's the first quality required for a segment. It means that a segment must be clearly different to others segments in the same broad market. For example, a segment having people income ranking from $20,000 to $200,000 is not homogeneous and worthless for a marketing strategy. -Consistent: If your segment counts only three prospects, and except you sell nuclear plant, it's not enough to develop sales and profits. A segment must count a large number of prospects. The factors which can influence the size of the segment are the increase in population, the situation of employment and the changes in income, the supply of resources, the evolution of laws, the consumer tastes and preferences and notably the fads. -Profitable: A segment must generate profit. It means that the prospects in the segment have a sufficient income with regard of the product price. If you sell luxurious car, it's not very smart to isolate a segment which only contains deprived people! -Executable: It means that you can reach the segment through advertising, sales force, distribution. It is worthless to isolate a segment if you are unable to join the people who are inside it. For example, there is certainly a consistent segment for fun board in China but If you do not speak chinese, you will never make a dollar with it. From a practical point of view, your first task is to evaluate the size of the segment. Easy to say but it's a real hurdle, because you have to calculate the entire sales volumes of all the suppliers in the segment. It means that you should add all the turnovers of the competitors existing in this segment. How could you manage that in the specific case of our fun boards?

Down-earth advice:
With chambers of commerce, producer associations, and so on, you can know how many cars, how many tons of cotton, rice, crude oil and so on, have been produced and imported in the US, and consequently consumed. By the same way, you can know the global amount in $ of the sport sales in the USA by year 2002 Let's suppose that your own segment is in Arizona. First you do the following calculations: Total sales USA*Arizona population/ US population=Arizona sales You know the amount of sport stuff sold in Arizona by 2002. Now, you will meet in your area three big retailers selling sport articles and you should just ask them one question: When you are selling $10,000, what is the percentage of fun boards? Suppose they answer one fifth ($2000). Then you have just the calculate: Sport articles sales in Arizona/5= Estimated fun board sales in Arizona. You have the total sales of fun board in Arizona. Now, evaluate the average price of a fun board ( just visit a lot of shops and quote the prices) and divide the sales volume by the average price:

Fun board sales in Arizona/ average price= number of fun board sold. You were in the dark at the beginning and now you know the estimated numbers of fun board sold in Arizona by 2002! These calculations look rough but do not worry. By experience, I know that the consulting group which are charging heavy fees just proceed like that! Be very serious about stats: Too often, people do not like too much the figures and only trust their intuition. In this matter, intuition appears often to be wrong.

Real life example:

In the sixties, an European consulting group decided to study the world milk market. Most of the top executives were convinced that the market was made up with crude milk in bottle and concentrated milk in can. At this time, the European were not familiar with powder milk. In charge of this study, I scrutinized the import and export stats of about 120 countries. It was not a cool job! In reward, I discovered that the world market was made up of powder milk by 80%! The executives who had trust their intuition were quite astonished by these results! When you get a homogeneous, consistent,profitable and executable segment, it means that you have a marketable product.

External readings:
For example, the next site shows how these concepts are applied to the agricultural sector: www.gov.mb.ca/agriculture/financial/agribus/agribusiness.html . Go to Manitoba! Click on "new product development" and read "sections 1, 2 and 3".

33-Cluster analysis
To target your customers, you can split the segment into little groups according to a multicriteria approach: Example: With our fun board market, we have defined a market segment in Arizona. Now, we shall split this segment in clusters, according to new criteria's: People who focus on price, people who had subscribed life insurance, people who only buy from well known brand.

External reading:
To see the methods used, look at: www.sdrnet.com and click on "analytical services" and then on "market segmentation".

As data do not give answers about such characteristics, you can create a sample. It's a little group of persons that represent all the characteristics of a larger population. It may be created with friends, relations, chambers of commerce and so on. You must be sure that it is really representative of your whole segment. When your sample is established, send to each person a short questionnaire. Ask questions that produce answers and only focus on the important topics: four or five questions; no more! Test your questionnaire before to field it. Thanks to the internet, some consulting groups suggest to split the cluster into individuals. Nevertheless, this ultimate approach raises some problems. In short, the advanced marketing segmentation looks like the precision guided munitions! I am quite cautious about it, because it needs complex computer software, pool opinions, sample analysis and high fees charged by consulting groups. It 's good for big corporate's that can afford it. Anyway, remember that the market segmentation is a compulsory step to define a marketable product. Keep also in mind that only marketable products make money. This point must be underlined 1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

Lesson summary:
A product or a service must bring a benefit to the customer. The customer benefit may be functional and psychological. It may represent a low or a high involvement. The best benefit gathers both functional, psychological and high involvement features. Any benefit analysis must be conduct both for the user and the purchaser. The customer profile is deduced of the customer benefit. A market gathers the customers who share the same profile and who could benefit from the product. A market segment focuses on some specific characteristics of the customer profile. It must be homogeneous, consistent, profitable and executable. 1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

DO IT YOURSELF:

1-You have now to establish for your own business project: -Your Customer benefit -Your Customer profile -Your Market customer -Your Segment market
Please, follow the logical process you have just learnt: It means that if your customer profile is a young man, your segment can't include a grand mother! Starting with a broad approach, you will more and more focus on your target!

Useful link:
To perform this job, you will need a lot of data. They are mainly available on the web. So search it by yourself in using keywords. For example, you can use the census web site: www.census.gov

2-Put this analysis in your business plan

Open your plan ware folders and put the analysis under the chapter " Marketing"

Remember that without this analysis you have no hope to succeed in your future business! 1. Customer benefit 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching

FW14-THE SUPPLIER ANALYSIS

YOUR POSITION
Look at the map MAP

261 days before opening.

1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

INTRODUCTION
The supplier analysis describes your competitors on the market and allow you to define a positioning.

Duration
Lesson: 1hour

External readings: 4 hours Do it yourself: 10 hours Total: 15 hours

Objectives:
Our objectives are to give you the fundamental notions about:

-Product life cycle -competitive analysis -Perceptual mapping and positioning. By the end , you will be able to fix your own positioning on your market segment regarding to the existing competition.
1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

1-PRODUCT LIFE CYCLE

You have a segment for your product. Right now, you must evaluate how your segment is evolving. -Definition: The product life cycle describes the different phases of a segment with regard of the product: introduction of the product, growth of its segment, maturity, decline.

Important warning:
In some books, the product life cycle means the time taken by a material to disappear. For example, it takes hundred years to have the plastic dissolved in the sea. It would be better, in this case to say" the product life pollution". Sometimes, it means also the manufacturing process of a product: It begins with raw materials, manufacturing process, packaging, shipping , selling and so on. In this case it would be better to call it "the manufacturing process". Finally, some authors confuse the product life cycle with the starting process of a business: idea, project, marketing, business plan, fundraising and start up. In this case it would be better to call it" the project life cycle"

A product life cycle evolves according to the following curve:

Curve analysis: This curve is quite meaningful because according to the phase, the number of expected prospects are not the same and their psychological characteristics strongly differ from one phase to another. On the other hand, you do not find the same competition according to the different phases.

- Situation A : It means that you are entering a new market. Obviously, it will be the case if your product is an invention. Anyway, among your estimated number of prospect only a few will be interested by a new product: The innovators. So you have to focus on the people who enjoy novelty and progress. It is an important point because it would help you to target effectively your advertisement.

In situation A, sales are low and you risk to endure negative cash flow. Think about it in building your financial plan! What is more, you do not know exactly when the sales are going to rise: Many products remain in their introductory phase, do not win market acceptance and are failure. It means that entering the market during the introductory phase is always a serious stake. - Situation B : The product is winning a market acceptance: Early adopters join the first innovators and sales are growing fast. When you enter during this phase, you get a better overview of the situation but unfortunately, you are no longer alone. There are already many competitors on the segment and they will try to put barriers to your entry. Nevertheless, as the flow of customers is rising, most of your sales can come from new prospects. It means that promotion and advertisement are quite important. - Situation C : There is right now a big flow of customers and you cannot expect that their number will rise significantly in the next future. The product is well known and the psychological features of the customers do not matter very much. When you enter during this phase, you can only expect to get a share of the existing market. You have to win the customers and you can't expect new one because there is a maturity market. Moreover, there is a well established competition with some powerful leaders. Of course, you have to differentiate your product (quality, service, packaging) but the competitors have not been waiting you to do the same improvements. Nevertheless, you get a joker. The well established corporate's have certainly going fat: Too much staff, bureaucracy, and consequently they have certainly high cost and low margins. In such a situation, you could enter the market with a cost strategy and low selling prices. Thanks to a mass advertisement, you should by this way get a significant market share: Be an agile wolf among too much well fed dogs! - Situation D: The market is declining because there are new alternatives to the product and simpler because fads are changing. The competitors are leaving the market and it is easier to get a vanishing market share. With further time, you will look like the unique saloon in some deserted mining town. It can be a comfortable rent for some years but do not expect to make big money! You can understand why it is so important to determine the present phase of the market: Is it a growth market or a maturity market ? Right now you just know the size of the market ( the number of fun board sold in Arizona by 2002). How could you determine in what phase you are?

Down-earth advice:
First look at the data of the US population, Arizona population, and sport articles sales in US. Calculate as above the volume of sales in Arizona by 1997, 1998,1999, 2000, 2001. Calculate the increase in growth for each year: May be you get 20%, 15%, 14%, 13%, 13% again. Compare these results with your typical product life curve: Clearly it means that you are entering in the maturity phase. So you cannot expect a big rise of sport articles in the next future. Now, visit again your three big retailers and just ask them the following question: For $10,000 sales, what was the percentage of fun board five years ago. How do

you expect it will be in the future years? Dot not go beyond five years in the future because as Keynes said we all shall be dead in the long term and do not go beyond five years in the past because the universal history is not your real matter! Then collect information's from your retailer about the average price of a fun board in the past years and make the calculations of the number of fun board sold in arizona fives years ago and the number expected in the future years. Establish the curve and compare it with the global sport article curve. Maybe it is the same. Maybe it looks quite different. Anyway you have a rough idea about the phase of your segment market. 1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

2-COMPETITIVE ANALYSIS
You know the size and the evolution of your market segment. Now you have to identify your competitors on the segment. -Definition: A competitive analysis is a program for gathering and analyzing information about your competitors, their strengths and weaknesses. Let's us go on with our fun board example. Our segment market is defined and we observe some competitors already present in our segment. Clearly, they target the same customer profile as we are going to do. Firstly, among many competitors, we have to identify the market leaders who dominate the segment. May be they represent 80% of the total sales. So it's worth to focus on them. Suppose you list five leaders: Skyboard, Sunboard, Seaboard, Maxboard and Kboard. We shall now examine their products, evaluate their market share through their turnover, and investigate about their organization.

21-Their products:
There are many criteria to define a product: Price, durability, appearance, cost maintenance, service, packaging and so on. You should need a computer program or the costly help of a consulting firm to deal with so much criteria. As you are a starting business, we recommend to focus only on two criteria: Price and quality. Of course, one could be said that quality depends on many sub criteria but every people, thanks to intuition, knows exactly what he means when he is saying that a product offers a good or a bad quality! Then, you examine the products in the shops, you collect the prices and you rate each competitor from 1 to 4: Price: 4= very low price, 3= low price, 2= high price, 1= very high price Quality: 4= very good, 3= good, 2= bad, 1= very bad.

Then you add the two notes and the sum gives you the global quality/price criteria. In a world of utopia, some product could get 8 that is to say the better quality and the lower price. In a perfect economical world, all the products would get the same note 5, because the higher price ( 1) should correspond to the greater quality (4) and inversely. In fact, you will certainly observe some important distortions: Companies------- Price------- Quality------- Total Skyboard :--------- 3 ----------3-------------6 Sunboard :----------4-----------2-------------6 Seaboard :----------4------------1------------5 Maxboard :----------4------------4------------8 Keyboard :-----------1-----------4-------------5 As you can see Maxboard offer the best quality at a very low price. We could expect that it is the star of this market! In fact, things are more complicated.

22-Their turnover:
Suppose that the total market amounts for $10 millions. Our five leaders make 80% of the sales, that is to say $8millions. How does it split between our competitors? Keyboard: $4 millions, Skyboard: $2 millions, Maxboard: $1 million, Seabord: $0,7 million, Sunboard: $0,3 million. Firstly, we can observe that despite their low prices, Seaboard and Sunboard offer poor results. It means that the consumer is seeking for the quality. If you practice a low cost policy with a bad quality, you will not have any chance to get a share in this market. Secondly, what's happening with Maxboard? It gets the best note and however he arrives only in the third position far behind Keyboard. Inversely, Keyboard who had a bad note because of its very high price appears to be the leader running far ahead. Certainly, we should rather take a look about their organizations.

23-Their organizations:
Organization means how marketing, sales force, distribution channels, advertisement, are used for the customer benefit. In this case, you will observe that Maxboard is led by some out dated family group deprived of any dynamism. Its sale force is not motivated: The salesmen enjoy in making jokes in the saloons rather than prospecting the customers! On the contrary, the CEO of Keyboard is a brilliant young man. Sport like, he prospects his customer leaders on the gulf green. He has developed a fashionable image linked to sea adventures. No matter the price, the customers prefer Keyboard!

We can resume this analysis. You have to take notice of price and quality but you must also focus on your competitor organization.

Real life example:

The french TGV offers one of the best quality in the world (speed and safety). The cost of a travel ticket is quite low and then the ratio price /quality appears to be very good. Nevertheless many consumers have better to take their own car. The reason relies on the fact that the staff is too often on strikes. It means that a bad organization can destroy the best product.

External readings:
In addition, you could read a paper dedicated to the competitive analysis applied to non profit organizations. Some features are also good for starting business. Click on: www.allianceonline.org . Then clicks on "FAQS", Then on "strategic planning" and finally on "How can we do a competitive analysis" 1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

3-PERCEPTUAL MAPPING
In real situation, the competitive analysis provides with many data and it can be difficult to summarize them. The perceptual mapping is a technique which allows us to represent these data on a map. It provides with a visual representation of the major relationship among different subjects. It's worth to underline the adjective "perceptual". It means that the map represents the perception the customer has of the different products. It is a mind map and not a geographical map! In our example, we can portray our different corporate's on the map just like the consumers probably are perceiving them:

A map can convey a big amount of information's in a single picture: For example, we see that keyboard and Maxboard are perceived as similar regarding the quality by the consumer. Nevertheless, the length of each arrow and its magnitude shows that keybord has a strong advantage. Besides, skyboard is perceived as the better priced. It looks astonishing because its price is higher than Sunboard and Seaboard. It means that the "better price" is perceived by comparing with Keyboard and Maxboard. The two others brands, because their low quality, are simply quite disqualified. It means that the competitive analysis is not sufficient to establish a map. You have to know, how the consumers really perceive the product. The only way to know that is in realizing some questionnaire. At first glance, and to save money, you can just ask some questions to the retailers. Perceptual maps are good for: -Identifying a possible opportunity represented by a vacuum where no competitor exists on the perceptual map. For example, a product offering high quality and a lower price than Keyboard, could occupy a place in the perceptual map of the consumers. -Determining the competitors ( or the products) which are the closest to your project. In this case, it would be Maxboard and Skyboard.

-Showing by mean of symbols the strengths and weaknesses relative to the main competitors. Obviously, Maxboard is not a real challenger but you have certainly to make a close examination about Skyboard organization.

External readings:
To see another example of mapping, click on www.sdrnet.com and then on "analytical services", then on "product service/positioning" and finally on "SDR product/service positioning". 1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

4-POSITIONING
You have presently all the information's and time is coming to position your business with regard of your competitors. -Definition: Positioning is to choose the place your product will occupy in the consumer mind. Effective positioning puts your product first in line in the minds of customers.

Important warning:
Do not confuse the market positioning with the global positioning system! The place of your product is not a space spot but a mental place in the consumer mind. It means: How would you like to be perceived by the customer with regard of your price, quality and organization. -SWOT: To make a good positioning , you have to realize a SWOT analysis: It means strengths/weaknesses/opportunities/threats. In fact you have just to repeat the same analysis that you have already done above with your competitors. Once again, you rate your previous price, the quality you will offer, and your future organization. You compare these notes with your competitors and then you can identify your strengths and your weaknesses. You can complete is with a PESTEL analysis. -PESTEL: It means: Political factors, Economic factors, Social factors, Technological factors, Environmental factors, Legal factors. For each set of factors, you need to evaluate what is the situation and what developments are likely to take place in the next future. Political factors are important in international trade. Economics factors such as growth or recession have an influence on a start up and notably the bank rate as we have seen in economics. Social factors as demographic changes could affect your business. Today, environment is going to be more and more important and "green products" get a competitive advantage, especially among the youth. Finally, the changes expected in legal factors such as taxes, and labor laws must be also underlined.

It is important to be as objective as possible and to keep the customer point of view. Maybe, you are thinking that the weight of your fun board is a guarantee of duration, but it may be more important for the customer that the board should be light, especially if teenagers are supposed to use it. Then, you report all these data on the perceptual map. It's the same that above but right now you are also in the map. Maybe, you will observe that regarding your notes, your previous positioning is not good. Maybe, you will also take notice of a potential positioning opportunity. Unfortunately, regarding your notes you are far to join this ideal position. What could you do? -Choice modeling: You have just to determine what you can improve and the choice modeling technique could help you. Knowing how consumers choose a product, you introduce, step by step, little change to your product ( price, quality, distribution) and you examine the effect this changes have on the perceptual map. Do these changes improve the desirability of the product? Are you going closer to the ideal position or are you going back? For example, in our fun board example, it's not a good idea to lower the price. May be it would be better to rise the price and to recruit a famous sailor to advertise the product!

External readings:
About positioning you should read an article written by Dr Fortin, a specialist in marketing: click on: www.aniota.com . Then click on "Jws mind and money" and next on "the 10 commandments of power positioning". This e-book contains plenty down-earth advices, very useful for a beginner in business. Once again, you are the only person able to perform these studies with respect of your real project. I guess that you are quite impatient to do it! 1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

Lesson summary:
The

product life cycle describes the different phases of a segment.

According to the phase, the competitive analysis shows the situation on your competitors on the segment, mainly with respect of price and quality criteria. The perceptual competition. The

mapping pictures show how the consumers perceive the

SWOT analysis and the choice modeling enable you to simulate the best positioning for your product in the customer mind.

1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

DO IT YOURSELF
1-You have to establish for your own biz: -The product life cycle. -The competitive analysis -The perceptual map with your positioning
You have just to follow the logical process described by the lesson.

2-Put this analysis in your business plan.

Open the plan ware folders and put your analysis under the chapter "suppliers and competitive analysis" Of course, all these documents must be justified with commentary twice longer than the present lesson. Enjoy it. You will see that it's very exciting! Good luck. 1. Product life cycle 2. Competitive analysis 3. Perceptual mapping 4. Positioning 5. Do it yourself 6. Coaching

FW15-MARKETING MIX
YOUR POSITION
Look at the map MAP

253 days before opening.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

INTRODUCTION
Marketing mix allows you to combine all the marketing tools in order to sell your product.

Duration
Lesson: 1 hour External readings and quiz: 13 hours Do it yourself: 20 hours Total: 34 hours

Objectives:
The objectives of this lesson about marketing mix is to give you: -The tools you need for establishing your detailed marketing plan

and forecasting your sales.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

1-CHALLENGE
You have gotten a rough idea about the market situation and the possible positioning of your product. Of course, it's far to be sufficient. Now, you must write your detailed planning. It means that brainstorming is ended and that you have to go to the specifics in examining and checking all the hypothesis you had made in the preceding chapters. You will use the marketing mix. -Definition: Marketing mix is the combination of elements that you will use to market your product. There are four elements: Product, Place, Price and Promotion. They are called the four Ps of the marketing mix.

Some people think that the four Ps are old fashionable and propose a new paradigm: The four Cs! Product becomes customer needs; Place becomes convenience, price is replaced by cost to the user, promotion becomes communication. It looks like a joke but the Cs is more customer-oriented. 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

2-PRODUCT
A good product makes its marketing by itself because it gives benefits to the customer. We can expect that you have right now a clear idea about the benefits your product can offer. Suppose now that the competitors products offer the same benefits, same quality, same price. You have then to differentiate your product with design, features, packaging, services, warranties, return and so on. In general, differentiation is mainly related to: -The design: it can be a decisive advantage but it changes with fads. For example, a fun board must offer a good and fashionable design adapted to young people. -The packaging: It must provides a better appearance and a convenient use. In food business, products often differ only by packaging. -The safety: It does not concern fun board but it matters very much for products used by kids. -The "green": A friendly product to environment gets an advantage among some segments. In business to business and for expensive items, the best mean of differentiation are warranties, return policy, maintenance service, time payments and financial and insurance services linked to the product.

External readings
Go to http://peerspectives.org and click on "Defining and serving a market" . Then click on "Launching a new product " and on "Product development" You will find a lot of articles about the subject. 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

3-PLACE-DISTRIBUTION

A crucial decision in any marketing mix is to correctly identify the distribution channels. The question " how to reach the customer" must always be in your mind. -Definition: The place is where you can expect to find your customer and consequently, where the sale is realized. Knowing this place, you have to look for a distribution channel in order to reach your customer. In fact, instead of "place" it would be better to use the word "distribution" but the MBA lingo uses "place" to memorize the 4 Ps of the marketing mix!

Important Warning:
The place is not where is located your business but where your customers are. For a retailer it is the same but for a boat producer located in Philippines the real place is the entire world. Do not confuse positioning and place. Here place means the real physical position of the customer in a geographic area or along a distribution channel.

31-Channels
It exists today, with the internet, more channels than in the past but basically, you have to consider three main distribution channels: -Selling to the customers: Whether you sell by yourself ( as retailer) whether you employ a sales force, you are in these cases in front of the final customer. There are not intermediaries between you and him. Unfortunately, except for the retailer business, this situation is far to be the general case. -Selling to the retailers: For example, you manufacture the fun boards and you sell them to the Arizona retailers. This practice could be a bit complicated. -Selling to the wholesalers: There are maybe four or five sport articles wholesalers in Arizona. You sell your fun boards to these big men. On turn the wholesalers sell the fun boards to the retailers which finally sell to their customers. In the case of Pacific Boat which manufactures its boats in Philippines for customers located in the USA or in Europe, there is not alternative ways. It must sell through some big import export corporate's. Pacific boat has not any contact with its final customers but of course it must know exactly their profile. If the product does not fit to the profile of the final customer, the wholesaler will not buy it. As you can see, the choice of your distribution channel heavily depends on your product and place in the productive process. If you are in coal mining, do not expect to sell some coal buckets to the final consumer! The next drawing summarizes the different possible channels: You are represented by the black square, the wholesaler by the maroon one, the retailer by the yellow and the customer by the green!

Real life example:

A commodity is a product such as crude oil, coal, rice, wheat, sugar, copper and so on: Mainly primary products and raw materials. In a commodity market, the products have very few distinguished characteristics. They are traded in few places like Chicago and London. In the rice market, there are maybe six or seven big traders for the entire world in front of some hundred millions of little producers grouped in cooperatives or primary marketing boards. The big traders know each other very well and most of the bargain relies on trust. Nevertheless, inside a type of channel, you keep the possibility to choose between the different wholesalers and retailers. You have to choose the best. It means that your choice must focus on two major facts: the margin and the image.

32-The margin
You have already gotten an idea about the price which should fit to the customer profile. Let's suppose this price is $100. It is the retail price: the price paid by the final customer. The retailer takes his margin (or the mark-up). This margin is calculated on the retail price. Suppose, he takes $30. It means that he buy $70 to the wholesaler. As the wholesaler trades big quantities, his margin is usually lower than those of the retailer: Maybe 15% of the selling price to the retailer. So, he will take $10,5. It means that he has bought $59,5 to you. Consider now that you support the cost of the shipping from your manufacture to the wholesaler store: For example $9,5. Finally, your factory price is $50 for a product sold

$100 to the final customer. In many case, when taxes and new packaging occur at the different levels, the factory price can easily be only one fifth of the final price! Do not imagine that you have too much choice. Each intermediary fills up a real function and it's not easy to ignore him. For example, you can't sell your fun board straight to the consumer: you should need a massive sales force. You could also ignore the wholesaler in selling directly to the big retail supermarket. You will save in this case $10,5 but you can expect that the supermarket which usually practices low prices will tell you the following speech " $100 as consumer price is too much. I want to sell that $80. Of course I keep 30% as margin. So I buy it $56 to you " It could look fair but the number of the supermarkets is higher than those of the wholesalers. It means more shipping and consequently a rise in costs. Instead of paying $9,5 for shipping, you will pay $12. Now what is the result? Consumer price-------------80 Supermarket selling price----56 Shipping to supermarket-----12 Factory price---------------44 It does not look a good business: $44 instead of 50! You can object that the sales will rise because of the lower price to the consumer but it does not fit with your hypothesis about the customer profile. Anyway, could you afford $44 as your factory price? Is it good to sell your fun board through the supermarket? Is your customer buying in a supermarket or in a fashionable specialized sport shop?

Real life example:

Periodically, people complain against margins and plead for short distribution channels. These claims often come from the farmers because most of them are blindly ignorant about economic reality. They regularly try to market their product directly to the consumers but it does not last very long because they quickly register heavy losses. Some stubborn guys go on with that practice and as a result they can't pay back their loans to the State owned agricultural banks. Finally the bank losses are covered by the taxpayers!

33-The image
The place of sale influences the perception of your product. Consequently, you must pay attention to the choice of your outlets: wholesalers and retailers. If you sell products for every one, a mass distribution through the supermarket will be probably the best issue. On the contrary, if you sell fine products, you have to choice fine shops and beautiful people

to sell them. In the fun board case, you should have better to emphasize on the image and to look for fashionable shops and people. You have also to take notice of the share of power inside the distribution channel. As you will be a beginner, do not expect to get too much power! For example, you can ask the retailers to store your product on the first line or in the best situation in the shop. They will probably answer " OK! but I'm going to charge 35% margin instead of 30%". May be it's a fair bargain but is the rise of the consumer price compatible with your previous positioning? It's quite difficult to list all the occurrences in this matter. Give a chance to your intuition but keep in mind that all these daily decisions must always remain in line with your customer profile. 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

4-PRICE
Price means the pricing strategy you will use. You have already fixed, as an hypothesis a customer price fitted to your customer profile but you will have now to bargain it with the wholesalers and retailers. Do not be foolish: They know better the market than you and you have to listen their advices.

41-Pricing strategies
In fact, you have to choose between three strategies: -Competitive pricing: If your product is sold at the lowest price regarding all your competitors, you are practicing competitive pricing. Sometimes, competitive pricing is essential. For instance, when the products are basically the same, this strategy will usually succeed. Remember that the success of competitive pricing strategy depends on achieving high volume and low costs. If your prices are lower than your costs, you are going straight to bankruptcy! To avoid such a mistake, you have to take notice of the break even ratio that you will find below. -Cost-plus-profit: It means that you add the profit you need to your cost. It is also called cost-orientated strategy and is mainly used by the big contractor of public works. The authority may have access to the costing data and should like to check if the profit added to the cost is not too high. In fact, this strategy is only good for a business whom the customers are public collectivities or government agencies. -Value pricing: It means that you base your prices on the value you deliver to customers. For example, when a new technology has a very large success, you can charge high prices

to the customer. This practice is also called skimming. It is easy when you are in the introductory phase of the product life cycle. Value pricing is also common in luxury items. Sometimes, the higher the price, the more you sell: Fashionable clothing or restaurants for snob people. Of course value pricing is limited by the price elasticity as you have already learnt in Economics.

External readings:
About these pricing strategies, click on www.businessplans.org. Click on "business planning resource" and then on "pricing". See also www.sdrnet.com . Click on "analytical services", then on "exploratory price modeling" and finally on "premium price policy". In addition, go to: www.ideasformarketing.com and click on the article: "How to develop a product or service pricing". You can also download a free-book on pricing! The diagram below illustrates how you have to determine your price. You could see that a conflict could arise between your financial objectives ( the expected profit) and your actual costs.

So, you have to calculate your break even ratio.

42-Break even ratio

Suppose you price your fun board $ 1000 to make a competitive pricing strategy. You have some fixed costs which remain constant whatever the number of fun boards you sell: For example your office rent, your secretary and your own salary: Saying $200,000. To manufacture one fun board, you need $900 in labor and raw material. $900 is the variable cost per unit. To recover your fixed costs without making any profit you have to sold:

Fixed costs (200,000)/Selling price(1000)-Variable costs(900)=2000.

You have to sell 2000 fun boards just to recover your fixed costs. Now suppose that the total market in Arizona amounts 2000 fun boards per year. Do you believe that you should conquer the entire market despite your five existing competitors? It would seem quite unrealistic! If you sell 500 fun boards ( 25% of the market) what should be the results: Receipts: -----500*$1000= $500,000 Variable costs: -500*$900= $450,000 Fixed costs:----------------$200,000 Loss: ---------------------($150,000) It means that you must charge a higher price: May be $1300. In such a hypothesis, your fixed costs could be recovered: 200,000/1300-900=500 Now suppose, that your competitors offer the same quality, with a price ranking between $1050 and $1250. In this case, it means that your project is not economically sound and that you must review it: Whether the fixed costs, whether the variable cost per unit are to high. In fact, the choice of a pricing strategy depends heavily on the break even analysis.

External readings
Go to http://peerspectives.org and click on "Defining and serving a market" Click on "Pricing" and at the end of the page click on "Small business administrationpricing your product" 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

5-PROMOTION
Advertising, public relations and so on are included in promotion and consequently in the 4Ps. Sometimes, packaging becomes a fifth P. As promotion is closely linked to the sales, I will mention here the most common features about the sale strategy. -Definition: The function of promotion is to affect the customer behavior in order to close a sale. Of course, it must be consistent with the buying process described in the consumer analysis. Promotion includes mainly three topics: advertisement, public relations, and sales promotions.

-Advertisement:
It takes many forms: TV, radio, internet, newspapers, yellow pages, and so on. You have to take notice about three important notions: Reach is the percentage of the target market which is affected by your advertisement. For example, if you advertise on radio you must know how many people belonging to your segment can be affected. Frequency is the number of time a person is exposed to your message. It is said that a person must be exposed seven times to the message before to be aware of it. Reach*frequency gives the gross rating point. You have to evaluate it before any advertisement campaign. Message: Sometimes, it is called a creative. Anyway, the message must: get attraction, capture interest, create desire and finally require action that is to say close the sale.

Down-earth-advice:
There are some magical words that you can use in any message: -Your-You--I-Me-My--Now-Today -Fast-Easy-Cool-New-Fun-Updated-Free-Exciting-Astonishing -Success-Love-Money-Comfort-Protection-Freedom-Luck.

-Public relations:
Public relations are more subtle and rely mainly on your own personality. For example, you can deliver public speeches on subjects such as economics, geo-economics, futurology to several organizations (civic groups, political groups, fraternal organizations, professional associations)

These speeches will enable you to develop new relationships and their cost is nil !

-Sales promotion:
It includes fair trades, coupons, discounts and are linked to the sales strategy.

External readings:
Go to: http://peerspectives.org . Click on "Defining and serving a market". Then click on "Public relations" About e-Business and Marketing Resources, go to: www.7thdimension.com. You will find here tips, tools, articles and more to help you succeed online! About Link Popularity, go to: www.your-link-popularity.com . It's an informational site about Link Popularity and the major search engines. 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

6-SALES STRATEGY
Sales bring in the money. Salesmen are directly exposed to the pressure of finding prospects, making deals, beating competition and bringing money. You have first to learn some definitions used by the MBA lingo:

61-Definitions:
A lead is a person who has been identified as a prospect. A prospect is a potential customer. An account is a customer that often buys from the company. A national account is a very big customer An order taking: the customer asks for a product and the vendor sells it. It's usual way to sell candy, soda or to sell tickets for theater. On the contrary, active selling involves locating customers and persuading them to buy. Inside sales refers to selling done mainly by phone or by internet. Outside sales involves getting appointment to meet customers at their home. Home cold calling means to phone people you do not know. Hard sell means to use of high pressures upon the prospect.

We have then to distinguish the sale process and the sale organization.

62-The sales process:

It depends heavily on the buying process. It includes prospecting and persuading. Prospecting involves finding the leads and presenting the product. After making contact, the salesman must show that the product solves a customer's problem. He must also answer two questions : - Has the prospect a need or an interest in the product ? - Does the prospect have the money to buy the product ? If the prospect does not meet these criteria, you have better to move on to the next prospect ! Persuading and authority are often necessary to close a sale. The salesman's approach is often to rise questions in order to lead the prospect to a logical conclusion : I must buy now.

63-The sale organization:

The two major issues are to recruit salesmen or to organize a franchising or or multi-level market If you recruit the salesmen: -You should determine the size of the sales force: It must cover the customer segment. A poor coverage is an invitation to competitors. Remember the production possibility frontier to determine your maximum sales force. -You should also determine the alignment of the sales force: Alignment by territory divides the market into geographical areas such as counties or cities and specializes each salesman in an area. Alignment by product specializes each salesman in a product Alignment by customer specializes each salesman in a customer (it means that the customer must be a national account). You can also combine the three alignments. -You should finally determinate how to motivate the sale force: Sales people can be compensated by commissions, salary or salary plus commission. For a starting business it's more convenient to pay only commissions

If you organize a multi level marketing: Salesmen becomes independent distributors. They operate as contractors. They are encouraged by your company to recruit other distributors. In return, they receive a percentage commission on the sales of their recruits. There are two benefits from multi-level marketing :You get a large sale force without the expense of full time employees and the distributors work very hard to improve their income. DRAWING 11

Anyway let to the salesmen a sufficient commission to enable them to manage prospecting and advertising on their territories at their own expenses.

External readings
Go to: http://peerspectives.org . Click on "Defining and serving a market". Then click on "Sales analysis", "Sales cycle", "Sales", "Sales presentation" and "Sales techniques".

64-Global connections
Time is coming to emphasize on the logical connections between all these elements. Low involvement products such as soda, with high price elasticity can afford a competitive pricing and a mass market strategy.

But you have to take notice that competitive pricing implies low costs and a lot of technical progress, that require big investments and big money. What is more, mass market strategy implies very important budgets in advertising and once again big money. It is easy to view all the implications. It shows that this strategy fit to important companies. On the contrary, high involvement product with low price elasticity do not always implies big investments or important expenses in advertising: Value is subjective to the consumer and is not related to the real cost ( fashionable clothing, luxurious perfumes) But how to convert any product in a high involvement product? 1) The best way is to create a value expressive message about the product. You have to link the product to very high involvement issues. For example : health, social status, youth, success, and so on. This link must be seen by the consumers as a very important characteristic (in fact, this characteristic is only subjective. It just exists in the consumer's mind). 2) A product provides different benefits : For example, a single garment brings you three benefits : it is warm, it is fashionable and it is easy to clean. Underline one of the benefits to create the special value and justify a higher price.

External readings:
-Go to: www.marketingteacher.com . Click on any graph and access to the lesson store. You will find all the topics you have just studied above and some new such as the five forces analysis and different matrix. Study each lesson and make the exercises. They are quite easy. The process for realizing all the exercises will take about 3 hours. -Then go to : bized.ac.uk .Click on "virtual worlds" in the frame. Then click on "virtual factory". Click next on "factory floor" and finally on "marketing and sales department". You will find here a complete case study about Cameron balloons. Explore all the links. These case study will allow you to revise all the concepts and to see how they all apply in this case. Count again 3 hours. 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

Lesson summary:
The four Ps, product, place, price and promotion are the elements of the marketing mix used to establish a detailed and final marketing plan.

After the product which is a paramount, the place is very important because it describes how you reach the consumer and what distribution channel you are going to choose: Margins and image are quite important features in this matter. According to your product and place , the pricing strategy will have heavy consequences on the promotion campaign and on success or failure of your business as a whole.

Sales bring in the money.

Your sales organization is a core topic .

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

DO IT YOURSELF:
1-You have to describe for your own biz: - Your distribution channel. Picture it with diagrams. -Your pricing strategy. Indicate the price you will choose. Indicate at each
level the margins and the impact regarding you product image. As a potential customer, ask information's to your future competitors!

-Your advertising program and evaluate your budget for promotion:

Collect some estimates from newspapers, Radio and so on.

-Your sale force: How do you pay them (straight commission : which
percentage of the price)? Look for your first salesmen. Establish contacts.

-Your projected sales for the twelve months of the first running period and then for the four next years. 2-Estimate the costs of the marketing function:
Take the model of your Distinguish the Distinguish

grid cost drawn up in FW12 (First sketch)

starting and the running period

advertisement costs and sales force costs.

-About advertisement: You put the cost of your launching advertisement

program in the starting costs. If you envision to advertise on the long run, estimate a yearly budget and post it in the running costs.

-About the sales force:

I expect that you will not recruit salesmen during the starting period just for admiring the implementation of the business! Consequently, the sales force costs must mainly appear at the beginning of the running period. You have to estimate the human costs of the sales force: numbers, qualification, salary, commissions and the consumable costs such as transportation, travels, phones, hostels. Finally, value the equipment costs: vehicles and so on.

3-Insert in your business plan

Open your Plan ware folders and insert these elements in the adequate chapters. Modify your first sketch according to these results:

your forecasted sales

are a core element!

Right now, You can estimate the ordered quantity for a given price as well as the required quality, customers service, and so on. Being aware of the demand, you can specify the following points: - How to improve the product - How big must be the production : technology. Investment analysis. - choice and cost of the required staff. Count about 20 hours for performing these tasks. 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

FW16-OPERATIONS
MANUFACTURING PROCESS

YOUR POSITION
Look at the map. MAP

235 days before opening.

1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

INTRODUCTION
Before selling, you have to produce. It means that the first task of any business is to manufacture or assemble goods and services. It's the manufacturing process. This crucial task relies on the Operation Department and notably on the manufacturing process, which is currently the most expansive component of any business. Manufacturing process is often connected to industry but we shall use this term in a broader meaning for describing any productive process either in an industry or either in a service.

Duration
Lesson: 1,5 hours External readings: 9 hours Do it yourself: About 10 hours Total: About 20 hours

Objectives

The objectives of this lesson about manufacturing process are:

-To give you tools and advices for establishing your manufacturing process. -To show you some alternative methods for reducing the cost of the manufacturing process. -To show you how to estimate the starting costs and the running costs of this process. By the end, you should be able to plan your manufacturing process and to collect the first elements for implementing it.
1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

1-NEW DESCRIPTION OF THE GOOD OR SERVICE

The Operation Department has to produce or manufacture goods or services. To set up and schedule the process, the Operation Department needs a very precise description of the good or service. You had already describe this good or service in your first sketch but according to your market study, you have probably introduce some improvements. You must therefore describe again your product! It must be right now the final and very detailed description including packaging and so on. 1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

2-MANUFACTURING PROCESS
Once the good or the service has been described, you must define how you will produce it: It is the manufacturing process. Regarding marketing and sales, there are a some classical channels and we can aim to describe them entirely. Regarding manufacturing process, there are thousands of different process according to the good and the service you product. It's quite impossible to describe them. However, you can follow some basics.

21-What is a manufacturing process

What is a manufacturing process? It is the description of all the technical operations you have to realize for producing one unit of the good. I will give two examples: a good and a service

211-A good
Let's suppose that your business idea is to produce plate steels from sponge iron or salvaged materials. To product a plate steel you have to realize the following operations: Operation 1-Raw materials: Collect and store the raw materials: Scrap or sponge iron: Where do you get it, at what price, how do you store it, what quality is usually needed, how many people do you put on this task: Salary, outsourcing, qualifications, safety regulations an so on? Operation 2- Melting: Sponge iron is melt in an electric arc furnace: What is the cost of the furnace, where do you implement it, What is the cost of the energy, how many people on this work station, how many quantities can you manage in one hour and how many quantities do you get by the end? Operation 3-Refining: The melting metal is refined . It means that you separate the chemical elements in order to get the specific steel you need. How do you operate this separation, qualifications wanted, Do you need a chemist for controlling the process? Operation 4-Casting: The liquid steel is cast in products such as billets: A new list of questions. Operation 5-Rolling: The billets are heated at 1200c and then rolled in order to get the plates: A new list of question. That is what we call a manufacturing process and you have to master and to describe it. As you can see the manufacturing process is a very technical matter and you should need to have specific knowledge or to partner with a good engineer. Fortunately, we have found for you a very good site that describes many manufacturing process existing in industry.

External readings
Go to www.industrygate.com . In the search engine window indicate what you are searching for. Many articles or paper provide with a description of the manufacturing process and with lists of engineering companies.

212-A Service
Go back to the previous table about the glacier visit and note down the means required next to each service. SERVICE HUMAN MEANS MATERIAL MEANS

- Meet the customer - Serve coffee - Make conversation - Serving an aperitif

A driver and a guide

A vehicle A flask of coffee

The guide must speak several languages as well as being educated The driver serving the aperitif must be trained Ice box, drinks

As you can see regarding a service, the human force is more important than the machines and materials. Nevertheless there is here a "manufacturing process" with a careful schedule of tasks, work stations, timing and so on, just like in an industry! Read extensively the articles that we have suggested above and that give models of process for many industries and services. It does not mean that you have just to copy. It just means that you must know what is already existing in order to get a basic support for your creative thinking.

22-Scheduling and planning

Any manufacturing process is like a flow of successive tasks chained each other. It means that you have to carefully schedule this process. This flow can be summarized by the following drawing: Raw material: green, manufacturing process: gray, final goods: pink DRAWING 1

Globally, the Operation Department receives some stuff from outside, uses it or transforms it and delivers the stock of finished goods to the Sales Department. The tasks are the actions you have to conduct in order to manufacture the product. Then, you have to organize the chronology of these tasks in order to get the most effective way.

Important warning
Do not confuse a task and a mean. For example a task is to refine. The mean can be a machine A or a machine B. Your study will determine the means you will use.

The first task begins with the inventories of raw materials and parts of machine that you buy outside. It is the first step. Then, there is your manufacturing process with various lines and in each line various work stations. The process ends with the finished goods ready to be deliver to the customers. Firstly, you report the tasks in the following table and for each task, you determine the previous stage and the length of the task. 1 Buy the raw material 2 Melting 3 Refining 4 Casting 5 Rolling 6 Quality control 7 Shipping 3 weeks 1 week 3 weeks 1 week 2 weeks 7 weeks 4 weeks Previous stage Raw material Melting Refining Casting Raw material Quality control 0 1 1 and 2 1, 2 and 3 1, 2, 3, 4 1 1 to 6

The process is quite simple but you can observe that the quality control operates along the entire process. Of course you have not to add its five hours to the time process as the following chart will show us. Secondly, you report these information's on the following chart ( the Gantt chart): The chart is constructed with an horizontal axis representing the period of time and a vertical axis representing the task : The bars with various lengths represent the tasks and the time length for each tasks: DRAWING 2

The chart shows that you can manage the process in 14 weeks. It means that you have gained 7 weeks compared to the 21 weeks represented by adding each task together! You can also use the critical path analysis. Starting from the table above, you try to visualize all the time lengths and tasks on a graph. More complex process use PERT. Pert means Program Evaluation and Review Technique. It introduces three options for each length of time for a specific task: The shortest possible time, the most likely and the longest. Then a formula gives the probability of the real time. You will find an extended description of these tools in the next reading.

External readings
Go to www.mindtools.com. Click on "project planning and management skills". Then click on "Gantt chart: planning and scheduling middle size project" and finally click on "Critical path analysis: planning more complex project". You will also find here some tools for the PERT analysis. 1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

3-MAJOR FAILURES

Considering this global flow, you can be confronted to four major failures. In making up your planning, you have to remind these frequent failures in order to prevent them.

31-Technical failure.
The manufacturing process cannot produce the final good! There is no final good because one of the work station does not function. Alternatively, there is a final good but with so many defects that it cannot be marketable. This situation is illustrated by the following drawing: DRAWING 3

Unfortunately, this situation is very frequent in a new business. It can conduct to delay the real starting of the biz. What is more, unexpected costs most often result from this situation. It's certainly one of the most stressing situation for a new biz.

Real life example.

I have seen a large food company unable to achieve its new factory because one of the boiler never reached a sufficient temperature! It took about eight months to get it! In agriculture, it's quite a rule: The expected quantity or quality are rarely gotten in due time. There are three measures for avoiding a technical failure: -Even if you think that you have a good experience, have all the manufacturing process devices and plans examined by an engineering firm. -Always include in your contract with your suppliers the obligation to train your workers in using and repairing the machine. -Have in your contract a clause of well functioning guarantee. It means that you do not pay the last invoice as long as the machine does nor function! -Have a maintenance contract with your supplier. Consider that these four measures are a must! Regarding the defects in quality, their cause can come from different work stations. It means that you must implement a control of quality along the entire production line.

Do not forget that a poor quality is often due to the raw materials that do not correspond to the required qualifications or to a bad energy (power cuts can be a permanent cause of defect).

32-Huge inventories of raw materials and parts: The economic order quantity.
Many beginners in business are stuck with huge inventories of raw material and parts. It means that the manufacturing process looks like that: DRAWING 4

In this situation, one part of your precious cash is embedded in the inventories. Instead of producing interests in your saving account, your money is earning a negative interest because stocks usually lose their value with time (except speculative) . Sometimes, it's a normal situation because the production of raw materials is seasonal like in agriculture. For example, if you produce cognac, you have to buy all the grapes at the same time. You cannot buy the grapes in line with the selling of the bottles to the customers. In other cases, this situation only results from a bad management: People buy high quantities under the pressure of the suppliers and they argue that they get a discount and that the cost of the shipment is lower. Indeed, many bad managers think that it's a good policy to immobilize cash for months in raw materials! In fact, you have to estimate your stock in using a managerial tool which is called the "Economic order quantity" -Firstly, let's suppose that your current turnover is 10000 good units per year. Let's suppose that you need 10 raw material units for producing one good unit. It means that you have to order every year about 100,000 raw material units ( it can be wheat, steel, petrol, or anything) -Secondly, calculate the cost of ordering raw materials. I mean the cost of the order and not the cost of the raw material unit. This ordering cost includes your people cost (the time devoted in back office and accounting for placing an order). Let's suppose that this cost is $100

-Thirdly, calculate the carrying cost of a raw material unit. This cost includes the storage, insurance, and sometimes the cost of the money you borrow for financing these inventories. Let's suppose that this cost is $0,25 Finally apply the following formula: DRAWING 5

In this case you find 8944. It's the Economic order quantity. It means that you have to realize: --------- 100000 / 8944 = 11 orders in the year Use this easy tool. On the contrary, you risk to contemplate mountains of useless and costly stuff occupying a large room in your factory!

33-Huge inventories of final goods

A very common situation is the presence of huge inventories of final goods in the factory. Look at the drawing: DRAWING 6

Once again, this situation can be normal. For example, a toy fabric produces along the year and mainly sells at christmas. However, except these specific business, the presence of huge inventories of final goods means serious troubles. It can have three causes: The salesmen are on strike but it's a very unusual event since they are mainly paid on commissions! The demand has suddenly fallen. More often, it means that your manufacturing process has an overcapacity.

This situation can quickly conduct your biz to bankrupt because an increased amount of money is stuck in inventories. If your capacity reaches 350 per month while your sales remain at 300 per month, you get 50 in inventory the first month and 600 (50*12) by the end of the year. Your only way is to reduce the production and the the work force. To avoid this frequent and deadly mistake, always have a capacity lower than your forecasts. If your expected forecasts are effectively reached, you can rent the capacity you lack and then increase it in benefiting of the latest technologies. On the contrary, overcapacity often means death penalty for many business: Be very cautious about capacity. Beware of the suppliers who always make pressures to sell machines in order to raise the volume of their sales. Be minimum staffing and minimum equipped!

Real life example

According to my experience, overcapacity in small industry is the major cause of failure. This phenomenon hits all the sectors: I could tell you countless stories on this matter.

34-Bottleneck
Once again this problem frequently appears: Let's suppose that your machines work and that the final product reaches its standard quality. Nevertheless, there is something wrong because some work stations are always waiting for the trough. What is more you cannot satisfy your demand despite a sufficient global capacity. It means that there is a bottleneck in the process and it gives the following situation: DRAWING 7

You will find easily the cause in monitoring the process. One work station has a low capacity. As all the chain moves according to the speed of the lower element, this works station is slowing down all the process. Sometimes the machine has a lower yield than expected. Sometimes, the floor workers do not know how to use it. Whatever the reason the mistake is very easy to correct. Add a new machine or new people. Among the threats we have surveyed, it's certainly one you can easily solve without major prejudice. Very often, the bottleneck is just a matter of workers. Let's suppose that a machine sends to the next work station 1000 bottle per hour. Once arrived on this new work station, a worker has to put a label on each bottle. Let's suppose that he can apply 200 labels per

hour. Of course you will have a bottleneck and the assembly line will slow down due to the capacity of this unique worker. You can recruit four workers for the labeling station but it would be a costly and bad solution because your automated process should be interrupted by a manual and outdated process in the labeling work station. Just buy a new machine with the right capacity to do the work and instead of recruiting four people, fire the one you have who will become useless because of the new machine. If you avoid this four threats, you can reach the perfect flow: The black arrows means that you reduce time, you reduce machines and workers, you reduce costs, and finally you only focus on the value you add: That is the excellence: DRAWING 8

External readings
go to http://peerspectives.org . Click on "Operations and technology". You get 17 subtopics and for each of them an average of 5 quick read dealing with technology and manufacturing process. Go to www.entreworld.com . Click on "Starting your biz" and then on "manufacturing". Click also on "Growing your biz" and click on "managing technology". You will find here articles from top professionals. 1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

4-ASSEMBLE
Once you have established your standard manufacturing process, you could face a very complicated and expansive system. So you have to sit down and to think!

41-Target the value you bring to the customer

Remember the economic course and focus on the final steps of any process. It's here where the value is the higher both for the customer and for yourself. Let' s suppose that you intend to bring a new perfume on the market.

The manufacturing process of a perfume implies the plantations of ylang ylang in Mauritius, the plantation of limes in Ivory coast, the production of the essential oil, the refining, the conditioning, and finally the adding of some items which constitute your core secret for producing a new perfume. Do you intend to perform all these tasks and to transport yourself to Mauritius for planting ylang ylang? If you do like that, you will soon realize that the real value you add (that only relies on your secret mixture) represents just a tiny part of your global manufacturing process. Look at the drawing: value added: gold DRAWING 9

It means that you must concentrate on your core value. Recall the course on specialization. Do not plant ylang-ylang and limes! Do not boil the flowers of ylang ylang or the leaves of the limes! Just buy these raw materials on the international market and only manufacture your secret mixture. DRAWING 10

42-Assemble rather than to produce

In short, just assemble the products which are made by others producers and focus on the value you add. Does it mean that you have not to matter with the manufacturing process? No because even if you do not do it, you have to control it. It means that if you want to have the right quantity, the right quality at the right time, you have to monitor your suppliers: The contracts must emphasize on regularity and quality. It means that the choice of your suppliers is a crucial stake.

You can imagine an industry with zero machine, zero staff, and zero location! The boss just manages a vast number of contracts with a multitude of suppliers, consultants and outsourcing. In our perfume example, instead of making the mixture by himself, he gives the recipe to a final contractor who does this task. In some case it should be expensive but more and more big companies work like that! Instead of floor shops and machines, they manage a large army of lawyers and supervisors for establishing the contracts and controlling the manufacturing process of a multitude of contractors.

Real life example

I have known a guy who worked like that. He sold factory mills to African governments in any domain: textiles, metallurgy, chemical, food industry and so on. He just asked descriptive and pro forma invoices to major suppliers. Thanks to these descriptive's, he drew up the plan and the manufacturing process of the future factory. Then, he ordered the stuff in Germany or in France. An engineering firm was in charge for assembling machines and equipments on the location. By the end, our man had just to give the factory keys to the African minister. You could think that the final factory was very expensive because it was loaded by the profits realized at each step by the suppliers. In fact no because our man chose each time the best offer. Secondly, he had no brick or mortar, no staff, nothing. He had just to add to the suppliers costs, the cost of his own working time for the management of the entire process. The problem was that the African customer had not any trained people, no technical guarantee and of course no maintenance. As a result, these factories just worked the opening day and then fell in a profound sleeping!

External readings
Go to: www.entreworld.com . Click on "Starting your biz" and then on "supplier vendor relation" and on "outside professional" . You will find a lot of articles dealing with the new trend in US business: assemble rather than recruiting. Go to bized.ac.uk . In my opinion, this british web site is one of the best on the entire web. Click to "Virtual world", then on "Virtual factory", then on "Factory floor" and finally on "Production". You will find here more links to show the entire manufacturing process of "Cameron" Corporate: Photos of the machines, staff, theories about manufacturing process and so on. Visit and enjoy it. 1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

5-COST EVALUATION

Once your manufacturing process is completely described, you have to list all the human resources and materials you need and to estimate their costs. We shall go on with the simple example of the small steel industry.

51-Grid costs
According to your description, you list all your costs per unit, per month, and then on several months in distinguishing the start up period and then the running period. In this example, we suppose that you do not get cash receipts in the six first months. It's the starting period and all the costs have to be accounted in the money you need for starting the biz. On the contrary the running costs are calculated on 12 months.

511-Human resources
The cost can be calculated approximately from the labor market situation and social regulations. item----number-- monthly cost-- starting cost-- running cost Workers--- -5-------10000-----------60000---------120000 Team leader 1--------4000------------24000---------48000 Total--------- -------14000----------- 84000--------168000

512-Equipments and consumables

Carry out the same calculation for Equipments, i.e. goods you can use for several years and consumables which disappear as soon as they have been used) Investment item---------- quantity--------- catalog cost------- Total cost Machine 1 --------1---------------20000------------ 20000 Machine 2---------1 --------------10000-------------10000 Machine 3 -------- 2 ---------------5000-------------10000 TOTAL------------------------------------------------40000 Consumables It could be raw materials (Sponge iron), parts for the machines, petrol, energy and so on: Let's suppose 5000 per month.

Cost during the starting period: 5000 * 6 = 30000 Cost during the running period: 5000 * 12= 60000

513-Total cost of the manufacturing process

Categories------- Start up period------- Running period Human resource-----84000---------------168000 Equipments--------- -40000--------------------- 0 Consumables : -------30000---------------- 60000 TOTAL-------------- -154000---------------228000

52-Costs analysis
Once you have done that, you must analyze each item and any cost. -Firstly examine any item and ask yourself the following question: What service is provided to the customer? How much is the customer prepared to pay for this service? What benefit do I gain from this cost? By asking questions in this way, you will notice that certain costs are unnecessary. What is more remember your competitive advantage. If your advantage is quality, you must set up a very precise total quality management tending to zero defects. If your advantage relies on low price, you must find all the ways in order to reduce the costs along the assembly line. In short, you cannot satisfy yourself in just implementing the standard pattern. You must show creativity in order to maximize your competitive advantage. -Secondly examine the price of each item. As long as a cost is profitable for you, you can increase it (see possibility production frontier and law of decreasing yields). Remember that when profits are only minimal, a simple fall in turnover may transform this cost into a loss. -Thirdly: As in FW 12, apply to these costs the following golden rules: 1-Equipments: Whenever I can, I rent. If I can't rent, I buy second hand on the international market. You would be surprised to find just how many machines are for sale for peanuts! 2-Staff: I only hire people on open-ended contracts. I try to use temp agencies. 3-Globally: I assemble instead of buying or recruiting. I only use an equipment or a service and pay for it when I need it.

If you apply these golden tips, you will halve the costs of your operations.

External readings
Go to www.myownbusiness.org . Click on "course" and then on "Session 6: Location and leasing". It is the good analysis with a quiz about the advantages and disadvantages of leasing. The analysis mainly considers the building and office but it can be extended to the equipments. 1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

Lesson summary
In any business, the operations cover the process of producing the good or the service. It is your first task, because before selling, you have to produce or to assemble. Once the product is well described, you have to schedule and organize its manufacturing process. You may use

Gantt chart, critical path analysis

and PERT. Technical failure, Bottleneck, huge inventories of final goods; huge inventory of raw materials. Always get the validation of an engineer.
Beware of the four major causes of failure: If the manufacturing process appears too complicate or expensive , follow the new industrial trend and focus on the idea to

assemble rather than to

produce.
Maybe you could find a new process better adapted to your resources and capacities. Once your manufacturing process is defined, establish the grid costs and separate the starting costs and the running costs. Then, analyze carefully this grid cost and once again

use creativity.

1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

DO IT YOURSELF

1-Describe: -your manufacturing process. If you are planning to start industrial

manufacturing, describe the production process with drawings, and show them to a consultant engineer. Do not hesitate to ask detailed estimates from some big suppliers. It can give you useful ideas. Do not hesitate also to visit the plants of your competitors!

-Your costs. You had made a first rough assessment with your first sketch.
You have now to go to the specifics. All your figures must be based on the pro forma invoices that you have collected (see FW12). What is more, contact the suppliers and ask their conditions for selecting the best one. Price is not the only criterion. Focus also on the guarantees regarding the functioning.

2-Go to your business plan:

Open your Plan ware folders and put on a spreadsheet the grid cost of your manufacturing process. 1. Description 2. Manufacturing process 3. Major failures 4. Assemble 5. Cost evaluation 6. Do it yourself 7. Coaching

F17-BUSINESS ORGANIZATION
YOUR POSITION
Look at the map MAP

225 days before opening.

1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

INTRODUCTION
In FW15 (Marketing mix) you have defined your marketing functions and estimated its costs: Salesmen, advertisement and so on. In FW16 (operations and manufacturing process) you have described how you will produce and what should be the different costs linked to the operations. You must now assemble these two functions inside a global organization.

Duration
Lesson: 1 Hour External readings: 4 hours Do it yourself: 30 Hours Total: 35 Hours

Objectives
Our objectives are:

-To persuade you that the goal of any organization is to bring value to the customer.

-To show you how to organize your business for this purpose. By the end, you will be able to draw up the structures of your future business.
1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

1-ORGANIZE FOR THE CUSTOMER

The goal of any organization is to bring value to the customer and as a result to improve its profitability.

11-Bring value to the customer

What are the goals of any business: The goal of any business is to bring value to the customer. When you transform raw material to produce goods, when you assemble goods coming from different places to make them available, you bring a benefit to the customer.

111-Conserve your competitive advantage

You are not alone on the market. Other companies compete with you and also try to bring a value. Therefore, you must have a competitive advantage. In general a competitive advantage relies on quality, on price, or on service. If you offer the best quality you have a competitive advantage. If you sell at the lower price, you have it too.

112-Increase profitability
More you increase the value and more you increase your profitability. It means that your private goal that is to get profits, depends on your ability to bring value and to maintain your competitive advantage. Consequently, when we think about organization the right way is to ask the following question: how will I organize my business to bring value to the customer and to maintain my competitive advantage. The following drawing shows this thinking process:

Down earth advice:

Some pundits teach that a good organization aims to increase the profitability of the biz by reducing its costs.

Be careful about this analyze: Let's suppose that you have chosen to bring a high quality to the customer. Of course this quality represents a cost for you. If you reduce this cost, you risk to reduce the quality too. Your margin will increase but you will quickly realize that you are losing your customers!

12-Value cost and functional costs

It means that when analyzing the costs of your organization, you cannot just aim to reduce them. You must make a distinction between the costs that bring value and that I call value costs, and the other costs that I call functional costs.

121-Anatomy of a biz
In any business, whatever its size or its history, you have always some general functions: -The top management: It means yourself in a small business. -The operation function produces the goods or service: it's of course a crucial function. -The sales and marketing function delivers the good to the customer and keeps in close contact with him. -The finance and accounting function enables to track the money ( invoices, payments records) and establishes the big pictures (financial statements and so on) -The human resources makes the payroll, stores the employees files and deals with labor regulations. In some case, there are also a legal adviser and in general an information system (internet, intranet and so on). No matter the size of the business, these functions have to be performed. If you are a home based biz it means that you should have to perform all these functions by yourself.

122-Value functions and support functions

What are the functions that bring value to the customer and what are the functions just useful for your biz. The answer is quite simple: The Operation function brings value because it produces the good. Marketing and sales bring value because they deliver the good. What 'about the financial function: Do you think that the customer matters about your financial statements and the periodicity of your balance sheet? Financial function does not bring value to the customer. As for human resource? Do you think that the customer is interested about the relational problems, the procedures, the payroll, or the system of notation inside your biz? The

customer has nothing to do with that! In fact the human resource department is just a back office function.

Down earth advice

You can object that by recruiting the best people, it brings value at a whole. In fact, in any good organization, the recruitment must be led by the operational managers. The human resource has just to apply the inner and outside regulations. For example, the application of a future salesman, and the first interviews are managed by the sales force manager and not by the human resource manager who in most case has never sold anything along his entire life! The communication function is more difficult to classify because in some ways it provides also value to the customers. Consequently you have to carefully distinguish value functions such as operations and sales and support functions. It's that I call the chain of customer value. Look at the following drawing which illustrates it.

Now, your organization must solve the following problem : How can I organize the value functions in order to bring more value to the customer? How can I reduce my back office functions as much as possible to increase my profitability?

1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

2-YOUR BIZ STRUCTURE

In short, you must always focus on the value you bring to the customer.

21-Organizational models
Always focus on what we have said: Distinguish value function and support function. Always think that the organization must serve the customer. Considering the anatomy of any business, there are a lot of organizational model. You will frequently meet the worst of them:

211-The Feudal organization:

Outlaw organization charts in the form of rakes like the one below: Manager Deputy Manager Sales Manager Financial Manager Personnel Manager Department Manager Department Manager Office Manager Office Manager Office Manager Office Manager Team Manager Team Manager Team Manager Team Manager Agent A Agent B Agent C Agent D Agent E Agent F Agent G CUSTOMER? This type of organization is most commonly adopted by administrations. Each civil servant is given a grade and a status, in the image of the feudal society. In this model the customer is nothing. To say the truth, the customer is the "user" or the "taxpayer". Like in the feudal system, any civil servant behaves like a Lord. Of course, if you want to go bankrupt, this is the type of organization you should choose!

Down earth advice:

A good tip is to scrutinize the public services organizations in your country. Study their chart and procedures.

Then, do exactly the contrary in organizing your biz. You can't be mistaken in following this tip!

212-Free market organization:

Try to adopt the following organization chart whatever your type of activity: External consultants BOSS Support service Staff Sales manager Team Operation Manager Team CUSTOMER

Pay special attention to the following elements: -The support services that do not take part in either production or sales are reduced to a minimum. Some of their tasks are given to external consultants. -The boss performs the interface between the support services and task managers. In a starting company, you just need two task managers, one in charge of production and the other in charge of sales. -Each task manager leads a team seeking to reach an objective to satisfy the customer. Production is a customer service, sales is a customer service, after sales service is a customer service. -There are only two levels between the boss and the customer; the task manager and the team, whereas in the previous diagram, there were seven levels! -Any customer want to have a responsible person in front of him. Pay attention to have a short connection between you and the customer. Remember that the customer is assuming your living. The customer is the real boss of your business! Repeat that sentence as much as you can and repeat it constantly to your staff.

22-Procedures
The procedure must be based on customer service and, to a large extent, on initiative and responsibility because the customer has the right to have a responsible person in front of him.

Human resources experts recommend that an exhaustive descriptive notice should be written for every work station and that the various tasks should be detailed in procedure manuals. Be careful about all this paperwork. The procedure aims to protect or satisfy the customer and not to protect the worker by limiting his tasks and responsibilities in the most restrictive way possible! Since the entire staff must be interoperable, whatever you do, do not fix tasks on individualized, hierarchical task sheets. Think in the following way: A TEAM--------------A PROCEDURE-----------AN OBJECTIVE: BRING VALUE TO THE CUSTOMER. The team is fundamental. Here are the essential characteristics for a team: A limited number of people so that each member can have an individualized perception of everyone else and so that a large number of exchanges can take place between individuals, Common pursuit, in an active manner, of one and the same objective, which should be permanent, Strong interdependence of the members, and a sound feeling of solidarity, Differentiation of the members roles according to their personality.

About Teambuilding, go to the additonal comments. You will find two articles contributed by Alvin Quah from Singapore, a certified behavioral analyst ( In business consulting perspectives), who is registered with the Institute for the Motivational Living, Inc, USA. He can be contacted through the website: www.singaporeteambuilding.com Innovative Team Building in Singapore 1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

3-ASSEMBLE GREAT PEOPLE.

The value of a business relies on the quality of the people you assemble to bring value to the customers. I underline the word "Assemble". It means that the quality of people does not only rely on your own staff: It relies also on temp agencies, outsourcing, and external consultants. Of course, it does not rely at all on the human resource department, on the labor inspection, or on the state regulations.

As you can imagine there are full libraries dedicated to human resource. Biz schools always devote a long course to this matter. Unfortunately, the advices they give are quite the contrary of those that you will find here.

Real life example

I have observed over the years that the human resource departments were taking more and more an increasing place in most of the business. As a result, many companies seem dedicated not to the customers but to their own staff. It's quite a rule in the public service but thanks to increased labor regulations, it begins also to be a rule in private corporate's. This situation contributes to the long trend decrease of productivity. Stick on your goals. You have three rules to observe: Recruiting the best, have always a minimum staffing by hiring external resources, motivate your staff with salaries indexed on the results.

31-Assemble the best

Work is not just another piece of merchandise. Merchandise is judged on the quality-price ratio, but for staff your judgment must favor quality. To convince you of this, imagine yourself in the two situations below: You are surrounded by dirty and poorly educated people who are incompetent and constantly protesting. You pay them $1000 a month. You are surrounded by clean, smiling, dynamic and attentive people. You pay them $2000 a month. Despite the cost difference, you pick the second situation. Consequently you must always opt for the top quality. It means that your choice must be based both on personal and professional qualities

Down earth advice:

Before making any recruitment decisions, constantly repeat to yourself the following basic notions: 1-The value of a company is equal to the value of the people who work for it, 2-The value of a bad worker is negative, 3-Consequently, whatever the nature of the company or the task to be performed, only recruit clean, likeable, qualified, professional and smart people. Non qualified workers will bring you no value whatsoever, but you can be sure they will bring you a whole host of problems. Machines that are out of order due to

maintenance errors, accidents in the workplace, constant problems with factory inspectors etc. Never take on Parents or friends as part of your staff. Of course, never hire people who drink, who are addicted to drugs or who suffer from psychological problems whatever their other qualities might be.

311-Personal qualities:
What does personal quality mean in business terms? Does it mean kindness, physical strength or a taste for the arts? With rare exceptions (firemen, artistic guides), the human qualities sought are those listed below: Sociability, Honesty, fundamental in business, Self confidence, Independence, Enthusiasm at work.

Whatever the type of position and its responsibilities, you must ensure that candidates for a job in your company have these qualities and those that go closely with them (for example, they must be well dressed, clean and polite as well as sociable).

Real life example

Many people bring their personal problems on the biz place. It results in absenteeism, poor quality work and emotional turbulence. Executives devote an increasing part of their time in dealing with psychological problems. What is more, I have observed that many labor inspectors think that a company must be both a vocational school, an hospital and a fun resort.

312-Professional qualities:
Whatever the task, you have to demand competence, i.e. the ability to master this task before being recruited. Your company is not a school, it is a production center where the factors must be immediately employable. Competence is judged in terms of training received and experience acquired. For a complicated, non-repetitive task, you also have to demand smartness, agility and adaptability. To check these personal and professional qualities, the recruitment process must imply:

-A description of the job. -A letter of motivation -An interview : Candidates talk about their autobiography from child education to the present situation. -A test on the job to see how the candidate behaves with the customer: I highly recommend to make this real test. -Check all the references. Call to former supervisors and peers. -Always put the new employee on a 90-day probation. If in any of these steps, you feel a problem or a doubt, do not recruit this candidate.

32-minimum staffing
Quality allows you to limit quantity. Being short staffed stimulates the qualified members of staff: People who are very busy don't complain, The more work there is, the harder people work, The tighter the deadlines, the more initiatives taken by staff, The more tasks there are, the more they help each other.

Down earth advice

You can observe that it is in the public service suffering from over staffing that there are the more conflicts.

321-Limit permanent staff to your value functions:

Don't skimp on production and sales functions but encourage interoperability of your staff: Carefully evaluate the highs and lows of work for each function. Interoperability must enable you to smooth out these busy and slack periods so that your entire staff is permanently fully occupied:

322-Rely on outsourcing and external consultants for the support functions:

Temp agencies, temporary workers provide with elasticity in staffing and are often less expensive than one think. You can also save money by hiring free lance people rather than permanent employees. With Internet you get a vast number of new opportunities. You will find a list of useful contacts in the Do it yourself.

33-Motivation:
A highly qualified staff must be well paid. In a traditional company Shareholders are paid by profits, and Employees are paid by salaries. This gives us the following equation: SALES - SALARIES = PROFIT In the traditional diagram, conflict is inevitable and permanent because the higher the salaries the lower the profits and vice versa In your small biz try to reason as follows: The shareholders provide with capital and take risks. They are entitled to a minimum profit. The employees provide with work and time. They are entitled to a minimum salary.

This gives us the following equation:

In this diagram, a part of the Staff remuneration is drawn from the profits in forms of bonuses and stock options. The result of which is no more conflict but solidarity. Of course, I know that it's easier to say than to practice, but keep this advice in mind when you have to deal with remuneration problems.

External readings:
Go to: http://peerspectives.org . Click on "Building and inspiring an organization". Then click on "organizational structures" Click on "Human resources management" and scroll all the subtopics. You will find here a good creative think tank. 1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

4-CHOOSE YOUR LOCATION

The location is the geographical spot where your business is implemented and at least its headquarters. -For a retailer the choice of the location is the more crucial step. In fact many business idea for a retailer simply rely on a new location that brings a new market. -For an industry, the choice of a location is connected to many factors such as the availability of skilled labors, of energy, of raw materials and of a good transportation network. -For a service, the factors can be more extended but they are less critical than for a retail shop. I have found a good course about this matter:

External readings
Go to www.myownbusiness.org . Click on "course" and then on "Session 6: Location and leasing". It is the good analysis about the location choosing process.

Down earth advice

In choosing a location always keep in mind: 1-Its convenience for your customers 2-Its convenience for the transportation network: It 's better to be located near a freeway than in some inaccessible out post! 3-Its situation regarding the regulations and the security network ( for some business it's better to be located close to the police or the fire station). 1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

5-ESTIMATE YOUR ADMINISTRATIVE COSTS

In FW16 (Operation and manufacturing process) you have estimated the costs of the manufacturing process. You must now do the same for the administrative costs. The administrative costs include: -the cost of the office, building, land and so on: It depends on the solution chosen: buying, renting, leasing. -The cost of the administrative equipments such as computers, desks, fax, and so on.

-The costs of the people affected to these support functions: Human resources, accounting, secretarial offices and so on. -The costs of the consumables: phone, papers, power, cleaning and so on. These administrative costs do not include: -The costs of the salesmen: Salaries or commissions, vehicles, travels and so on. -The costs of the advertising , promotion or public relations. Remember that all these costs have been already listed in FW15. Do not count them twice! Once you have identified these costs, you distinguish the starting and the running period and you fill up your grid costs exactly as you have done in FW16. It's not worth to repeat here the process. According to the entire lesson, try to reduce as far as possible all these support costs that do not bring any value to the customers!

Real life example:

Years ago when I was banker, one customer intended to borrow and he asked me to visit his new enterprise. We went on the site and he was very proud to show me a wonderful office well situated in the best place in the town. Moving around the desk, I saw a lot of nice girls reading fun newspapers and chatting like in a beauty saloon. My host said me "As you can see Mister Pince, we take care of our staff. We enjoy to make them working in the best conditions!" I was quite astonished and finally I asked " have you keep in mind that all these fixed costs are superior to your entire expected turnover?". " I have not calculated it soon" he said "No matter, we shall make all the calculations, when we shall get the loan". Then I exploded " Poor guy! You are going straight to bankruptcy" I said " I never will lend you a dime" and I returned to my desk. 1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

Lesson summary
A successful business always relies on a well organized business and a well motivated people. Well organized means to bring an increased value to the customer.

Organize your structures and procedures in focusing on the functions bringing value to the customer.
Reduce the support office functions and entrust external consultants to reduce the functional cost and improve your profitability. The value you bring to the customer is largely the value of the persons you have assembled for doing the job. Do not rely only on your own staff but also on all the outside resources allowed by the internet. 1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

DO IT YOURSELF
1-Design your future structures.
Constantly think about the following target: how to bring as much value as possible to the customer. Only in a second step, evaluate the costs this policy implies and how to compensate them in reducing the cost of the support functions. This good brainstorming can take 5 hours within several thinking sessions.

2-Define your procedures

Time is coming to think about procedures regarding recruitment of staff, choice of consultants contractors and the buying process of items a company currently need In principle, you should have to consult the labor regulations that are different according the countries. Nevertheless, I don't recommend you to do it because you should take the risk to fall in heavy depression and to never start your biz! Just keep in mind the above advices and for the future try to make your best.

3-Estimate the administrative staff you need.

You have yet done the estimation for selling and operation. You must now think about the support functions such as secretarial, reception, accounting and so on. list the support functions which could be operated by external consultants ( for example accounting). Ask to some consultants around your location what are their fees.

In FW12 (Fist sketch) we recommended you to consult the temp agencies. Regarding the administrative staff you could also consult some specialized offices.

Useful links
Check also www.homesecretary.com and www.voice2doc.com for distant secretarial services. visit www.paymaxx.com and www. adp.com regarding payroll services.

4-Estimate your administrative costs

Add these above costs to your grid costs. Include the insurance costs and also an hypothesis about the renting of your office (we do not expect that you will buy an office or a building).

5-Establish your global grid costs

Sum up: -The -The

sales functions costs

that you have estimated in

FW15

operations and manufacturing costs that you have estimated in FW16

-The

administrative costs

that you have just completed.

the total costs of your project in distinguishing the starting costs and the running costs.
By the end, you must get It's the opportunity to think again how to reduce the costs because your present estimation is maybe above those of your first sketch.

6-Insert in your business plan.

Open you Plan ware folder and complete: -The -The

description of your business. grid costs

According to the experience, count about 30 hours for performing the five tasks. You will have all the elements you need for starting your

financial studies.

1. Organize for customers 2. Biz structures 3. Assemble great people 4. Location 5. Administrative costs 6. Do it yourself 7. Coaching

ADDITIONAL COMMENTS
These two articles were contributed by Alvin Quah from Singapore, a certified behavioral analyst ( In business consulting perspectives), who is registered with the Institute for the Motivational Living, Inc, USA. He can be contacted through the website: www.singaporeteambuilding.com Innovative Team Building in Singapore

1-MULTIPLE INTELLIGENCES AND TEAMBUILDING 11-The Theory of Multiple Intelligences

The theory of Multiple Intelligences surfaced in 1983 when Dr. Howard Gardners renowned book titled, Frames of Mind: The Theory of Multiple Intelligences was published. Within the next 10 years, educators world wide embraced the theory as a basis to identify talents in the children they work with. Before that, most people perceived people to be intelligent if they score high in an I.Q. test or other psychometric tests, or are good with logical thinking, mathematical, musical and perhaps, linguistic skills. In his book, which has been described to have caused paradigm shifts, Dr. Gardner identified 7 distinct types of intelligence: 1. Linguistic Intelligence The talent to learn and use languages, it includes the ability to effectively use language to express oneself rhetorically or poetically, using language as a primary means to remember things. Poets, writers and translators are people with high linguistic intelligence. 2. Logical-Mathematical Intelligence The capacity to analyse problems logically, performs mathematical operations, and scientifically investigate issues. Scientists and mathematicians are some examples of people with high logical-mathematical intelligence. 3. Musical Intelligence Skills in the performing arts, composition, and appreciation of music. It also includes the capacity to recognize and compose musical pitches, tones, and rhythms. Examples of people with high musical intelligence are: musicians, composers and singers. 4. Bodily-Kinesthetic Intelligence The use of one's whole body or parts of the body to solve problems. It is the ability to use mental abilities to coordinate bodily movements. Some examples of people with high bodilykinesthetic intelligence are carpenters, seamstresses and chefs. 5. Spatial Intelligence

The potential to recognize and use the patterns of wide space and more confined areas. Designers and architects are people with high spatial intelligence. 6. Interpersonal Intelligence The capacity to understand the intentions, motivations and desires of other people. People with well developed interpersonal intelligence tend to work effectively with others. Some examples are educators, religious and political leaders and salespeople. 7. Intrapersonal The capacity to understand oneself, to appreciate one's feelings, fears and motivations. People with high intrapersonal intelligence have a good idea of what they want to do in life, what they can and cannot do and when to get help. Some examples are high achievers and entrepreneurs.

12-Brief History of Teambuilding

No one can be sure how the term teambuilding was formed or when teambuilding first started. The term teambuilding is probably the combination of the words team and building, which means building a team. Teambuilding could have started as early as the 1930s, when Professor Elton Mayos research in The Hawthorne Experiments (1927 to 1932) concluded that the need for recognition, security and sense of belonging has a greater effect on workers' morale and productivity than other working conditions. Today, teambuilding can mean different things to different organisations. To some it may simply mean building cohesion among participants, while to others it may mean improving communication and sharing of information between departments. So How Does Multiple Intelligence Help Teambuilding? Multiple intelligence has been widely applied to children, particularly in the early detection of talents and gifts in children. So does the theory of multiple intelligence still hold true among adults? Are we able to apply the theory to adults? We began to ask these questions a few years ago when we were helping clients with their teambuilding exercises. Over the years, we have successfully conducted teambuilding sessions for many corporations, using multiple intelligence in our games, to bring out strengths of different people in different situations, creating an environment to promote mutual respect, understanding and patience with adult participants. Organisation may define teambuilding in different ways, yet one very basic reason for teambuilding is to get the participants to acknowledge the importance of teamwork and appreciate that people are different. Dr. Sandy E. Kulkin, founder of Institute for The Motivational Living, Inc, USA (the worlds largest publisher of DISC personality profiling system) once said, People are different, but they are predictably different. Dr. Sandy is an expert in human behaviour and he develops courses, trains and certifies professional trainers in behavioural analysis for personal and business settings. He is a firm believer that in order for us to be better able to work with one another, we need to understand why people behave in the way they do and how they look at things differently from us.

Thus in our view, if we can help participants realise that people are different and see these differences as strengths in the other person, we will be able to help them learn to celebrate the differences, thereby creating mutual respect. Understanding multiple intelligence helps broaden our perspectives of the people around us. In the context of teambuilding, it uncovers the types of intelligence fellow team mates possess, which may never surface within the office setting. This brings about better understanding among the participants. Exposing participants to multiple intelligence during teambuilding also creates an environment in which participants share their knowledge in the type of intelligence that they possess with their fellow colleagues; it helps participants to be patient with one another as they take turns to learn from one another. It can also be a humbling experience when we realise that there are other types of intelligence which may not be well developed in us. Introducing multiple intelligence during teambuilding can also help participants become conscious that if we work as a team, we will be well-equipped to tackle different issues and problems as people who are more developed in different areas of intelligence tend to look at different aspects of an issue. These people will also be better at solving different challenges that the team face. Here are some of Dr. Howard Gardner's books on Multiple Intelligence: The Arts and Human Development (1973) Art, Mind, and Brain: A Cognitive Approach to Creativity (1982) Frames of Mind: The Theory of Multiple Intelligence (1983) The Unschooled Mind: How Children Think and How Schools Should Teach (1991) Multiple Intelligences: The Theory in Practice (1993) Changing the World: A Framework for the Study of Creativity(1994) Intelligence: Multiple Perspectives (1996) Intelligence Reframed - Multiple Intelligences for the 21st Century (1999)

2-O.P.T.I.M.A.L. APPROACH ON ORGANISING A SUCCESSFUL TEAMBUILDING EVENT

Tasked by your boss to organise a teambuilding event when you have not even conducted an ice breaker before? Do not despair. This article seeks to provide insights on intelligent questions to ask and important things to look out for when organising a teambuilding event: The O.P.T.I.M.A.L. approach: 1. Objective Why are we holding this teambuilding event, & what do we expect to achieve? To have an end in mind, a purpose, is crucial. Having conducted teambuilding sessions a variety of organisations with their teambuilding event, we discovered that there are a number of reasons why corporations conduct teambuilding events, some of them are: a) To create synergy in a new team b) To reward their staff c) To create an opportunity for staff from different departments to get to know one another d) To address certain work issues e) To reinforce their corporate values

f) As a form of training g) To have fun Each of the reasons above will require emphasis on different aspects during the teambuilding session. For example, if we are teambuilding a new team, we may want to spend a little more time during ice breakers to let the participants get to know one another better. If we are going to reinforce corporate values, we may want to make sure that the values are visible to the participants, for example, as banners, posters or on the little premiums that they receive. If there are underlying issues (past issues between participants or departments that needs to be addressed) to be resolved or addressed during the teambuilding session, it is best to get an experienced moderator or facilitator. It can be someone from senior management whom the people respect or if senior management is not available or involved in the teambuilding then probably an external consultant with similar experience. Once we have nailed down the objectives, we will be able to plan with the end in mind. The objectives will, in many situations, form the guiding principals to select the appropriate programmes. 2.

Profile of Participants (Who will be attending the teambuilding?)

Another important factor to successful teambuilding is the profile of the participants. Age, gender ratio and other background information like educational level and job scope will also help to decide what type of activities will be suitable for the participants. Special consideration should also be made for participants who have certain disabilities; they should still be able to participate in the programmes. One other crucial thing that many organisers frequently miss out is dietary preferences of participants. In a multi-racial country like Singapore, participants may be vegetarians, strict vegetarians, Hindus (who do not consume beef), while others only consume Halal food (food that is prepared in accordance with certain Muslim guidelines). Some participants will even insist on the Halal certificate of the food and beverage vendor or caterer. There may also be participants who are allergic to certain types of food. They best way to find out about dietary requirements is to check with the participants directly. 3.

Time Frame (When are we holding the teambuilding event?)

Dates are important, especially when we need to secure venues and check availability of key personnel or speakers. Typically, we would recommend a lead time of about 2 to 3 months to plan for a small to medium-sized teambuilding event, catering for less than 80 participants. If the event is large-scale, the lead time may escalate to 6 months or even a year before. Duration of the teambuilding should also be considered, is it going to be a half-day or fullday event? If there are specific issues to be tackled or training involved, it may be good to consider a 2-day or even 3-day programme.

4.

Inclinations (What will the participants like to do during teambuilding?)

Having information about the profile of the participants is usually sufficient, however, it will be better if we can find out what type of activities the people like. Finding out about their hobbies may help. Are they indoor-games type of people or the outdoor adventure type or do you have a good mix of both? Chances are, if your group size is big, you will have a mixture of all sorts of people, however, there are cases where the group size is big and yet the participants are all fairly active and prefer outdoor kind of games. We should also take note that it is impossible to please everybody especially when you are planning an event for eighty or a hundred people. The rule of thumb is to have a good mix of indoor and outdoor activity especially if your size is big, unless you are deliberately exposing the participants to a particular type of setting, or you know their preferences. 5. Money matters (Budget for the teambuilding event, including food and beverage and venue rental) The budget will have a significant impact on the venue, food and beverage, as well as duration and type of teambuilding activity. If there are no figures to work on yet, try to find out the budget for similar activities in the past. If no such information is available then plan for something not too ambitious, adjustments can be made from there. Next you have to decide if the teambuilding portion is to be outsourced to an external vendor. Of course, if budget permits, there are many advantages to outsourcing the teambuilding portion. Firstly, to run a teambuilding event, you will need manpower and, chances are, if your colleagues are executing the event with you, they cannot be participating. Staff from the teambuilding vendors will likely be more experienced in conducting the activities and less likely to make mistakes. Your teambuilding vendor will also help you with all the logistics involved in the teambuilding exercise, leaving you to basically tell them your requirements and sit down with them to go through the detailed programme. Teambuilding vendors will also have sufficient experience to know what works and what will not. You will be paying for their experience, not just their services. 6. Assessment of success (how will the teambuilding event be considered successful?) How will success of the event be measured? Is it considered a success as long as the participants enjoy themselves or if the participants get to know at least 3 other colleagues better? Some organisers will have to submit a post event report to management after the event. Certain organisations will even require pre and post event survey to find out about the issues at work to be addressed and track the effectiveness of the teambuilding session.

Knowing the requirements better will assist us in finding the right activities, tools and decide on how detailed the documentation should be. 7.

Location (Where will we hold the teambuilding event?)

Using the O.P.T.I.M.A.L. approach, you will have a better idea of what type of venue to source for, what equipment will be required and what seating arrangement you would want to set up for your function space. With the O.P.T.I.M.A.L. approach, we trust that you will be able to plan for your teambuilding event effectively. If you are running the teambuilding event with your committee internally, be sure to draw up a detailed work plan and budget, with clear responsibilities for every task. Next, remember that one of the key ingredients of effective teambuilding is rehearsals. You will need to get your staff on the ground, look at the venue and rehearse through all the activities of the event, very likely there will be issues raised during trials and improvements will be made.

F18-SMALL BUSINESS ACCOUNTING

YOUR POSITION
Look at the map MAP

210 days before opening.

1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

INTRODUCTION
Without accounting, you cant lead a company in an effective way. It's just like traveling in a foreign country without any map! What is more, without some accounting knowledge's, you should be quite unable to deal with the figures of costs and receipts that are coming from the previous lessons. It means that accounting is a must for you. Nevertheless, many executives do not know the basics of accounting. As a result they must rely on their staff to explain any financial statements to their stakeholders! What is more, people show some arrogance towards accounts.

Real life example:

Few years ago in France, an "intellectual" socialist woman was appointed as Minister of "Social Affairs". As the Social Security (health, unemployment, pensions) was in the red, some people asked her how will she plan to put right the situation. She just answered with a disdainful smile "I do not intend to be the Minister of Accounts". As a result, things were rapidly going bad and she was fired by the President Mitterrand. It illustrates the contempt for accounting among some people.

Duration
Lesson: 4 hours External readings and quiz: 5 hours Do it yourself: 1 hour Total: 10 hours

Objectives
Our objectives are:

-To enable you to open accounts and to post them with simple operations.

-To show you how to use the trial balance and how the balance sheet and the income statement are coming from the trial balance -To enable you to make a choice between the different methods regarding accounting on inventories and depreciation of fixed assets. -To describe the minimum organization that you can set up and to give you some tips about the crucial checking's. By the end you will not become a CPA but you should be able to understand the Accounting basics.
1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

1-CURRENT ACCOUNTS OPERATIONS

Accounting is said to be complicated. In fact, it's not true: The basics are quite simple. I shall propose you an easy way to get it.

11-Opening accounts
111-The cash register
Most people and companies keep a cash register. Suppose that your safe contains $10,000 at the beginning of the year. During the year, all inflow and outflow of cash will be written down in your book, and these writings will explain why your initial amount has increased or decreased at the end of the year. You will find the following information in your cash account: Date 01/01/2000 02/02/2000 10 000 $ In cash - 3 000 $ Cash purchase of goods

08/03/2000 + 5 000 $ Cash sale of goods 04/04/2000 + 7 000 $ Bank loan 06/07/2000 (3 000 $) Credit purchase of a truck 08/09/2000 10/10/2000 - 3 000 $ Cash payment for the truck - 2 000 $ Cash purchase of raw materials

20/11/2000 (3 000 $) Credit purchase of raw materials 30/12/2000 (5 000 $) Credit sale of goods With an accounting like that, you cant have a global view of your situation. It's just a chronological journal. Of course you need it but it's not sufficient. For example, the bank loan will certainly increase your funds with $7000, but in this journal there is no mention of your debt towards the bank! The amounts in parentheses do not correspond to an inflow or an outflow in your cash register, yet the credit purchases and sales will have a real influence on your situation at the end of the year. That is why a real accounting system must be established.

112-The accounts
First step is to open accounts. This is what an account looks like (for instance the cash register): Debit 10 000 3 000 7 000 Credit Debit balance Credit balance

The first column on the left shows the debit, the second the credit and the third and fourth column shows the debit and credit balances. For the moment dont try to understand what debit and credit mean. Simply notice that your initial 10 000 $ is written in the debit column and that the exit of 3 000 $ for cash purchase of goods is written in the credit column. This gives us a debit balance of 7 000 $: 10 000 3 000 = 7 000

12-Entering operations
We must always make two entries to register all kind of transactions on an account, regardless if its an inflow or outflow of cash. In our example, we will first use the Cash register account and the second account correspond to the operations nature (purchase, sale etc.). That is why we say that book keeping is a double entry system. Lets take a look at the first four operations and see how to register them:

1. $10 000 is registered in the companys cash register. Even if this is your money, we must distinguish between what goes into the company and where it comes from. This money is the result of your savings, that means your capital. It must therefore be entered into two different accounts, the Cash Register, as we know already, and the Equity account.

Note what is common for all kind of account operations: When an amount is entered in the debit column of one account, the same amount must be entered in the credit column of another account. 2. We are buying goods for $3 000 in cash. This means an outflow of money that must be entered in the credit column of our cash register because all outflows is registered in the credit column.

We are now using a new account called Purchase. Since the Cash register has been credited $3 000, the Purchase must be debited for the same amount, $3 000 . 3. We are selling goods for $5 000 in cash. This is an inflow of money, so the transaction must be registered in the debit column of our Cash register:

4. We borrow $7 000 from the bank and enter this amount in our Cash register. The Cash register will then be debited, but we must also register our debt in the Bank account, which will be credited.

Now lets combine the 5 accounts we have opened:

The arrows indicate the double entries for each amount. However, the total of the debit and credit columns must be calculated for each account, as well as the total of the debit and credit balances. For instance, the cash registers debit column is calculated like this: 10 000 + 5 000 + 7 000 = 22 000 The total of its credit column is 3 000. And the total of its debit balance is: 22 000 3 000 = 19 000

13-The trial balance

Lets report these different totals to the following schedule: Account Cash register Debit 22 000 Credit 3 000 Debit balance 19 000 Credit balance

Equity Bank Purchase Sale Total

3 000

10 000 7 000 5 000

3 000 22 000

10 000 7 000 5 000 22 000

25 000

25 000

What do we notice? You can see that: the sum of the debit and the credit columns are the same, the sum of the debit balance column and the credit balance column are the same.

This double equality makes it possible to verify that all transactions have been correctly registered in the accounts.

14-Entering new operations

We shall proceed in the same way to open new accounts and to treat new operations. To be able to enter the transactions from the following operations we must open new accounts: 1. We buy on credit a truck for $3 000 . The truck is now part of our equipment, but we also have a debt towards our supplier. Two accounts must be opened, one called Equipment who is debited, and one called Supplier who is credited:

2. On paying our debt towards the supplier, we debit our Supplier account because it has been credited in our previous operation. Then we credit our Cash register because it is a cash outflow.

3. We are now, buying raw materials for $2 000 in cash. We are selling them later on, but only after their transformation. The Cash register must be credited, and a new account called Stocks must be debited:

4. The 6/5/2000 we are buying raw materials for $3 000 , but this time on credit. Again it is our Stock that is debited, but it is our Supplier account who is credited and this because we owe him money:

5. Finally, we are making a sale on credit to a client for $5 000 . This means we must credit our Sales account for this amount. The debit will not be registered in the Cash register since no money is entering, but in the Client account because our client has a debt towards our company:

We shall now close all our operations. We note all Debit and Credit Balances for each account including our first 4 operations and the once we just did: Account Cash register Equity Bank Purchase Sales 3 000 10 000 Debit balance Credit balance 14 000 10 000 7 000

Equipment Stocks Suppliers Clients TOTAL

3 000 5 000 3 000 5 000 30 000 30 000

Right now, you understand the basic of the double entry system. It's quite simple. In fact as there are many daily operations and many accounts, it requires a lot of hard work. Of course you need to know the basics but you are not obliged to do all the job by yourself.

Down earth advice

Recall the economic module and the specialization chapter: Focus on your core business. Your aim is not to become a CPA but to start a biz. Of course you need basic accounting knowledge's but once you have gotten it, do not make by yourself all this paper work. I mean: Do not recruit and pay a lot of employees to do it in house. Profit from the productivity and expertise of accounting firms. Have a good contract with them and let them doing the job. Just check it. Do not do it. I want to see you outside your office: You have to sell and to get money rather than to become an accounting expert ! 1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

2-FIRST BALANCE SHEET

We shall now close all our operations. We note all Debit and Credit Balances for each account including our first 4 operations and the once we just did: Account Cash register Equity Bank Debit balance Credit balance 14 000 10 000 7 000

Purchase Sales Equipment Stocks Suppliers Clients TOTAL

3 000 10 000 3 000 5 000 3 000 5 000 30 000 30 000

First we have to make sure that the Debit and the Credit balances are equal. Then we must ask the following questions: Amongst these balances, what is real and correspond either to cash money or to goods or equipment existing within the company? The only accounts concerned are: Cash register: 14 000 $ I can count 14 000 $ in my cash register Stocks: Equipment: 5 000 $ I have goods for 5 000 $ in stock 3 000 $ I have a truck worth 3 000 $

Secondly, how much is owed to us: Clients: 5 000 $ A client owes me money Now we can recapitulate what we possess and what is owed to us: Cash register: 14 000 $ Clients: Stocks: Equipment: TOTAL: 5 000 $ 5 000 $ 3 000 $ 27 000 $

These accounts shows a debit balance (a cash register with a credit balance is a cash register with less than 0 $, and that is not possible).

These accounts are assets You may have noticed that the Purchase account is not mentioned. This is because we cant physically observe purchases. Stocks on the other hand are real and can be observed. Now the following question is to be asked: Amongst these balances, what is debt towards others and also towards ourselves (our equity)? Those concerned are: Equity: Bank: Suppliers: TOTAL 10 000 $ This is what I owe to myself 7 000 $ These are debts towards others and 3 000 $ 20 000 $ are called Liabilities

The Equity and the Liability accounts are accounts with a credit balance. Sale is not mentioned because we cant physically observe sales. This is how we realize the stability between Credit and Debit in our balance sheet: Assets: 27 000 $ Purchases: 3 000 $ Total: 30 000 $ Equity and Liability: 20 000 $ Sales: 10 000 $ Total: 30 000 $

Let's now isolate the accounts purchase and sales which have not been taking in account in the assets and liabilities Purchase: 3 000 $ Benefit: 7 000 $ 10 000 $ 10 000 $ Sale: 10 000 $

In debiting the profit of 7 000 $, we close our Income Statement and credit our Equity for this 7 000 $ in profit. Debit and Credit balances at the end of the year will then appear like this:

Assets: 27 000 $

Equity and Liability: 20 000 $ + 7 000 $ (benefit)

27 000 $

27 000 $

This schedule represents the Balance sheet at the end of exercise after allocation of our Income Statement result. The benefits and the losses of the company appear on the Income Statement. The debts and possessions of the company appear on the Balance sheet at the end of the exercise after imputation of results. At the beginning of the exercise the Balance sheet appears like this: Assets: Equity:

10 000 $ 10 000 $ At the end of the exercise this is what it would be like: Assets: Equities: 17 000 $

27 000 $ Liabilities: 10 000 $ 27 000 $ 27 000 $

If we remove from Assets that we possess: 27 000 $ the debts we have towards others: 10 000 $ it will rest: 17 000 $ These 17 000 $ is the Net value. Compared to the 10 000 $ at the beginning of the exercise we notice that the company has a profit of 7 000 $. 1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

3-SPECIFIC OPERATIONS 31-Inventories accounts

Prices are never stable: Suppose that we buy: In June: 200 empty bottles of 0,5 $ each = 100 $ In August: 200 empty bottles of 1 $ each = 200 $

In December, we sell 200 bottles for 2 $ each, which makes 400 $. Which bottles do we sell? Those that we bought in August for 1 $ a bottle, or those that be bought in June for 0,5 $ a bottle? Depending on our choice, the profit is 200 or 300 $: June bottles Sale Cost of goods sold Gross income 400 $ 100 $ 300 $ August bottles 400 $ 200 $ 200 $

Down earth advice

We recommend to use a simple method: First in, first out (FIFO). According to this method, what is bought first is to be sold first. In our example, the 200 bottles at 0,5 $ each was the first ones to be purchased, and the profit will then be 300 and not 200 $. This method allows to make a bigger profit. This is an advantage for new-coming companies. But this method obliges you to support taxes on profit. That is why another method called LIFO (last in, first out) can be preferred. This means that we sell first what we acquired last.

32-Depreciation on fixed assets

When a company acquires a truck, it is consider that its actual lifetime is lets say 3 years. After this period it will be changed, and we must dispose money to buy a new one. If we have paid 3 000 $ for our truck, a depreciation of 1 000 $ per year is necessary (3 000 $ : 3 = 1 000 $). During the first year, the value of the truck is 3 000 $ in our Assets. The second year 2 000 $ (3 000 1 000) The third year 1 000 $ (2 000 1 000) And the fourth year 0 $ (1 000 1 000)

Mutually, the yearly amount of depreciation (1 000 $) will appear as a charge on the Income statement, even if there is no outflow of money. We shall see further that on the contrary, the amount of the depreciation must be added to the net result as an inflow of cash in the Cash flow statement. 1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

4-ORGANIZATION AND AUDITS 41-Minimum organization

411-Records
Even, if you have an outside accountant , you have to provide him with some fundamental stuff. The stuffs are the records of all your operations: Order, invoices, checking accounts and receipts of any cash expenses or cash revenues. It means that right now you have to keep all your records. For example, you buy a bus ticket to visit your chamber of commerce: You keep the ticket with its price and the date. All these elements are the fundamentals of any records that your accountant will need to be able to post the operations in the proper account. What is more, in keeping your receipts, you avoid to pay the same bill twice and you can always prove that you have paid it. As long you carefully keep these receipts, it's always possible to reconstitute your accounting and ledgers. Without these records, it becomes impossible and you can expect some trouble with your IRS controller!

Real life example:

Many years ago, I had to audit a State owned cooperative in Senegal. When I arrived on the place, a poor trembling guy said me: "Sir, when the chief accountant heard that you were coming, he threw all the ledgers into the closets and crossed the foreign border by night". "No matter" I said "have you the records of sales and purchases?". Fortunately, we found these records under a pile of rice sacks through some swarms of weevils! Studying the records and with the local bank agency help, I reconstituted all the accounting and discovered that the chief accountant and his State appointed Director had stolen two third of the poor farmers savings!

412-Ledgers

Any accounting organization is based on a chronological journal, some sub ledgers, a general ledger, and a charter of accounts. -The charter of accounts includes all the accounts you need, identified by a specific number. -The chronological journal registers the operations day by day. If you do your accounting by yourself, it takes a lot of time because you have to post each operation with its date, its amount and the proper debited and credited account with its identifying number. What is more, it's wise to maintain a sub journal for each main account such as cash and bank. It means a lot of writings everyday. -Finally the general ledger registers all your accounts and their credit debit balance. It is used to prepare the trial balance each month and the financial statements by the end of each year. As you can see we have followed the same cycle with our empirical explanation of accounting basics! Anyway, accounting is not complicated but requires a lot of paper work: For example, let's suppose that today you realize only one operations: you make a deposit to your bank of $1000. Then you have to post this operation as follow: The date. The title: deposit cash: the operation: cash account credited (1000) to bank account debited (1000) There is only one line but let's suppose that you have one hundred operations and you can imagine the amount of job it represents in a day! In fact, computer spreadsheets have replaced the books and facilitated some calculations like additions but nevertheless, you should always have to enter each operation one by one. There are on the market some popular automated accounting package but it represents nevertheless an hard work which could be better used in selling! For this reason, I recommend you to appoint an outside accountant.

413-Staff
Of course, you have not to do your accounting by yourself and you can delegate it to your staff. Then, you need some people with competencies and experience and it means money! What is more, an Accounting Department always requires two different persons: one who drafts the checks, prepares the orders and invoices and one another who just registers in the accounts these operations.

Down earth advice:

To avoid fraud, it's a constant rule to have two different persons: The first who really does the operations and the second who just registers them in the accounts.

In supplement to the accounting staff, you will also need another employee to make the payroll and may be one another to check the physical inventories. Beware of the fixed costs!

42-Audits
In all case, you must exercise some regular and unexpected audits: -Check every week the trial balance: it's very easy to check its accuracy as we have seen above. Recall that a difference of only one dollar can hide a fraud about thousand or millions dollars! -Check every day the cash account and sometime without warning, check the money in the safety box. Of course its amount must be exactly equal to the figure of the cash account! Do not tolerate any difference or any "temporary receipts" instead of money! -Always check the reconciliation between your bank account, the checking account coming from the bank and the drafted checks. whatever, you have an outside accountant or an accounting staff, do these controls regularly. It's the best way to avoid fraud. When you discover a fraud, always complaint to the police.

Down earth advice

I shall give you a good tip: Along my career in banking and financial business, I have had often to change of company or to enter in new positions. When I took any office, I was accustomed to make clear for everybody that I was particularly experienced about accounting and I always began my office in doing some quick but hard audit. Act in the same way with your staff and outside accountants. People must know that you have some basic knowledge's in accounting. Otherwise, it's too tempting to cheat because one could expect that you never will discover the fraud.

External readings:
Go to: www.allianceonline.org . Click on "FAQs" and then on "financial management". Read chapters (1), (5), (23) and (24). You will find here a lot of good advices regarding organization and control. The advices are dedicated for non profit organizations but they are valuable for small business. Go to a familiar site: bized.ac.uk . Click on "learning materials" in the frame, then on "accounting". Except "ratio analysis" that we shall study in a further module, you can do all the quiz and explore once again the accounting section of the complete case study "Cameron balloons". This free web site is really fascinating. Go to : Accounting, Business Studies and Economics Dictionary for students

1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

5-COST ACCOUNTING
Cost accounting is not the same topic than accounting; Accounting just registers the operations. Cost accounting uses accounting for evaluating the different costs of a business.

51-Principles:
I will give you a simple example: From the income statement, you know the total expenditure of your company. You divide this gross figure by the number of items you are producing and you get the cost of each item. Unfortunately, this average cost is too global. For making improvements and lowering your costs, you have to know what are the elements of the global cost coming from the different functions. Once again, the income statement enables you to distinguish the cost of goods sold (it means the cost coming from the production line) and the cost coming from general and administrative functions ( back office ). However, these information's are once again too global! Let's suppose that you produce several items: How should you allocate the gross average cost between the different items? It's here that the cost accounting appears necessary: It enables to allocate each costs to the different functions of a company and finally to the different items produced. Nevertheless, if the principle seems simple, the practice appears to be very complicated. Direct labor and marketing costs can be easily allocated: Either you use standards according to the business branch or you register with a clock system the time spent by workers on product A or on product B. For administrative expenses, it is more complicated: How should you share the cost of your secretary between item A and item B? What is more how should you share between different products the cost of a global leader dedicated to think about the entire strategy!

Real life example:

In many consulting group, I saw smart researchers spending their precious time in filling up stupid spreadsheets to indicate at what time they begin their research and at what time they end it.

I claim once again that creativity is not a quantitative matter and that it's non sense to measure it by a quantitative time: May be in one minute, one of these researchers will get an idea saving thousand hours for other people!

52-Limitations
I think that implementing a cost accounting system is too far complicated for a small business. You have better to use the figures coming from the income statement and to analyze carefully their meaning.

Down earth advice

You employ people for the customer benefit and not for filling up papers. Just evaluate people on their results and not on the way they do their job. A cost accounting system is only worth for a big company and even in this case it calls for some reservations.

Real life example:

Too often , I saw cost accountants overcharging a specific Department just because they do not like his head and want him to be fired. Cost accountants and audit people had taken too much power in business. They had fun in complicating the jobs for everybody! As for their integrity, recent events show some turmoil! I think that the Enron scandal is a good lesson for top executives who too much entrusted their auditors! 1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

Lesson summary
1-A Debit always represents: An increase in an Asset account (cash register, clients, stocks, equipment), A decrease in an Equity or Liability account, An increase of costs in the Working account (purchases are debited so we increase our Purchase account as purchases goes along). 2-A Credit always represents: A decrease in an Asset account,

An increase in an Equity or Liability account, An increase of the Funds from operations (sales are credited so we increase our Sale account as sales goes along). Inventories accounts and depreciation have a big impact on the results and taxes.

you have better to consult a specialized firm in such matters.

Even if you have a good experience with accounting, There is no need to employ a book keeper. Specialized firms can do this job for you at a less cost (charter of accounts, journal, ledgers and all the back office). The essential is to understand the documents these firms establish for you. Anyway, you must always exercise external firms.

your personal control upon staff and

1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

DO IT YOURSELF
Describe in your business plan the accounting organization.
1. Current accounts operations 2. First balance sheet 3. Specific operations 4. Organization and audits 5. Cost accounting 6. Do it yourself 7. Coaching

FW19-USING FINANCIAL STATEMENTS

YOUR POSITION
Look at the map MAP

205 days before opening

1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

INTRODUCTION
Financial statements are the basic elements you need for starting and managing any business. Any new investor has to establish a first balance sheet. Moreover, all the business plans must include several projections about three main financial statements and notably the cash flow projections. In this crucial module, we shall work with the figures coming from our previous accounting module. Starting with these basic figures, we shall establish a balance sheet, an income statement, a cash flow statement.

Duration
Lesson: 5 hours External readings: 3 hours Do it yourself: 13 hours Total: 21 hours

Objectives

The objectives are:

-To show you the main components of a balance sheet. -To give a global overview of the income statement and of its components -To explain you the main components of the cash flow statement with their functional meaning -To show you how to make up your cash flow projections and how to use it. By the end, you will be able to set up your own balance sheet, income statement and cash flow projections.
1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

1-BALANCE SHEET
A balance sheet shows the relations between what you have (the assets) what you owe (the liabilities) and what you have invested in the biz (your owner's equity)

11-Main components
The table and the two drawings show the balance sheet at the end of 2000 and the following balance sheet at the end of 2001 (12/31/2001). 12/31/2000 ASSETS Cash Marketable securities Account receivable ( clients ) Inventories (stocks) Total current assets Property and equipment Less depreciation 5 000 5 000 24 000 3 000 14 000 14 000 2 000 3 000 10 000 29 000 6 000 (1 000) 12/31/2001

Net property and equipment Land Intangible Total assets LIABILITIES Account payable Note payable Current portion of long term debt Total current liabilities Long term debt Total liabilities OWNERS EQUITY TOTAL LIABILITY AND EQUITY

3 000 27 000

5 000 4 000 2 000 40 000

3 000 3 000 7 000 10 000 17 000 27 000

9 000 6 000 2 000 17 000 5 000 22 000 18 000 40 000

Right now, just focus on the first column of the table and the following Drawing 1 regarding the balance sheet at the end of year 2000. As you can see, the figures are those of the first balance sheet we have set up in the "book keeping module". So, recall this module and you will easily understand. DRAWING 1: Balance sheet - 12/31/2000

What can you observe? You observe that there is a complete equality between the assets and the total liabilities and equity. This basic concept means that in order to acquire assets, a company must pay for them with the owner's money (equity) or with the money he has borrowed (liabilities):

In the accounting module we began the operations with a sum of money coming from the owner (equity). As this sum of money was by itself an asset (cash), our first balance sheet appeared as follow: ASSETS (cash) = EQUITY(owner 'money) With further operations, we have borrowed to suppliers and bank (liabilities) and finally our final equation is as below: ASSETS (27000) = LIABILITIES (10000) + EQUITY (17000) All the balance sheets rely on this equality. If your balance sheet does not balance, it means that your accounting is false! Look at the following Drawing : One year later the balance sheet relies on the same equality: ASSETS (40000) = TOTAL LIABILITY AND EQUITY (40000) DRAWING 2: Balance sheet - 12/31/2001

Look at the above drawing. You can observe two things: -The assets are subdivided into current and long term assets ("other assets" on the drawing). The liabilities are divided into current and long term ( "others" on the drawing). "Current" includes the assets you can convert in cash within one year and conversely it includes the liabilities ( or the debts) that you have to pay within a one year time frame. "Current" means short term both for assets and debts.

Of course, this distinction is very important and and we shall deal with it with the financial analysis module. Right now, you can imagine that a company that have current liabilities and zero current assets should be in a very difficult position! -On the table summarized by the drawing, current Assets and liability are listed in first. Inside the "current" both assets and liability are listed in order of their liquidity from most to least liquid. Liquidity means the ability of an asset to be converted into money and the ability of a liability to be paid in short term. Of course, among current assets, cash is listed first. Among the current liabilities, the accounts payable to suppliers are listed in first because suppliers are not accustomed to wait for their money. In some countries , it's just the contrary: assets and liabilities are listed from the least to most liquid. For example, in such a balance sheet, long term assets such as land or machinery are listed in first and among the equity and liabilities, equity is listed in first followed by long term debt. Consequently, you have to go at the down of the balance sheet for examining the cash and notes payable.

Down earth advice:

Of course, long term is beautiful. Unfortunately, bankrupt is a short term issue! If you are living in a country, with this balance sheet presentation, take the habit to draw for your personal use a balance sheet organized from most liquid to least liquid. What is more, take the habit to establish the same drawings as above. At first glance, they give you a sound outlook of the situation.

12-Assets and liabilities

We shall limit this lesson to the description of the different accounts used in a balance sheet. In a further module, we shall teach how to analyze them.

121-Assets
1211-Current assets: Current assets can be easily converted in cash within a short period. The following are the current assets: -Cash: Cash means cash money in the companys checking and saving accounts. It's the most liquid of all current assets and is listed at the top of the balance sheet.

Down earth advice

People say that cash is the king. Although cash in bank does not bring too much profit because interest on day to day money are often low, a new and small biz have interest to keep a good amount of cash: It gives you a feeling of security and

help to deal with the stress often incoming when you are just starting your business. Marketable securities: Marketable securities are short term investments in government securities or commercial papers of other firms. They have short maturity and stable prices. They are referred to near cash assets. Account receivables: Account receivables are amounts owed by customers who have purchased goods and services from the company on trade credit. Of course, If you have given credit to a customer who cannot pay, this account will be diminished by a depreciation often called allowance for bad debts.

Down earth advice

The increase of "account receivables" can mean that your sales are on the rise and that all is OK but it can also signify that bad debts are increasing! I recommend you to check this account at least every month and if possible, every week. - Inventories: Inventories are goods ready for sale or still in the manufacturing process; raw materials, unfinished and finished goods. The value of inventories depends on the accounting system like FIFO and LIFO (recall accounting module). What is more, the inventories suffer of a physical depreciation and of changes in fashion: For this reason, the accounting value of clothes inventories is often overstated. On the contrary, some products get an increasing value with the years: Fine wines, some alcohols like Cognac, vanilla and so on. As a result, there is always a large uncertainty about the real liquidation value compared to the accounting value. 1212-Long term assets: They are divided into fixed assets, depreciation and intangible assets. -Fixed assets refer to Property, plant and equipment, buildings, land and machines owned by the company. They represent long term illiquid investments and support a depreciation (except for land). In the balance sheet, you have the original value of the fixed assets, the amount of depreciation that should be deduced, and finally the total fixed assets which represent the value of the fixed assets less the accumulated depreciation. For example, look at the 2001 balance sheet table. You can see: Property (6000) less depreciation (1000) = Net property (5000) -Intangibles: Intangibles are trademarks, patents, design etc. It's very difficult to estimate their real value.

122-Liabilities

Liabilities are all the debts and obligations a company owes to outside people such as suppliers and banks. Once again liabilities are divided into current and long term liabilities. 1221-Current liabilities: They include all the debts and obligations a company must pay within a short period (less than one calendar year). The following are the current liabilities: -Account payable: Account payable means the companys debt to its suppliers. -Note payable: Note payable include commercial papers or promissory notes. These notes must be paid within a year. -Accrued expenses: They includes some expenses owed to employees or the State (For example: income tax) that are owed but have not been yet paid. -Current portion of long term debt: The current portion of long term debt is the portion of these debts owed to the banks on the coming year. 1222-Long term debt: -Long term debt is debt due after one year from the date of the balance sheet.

13-Owner equity
Owners equity or net value is the amount left for the companys owners after subtraction of liabilities from the assets. In the balance sheet (12/31/2000): Assets (27 000) liabilities (10 000) = owners equity (17 000) In a corporation, ownership is represented by a capital stock. A share of stock is one unit of ownership. Investors buy stocks in order to share the companys profits. I underline, once again, that it's just a description of the account. We shall deal with the return on equity (ROE) in a next module.

External readings and quiz:

Go to www.studyfinance.com : It's a web site for students at the University of Arizona. Click on " Basic financial statements" and then on "The balance sheet". You will get here a complete description of the accounts and a quiz to do. 1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

2-THE INCOME STATEMENT

The income statement is one of the most basic elements that you have to know.

21-Global overview
We start with the figures coming from the accounting module. Look at the first column of the table (12/31/2000). The income statement shows the companys revenues and expenditures over a fiscal year. Once again there is a basic equation: Revenues expenses = income -Revenues include sales interest, fees, commission, rental income and so on. In our example, the only revenue is sale. -Expenses include cost of good sold, interest paid to bank and creditors, rent, depreciation, income tax, salaries and so on -Profits or loss result from the combination of revenues and expenses. 31/12/2000 31/12/2001 Sale to customers Cost of goods sold Gross income Less selling, general and administrative expenses Pay-roll Advertising Depreciation Operating income State income taxes Net income 7 000 7 000 3 000 2 000 1 000 3 000 2 000 1 000 10 000 3 000 7 000 15 000 6 000 9 000

The balance sheet shows accounts with accumulating sums since the beginning of the company. On the contrary, the accounts of the income statement shows zero at the beginning of the year. For example the account "sales" is the amount of sales made during one year and not the amount of sales realized since the beginning of the company. Consequently, you have to take notice that the figures of the income statement are not coming from the balance sheet.

22-Main components

221-Sales
The sales figure represents the amount of money the company gets from its customers in exchange for its products. A more detailed description takes in account the gross sales minus rebates, returns and allowances. It gives the net sales.

222-Cost of goods sold

These costs include the cost of raw materials, parts, labor costs, and costs of operating machinery. For a simple retailer, cost of goods sold equals the price he paid to suppliers for the merchandise he sells in his store. Cost of goods sold (COGS) is calculated by this formula: Inventory at the beginning of the year + New purchases within the year + Labor costs + Operational costs machinery - Inventory at the end of the year = Cost of goods sold. It means that cost of goods sold is a complex figures. It does not come like the sales from one account and you have to make a bit of calculations between different accounts to get it: -Inventories at the beginning and at the end of the year come from the balance sheet. The inventory appearing on the balance sheet of year 1 is the beginning inventory of the balance sheet closing year 2. What is more these calculations are affected by the accounting principle used (FIFO, or LIFO, recall the accounting module)

Real life example:

Valuation of inventory has a large effect on the cost of goods sold. Many years ago, I had to study the income statement of an agri business company located in Madagascar. I observed that the level of inventory at the end of the year was the only cause of the increasing income. So I decided to check this inventory by myself. Inventory was mainly made up of sacks of rice stocked by piles of five meters high, five meters large and five meters in length just like some little cubic buildings. You had just to count the buildings to get the total volume in cubic meters and consequently the exact number of sacks and their total value. Unfortunately, I asked the people to remove the first line of sacks because I wanted to see inside the "cubic buildings". People became angry but did it. Then, I discovered that the buildings were in fact empty! As a result the positive increasing income turned to be a massive loss! -New purchases, labor costs, parts of machine are not found in the balance sheet and comes from the accounts on the general ledger. Labor cost include only the salaries paid to people working on production such as floor shop and so on. It does not includes the salaries

and commissions paid to salesmen or to back office employees. For example the salary of your accountant is not in the labor costs. Globally, costs of goods sold refer mainly to the variable costs ( refer the economic module) As you can see, the cost of goods sold is not easy to establish. It's the most difficult component of the income statement.

Down earth advice:

When describing the income statement, small biz web sites on the web do not go to the specifics and their readers can think that all these calculations are easy. In fact, many of these "advisors" have never put their nose in a real general ledger and just provide with second hand information's that they have collected in books. As you can see, to set up an income statement is not easy! Our goals are to make you understand the mechanisms of the income statement and to enable you to set up your first own. Learning in doing is the best way to understand but, once again, for further or more complicated operations, I recommend you to use an accounting consultant firm.

223-Gross income
Gross income (or gross profit) equals sales less cost of goods sold. At this point, you can determine if the company is making profit without considering the burden of corporate expenses. If a business has a negative gross income, costs are out of control or the prices of the goods you sell are too low.

Real life example:

When I was banker, I was accustomed to begin any income statement examination with the gross income figure. When this figure was negative, I did not go on any much and I just said "No" to any loan request.

Down earth advice:

When writing your financial statements, begin with the account giving the gross income. If this figure is negative, it's not worth to go on. With a negative gross income: No future for your business! It means that there is something wrong in your idea or in your project.

224-General and administrative expenses and depreciation

General and administrative expenses (sometimes called operating costs) include salesmen salaries and commissions, marketing and advertising expenses, administrative expenses (phone, letters, travels) and costs of all support functions: human resources,

accounting, finance, salaries of the management. These expenses do not include the financial costs ( interest due to banks) -Depreciation is the cost of equipment, tools, buildings and other fixed assets divided by their useful lives to estimate the cost of depreciation within one year( recall the accounting module). Once again, the rate of depreciation depends on the accounting principles chosen regarding the taxes. With high depreciation rate you diminish the net income and consequently you pay less income tax. On the other hand, your banks and suppliers can think that your company is not profitable. It means that the rate of depreciation is a difficult issue and requires sound advices.

225-Operating income
Operating income equals gross income less general and administrative expenses and depreciation. This operating income excludes the other incomes coming from activities external to the core company business ( see further). It excludes also the interests owed to creditors such as bank and the income tax. When the operating income differs too much from the gross income, it means a poor management and too much fixed costs. On the other hand, be aware about the depreciation policy!

Real life example:

Gross income is very easy to analyze. On the contrary, operating income calls for a careful and complex analysis. That is in this field that you can take measures in order to reduce fruitless or luxurious expenses. On the other hand, I had met a lot of companies with negative operating income due to massive depreciation. These companies were in fact very profitable but instead of distributing dividends or paying income tax, they had chosen to show accounting losses and to accumulate massive cash provisions.

226-Other and unusual operations, income tax

Other expenses or incomes are generated outside the core business of the company such as renting of idle buildings or speculation profit on foreign currencies, and of course interests due to creditors. Unusual incomes or loss occur when an extraordinary event such as natural disaster results in profit or loss. Finally, operating income less other and unusual operations gives a result which supports the income tax. Then you get bottom line: the net income.

227-Net income

Net income equals operating income less provision for income tax, less interest due to bank and + or - some others and unusual incomes. The net income is the crucial figure. It's what you have really earned when all the expenses have been taken into accounts. For example, you can read from the income statement that the business had a net income of 1 000 (12/31/2001). This net income explains why the owner's equity pass from 17 000 on 12/31/2000 to 18 000 on 12/31/2001, on the balance sheet. In a large company, this net income is divided into two parts: the dividends which are paid to the stockholders and the retained earnings which are kept inside the company for investing in the future.

External readings
Once again, go to www.studyfinance.com . Click on "basic financial statement" and then on "income statement". You will get here some complementary knowledge's about the earning per share. 1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

3-THE CASHFLOW STATEMENT

The cash flow statement is the third major component of financial statements along with the income statement and the balance sheet.

31-Main components
As for the income statement, the cash flow statement covers only one year . The next table shows the cash flow statement at the end of 2001. It compares the Figures representing increase or decrease of the accounts between 12/31/2000 and 12/31/2001 (The numbers between parenthesis are to be restrained). As you can see on the table some figures are coming from the income statement and some other from the balance sheet. Recall that an increase in an asset is a use of cash, while a decrease in an asset is a source of cash. Conversely, an increase in a liability or owners equity account is a source of cash, while a decrease is a use of cash

The cash flow statement is divided into three parts: Operating activities, investing activities and financing activities

311-Cash flow from operating activities

The most important component is cash flow from operations. The figure appears line D. It gives information's about the core and current business. A diminishing figure over years indicates that your company is having troubles for example with sales and the collect of account receivables. In a well managed company, the cash flow from operating activities must be quite equal to the figure of the net income. It's not the case in our example and you can observe a strong increase of accounts and notes payable. It means that one part of the cash is coming from the suppliers because in this example the payments are delayed!

The cash flow coming from operating activities must be positive.

Real life example:

There are some stupid fads in business as everywhere. It has been said (and taught!) that it was a good thing for the fast growing companies to consume ( or to burn) more cash than they should generate. More the cash flow coming from operations was negative and more the company was expected to grow! This cranky story has ended with the burst of the tech bubble!

312-Cash flow from investing and financing activities.

Cash flow resulting from Investing and financing activities can be positive or negative. Purchase of equipments results in outflows and in our example the pay back of a loan results also in outflows of cash. In a well managed company, investing and financing components must generate a negative cash because it shows that the company is able to pay back its debts (outflow of cash) and to finance by itself its investments (outflow of cash) A positive cash could mean that the company is selling its long term assets: It's not a very good sign!. On the other hand, a positive cash could also mean that the company borrows massively to invest (inflow of cash coming from bank)

313-Cash result
The bottom result shows the net change in cash for the year. In a well managed company (it's not the case in our example!) the net change of cash must be positive every year and of course the cash at the end of the year must also be positive! In summary the cash flow statement shows where cash comes from and how it is spent. You can have a high net income and be forced to borrow heavily just to stay alive. Another company can throw off cash even with a good net income. The balance sheet and the income statement do not give this information. The cash flow statement is a management tool to avoid liquidity problems: Inability to manage cash is often the main cause of bankruptcy.

32-Cash flow projections

The cash flow statement is not a forecasting. Then, you have to do a cash flow projection month after month on a regular basis. It's the only way to be sure you will be able to pay your bills and meet other financial obligations. The next table shows a cash flow projection:

Jan Cash receipt Capital Sales Total Cash expenditures Rent Salaries Telephone Raw materials Income tax Miscellaneous Total Net cash flow 10 10 2 20 42 + 958 1000 1000

Feb

Mar

Apr

Ma

June

60 60

100 100

200 200

200 200

10 20 1 30 20 81 - 81

10 30 4 50 30 124 - 64

10 40 5 100 30 185 - 85

10 40 5 100 30 185 + 15

10 50 5 100 50 30 245 - 45

Cumulative cash flow + 958 +877 +813 +728 +743 + 698

321-Cash receipts
Cash on hand: the "capital" is called cash on hand. It's your cash at the beginning of the first month of your projection. When you make up your first projection, It is better to write zero for cash on hand. When the projection over ten months is complete, you can exactly determine what is the amount of cash you need: It's the most important monthly figure of your cumulative negative cash flow. Sales: This line records the sales and services and other receipts. You have to record these receipts in the month you get the money in bank and not the month the sale is closed and the invoice sent to the customer. A sale in cash is cash in the bank! Orders and invoices are not cash receipts. You have to be very cautious because it could take a long time between the invoice and the real cash of money. It's the banking job to lent the money during this lag but recall that a small new biz cannot relies on banks. In this example, you can see that the cumulative cash flow decreases because fixed cost must be paid from day 1 in a new companys life and sales need time to become cash.

Down earth advice:

Increased sales could diminish the cash flow! let 'suppose that your sales are purchased on credit and let's suppose that you pay cash the raw materials you need to produce. As sales increase, you have to purchase more and more raw materials. As a result, the more you sell and more your cash flow diminishes! It means that you have to manage both trade credit for your customers and from your suppliers. What is more, you have to manage accounts receivable and collect rapidly past due accounts. Recall that the longer your customer balance remains unpaid, the less likely you will collect the payment!

322-Cash expenditures:
Cash expenditures or cash paid out related to fixed costs are known and can be projected with accuracy. It is more difficult for variable costs as raw materials. Operating expenses: You have to note every expense in the month it will be paid, and not the month it is incurred: The list in the table is just a summary.

Down earth advice:

Experience shows that most people very often forget one or several items. The best way to correct that is to add a provision of about 10% of the expenses as final line in the monthly total expenditures. Other costs: You will find here loan principal payments, investing expenditures such as the purchase of a car, and the unusual spending's that we have seen in the income statement. Unfortunately, most of these unusual spending's cannot be forecasted! Finally, you get your monthly cash position and most important your monthly cumulative case flow. Each day, when entering your desk, you must consult the cash flow situation of the day: What is the amount in cash this morning? How much do I have to pay today?

323-Adjusting the projections.

These projections must be adjusted every weeK. It means that you confront what has really happened with what had been projected. It enables to establish with the time more and more precise projections. When you will be trained, you should be able to forecast balance sheet, income statement and cash flow statement over three years with an astonishing accuracy! We do not believe in forecast over 10 years!

External readings:
Go to bized.ac.uk . Click on "learning materials", then on "business studies", then on "alphabetical listing" and finally on "cash flow learning trail". You will find here some complementary insights about this matter. 1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

Lesson summary:
1-The key of any balance sheet is in the basic accounting equation: Assets must equal liabilities plus owner's equity. Assets and liability are listed on the balance sheet from most to least liquid. Among assets, current assets have the ability to be converted quickly into cash. Among liabilities, the current liabilities are short term obligations that will have to be paid within a year.

Owners equity is the result of assets less liabilities. It's also called net worth
or net value. 2-The income statement shows the companys revenues and expenditures over a fiscal year. Once again there is a basic equation: Revenues expenses = income Revenues include sales, interest, fees, commission, rental income and so on. Expenses include cost of goods sold, interests paid to bank and creditors, rent, depreciation, tax, salaries and so on Profits or losses result from the combination of revenues and expenses. 3-The spent.

cash flow statement shows where cash comes from and how it is

The cash flow statement is divided into three parts: Operating activities, investing activities and financing activities The most important component is cash flow from operations. A diminishing figures over years indicates that your company is having troubles for example with sales and the collect of accounts receivable.

Then, you have to do a cash flow projection, month after month on a regular basis. It's the only way to be sure you will be able to pay your bills and meet other financial obligations. 1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

DO IT YOURSELF
1-Assemble:
Assemble the spreadsheets coming from:

-FW15: Your projected sales and revenues -FW17: Your global grid costs both for the starting and the running periods. 2-Establish -Your balance sheet departure First step: It's easy: you put in owner's equity the money you have invested. I
suppose that you have no debts so there is nothing to post in liabilities. Then you indicate in the assets the cash you have in your cash register.

Second step: You plan to order some equipments and some inventories for
starting. You put them in the assets and you diminish the cash. Of course the owner's equity does not change. It gives you a first overview of your balance sheet departure.

-Your projected income statement

You do as indicate in the lesson. You get a result negative or positive.

-Your projected balance sheet as it should appear one year after your opening First step:
Regarding the assets, you put in inventories the final inventories as it results from your income statement. Then you apply the depreciation to the fixed assets.

Second step: Due to these change the gross total assets is different from the
total of owner's equity+ liabilities. If the asset surpass you put the difference for balancing in the owner's equity. It is a positive result. If the total assets is below the total liabilities +owner's equity, you diminish with the same amount your owner's equity. It is a loss. in the two case the two components must always remain absolutely equal.

-Your income statements and balance sheets on the next three years
Do as above.

-Your cash flow projections during the starting period

It's easy because between this period you do not expect receipts. So you just post the expenses

week by week.

-Your cash flow projections during the first running period

Once again post expenses and receipts

week by week.

-Your cash flow projections on the next three years.

Here you can do it only

month by month

3-Insert in your business plan

Open your plan ware folder and insert these works under the proper chapter. 1. Balance sheet 2. Income statement 3. Cash flow statement 4. Do it yourself 5. Coaching

FW20-USING FINANCIAL ANALYSIS

YOUR POSITION
Look at the map MAP

195 days before opening.

1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

INTRODUCTION
When starting your biz, you have to ask yourself the following questions: -Can my business pay its bills? -How is my business financed? -Is this business profitable? To answer these questions, you have to deal with some ratios and their knowledge is the main objective of the financial analysis. Amongst these ratios, the Du Pont Chart is the most useful. It's just like your Global Positioning System!

Duration
Lesson: 1,5 hours External readings and quiz: 3,5 hours Do it yourself: 2 hours

Total: 7 hours

Objectives:
The objectives of the course are:

-To describe the main ratios and to explain their meaning. -To underline some practical rules that you must keep in mind regarding a new business.
1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

1-BALANCE SHEET AND INCOME STATEMENT

A ratio is a division with a number on the top (numerator) divided by a number on the bottom (denominator). These numbers are values taken from the balance sheet and the income statement. So we have first to reproduce here the figures that we have used in the previous module:

11-Balance sheet
---------------------------12/31/2000---------12/31/2001 ASSETS: Cash--------------------------14000------------------ 14000 Marketable securities---------------0--------------------2000 Account receivable--------------5000------------------- 3000 Inventories--------------------- 5000------------------ 10000 TOTAL CURRENT ASSETS-------24000-----------------29000 Property and equipment-----------3000-------------------6000 Less depreciation---------------------0-------------------1000 Net property and equipment-------3000--------------------5000 land and intangible-------------------0--------------------6000

TOTAL ASSETS------------------27000-----------------40000 LIABILITIES: Account payable-------------------3000-------------------9000 Note payable--------------------------0-------------------6000 Current portion of long term debt-------0-------------------2000 TOTAL CURRENT LIABILITIES------3000-----------------17000 Long term debt---------------------7000-------------------5000 TOTAL LIABILITIES---------------10000-----------------22000 OWNER EQUITY-------------------17000----------------18000 TOTAL LIABILITIES AND EQUITY--27000-----------------40000

12-Income statement
-------------------------------12/31/2000------12/31/2001 Sales to customers-----------------10000-------------15000 Cost of goods sold-------------------3000-------------6000 GROSS INCOME---------------------7000-------------9000 General and adminis. expenses------------0-------------5000 depreciation-----------------------------0-------------1000 OPERATING INCOME-----------------7000------------3000 income taxes-----------------------------0------------2000 NET INCOME. ------------------------7000------------1000 With these two financial statements, it is quite easy to follow and to understand the calculation of each ratio. We have calculated seventeen ratios from the balance sheet and the income statement. For each ratio, the first line gives the formula and the second line gives the calculation with the figures coming from above. 1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

2-LIQUIDITY RATIO
Liquidity ratios answer to the question: How can my business pay its bills. In fact it's quite the most important challenge every new biz has to met. Definition: The liquidity ratios measure the companys ability to enter cash and to pay its bills An asset is liquid if it can be converted into cash. A liability is liquid if it must be repaid in the near future. There are two ratios to measure the liquidity of a companys assets relative to its liabilities: the current ratio and the acid test.

21-Current ratio
It is given by the following formula:

A current ratio of 2 or better is considered as good. The current ratio is also called working capital ratio. Working capital measures the ability to pay current obligations.

Working capital should be positive.

Down earth advice

When establishing your projected balance sheet for your business plan, you must always set up a positive working capital. A negative working capital (or close to zero) is a non starter for any biz angels, banker or financial analyst. Even if your project is profitable, these people will not consider it any more. Keep in mind this fundamental rule: The working capital must be positive.

22-Acid test or quick ratio

The acid test ratio, also called quick ratio is a more conservative liquidity measure. Inventory is subtracted because it's too often illiquid.

A quick ratio of 1 or better is considered as good.

Down earth advice:

Keep always in mind the following rule: Cash is the King. Inventories are not cash. When you have cash, you do not stress any more about to morrow and you can focus on your core business: Selling to customers and selling more and more!

23-Account receivable turnover

If accounts receivable cannot be collected, they are worthless: customers do not pay invoices when they are due.

The sale figure is read from the income statement. The average account receivable is the account receivable at the beginning of the period (balance on 12/31/2000) + the account receivable at the end of the period (balance on 12/31/2001) divided by two. You can convert the Account Receivable Turnover to collection period. Collection period is the average number of days it takes to collect receivables.

In this example, 98 days is certainly too much. Try to be within 60 days.

24-Inventory turnover
Inventory Turnover is the same ratio as Receivable Turnover. Inventory must be sold quickly.

A simple way to calculate average inventory is to add the beginning and ending inventory balances (12/31/2000 and 12/31/2001), then to divide them by two. As with receivables, it can be useful to convert inventory turnover into days. This ratio is called day's sales on hand.

This means that the company has an average of 182 days worth of sales in inventory. This number can only be judged good or bad compared to other business norms: For example, a business selling toys will have a big number of days because the sales mainly occur at christmas.

Down earth advice

I do not like too much inventories. The best rule is the following: When a product is ready to be sold, it must be immediately sold. Inventories of raw materials and

parts can often be justified but a large figure of finished products often means that the selling process suffers from some weaknesses. As it has been said above, this situation is often due to seasonal activities. For this reason, when thinking about your future business, try to avoid those which depend on seasonal activities. 1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

3-SOLVENCY RATIO
Definition: Solvency ratios measure the relationship between debts and owners equity and examine the proportion of debt the company is using.

31-Debt to equity ratio

The debt to equity ratio measures the extent to which the owners are using debt rather than their own funds to finance the company.

A debt to equity of 1 or less is often good. In another way, an important debt offers a good leverage as long as the company can handle its interests and principal payments. To evaluate the financial leverage, another ratio adds the owner 's equity to the liabilities in the numerator. In this case, it will give: 22000 + 18000 / 18000 = 2,2

Real life example:

Do not dream too much. A new business must mainly rely on its equity because it will not easily find money to borrow. What is more, remember that the leverage is only good as long the profit yields are superior to the interests paid! Along my career, I have met many leveraged companies because they are currently spending a lot of time with their bankers to negotiate low interests or to borrow more money! Most of the time, these companies, one day or one another, fell in troubles. In the long run, I have observed that the companies relying on their own equity were doing pretty well and established a strong legacy.

32-Debt ratio
The debt ratio relates long term debt to all financial resources (liabilities and equity).

Of course among the liabilities, it's better to have a big portion of long term debt than a large amount of short term obligations! 1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

4-PROFITABILITY RATIO
Definition: The profitability ratios measure the profit a company makes in relation to assets and sales.

41-Break even point

Before introducing the profitability ratios, it's worth to recall you some formula that we have already learnt regarding fixed costs, variable costs and break even point. Fixed costs remain the same regardless of the amount of sales. For instance, assurance and rental costs are fixed costs. Variable costs change with the volume of sales. For instance, raw materials, delivery costs and labor forces involved in the production are variable costs. Total costs are a combination of these two. The formula is the following: Total costs = fixed costs + (variable costs per unit x unit sold) Of course, fixed costs must be kept down as much as possible. If sales decrease you can make cuts in your variable costs. If you are stuck with high fixed costs, your business can go to bankruptcy Break even point: The break even point is when fixed costs are recovered from sales but no profit is made.

As an example, you have 5 000 $ in fixed costs regardless the amount of sales. The selling price is 15 $ per bottle, the variable cost per bottle is 10 $. The break even is then:

This means that you must sell 1 000 bottles to recover your fixed costs. With 800 bottles you go in red. With 1 100 bottles you begin to make profit. You can also raise your selling prices. The same equation can be used to calculate a target volume to yield a wanted global profit:

If you yield a profit of 10 000 $, the target volume is:

Then the following question is to be answered: Is my target volume reasonable in relation to my market? This question is crucial because a new biz must have a significant gross margin.

42-Gross margin
Gross margin relates gross income to sales.

It is said that the higher the gross margin, the better. We have already underlined that gross income close to zero was a non starter for a new biz.

43-Operating margin
Operating margin relates operating income to sales:

It is interesting to compare the operating margin to the gross margin. In our example, we have a gross margin of 60 % and an operating margin of 20 %. It means that the management in some areas (general and administrative expenses) is bad. The administrative staff is certainly too important. You have to reduce rapidly a lot of costs.

44-Net margin
Net margin measures net income related to sales:

The net margins can only be evaluated by comparing this ratio within years in your biz or with those of similar companies.

45-Asset turnover
The asset turnover ratio measures the managements ability in using assets to generate sales:

Some people think that having a lot of assets is a good thing for a company; the more the better. This idea is wrong. A companys value is in its income stream, and its assets

are simply a means to achieve this goal. The ideal company would produce income without assets!

46-Return on assets
Return on assets (ROA) shows the managements capability to generate profit on using assets:

A decrease in return on assets may mean that assets grow faster than sales. It's not a good trend. 1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

5-RETURN ON EQUITY (ROE)

This is the King amongst ratios. Definition: Return on equity (ROE) measures the return on owners investment in the company:

51-Return on equity and price earning ratio.

The return on equity is given by the following formula:

In calculating this ratio, it can be worth to exclude the extraordinary items which are meaningless. In the same way, be aware that a new business should show lesser rates of return than a old business with older assets.

Anyway, the above ratio is weak: The 500 american's largest corporations shows an aggregate ROE of 14,6%.

Down earth advice:

You do not enter in business for having fun! You must target a ROE equal or superior to 20%. Below this figure, you will never get any help from the business community ( biz angels, bankers and so on)

External readings
Go to: www.bizstats.com . You will find here a lot of data base and notably the ROE in different industrial branches. What is more, you will get some figures about the earning of small business. The ROE is also called Price Earning ratio in stock exchange. The equity is divided in shares: If the equity of our company is divided into 9 shares, the price earning ratio would be:

A person who buys one share must wait 18 years to recover the cost of his share (2 000) with the income per share (111) generated each year by the company. In fact a stock price of a share is different from its book value.

52-The Du Pont Chart

The Du Pont Company has created a financial analysis chart based on relationships between different ratios. I think that this chart is the best available financial tool and I recommend you to learn it by heart. The Du Pont chart is the following:

It shows that management has only three levers for controlling ROE: The net margin The asset turnover The financial leverage

Any decision regarding the prices or the sale volume, the assets and the ratio debt to equity has an impact on the ROE. This chart must be considered as your Global Positioning System!

External readings and quiz:

Go to: www.investopedia.com . Click on "Tutorials" and then on "Ratio analysis". You will find here 19 ratios: A good revision and complementary comments. 1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

Lesson summary :
The ratios are made up with figures coming from the balance sheet and the income statement. There are four major categories: Liquidity ratios, Solvency ratios, Profitability ratios and Return on Equity (ROE).

Ratios are often used within the years to see the evolution of the company. They are also used by comparison with the ratios of similar biz. Regarding a new biz, these ratios provides with some general rules that you have to follow:

-Have a positive working capital. -Have a sufficient gross margin. -Have an operating margin not too much lower than the gross margin. -Have a high positive return on equity ( 20% and more)
Amongst the ratios, you must always scrutinize the current ratio (day to day management) and the Du Pont chart which enables you to pilot your business and to improve your Return on Equity. 1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

DO IT YOURSELF
Take your documents established in FW19 and accordance with the lesson.

calculate all the ratio in

1. Balance sheet and income statement 2. Liquidity ratios 3. Solvency ratios 4. Profitability ratios 5. Return on equity 6. Do it yourself 7. Coaching

FW21-MANAGING YOUR CASH FLOW

CASE STUDY

YOUR POSITION
Look at the map MAP

192 days before opening

1. Starting the company 2. Survival potential 3. Do it yourself 4. Coaching

INTRODUCTION
This module cash flow is not a classic course. It's a case study. It will enable you to use all that you have learnt in the previous financial modules. Right now, our objectives are the following: -You are starting a company. You need to use the ratios that are useful for the creation of your business. -As your company becomes active, you will use the financial knowledge's and ratios that are useful for the management. - According to your first results, you must determine the immediate measures to be taken. We shall use a case study based on the John tourism project.

Real case study:

This project is quite simple: - You are living in El Calafante, Patagonia, near by one of the most beautiful glaciers in the world, the Prito Moreno. -You want to organize excursions for tourists to the glacier.

-The tourists will be picked up at their hotel(s) in the morning, then they will be taken to the glacier where a picnic is served, and after the visit you will take them back to their hotel(s).

Duration
Case study: 1,5 hours Do it yourself: 1,5 hours Total: 3 hours

Objectives
We shall study the different ratios necessary for this project and the measures that must be taken:

-To start up the company -To preserve its survival potential.

1. Starting the company 2. Survival potential 3. Do it yourself 4. Coaching

1-STARTING THE COMPANY

Firstly, you have to define your costs, your selling price and the amount of money you need. For this purpose, You need only two tools:The break even point and the cash flow projection.

11-Costs and selling price: The break even point.

First, you have to determine your fixed and variable costs

111-Fixed costs.
You will need: -An office: rent 30 $ per month------------ 360 $ per year -An insurance:----------------------------- 40 $ per year -A computer:with equipment:------------- 1 000 $ to invest

-Office supplies:--------------------------- 600 $ per year -Telephone:-------------------------------- 500 $ per year TOTAL:------------------------------------ 2 500 $ per year Then you determine how much profit you want to make. You do not create an enterprise for the fun. If you are employed by a company in El Calafante, you are probably paid around 6 000 $ per year. Your goal in starting up your own business is to raise your living standard and to gain as much as a middle class North American, lets say 30 000 $ per year. Finally you determine the number of tourists you can reach per year. This is quite simple. By consulting the statistics of the El Calafante airport, you can see that 10 000 tourists are coming in every year. 10 % of this number means 1 000 tourists per year for your business. Based upon these statistics, you know your fixed costs, you know your target profit and you know the number of tourists you can get. According to these figures you can set the following formula:

or

that gives:

According to your fixed costs, expected profit, and maximum tourists your selling price minor variable cost per unit must be equaled to $32,5 Consequently, you have now to determine the variable cost per unit.

112-Variable costs per unit.

We target 1000 tourist per year. What 's the number per day?

We will count 200 days per year, taking into account bad weather, week-ends and your days off.

You will guide 5 tourists per day. To transport these 5 tourists, you will need a Land Rover Station Wagon, a driver and 30 liters of fuel per day. You have to split these costs per tourists and per day. It's quite easy: -Cost of a second hand Station Wagon: 20 000 $ Actual lifetime 3 years: 6 700 $ per year Its cost per day will be 6 700 $ : 200 days: 33,5 $ per day Its cost per tourist will be 33,5 $ : 5 tourists: 7 $ per tourist per day. -The chauffeurs salary will be $170 per month, that means 2 000 $ per year all charges included. The calculation is the same: 2 000 $ : 200 = 10 $ 10 $ : 5 tourists = 2 $ per tourist per day -For the fuel: 30 liters per day = 6 l per tourist at a cost of 0,5 $ = 3 $ per tourist per day. -For picnic and unforeseen events: Lets say that each tourist will cost 8 $ per day TOTAL: Your variable cost per unit is then 20 $ (7 + 2 + 3 + 8).

113-Selling price
You now have all elements to set the selling price: -Selling price variable cost per unit = 32,5 $ -X 20 $ = 32,5 $ RESULT: X = 52,5 $

Your selling price must be 52 $ per tourist per day, which is a reasonable price. You verify if your calculations are correct on establishing a small yearly working account: -Sales 1 000 tourists per year at $52,5 :-------------------$52 500 -Costs Chauffeur: Fuel (30 l per day x 200) Sundry expenses (8 $ per tourist per day) (8 $ x 5 x 200) Redemption of the vehicle $2 000 $3 000

$8 000

$6 700 $20 700

Gross income:

$31 800

fixed costs:

$2 500

Net income:

$29 300

As you former salary amounted $6 000 per year, the difference between your earlier situation and today will be around $24 000 (29300-6000).

12-The amount of money you need: The cash flow projection.

Right now, you have to calculate how much money you need for starting your project For this purpose, you just have to establish your cash flow projection for the 15 months to come (we will use 5 quarters to simplify). Lets suppose that when you bought the Station wagon you paid 50 % of the amount in cash. The rest is to be paid within 6 months. Lets also suppose a delay of 3 months between the start up of your company and the appearance of your first clients. According to these hypothesis, your cash flow projection should be the following:

1st 2nd 3rd 4th 5th Total quarter quarter quarter quarter quarter Cash receipt Number of tourists Sales (52 $ per tourist) Cash expenditures Fixed costs: Computer Office supplies Telephone Insurance Rent Managers salary Variable costs: Station wagon Chauffeur Fuel Sundry expenses Total Net cash flow Cumulative net cash flow 13130 13130 10000 500 750 2000 10000 500 750 2000 500 750 2000 4940 8185 + 1225 500 750 2000 20000 2000 3000 8000 1000 400 100 40 90 1500 90 1500 90 1500 90 1500 90 1500 200 100 100 100 100 1000 600 500 40 450 7500 _ 250 13125 250 13125 250 13125 250 13125 1000 52500

5140 14940 + - 1815 7985

4940 43090 8185 9410 9410

- - 5145 - 6960 13130

As you can see, you will need an initial capital of 13 500 $ to cover the negative cash flow of 13130 $.

With an initial capital of 13 500 $ the cumulative net cash flow at the end of the 5 th quarter will be: 9410 + 13500 = $22910 1. Starting the company 2. Survival potential 3. Do it yourself 4. Coaching

2-SURVIVAL POTENTIAL
According to the previous calculations, your company has been created and is currently active during fifteen months. Now, you have to analyze your results

21-First results analysis

The first thing to do is to establish the balance sheet and the income statement at the end of the 1st exercise of 15 months (5 quarters x 3)

211-Balance sheet and income statement

BALANCE SHEET Assets: Cash Property and equipment - depreciation 22 910 (positive cumulative cash flow at the end of the 5th quarter) 20 000 - 6 700 (redemption of the station wagon over 3 years) 13 300 Total Liabilities: Taxes Initial equity 9 084 look at the income statement 13 500 36 210

Net income Total

13 626 look at the income statement 36 210

INCOME STATEMENT Sales Cost of goods sold Gross income fixed costs Depreciation Operating income Taxes 40 % Net income 52 500 13 000 (chauffeur, fuel and sundry expenses) 39 500 10 090 Computer,office,manager salary,tel 6 700 station wagon 22 710 9 084 13 626

As you can see, your net income (13126) is added to your initial equity in your balance sheet. You have doing well because you have doubled your owner equity. The taxes (9084) appears in the liabilities in the balance sheet because it's a debt that you will have to paid within a short term.

212-Ratio analysis
The second thing to do is to set up a ratio analysis. You have two fundamental ratios: The ROE and the Acid test.

-Your ROE is:

-The acid test shows your immediate possibilities to face up with your obligations. Always remember: Cash is the King In our example the acid test will be:

22-Management decisions
221-The decisions
Because of your brilliant results, you take several decisions: -You recruit a secretary: $4 000 per year. -You buy a small vehicle paid cash: $20 000 -You recruit a 2nd chauffeur: $2 000 per year To cover these new costs, you anticipate to receive 2 000 tourists per year but in fact: -You will peak at 1 000 because of a new company operating in the same field. -During the 4th quarter the airport is closed for bad weather, and for the three last months of the year you have no tourists, so no income.

222-The results
Now lets take a look at your cash flow over the year:

RECEIPT Sales Beginning cash flow

1st quarter 13 125 22 910 36 035

2nd quarter 13 125

3rd quarter 13 125

4th quarter 39 375 22 910

13125

13125

62 285

FIXEDCOSTS Management Office supplies Telephone Insurance Rent Secretary 1 500 400 100 40 90 1 000 3 130 VARIABLE COSTS Vehicle 1st chauffeur 2nd chauffeur Fuel Income tax Sundry expenses 20 000 500 500 750 2 000 23 750 Total Cost Net cash flow Cumulative cash flow 26 880 + 9 155 + 9 155 500 500 750 9 084 2 000 12 834 15 724 - 2 599 + 6 556 500 500 750 2 000 3 750 6 440 500 500 750 2 000 20 000 2 000 2 000 3 000 9 084 8 000 90 1 000 2 890 90 1 000 2 690 90 1 000 2 690 1 500 200 100 100 100 1 500 1 500 6 000 600 400 40 360 4 000 11 400

3 750 44 084 6 440 55 484

+ 6 685 - 6 440 +13241 + 6 801

In spite of your positive report of $22 910 (the cash on the last balance sheet) the 2nd quarters cumulative cash flow is weak. The situation is still weak in the 4 th quarter. What will happen if the airport is still closed for the first quarter of the next year? Lets study your income statement by the end of the year. Sale Cost of goods sold Gross income 39 375 15000 (2 chauffeurs, fuel and sundry expenses) 24 375

Fixed costs Depreciation of 1 vehicle Depreciation of 2 vehicle

11 400 6 700 6 700 24 800

Operating margin Income tax Net income

- 425 0 - 425

Thanks to your decisions, you are now in the red! Now lets take a look at the balance sheet compared to the former one:

Lets have a look at our two ratios: -Your cash has been reduced from 22 910 to 6 801 . -The ROE is negative:

-To diagnose the problem, we must consult the Gross Margin Ratio and the Operating Margin Ratio.

As we can see, decrease of sales is not the cause of your bad situation. The Gross Margin goes from 75 to 62 %, and this is acceptable. The Operating Margin on the other hand goes from 43 % to 0. This is where you have a problem: -Fixed costs and depreciation raises from 16 790 $ the first year to 24 800 $ the second year. -You should not have recruited a secretary and bought a second vehicle!

23-Measures to adjust the situation

The measures you must take to adjust this situation are obvious: -Sell the 2nd vehicle -Lower your salary -Fire your secretary and your 2nd chauffeur According to this example, the measures you are taking agree with the arguments you can read from the ratios. 1. Starting the company 2. Survival potential 3. Do it yourself 4. Coaching

DO IT YOURSELF
revise all the financial projections that you have included in your business plan.
You must now This chapter of your business plan, called "Financial Projection", is the most important one. Potential associates will carefully scrutinize this chapter. Remember that your Balance sheet, Income statement and the Cash flow projections must be established for a period of 5 years. The cash flow projections must be presented each week for the first year (Starting period + one year of regular running period) and each month for the four next years. 1. Starting the company 2. Survival potential 3. Do it yourself 4. Coaching

F22- BUSINESS NAME

LEGAL STRUCTURES AND MISSION STATEMENT

YOUR POSITION
Look at the map MAP

190 days before opening

1. Business name and legal structures 2. Mission statement 3. Do it yourself 4. Coaching

INTRODUCTION
With the financial courses, you have quite finished your core business plan. Right now, you have to choose a business name and legal structures. Then you should resume your project in a single sentence: Your mission statement.

Duration
Lesson: 1 hour External readings: 10 hours Do it yourself: 0 Total: 11 hours

Objectives:
Our objectives are:

-To help you in choosing a Legal structure and a Business name -To show you how to write your mission statement.
1. Business name and legal structures 2. Mission statement 3. Do it yourself 4. Coaching

1- BUSINESS NAME AND LEGAL STRUCTURES 11-Legal structure

Legal structures depend on the country where the company is based. Anyway, you should consult a lawyer. Beware of legal formalities. They can take a bit of time. Here are some advices to guide you through this interview with your lawyer:

-Choose a structure that limits your own financial responsibility to the money you have invested in the company. Beware of unlimited responsibilities. In case of troubles you could be sued on your personal assets such as your home or your car. With limited responsibility, the money at stake is only the money invested in the company. -Choose the structure that has the least formalities and the cheapest to establish. You can always change it later if it doesn't suit you, but for the time being, the most important thing is to start as quickly as possible. -Carefully investigate the fiscal consequences of each solution. -If you have associates, make sure the business is properly monitored (for instance with additional protocols) The following readings mainly apply to the US legislation. However, most of the articles bring a general content valuable in any country.

External readings:
Go to www.ideacafe.com . Click on "start up guide", then on"Legal set up" and finally on "Business entitie" .You will find here a comparative chart. It's a good introduction to the problem. Go to www.nolo.com . Click on "Small business" and then on"Small business legal structures". Go to http://peerspectives.org . click on "Legal issues and taxes" . Many matters are covered and notably litigations. Go to www.myownbusiness.org . click on "Course" and then on "session4: Organization and insurance". By the end , you will find a quick quiz to do.

12-Business name
Choosing your business name is a critical decision. Think carefully about your business name and test it out on your friends.

External readings
Go to www.ideacafe.com . Click on "Start up guide" and then on "Name" and go to the "Cyberschmooz biz names forum". You can submit a business name to other people on the forum and it could be a good way for collecting larger advices than only from your friends and family.

121-Best practices:
The best way to avoid mistakes is to link closely your business name with your business idea. The name for your business can be like the head of your idea.

Your idea is a piece of text. The business name is a contraction of this text. The idea must be contained in ten to fifteen words. The business name must be contained in two or three words. Example 1: Business idea: Take tourists to visit the Prito Moreno glacier. Business name: PERITO MORENO TRAVEL AGENCY

Example 2: Business idea: Sell sandwiches and soft drinks near point 13 of Ipanma beach. Business name: POINT 13: EASY LUNCH

Example 3: Business idea: Make low price roller skates in Shanghai in order to export them on the world market. Business name: ROLLER SKATES ENTERPRISE

Example 4: Business idea: Make inflatable boats in the Philippines in order to export them on the world market. Business name: PACIFIC BOAT

The business name must indicate what you do. Customers shouldn't have to guess. They should understand simply by reading your business name. Avoid grand names that flatter your ego whilst misleading the customer. For example world travel agency, is a poor name in the first case because you only have access to prospective customers traveling to Patagonia. Avoid mentioning your own name, which serves no purpose unless you are already famous. In the second example John easy lunch is not as good as point 13 easy lunch which states the location where your business can be found. Point 13 is the most fashionable spot of the Ipanma beach in Rio. Avoid mentioning the place where the product is manufactured. For example, the word pacific sounds good and matches up well with the product in the fourth case. In some cases, it's however necessary to mention the place. For example, if you are selling wines, it's better to indicate a location in France than in Alaska! Remember that the name will feature on your business cards and all your advertising material. Take your time choosing your name. The decision will be easier if your idea is already clear and precise.

External readings

Go to www.entrepreneur.com . Click on "Start ups" and then on "naming your business" You will find here 8 quick reads about this topic. Go to www.canadaone.com . Click on "Starting a business" and then on "Selecting a company name": A canadian point of view on this delicate matter.

122-Legal topics
Once you have chosen a name, you have to check that it is free for you to use. You have to look that it's does not yet belong to another existing company! Then, according to State laws, you have to register your name. May be you can think about a trademark but it could be a lot expensive.

External readings
Go to www.nolo.com . Click on "Small business" and then on "Choosing a business name". You will find here a lot of legal advices. Go to: www.stockmarketyellowpages.com - you will find descriptions of public companies and existing business names. 1. Business name and legal structures 2. Mission statement 3. Do it yourself 4. Coaching

2-MISSION STATEMENT
The mission statement is both the final step of your business plan and the first sentence of your business plan document! It means that you cannot write it as long you have not performed all the previous studies. It's the conclusion of all your work. The mission statement is a single sentence counting no more than thirty words. The thirty words must include the business name, the business idea and your unique selling advantage. We have already dealt with the business idea and the name. We must say a word about the unique selling advantage.

21-The unique selling advantage (U S A)

The unique selling advantage (USA) is sometimes called the unique selling proposition (USP). It's quite the same thing. The important word is unique. Recall you that we have said about the competitive advantage. The USA or USP is just the way to communicate this advantage to your customers. The word unique is important because it has two meanings: Firstly the USA is the unique argument that you will use in your prospectus , presentation, meeting and advertisement. Secondly it is the unique thing which differentiate you from the competitors.

We know that this unique thing is your competitive advantage. We must now solve two problem: how to profile it for the customer and how to present it in less than ten words?

211-Profile
We have seen that currently a competitive advantage could be a better price or a better quality but do not just say "Our price is lower". In the same way, it is useless to claim that you focus on quality or price. Do you know a company which would claim that it does not care about quality or price! Do not move hot air. Be precise, go to the specifics. You have to go further and to explain why your quality is better or why your price is lower. In fact you will have to define your USA is using two methods: -Firstly, you compare point by point your business with your competitors and you list their weaknesses. A good way is just to have a strength where people have a weaknesses. Your advantage is just the opposite of some bad points about your competition. -The second way is to write down all the tasks realized by your competitors and to compare with your own. Comparing these two lists, you look for a task that is unique or different. Very often, you will find several differences and you need only one. How making up your choice? It means that you must have a clear idea about your prospects: Suppose that you have two advantages: Your price is the lower and your product is easy to use. What is the advantage you will retain? It depends of the budget of your customers. With a low budget, the low price could be your USA. But with a normal budget, it may be the fact that it's easy to use.

212-Present
When you market a customer what does he think? He just thinks what's in it for me. If you are unable to answer in an also precise and short sentence, be sure to lose the customer. You have to define this U S A in ten words. For example: Thanks to futurist tech, our product is the best price. The after sales service is the best (It is good if the after service of your competitors is poor). We are open all night (It is good if you are the sole open by night. It would have no meaning for a night club!) The U S A will be the framework for your entire marketing campaign. You will use it constantly inside your mission statement. Apply the rule of the thumb: Repeat, Repeat, Repeat it constantly! No USA no business!

22-How to check your mission statement

The mission statement must be simple and understandable to everybody. To check whether it is simple enough, insert your mission statement into the following conversation: Question: Hello, what do you do for a living? Answer: I'm a businessman. Question: What kind of business are you in? You would simply reply MY COMPANY, PACIFIC BOAT, MANUFACTURES INFLATABLE DINGHIES THAT LAST FIVE TIMES AS LONG AS OTHER ON THE MARKET. WE SELL THEM ALL OVER THE WORLD. You have just expressed your mission statement in 29 words: every thing is included: your business name "Pacific boat", what you are selling: inflatable dinghies, who you are selling to: The whole world and your USA: Our boats last five times as long as those of our competitors. Your reply must be simple and natural. You wouldn't tell the other persons that your factory in Cebu ( Philippines) produces synthetic rubber boats from polymers whose degree of resistance has been certified by the Los Alamos laboratory as sample number 253 of series X3Z4G ! 1. Business name and legal structures 2. Mission statement 3. Do it yourself 4. Coaching

Lesson summary
1-Legal structures depend on the country where the company is based. Anyway, you should

consult a lawyer.

- Choose a structure which limits your own financial responsibility to the money you have invested in the company. -Choose the structure which has the least formalities and the cheapest to establish. Carefully investigate the fiscal consequences of each solution. 2-Choosing your business name is a critical decision . The best way to avoid mistakes is to link closely your business name with your business idea. The business name must be contained in two or three words.

3-The mission statement is the conclusion of all your work. It is a single sentence counting no more than thirty words.

business name, the business idea and your unique selling advantage.
The thirty words must include the 1. Business name and legal structures 2. Mission statement 3. Do it yourself 4. Coaching

DO IT YOURSELF
If you have some difficulty for finding your business name go to the following and quite inexpensive site

Useful link:
Go to www.creative-name-generator.com

Useful link:
If you live in the US go to the official site of United States patent and trademark office: www.uspto.gov . You can file your application on line for a trademark. Firstly, click on "check the trademark status for verifying that this trademark is free for you to use, then click on ""File for a trademark on line". 1. Business name and legal structures 2. Mission statement 3. Do it yourself 4. Coaching

FW23-THE DECISION MAKING PROCESS

YOUR POSITION
Look at the Map MAP

185 days before opening.

1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

INTRODUCTION
Time is coming to decide. Firstly, do you really decide to start your business? It's a good example of the decision making process. A businessman have to make decisions under the pressure of time and circumstances. The decision making process is a key to leadership.

Duration
Lesson: 2,5 hours External readings: 3 hours Do it yourself: 5 hours Total: 10,5 hours

Objectives:
The manager is above all, the man who decides. The decision making process will show you:

-How to manage reactive decisions.

-How to manage proactive decisions. Finally, you will have a toolbox for improving your decision making process.
1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

1-TYPE OF DECISIONS
Facing a situation, you have to decide. For example, you are surrounded by the fire: What do you do? To jump through the windows and risk to kill yourself or to wait the firemen and risk to be burned to death if they come too late? In this case, the choice to not act and to wait the firemen is also a decision by itself. Unfortunately, many people are unable to decide: One day, they opt for a solution and the next morning they opt for another. Indecisiveness plays a great role in the history of many events.

Real life example:

The last famous example of indecisiveness is the shameful affair of Srebenica in former Yugoslavia: The representative of the UN and the general who commanded the UN forces had been unable to make up their mind about the need for an air force support. As a result of this indecisiveness, 7000 people were badly slaughtered. It's not sufficient to be able to decide. You must take the good decision! Taking a good decision is the crucial state because there is always a lot of uncertainty about the future and about the action that other people can take. All the decision making process aims to reduce this uncertainty. Firstly, we shall distinguish different types of decisions: daily and global decisions and then reactive and proactive decisions.

11-Daily and global problems

Very often the uncertainty can be managed thanks to knowledge and training. When you drive a car you take ten decisions per minute and you make them automatically because you have been trained. In the same way, many business decisions just require knowledge and training. For example, problems such as "What to do if my sales fall? "What to do if I register a loss?" "Do I must invest in this machine?" find their answers in the knowledge. Regarding these daily matters, our program brings a lot of tools and best practices to learn and to apply.

It means that we only deal here with the global decisions such as: "Do I start a business: yes or no?" "Do I partner with John?" "Do I merge with this company? Do I sell my business?" and so on. These global decisions are the most important and unfortunately You will not find their answers in a book. However, You can improve your decision making process: For this purpose, we shall provide you with sound advices and advanced tools.

12-Reactive and proactive decisions

Dealing with the decision making process, scholars and biz books recommend to adopt the following process: First, define the problem, Collect information, develop options, choose the best option, plan, execute, follow up and so on. Now, try to imagine the two following situations: You head a travel agency and you make tourists traveling in mountains. Suddenly one of your employees arrives in hurry and announces you that your bus with five tourists has collided another car. People are expected to be dead or heavily wounded. What will you do? Do you intend to define the problem and to study the options with your computer? Just imagine another example: you head a food catering company which provides schools with meals. A TV journalist announces that three children have been transported to the Hospital and that the cause seems to be a food poisoning. He calls you for an hot interview: What will you say, what will you do? I mean that books describe only how to deal with proactive decisions such as to start a biz, to partner or to merge. These decisions allow time for studying the options. On the contrary, the reactive decisions that you have to take facing a disaster do not allow any time. You have to act under the pressure of time and circumstances and of course such decisions are both the most important and difficult. Does it mean that there are no solutions? In fact, the method to deal with such situations exists and we shall learn it to you. 1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

2-REACTIVE DECISION
Reactive decision must be carefully prepared in order to act quite automatically when the event occurs. A bad event with either a high or either a low probability is a risk. The first step is to carefully study the risks which could strike your business.

21-Risk assessment matrix

We shall use again our risk assessment matrix. You had yet drawn up a first assessment matrix in FW 11, but this new analysis enables you to update the matrix.

211-Type of risk:
Each business is exposed to specific risks connected with its main activity. For example, Banks, currency traders and jeweler' are currently exposed to hold up. It's not only a matter of insurance. It's a matter of life or death according how you react. Business connected to chemicals, foods and drugs are currently exposed to poisoning risks, ecological threats and food diseases. Travel agencies can be exposed to terrorism in some countries. All biz are exposed to labor accidents, fire, earthquake, volcanic eruption, fraud and so on. In some countries, you must take in account civil wars, revolution and riots in urban areas. You can be confronted with less dramatic events that can nevertheless be catastrophic for your specific biz: For example, what happens if your unique supplier suddenly defects? What happens if your internet system is completely pirated and destroyed? What happens if airlines go to strike when you have a lot of tourist blocked in some exotic countries? All these events can never be planned. It is quite impossible to identify or to predict their chances:They occur suddenly and you have to decide suddenly too.

212-List your risks:

In any preparation, the first step is to list your risks and their probability. To simplify, just identify high probability and low probability. For example, with growing insecurity, a criminal attack must be graded as a high possibility for any biz involved in money business or gem trade. On the contrary, a travel agency has a low probability to be confronted with a hold up. The second task is to estimate the impact of the event. You can distinguish the accident, the disaster and the catastrophe. With an accident, your biz will go on as usual. A disaster implies a long recovery and a catastrophe means that your business is terminated. The notation only depends on the impact on your own business: For example if you head a bank, a earthquake is less harmful than a simple hold up: In general, banks have heavy walls and should not suffer to much from the effects of an earthquake! According to the biz, the same event can be an accident or a catastrophe. For example if your tourist guide is poisoned with the food , it's for you an accident but for the food catering it could be a catastrophe because many people have certainly be poisoned too. You have also to take in account insurances. For example, a fire which is a very stressing event should have in general a low impact because most of the biz are insured against the fire.

213-Establish your risk assessment matrix:

When you have finished this analyze, you draw up your risk assessment matrix. Look at the next drawing.

As you can see, it's an easy to use tool. You write in each square the risks you have listed according to their probabilities and their impacts. Whatever their low or high probabilities, all the risks that are fully insured could be put in the left part of the drawing: low impact. However, you have to analyze: For example a burglary by night has a low impact because insurance should pay. On the contrary, a hold up causing the death of customers and employees has a high impact: Of course insurance will pay but you will nevertheless suffer of a moral prejudice and a bad impact for your image. Then you have to prepare yourself for taking decision.

22-Automatic decision process

Of course, you can never prevent these events to occur because zero risk never exists. Nevertheless, you can reduce the probability of the risks. -Firstly, adopt and implement some preventive measures: Reinforce the defenses of the bank. Have a good driver and maintenance for your tourist bus. Have good anti virus for your internet site and so on. It does not prevent the risk but just reduce its probability.

-Secondly, according to your risk assessment matrix, establish the best emergency plans. -Thirdly, you must be aware that once the event occurs, most people are in panic . In this case, the best plan becomes ineffective because people are emotionally unable to apply it. It means that you have to prepare for a chain of automatic decisions that everybody can follow up without having to think. These prepared decision and automatic procedures will enable you to act like an automat. Everything will be easier and you will face a crisis with no more stress than when you are driving in a traffic jam!

Real life experience

Years ago, being in governance circles, I had have the opportunity to deal with automated and prepared decisions. In case of national emergency, I had just to open a file and to apply a list of prepared decisions: call X , call Y, call the airport, send this message to Z with the following code and so on. Everybody along the chain of command knew what he had to do when he received the message. Nobody commented or asked questions. It was really a fully automated procedure. For example, an automated procedure should be required in our first tourist example. The worst appears when you do not know exactly the nature and the spread of the event. For example, an animal is contaminated, is all the herd contaminated too? In this case the principle of cautiousness should command to launch the emergency procedure. 1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

3-PROACTIVE DECISION
Fortunately, proactive decisions are more frequent than reactive decisions. We recall you that daily business decisions and solutions rely on well known tools that you will learn in the further modules. Once again, I precise that we are only dealing with global decisions. The decision making progress implies a phase of preparation and a phase of execution.

31-Preparation:
Preparation is a must. You know the event:("Do I start a business or not") but you do not know the consequences: Is it a good decision? What are the probabilities to do well or inversely to be impoverished?

311-Define the problem:

In any problem, you have to establish the causes and the symptoms. Knowing the causes, you can recommend a solution just as a doctor does. Unfortunately, most often there are different possible solutions such as A, B, and C. What is more you do not know the chances of success of A, B, or C!

312-Collect information's:
One way for reducing uncertainty is to collect information's. For example: Will you partner with company A? This company can be good, medium or bad. For reducing this uncertainty, you can collect information's from your bank or other sources. Unfortunately, sensible information's are not on the market place and require to enter in the domain of intelligence .

Down earth advice

It means that you have interest to make friends with people who have specific information's. Once you have started your business, pay a courtesy call to the local police officer, or the local attorney. Focus on people who are likeable and who talk easily. You can collect from them some sensible information's. Invite for having lunch the local journalists. These people like to talk! Thanks for information and intelligence, you can reduce uncertainty. It means for example that among three consequences of your decision, one should appear more probable. For example, company A is not a good company.

313-Assess the consequences of each option

You must also intensively investigate all the consequences of your decision: Let's suppose that your decision could have three outcomes: one very good (A), one good (B) and one bad (C) with equal probabilities. In this case, your decision should have 66% of chance to be a good decision. Now examine more carefully the possible consequences: With A, you win 100, with B you win 30 and with C you get a death penalty! In this case the consequences of C are out of proportion with the benefit that you can expect. It's why most criminal activities are risked!

Real life example

Since chernobyl, we can assume that implementation of nuclear power plants near big towns correspond to bad decisions because an accident, whatever its low probability, should result in disproportionate losses compared with the expected advantages.

314-Define your options and the best alternative

Be careful about the idea to multiply the options. It could be a poor excuse for never taking any decisions. Too much options kill the decisions and risk to induce an infinite process of brainstorming.

Down earth advice:

When people are entering in an unlimited thinking process in order to delay the decision, apply Andy Warhol's maxim : Do not think-Act now Business books always recommend to have a best alternative. It means that you must have a contingency plan if the decision gives bad results. Regarding your contingency plan, keep it secret! The best way to motivate people is to say them that there is none contingency plan: Remember the odyssey when Achilles burns his vessels. He means to his troops that there is none contingency plan and that the only issue is to win or die! Finally, you can also temporize when a decision is not mature. A decision has not come to maturity when you do not know all the elements of the situation or when you do not understand something. Once again, it must not be an excuse for postponing any difficult solutions!

External readings:
To illustrate this process in a detailed way, go to the University of WisconsinMadison: www.ies.wisc.edu. Click on "Search our web server" then write "econaes" in the window and submit it. Then click on "WRM2000-Decision making process". You will find a fascinating lesson about the decision to repair or to remove a dam. I know that you do not intend to built dam or power plant but this site gives a pleasant and extensive description of the decision making process and notably its preparation phase.

32-Execution: Quantitative analysis, decision tree, grid analysis.

Once your preparations are finished, you have to decide. We shall provide you with different tools that can help you to make the better choice. These tools are linked to the quantitative analysis and the probability laws. Do not be afraid. You do not need to be an expert in mathematics or statistics. We shall make it easy in following a very simple case and what is more your own case: The decision to start or not to start your biz.

321-Case study: Quantitative analysis

To start a biz is a decision. To not start is another decision. Indecisiveness should be one day to decide to start and one another day to decide to do not. We just examine how to make a choice between the two decisions. After analysis, you have gone to the conclusion that each of these two decisions could have three consequences. If you start a biz (decision A) you could get big money that is to say 500, you could also get little money: 100 and you could also impoverish yourself: -200 If you decide to do not start there are also three consequences: You keep your actual salary: 100, you improve your salary with time: 200. You lose your job and find another job paid only 50. We can sum up these elements in the following table -----------------------START A BIZ----------- NOT START Best event -----------------500----------------- 200 Medium event---------------100----------------- 100 Worst event--------------- -200------------------50 How will you decide: First situation: you have not any idea about the relative chances of each event. It means that you are confronted with a pure uncertainty and in this case the chance of each event is about one third that is to say 33%. That is that we call a flat probability as shown by the following drawing:

In this case, in each rank, you multiply each expected value by 33% and you sum up the results: START: (500*33%)+(100*33%)+(-200*33%)= 165+33-66= 132 NO START:(200*33%)+(100*33%)+(50*33%)= 115,5

You have to choose START because the expected value is higher than NO START. Second situation: Now let's suppose that you can make reasonable assumptions about your career: For example, you think to have 50% chance to improve your salary and 25% for the two other events. In this case, the line NO START should become: (200*50%)+(100*25%)+(50*25%)=137,5 In this case, NO START should be a better decision. It means that when you make a preparation and collect information's you can reduce the uncertainty and reach a probability which is illustrated by the following drawing.

One event has a better probability to appears that the others Third situation: Now you will assume that thanks to deep preparation, you can better assess the probability of START. For example, as you have intensively learn how to start a biz you, you can expect a probability of 60% for the best event, 30% for the medium and 10% for the worst. Moreover, you realize that you are employed in a public service. By lack of relations, your chances to improve are very weak, maybe 10%. Inversely, your chances to lose your situation are quite nil's, may be 2%. It means that your medium has a probability of 88%. It is called a deterministic probability. The following drawing illustrates these new situations:

Now we shall make the calculations: START:(500*60%)+(100*30%)+(-200*10%)=310 NO START:(100*88%)+(200*10%)+(50*2%)=110 The decision is easy. Start is the best decision. No matter the real subject, the interest of this method is too show you that a good preparation enables to reduce the uncertainty and to improve and facilitate the decision process. You can object that all is based on the figures used to show the expected incomes: (500, -200, 100; why not 1000, 300 or -500?) and on the figures of probability: why 50%? Why not 90%? The expected incomes are based on your own market study and your own calculations regarding your profitability. According to different hypothesis of sales, you can effectively get different pictures. All studies make sensibility tests in order to estimate the best, the medium and the wrong. I could say that there are not too much uncertainty about the expected incomes figures. The probability of the event (30% or 60%) can be also well assessed. Of course, these probabilities must not be based on your optimistic or pessimistic mood!

Real life example

I had fun in reading a famous biz book where the probabilities were based on the psychological profile of the investor: Optimistic: you write 60% for the event. Pessimistic : you only allow 40% for the event! Of course doing like that is a pure loss of time. You should have better to throw a coin and to play at heads or tails!

In fact your assumption regarding the probability of any event must rely on the probability laws and not on your mood. The probability laws show that for many events, we obtain a normal distribution of probability which allows us to make sound expectations regarding the future. In this domain, the most fascinating tool is the Bell curve.

322-The bell curve

Come again with our probability about your salary in a public service. For example, let's suppose that 40 years ago, 1000 individuals have entered in a company exactly the same day and with the same diploma. Then, you examine today at what hierarchical level they are arrived. Suppose that this company has only five hierarchical levels graded from the lower A to the higher E. According to this hypothesis, you are quite sure to obtain in any public service the following distribution: A: 5%, B: 15%, C: 60%, D: 15%, E: 5%. You put these results on a graph and you obtain the following curve:

This is the bell curve; It's a fundamental statistic tool: The bell curve shows a normal distribution of the probability. It shows that in this case you have 90 % of chance to be somewhere between B and D. The Bell curve is astonishing because it describes with the same probability as above a multitude of quite different events. It's not a mystery: It's just because a large number of independent samples entering in the same situation ( Here the company) always tend to a central average. It means that the same curve will describe the distribution of a student promotion according to the diploma level or the distribution of the cyclists according to their rank on the finishing

line. So when I said that you had 88% to get the same salary and to remain medium it was neither a fantasy nor the fact to be pessimistic. It was just the result of the bell curve. Of course, you must not glance at this curve passively. Its just a tool for decision. Consequently, use bell curve in your decision process and thanks to your preparation try to move yourself from the losing side of the curve to the winning side.

323-Decision trees
Decision tree is a way for visualizing a complex chain of decisions. A decision leads to a new choice and therefore to a new decision that in turn faces with a new choice and so on! Let's go on with our example and look at the next drawing which illustrates our decision tree.

Let's suppose that you decide to start a biz. This decision is not submitted to uncertainty and is represented conventionally by a square. Then you have to choose if you will follow up a training or not. If you decide to do not, you go to a circle that represents an uncertainty because it leads to three probabilities which are represented by three arrows. Conserving the same % of

probability and the same expected incomes than in our first example, we know that the sum is 132. Now if you decide to take a training, you have to pay its cost that is to say -100. There is not uncertainty about the cost, so you go to a new Square. Here, according to our previous example, you meet three probabilities: 60% for the best, 30% for the medium and 10% for the worst. The result of the calculation is 310 but you have to substrate the cost of the learning (-100). The net result is therefore 210. Now, let's suppose that a consulting group proposes you to realize a complex market study costing 150. Thanks to this study, you can highly improve your probabilities: 85% for the best, 10% for the medium and only 5% for the worst: It's quite a deterministic probability! Now look at the results. Of course, you get 425 but going back on the tree, you have to deduce the cost of the market study (-150) and the cost of the training (-100). It means that the net result amounts only 175. Despite the increase of the success probabilities, you have better in this case to not order the market study. Be aware that when there is a long chain of decisions and events you should need a computer program and a bit of time.

324-Judgment
These tools are just good for preparing for a decision but they never replace a sound judgment. Firstly, monetary value must always takes in account the time value: It means that $1000 expected in five years have not the same value that $1000 in cash to day. It is the same for an expected loss, but be aware than a distant threat is often more dangerous than an immediate one because its consequences are more difficult to evaluate. Secondly, you have to think about the utility of the supplementary amount of money: The utility of money varies according to the wealth. For example, suppose a man who owns $12 millions. If the expected monetary value is $2 million, he will not take heavy risks to get it. To have 14 millions instead of 12 will not modify his way of living or social position. It means that the expected money has a low utility for him. On the contrary, the supplementary money has a high utility for a poor man. A little money more, could enable him to have a home instead of sleeping rough. It could change dramatically his social position. Thirdly, the monetary criterion can conduct to unreasonable decisions: For example let's suppose that you have $1000. You invest it in gambling. If heads win you get $4000 and if it's tails you lose your bet. You have to choose between gambling or not Not gambling: you keep your $1000 Gambling: (4000*50%)+(-1000*50%)= 1500 The best statistical decision is to gamble but it may be a very unreasonable decision if you have only $1000 for ending the month. In the same way you have to look at your risk

assessment matrix. Sometimes high probabilities of profits are connected with unacceptable non monetary risks.

Real life example

I knew in Guyana some businessmen who were making big money with gold placers. However, they risked their life everyday in struggling with the "seringueros"(Illegal miners seeking for gold in forest). In the same way, it seems that many world telecom leaders have taken unreasonable risks. They are now facing criminal charges for fraud. Obviously they had omitted to computerize such risks in their decision trees!

External readings
Go to www.mindtools.com Click on "techniques for effective decision making" and then on "decision tree". You will find here a complex and detailed example of decision tree. Go to: ConceptDraw MINDMAP: mind map software

325-Grid analysis
Most decisions in business result in money but some of them deal with non monetary issues. Let's suppose that you have to choose a location for your business either in town A or either in town B and that the two locations are equivalent regarding their monetary outcome. In this case, you fill up a matrix and you indicate the advantages (benefits) and disadvantages (costs) of each location (for example, pleasant environment, good schools, good shops and so on) Then you attribute a note from 1 to 5 or from -1 to -5 to each elements. You add the notes and you see the best result. It's quite like the "cost benefits" analysis but with notes instead of money. COST Decision A Decision B B is shown as the best solution -30 -8 BENEFIT 16 37 RESULTS -14 +29

326-Vision
Finally, if your decision is really difficult, recall your ultimate tool :

Vision yourself taking the decision A and then taking the decision B. You will choose according to the pleasant or unpleasant result given by your vision. It's another way to use your intuition. 1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

4-FOLLOW UP
Once your decision has been taken, you have to share it with your staff and maybe your suppliers and customers Be aware that in most organizations, any change is perceived as a danger. As a result, any decision could bring oppositions. The first thing you have to do is to value the strengths of your allies: people who are supporting the decisions and those of your opponents: people who are disturbed by your decision

41-Field force analysis

A good tool to value these strengths and weaknesses is the field force analysis. It's just like the grid analysis: you grade with notes the opponents and the supporters. Then you establish the following drawing:

As you can see in this example, the suppliers do not like your decision. In general, they have their habits and a change disturbs their channels.

Of course, the labor unions and the low staff are absolutely again any change. As the employees are opponents, the human resource manager will be too: He does not want to be in trouble because of your decision! Finally, the operation manager does not support the measure because it can modify the assembly line and he does not like it. Then, you sum up the note of the opponents and you get 14. On the other side, the sales manager backs up your decision because it brings value to the customer. The finance manager does too because he hopes an increase in profitability. Finally, among the medium management, you only get the support of a creative and non conformist maverick! The sum of your good notes amounts 8 against 14. It's not too much but it's nevertheless the more frequent situation! Do not worried about that: knowing this analysis, you have to take measures for comforting your supporters and for persuading your opponents: communication, persuasion and finally authority are the best tools for this purpose: Try to persuade your operation manager because it's a key executive. Have benign neglect for the human resource manager. Say to the staff that the doors are fully opened and threaten the suppliers in announcing that you are going to supervise all their contracts!

Down earth advice

I have read in some biz books that the field force analysis was a tool for making a decision. It's a big mistake. As people are often opposed to change, be sure that you will never make any decisions if you just follow the results of a field force analysis! The field force analysis is just a tool to follow up a decision.

42-Participation
It is often said that the best way for implementing a decision and a change is to call for meetings and to implicate people in the process. Of course you have to communicate your decision but once again be aware of the fact that people do not like to change and are mostly conservative ( bell curve again!). People are always screaming that they should be consulted. In fact, they are eager to participate for deciding the vacation planning, but when a crisis occurs, you are strangely alone for bearing heavy responsibilities. Remember that a biz boss is like the captain on his boat. 1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

Lesson summary:
You will have to take many global decisions. In all cases, preparation is a must. You have to distinguish reactive and proactive decisions. A reactive decision is taken for managing a risk. You must establish a risk assessment matrix based on the probability and the impact of each event for your own business. Then, you have to define an emergency procedure: It is a list of prepared decisions that you will execute once the event occurs. This emergency procedure enables you to manage properly and to minimize the expected impact. Proactive decisions allow time and studies. They follow a decision making process including a detailed preparation based on information, intelligence, evaluation of options and consequences, best alternatives. The execution can use the quantitative analysis and notably the bell curve and the

decision trees.

Non monetary decisions can use grid analysis. Judgment and vision are always required. The follow up of the decision can use a

field force analysis.

Leadership is largely based on the ability to take decisions in crucial situations. 1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

DO IT YOURSELF
Establish you tree analysis regarding your decision about starting a biz.
Of course, take in account the fact that you are trained! 1. Type of decisions 2. Reactive decisions 3. Proactive decisions 4. Follow up 5. Do it yourself 6. Coaching

FW24-BUSINESS PLAN-CHECKING MATRIX

YOUR POSITION
Look at the map

MAP

180 days before opening.

1. Quick checking matrix 2. Business plan 3. Do it yourself 4. Coaching

INTRODUCTION
The thinking process is finished. Time is going to act. Before, you have to make a complete check up thanks to our checking matrix: An exclusive innovation. Once it is done, there are three options. Either you have to go back because there is something wrong in your project, either you need a loan or a biz angel support, either you can go on with your own savings.

Duration
Lesson: 0,5 hour External readings: 1,5 hours Do it yourself: Writing or first implementation. Total: 2 hours

Objectives
Our objectives are:

-To give you a quick checking matrix -To give you some tips for presenting your business plandissertation. -To indicate you the small expenses you can engage right now.
1. Quick checking matrix 2. Business plan 3. Do it yourself 4. Coaching

1-QUICK CHECKING MATRIX

I compare the quick checking matrix with the check up that a pilot does before the take off. I have defined for you a quick and simple matrix which does not bear any uncertainty. The answers are yes or no and based on figures.

11-Assemble the following files:

I don't ask you to review or reread all your folders. I only want four things that you have already completed: -Your risk assessment matrix: It comes from FW 11 and has been updated in FW 23. -Your regulations assessment matrix: It comes from FW 11. I just ask you to check that regulations have not changed since your assessment (Business idea). -Your cash flow projections for the starting period ( it may be two three or more months according to your project) and the running period of the first year (For any project it covers the twelve months beginning at the end of the starting period): These files come from FW 19. -Your projected income statement by the end of the year 2: It comes too from FW19.

12-Answer to the following questions

Answer to the following questions with YES or NO: -After an ultimate checking, is the upper right square of my risk assessment matrix absolutely clean: Yes or no -After an ultimate checking, is the upper square of my regulations assessment matrix absolutely clean: Yes or no.

-Have I a weekly cumulative cash flow positive all along the starting period and the running period of the first year : Yes or no -Is my ROE equal or superior to 10% by the end of year 2: Yes or no.

13-Analysing the results

I represent the four questions with four windows: Green means yes and red no. The assessment is quite simple: if you get a red window whatever it is, the air traffic will not give you the authorization to take off! For taking off, your four windows must be like that: DRAWING 1

There are now three hypothesis:

-Your four windows are green:

It s a good new. Time is coming to implement your business. Go straight to "Do it yourself". You do not need to make up any more paper work.

-Your red window is the cash flow.

It means that despite all your thinking you are yet too short in starting funds . Remember that a negative cumulative cash flow during only one week is sufficient to kill your business. It means that you have too look for funding. Consequently, you have to write a perfect business plan dissertation that is the condition for finding a biz angels. Look at the following drawing: DRAWING 2

-Your red window is not the cash flow

It means that you have something wrong in your business idea or in your marketing or organizational scheme.You have to go back to the previous lessons for improving your scheme. 1. Quick checking matrix 2. Business plan 3. Do it yourself 4. Coaching

2-BUSINESS PLAN-DISSERTATION
You have already a real business plan with the folders that you have completed in using Plan ware. If your check up is positive, you do not need to make some supplementary writings. You have yet your road map. Inversely, if you have to look for funds, you must put all your folders in a form easily understandable for an external partner. It's that I call the business plan dissertation! Many business sites on the web are devoted to how to write a good "business plan dissertation". Consequently, I shall only give you a list of these web sites which provides with the best advices.

External readings
go to www.sba.gov . Click on"Starting your business" and then on "Business plan". Click also on "Workshop" and then on "Workshop business plan". Go to www.americanexpress.com . Click on"Small business: Explore the open net work". Then click "Explore business: Articles and tools". Then on "Starting a business" and finally on "Create an effective business plan"

I just add to all this stuff a personal advice: As it's well known that there is only a few chances to be selected, I recommend you to emphasize on the mission statement and the executive summary. Try to find a magical opening and use the skills you will have to learn in the next lesson about writings. It's the only chance to pass the barriers. I shall also give you a list of sites where you can find some real samples of business plan.

External readings
Go to www.businessplans.org and click on "Example business plans". You will find here the winners of a competition about the best business plans. Go to:http://www.bizmove.com . Click on small business and you will find here examples and samples of business plans. You will become certainly more skilled in analyzing writing and presenting business plans. However, I must recall you that your objective is to implement a business and not to accumulate awards about writing business plan! 1. Quick checking matrix 2. Business plan 3. Do it yourself 4. Coaching

Lesson summary
Your quick checking matrix indicates four windows If only one window is red : you can't take off right now. If your red window is not the cash flow, you have to go back and to review what is wrong. If your red window is the cash flow, it means that you need external funds. You have to find them before taking off. In this case you have to rewrite your works in oder to make a to your future sponsors. If your four windows are green, you can take off right now and begin to engage some small expenditures. In this case no need for a dissertation. All the work you have done on Plan ware represents yet your business plan. You have to

perfect

business plan. You need to make this dissertation for submitting your project

act

right now.
1. Quick checking matrix 2. Business plan 3. Do it yourself 4. Coaching

DO IT YOURSELF
1-Drawn up your quick matrix
According to its results you have to choose one of the three following roads:

2-You have to go back

because there is something wrong in your project.

3-You have to write a business plan dissertation:

Do it in using the above tools. You have already all your spreadsheets and folders but you have to write 60 to 80 pages (That is the current length recommended). Count easily about three days that is to say a minimum of 30 hours.

4-You are starting!

Engage right now some little expenditures. It should be good for your visioning because it shows that

you are really taking off!

-Apply for a business licence and finalize your legal structure with its business name.
Fix an appointment with a lawyer and finalize all these formalities. It's not too much expansive. You can also incorporate on line:

Useful links:
Go to www.bizfilings.com, www.corporate.com and www.boldnewenterprise.com. If you are looking for Off shore, go to www.ocra.com. Even if you are looking for funds, it 's better for your credibility and your business plan to have already a legal structure, a business name and a location. For the present moment, this location can simply be a renting desk office.

-Create your business card

Create it and use it. Every body must know that you are in business! Order also your business stationery, printed in color.

Useful link:
Go to www.vistaprint.com . You can order business cards for free!

-Choose your post office box number -Create your web site:

or a mail receiving service. Put an answering service on your phone and get a fax number address.

As you have your business name, you can create a web site. There are thousands web sites about this topics but I have selected the following:

Useful links:
Go to www.myownbusiness.org . Click on "Course" and then on "Session 3Computer and basic organization" . This course gives you some advices about all the tools: phone, fax, computer, internet and so on. That is a good introduction to more technical sites. Go to www.americanexpress.com . Click on"Small business: Explore the open net work". Then click "Explore business: Articles and tools". Then on "Starting a business" and finally on "Create an effective small business web site" Go to www.morebusiness.com . Click on "Business and marketing plan" and then on "Build your own web site". Go to www.webhosting.net. It's a provider of virtual shared dedicated and colocation web hosting. Other managed hosting services and solutions. Go to www.icreate-europe.com . This company has many years of experience in complex database solutions and consultation services. Go to www.open-a-store.com . It's a provider of e-commerce web site. Go to www.findmyjobnow.com . You will find resources for starting your own business, offering how-to workbooks, business plans and planning guide, tools, templates and check list. A valuable business start-up resource. Go to www.gettingincorporated.com. : Getting Incorporated - Business consultancy offering incorporations, trademarks, merchant accounts, e-commerce development, and other start-up business services. A valuable start-up resource. Go to www.enitia.com : Business consultancy offering incorporations: Incorporate with precision and efficiency. Using cutting-edge technology and exacting legal research methods, enitia.com makes easy a traditionally complicated process.

-Search Engine Optimization

Search Engine Optimization Inc provides search engine optimization, search engine placement, search engine marketing, Web site marketing and corporate branding. Go to http://www.seoinc.com

Go to: http://www.increase-web-site-traffic-and-sales.com - Increase Web Site traffic for your internet Web Site marketing and online marketing strategy-The proven methods to increasing your web site traffic and closing more sales Go to: http://seo.zunch.com/ Offers search engine optimization, marketing, positioning, and ranking services, with office in Dallas, Texas. Do these steps right now because it enables you to win some time. Be conscious that your business is expected to open within six months! 1. Quick checking matrix 2. Business plan 3. Do it yourself 4. Coaching

F25-COMMUNICATION SKILLS
HOW TO IMPROVE YOUR COMMUNICATION SKILLS

YOUR POSITION
Look at the map MAP

160 days before opening

1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

INTRODUCTION
Until now you have worked like a lone ranger. You will have now to meet people, to communicate and to persuade. It may seem to you as simple and obvious as breathing. In fact, you have to play a new role: You want to be a businessman. You have to look, to speak, to write and to act like a businessman. We are going therefore to go back to the basics of communication.

Duration
Lesson: 1 Hour External readings and quiz: 3 hours Do it yourself: 20 hours Total: 24 hours

Objectives:
Our objectives are

-To give you the basic tips about your image and your behavior. -To give you some general rules of communication that you have to apply right now -To give you some advanced techniques that you could apply when you will be sufficiently trained. By the end , you will look and behave like a real businessman.
1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

1-PROFILE YOUR IMAGE

You are an image in other peoples mind. Most people when young take care of their image and try to be seductive and fashionable. The problem is that your goal is not to be physically seductive or cute. Your goal is to inspire confidence and respectability.

Moreover, you have to adopt the tips and tricks of the class you are wanting to belong: The business class. It means that you certainly will have to modify a lot of things about your look and your global behavior.

11-Profile your static image

Other people see you firstly as you see yourself in mirror: Your face and hands that are generally the uncovered parts of the body, your clothes and shoes. You can be big or small, thin or corpulent, white or black: These physical data that you have inherited play a minor role in business. On the other hand, your image should conform to precise codes. These codes may vary between Japan and the US, but globalization has imposed a uniform base with a few simple rules. We shall give you these codes.

111-The face:
The face has three important parts: Hair, Eyes, Mouth. Hair: Always clean neither too long or to short. Eyes: For women, very lightly made up. Mouth: Clean and neat teeth. For women, very lightly made up. For men, avoid moustaches and beards or otherwise carefully trim them. In show biz and artist biz, beards and moustaches do not matter.

112-The hands:
The person you are talking to will always look at your hands that show your method of working ( farmer-worker-white collar) and your marital status in many countries (wedding ring). Have always clean hands with clean and trimmed nails. Avoid ostentatious rings or jeweler.

113-The Clothes:
Adopt as far as possible the world uniform of all businessmen and women. For men: dark suit-shirt and tie (striped shirt with plain tie or plain shirt and patterned tie). For women: suit and blouse-Skirt always below the knee. Shoes with half heels (no court shoes, remain sober). Be very careful about the shoes: keep them clean and carefully waxed. Do not show any religious sign in your clothing.

Real life example

Of course, I hear people screaming out that I do not take care of the cultural differences between countries and so on.

I could say that I have visited one hundred and twenty countries. Except some backward posts where not any sane person should expect to start a biz, I have observed everywhere the same look for businesspeople either for men or women. Of course you can prefer to stick to your cultural habits but in this case apply to be guardian of a museum and do not engage yourself in a business!

12-Profile your moving image

You are never static, other people will scrutinize how you walk and how you move.

121-Walking:
Always hold yourself straight. Dont be dislocated with incoherent movements as so many young people! Walk slowly: It's a a sign of confidence. Walk in small steps, lifting your leg and flexing your knee, keeping your body straight gives your walk an air-like aspect.

Real life example:

The French foreign legion have a very slow march. It gives the feeling that nothing could stop them! Top models use to walk in small steps. Dancers too.

122-Sitting down:
Always keep your legs parallel and flat. No crossed legs. Keep your chest straight. Respect a distance with the person in front of you.

123-Gestures:
Firm handshake. Hands crossed on the stomach or crossed on the table. Please: No hands in pockets or in the mouth! No uncoordinated or grandiloquent gestures that may show a lack of self-confidence or nervousness.

13-How to interpret another person image

Before talking or listening, you should know whether the person is important and sympathetic or not to you. You cannot just trust intuition. We are giving you codes here that will help you instantly interpret the image given off by the person you are faced with. In the business world, important people have a secretary to filter calls and a large office. They have very few documents on their desk. They give the image of a relaxed, unstressed people who are at ease. Their look is never evasive.

Important people often hide their feelings. A brutal or gruff approach does not necessarily mean that they are unsympathetic to you. The only important factor resides in the look of the person in front of you: Their pupils are at the center of the eyes: They are interested in you. Their pupils are at the top of their eyes: They are not interested in you. 1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

2-LOOKING AND VOICE 21-Looking

Look at the person in front of you at the root of the nose. Avoid blinking. This look is expected to play a light hypnosis on your interlocutor. As a fixed look, without blinking may unbalance the person you are talking to, your look must always be accompanied by a full-face smile. Faced with a group: look at everybody, those closest and those furthest away, always looking for the look of those you are talking to. Of course keep smiling!

22- The voice

You will communicate and persuade essentially with your voice. Your voice should be sonorous, posed and calm to give an impression of force and selfconfidence. Your voice should be a pleasant melody to listen to objectives to follow Speak loudly enough to be heard Speak in a posed way Pronounce each syllable and finish words to be clearly understood Arrange for pauses (short silences) above all at the end of sentences or when you introduce a new idea to maintain attention. Play on changes in volume and difference tones to avoid monotony These advices are not worth when you are talking for TV or Broadcast. In these case, due to the cost of the minute, you must speak very quickly in order to say a maximum in a minimum time.

1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

3-RULES OF COMMUNICATION
Communicating is listening and talking.

31-Listening
It is important to properly listen to people adopting the following rules:

Center the other person look at him attentively Let the other person talk, express his arguments Ask questions (to find out what the person wants, their expectations, requirements
and motivations) Be attentive to the non-verbal: gestures, mimics, attitudes, behavior. Make the effort to understand without judging at first.

32-Talking
The most essential thing is to be clear: It supposes an effort at structuring the message in sentences that are well identified and coherent. Supplement logical speech with analogue speech . Use examples, comparisons, images, anecdotes. Certain people are far more sensitive to this method of expression. Your style should be affirmative and vigorous.

Avoid all expressions that counter the person you are talking to. Avoid using negative words that inspire dark images. Avoid expressions that encourage doubt in the mind and effect the
strength of the arguments. Avoid using conditional verb forms that put conditions on action. Express yourself in the present. Feedback is a return reaction issued when we have received a message. It can be verbal (reformulating, questions, approval, objection) or non-verbal (shaking the head, facial expressions). Echo reformulating is to repeat a sentence or a word pronounced by the other person. Summary reformulating helps recapitulate the points of agreement.

33-Writing

A businessman don't write too much. However, you have to prepare your business plan. You should have to write some specific letters (I don't deal about sales letters or commercial letters because their models are in quite all the dictionaries) There are some general rules that you have to follow: Always, try to view the document or the letter from the reader's perspective.

331-Document:
The paper must have a plan. The plan shows the organization of your ideas. The first paragraph should announce the subject, the main idea and the plan of the document. You must clearly indicate what subject you are going to develop: "I am going to explain why we have to develop a new line of retail shops". You must indicate your main idea "I think that we have better to invest in a new line rather than franchising partners" Then, you indicate your plan: "Firstly, our business growth is limited because we have not enough channels. Secondly, we cannot envisage to franchise unskilled partners and thirdly, regarding the experience of our competitors, investing in our own line could bring more profits" You can see that a plan means ideas. You have one main idea and you develop it with three new ideas. Each idea is a chapter and then each chapter is detailed into three new ideas called paragraph. Avoid more than three paragraph by chapter. Then, each paragraph must have a topic sentence that announces the ideas of the paragraph. Each of these ideas is a new sentence. No more than 3 ideas and hence three sentences in a paragraph. In the last paragraph, you just indicate that you have justified your main idea.

332-Letter:
A letter is a short document and obey to the same building rule: no more than 150 words in a letter. Stick with a single subject; no more than one subject per letter. You have to follow a plan in two parties: Present your argument, your position and evidence. Always close with a short restatement of your position.

External readings:

Go to http://peerspectives.org . Click on "Building and inspiring an organization", Then click on "Communication, general", "Communication skills" and "Written communication. You will find here several quick reads related to business communication. 1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

4-PROGRAMMING COMMUNICATION
This technique based on the Neuro-Linguistic Programming is extremely powerful but quite difficult to use.

41-Principles
It rests on the following: -Imitate the verbal and non-verbal behavior of the person you are talking to so as to "contact" his subconscious. This is synchronization. -Create conditioned reflexes in order to provoke in the other person an inside condition favorable to your persuasion. This is anchoring.

- These two elements associated will arouse a slight hypnotic state that will make
the person vulnerable to your suggestions. This technique does not apply to everyday communications. It should be limited to very important meetings ( negotiating large contracts, recruitment) or to communication with people you often meet such as your banker. You have therefore all the time to train yourself during these repeated meetings.

42-Case study
The techniques protocol has successive sequences that you should do in order. The efficiency of this method indeed relies on its precision: it is fruitless going to sequence 4, if you havent mastered the previous sequence. The example used here to illustrate the method is simple: You are asking for a loan and you have to convince the bank manager. You are in his office, sat down in front of him. The sequences then follow like this:

Sequence 1 : Observation
-Faced with your interlocutor, who we will call Mr. John, start by detecting his preferred method: visual auditory kinesthetic.

-Observe closely: His posture, his body movements, his facial expressions, the tone and
rhythm of his voice, his way of breathing. -Select at least one element: his posture: slouched, upright, stooping, legs crossed or not is the easiest to see. -Select, if possible his way of breathing: It may be determined by the tone and rhythm of his voice -Adopt the same posture straight away: if he is stooping, take up a stooped position, if he is slouched in his chair, do the same. Imitate his posture without going as far a caricature. -From the beginning of the conversation, make the effort to use the same words as he does and adopt the same rhythm and breathing. If he sighs, punctuate your speech with sighs: Example: Him: This Market requires a market vision (sigh). You: I feel the same way (sigh). Another example: Him: I think that this project requires a market vision (emphasis on the word "Vision). You: You think that this project requires to be able to see in the long term (emphasis on the word see) By reformulating, you are not committed, but you are wedged into the same verbal code as the person you are talking to.

Sequence 2 : Synchronization
After several minutes, adopt a different posture. For example, uncross your legs. Then something extraordinary will happen: Your interlocutor will also uncross his legs. This means that you are in contact with his subconscious. You, you know. But he doesn't. Moreover, this experiment shows that using synchronization, the person in front of you is in a state of suggestibility, like in a slight state of hypnosis: you uncrossed your legs voluntarily and he unconsciously did the same. Go back to your initial position and maintain the synchronization: faced with an objection, you should not counter him, because that would break the synchronization, you should, on the contrary, amplify it and then circumvent it. Example:

Him: I dont have the impression you have the required skills. You: It' s indeed an important project (amplification), but I have seen still more complicated affairs (circumvention). Maintaining synchronization, find a phrase or reply that gives the person confidence. Simple flattery is often the most effective universal method. Example: Him: the world is indeed increasingly complicated. You: luckily, there are people like you who always find solutions to the most complex problems. You should observe a slight change in the person in front of you: he sinks down slightly, he smiles, he changes color. You have hit home, your answer must have made him more confident. You should be able to reproduce this condition on demand.

Sequence 3: First anchoring

You will therefore immediately anchor this condition by associating a stimulus: you remove your glasses and put them back straightaway on your nose. This gesture is a stimulus: each time you do it, it will reproduce the desired effect (The stimulus should be adapted to the preferred sensory method of the person you are dealing with. If it is visual, just remove your glasses and put them back on. If it is auditory, just cough slightly)

Sequence 4: Anchoring each suggestion.

You can now continue the relationship to its conclusion introducing your ideas. Your ideas should be presented in the form of short sequences including obvious facts that cannot be contested and a suggestion. Example: You: Business is increasingly complex. Well managed business generate a lot of profit. You can ask yourself, Mr. John, if it is not more advantageous to lend to me rather than to someone else. Observe this sequence properly: The first two sentences are obvious and no one would argue with them. The third, that is a suggestion, is carried by the first two even though there is no logical link between them. Pronouncing the third sentence:

-You change the rhythm and tone of your voice -You remove your glasses to put the person your talking to in a state of confidence
(anchoring).

You are then running the conversation reproducing the stimulus at each suggestion and always checking that your synchronization is maintained (uncrossing and crossing legs for example). The interview should finish like this: Him: I think that we shall enter in business You: I am honored that you have arrived at such a decision. In reality, he has decided nothing on his own. Using synchronization and anchoring, you have conditioned him so that he has came to the decision that coincides with your aim.

Down earth advice:

It is clear that you will not master this technique the first time. It is a complex exercise. You have to plan at least two interviews. First interview: this is the observation round: Limit yourself to sequences 1 to 2. Second interview: using observations made during the former, go on until the conclusion. Make proper note of the three essential elements that you must respect:

-Check to see if you are synchronized: uncrossing your legs.

-Anchor your stimulus: associate a simple stimulus (remove your glasses) to your interlocutors interior condition. - Repeat this stimulus at each new suggestion to control the conversation. Memorize this process with three words: Synchronization-First anchoringAnchoring each suggestion (SFA). 1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

Lesson summary
You have to look, to speak to write and to act like a business man.
You want to be a business man. Your image should conform to precise codes. In talking, the most essential thing is to be clear: Your style should be affirmative and vigorous

Avoid all expressions that counter the person you are talking to. Avoid negative words and expressions that encourage doubt. Express yourself in the present. About written communication: Always, try to view the document or the letter from the reader's perspective. Your paper must have a plan. The plan shows the organization of your ideas. 1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

DO IT YOURSELF
1-Change immediately your look and clothes according to the
description we have recommended. It's a very important psychological step because it means that you are not only learning or reading. You are really acting in the real life to start your business. It's your first action and what is more it will modify all your relations with your family, friends, colleagues and so on. It is the visible expression of what is already going on in your mind with visioning and creativity. Right now, you mean business! It's no more dreaming or readings. You are really engaged in starting your biz! And you will feel far better because the first step is always the more difficult to do. Count about 15 hours to implement all these changes (hairdresser, tailor and so on)

2-The other rules of communication need a lot of time. Observe these rules but

take it easy. Regarding the programming communication, it needs a long practice to perform well. Try to do an exercise by week with a friend or a relative. Count about 5 hours of training within a month.

Useful links:
www.leadersinstitute.com : Eliminate butterflies in the stomach and sweaty palms from public speaking with leadership training and public speaking coaching from the Leader's Institute 1. Profile your image 2. Looking and voice 3. Rules of communication 4. Programming communication 5. Do it yourself 6. Coaching

FW26-BUSINESS NEGOTIATION
YOUR POSITION

Look at the map MAP

150 days before opening.

1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

INTRODUCTION
Business is negotiation. You will have to negotiate right now with the contractors, suppliers and staff. The communication techniques may be used in negotiation. Here, we shall only pay attention to the specific negotiation topics.

Duration
Lesson: 1 hour External readings and quiz: 2 hours Do it yourself: 5 hours Total : 8 hours

Objectives:

Our objectives are to teach you:

-How to prepare a negotiation -How to negotiate By the end you should have all the tools to be a good business negotiator.
1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

1-GENERAL PRINCIPLES
Business is negotiation. You will negotiate to buy, to sell, to conclude contracts with suppliers, to fix the staff salaries and so on. What is more, you have to negotiate with regulators, Banks, Insurances. It means that the business life is a permanent negotiation with others people who are defending their own interests.

Real life example:

I have surveyed a lot of MBA curriculum. Negotiation is rarely a core course. Very often, it's only an elective mainly dedicated to international business. It means that these MBA prepare their people to be clerk or chief accountant! For a future businessman, negotiation must be obviously a core topic. The fact that divergent interests exist does not mean that you have to negotiate with everybody. Very often you have just to use authority instead of negotiating. What is more, many business matters are regulated by contract. A contract is made to avoid any contestation and consequently any possibilities of negotiation. When you have a good contract, just apply it. There is nothing to negotiate any more.

Down earth advice:

Many dishonest people are always asking you to negotiate because they do not want to fulfil their obligations. For example, buyers ask more delays to pay, suppliers ask more delays to deliver the stuff, staff ask raise of salaries or advantages going far away of that had been concluded. In all these matters that have been settled by writing contracts there is no room for any negotiations. Just say No. On the contrary, a negotiation is often an obliged step when you are preparing a new contract. As business implies to prepare, and to sign a lot of contracts with buyers, sellers, bankers, and staff there are anyway a large part of time dedicated to negotiation.

In this case there are divergent interests but there are also a common one. If you have only divergent interests and no common interests, it's not useful to negotiate. If there are only common interests and no divergent interests, you can go straightly to an agreement and a real negotiation is not justified. In fact these two situations can be very frequent in business. It means that you must always carefully analyze the situation before engaging a real negotiation. 1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

2-PREPARATION
Preparation is a must.

Real life example:

One of the most astonishing observation that I have made over my career is that people usually do not prepare a negotiation: They just have a prior meeting. They note their goals and their bottom line and finally they say "We shall see". More often than you believe, people and notably haughty top managers do not know really their files. They just gather a lot of useless notes written by their staff. Many top conferences go to a down consensus because of a lack of preparation on both sides!

21-Carefully examine the case.

Negotiating file are often complex and in specific matter, you have better to call a consultant. It can be the best and less expansive way to prepare your negotiation. Carefully study your file. Take notes. Do not only rely on your memory. It's a good opportunity to use mind mapping. Carefully examine the assets and the weaknesses of your files. Tell the truth to you. Do not be emotional and see your file in a detached way as if it was not yours. What is more, imagine that your opponent has access to your files and what should be the main argument it could retire from it. List this main argument. That is your main weaknesses. Can you improve it. Can you hide it. That's the problem. Of course, except in case of espionage, you do not know the files of your opponent. Nevertheless you can have a remote viewing of it. Scrutinize the letters they have sent to you. Observe very carefully the words they use and observe also, in different letters, how these words and arguments have changed or evolved. It could give you a good intuition about the weak and strong lines of your opponents.

Down earth advices:

We have all the habit to practice fast readings. By this time, do not use it. Read like a child, word by word, and if necessary read at high voice and write the words on your notebook. Scrutinize the most little change in the words, sentences or arguments. If you feel something unclear, repeat the exercise several times and you will discover the change that has occurred and its meaning. When you know your case and have a good intuition of the opponent case, you can prepare your strategic planning.

22-Define your goals

Strategic planning determines the goals and the moves to reach them. Your goal is to win the bargain. Despite your possible weaknesses, you must assert that your goal is to win because otherwise you should place yourself in a loser position. A limited result could coincide with a common interest. It's that people call the win-win principle. You must position on your plan the win-win result and you must define it in a written sentence. You can just get the minimum issue: It's your bottom line. You have also to define it on your paper. What should happen if the negotiation is a failure? You must clearly define your BATNA. It means the Best Alternative to a Negotiated Agreement. You must clearly examine this option. Of course, your Batna must always be a lower issue than your bottom line. If you have a good Batna, it means that a failure in the negotiation will not hurt you too much. Consequently, you can lift your bottom line! On the contrary, if your Batna is a bad issue, it means that you must lower your bottom line. In the same way, you have to evaluate the BATNA of your opposite party. This examination determines the balance of power and consequently dictates the tactics you will adopt during the negotiations.

23-Define the strategy

Any strategy begins by a clear apprehension of the balance of powers and consequently of the possible movements.

231-Balance of powers:
It just result from the examination of your case, goals and best alternative. Clearly, the balance of power is not in your favor if you have more to lose than your opponent in case of a failure of the negotiation.

Do not confuse this balance with the quality of your case. May be, your files are not good but if your opponent has a big loss to expect in case of failure, the balance of power weights strongly in your favor, despite the weakness of your files.

Real life example

One of our suppliers complained that we did not respect his contract and that he could sue us. In order to avoid a trial, he proposed a negotiation and asked for indemnities. I examined the files and I got to the conclusion that our case was bad. On the other hand, I examined his financial statements. I realized that we were his main customer and that he had not too much cash. Clearly, he could win a trial but afterwards he could also close his business. Despite a bad case, the balance of power was in our favor. Then I defined a strategy. Read the next episode in negotiating techniques!

232-Movements:
There are two main strategic movements depending on the balance of power: The balance of power weights in your favor: Attack and be aggressive. Try to destabilize the opponent and to get the deal closed in a short time! The balance of power does not weight in your favor: Appease or attempt to convert. the following drawing illustrates the two situations.

You are the blue line. In the first situation, you attack in front to break off the opponent line. In the second situation, you wait and try to circumvent the opponent by the sides:

233-Detailed scenario:
According to all this previous studies, you must write a complete scenario describing all the arguments you will use and all the events you will produce: Starting from the negotiation room, asking for a suspension, asking for a drink and so one.

Of course things never run off as you have described but try to precise everything in taking in account the opposite arguments. It means that you must write your arguments and also those that you expect from your opponents: To do that use extensively mind mapping. We shall examine these negotiating techniques in the next chapter but right now your preparation is not yet finished.

24-Psychological preparation
You know your case. You have define your goals and your strategic movements. You have to be psychologically prepared. Negotiation is hard business. You have to use your personal development resources! -Firstly, try to know your negotiator opponent. If you don't know him, get information about his reputation. As a boss, you have to negotiate with a boss. On the other hand, being a small biz, you can't expect to negotiate with the boss of a big corporate. However, you have to make sure that your opponent is empowered to conclude a settlement. It's not easy because this accreditation to conclude or not is part of the negotiating techniques. -Secondly, try to see the place where the negotiation will take place.

Down earth advice:

The place of the chairs and the shape of the table are a big matter in international negotiations. These disputes about the shape of the table enable the diplomats to get a lot of time for asking some complementary instructions from their governments. In business, these matters are only important for superficial people and beginners. We ask you to see the place only for your psychological preparation. Then, as we have learnt, relax and vision. Visualize your file, the opposite negotiator, the place and then imagine yourself speaking, persuading and finally winning the deal. Visualize in detail your chain of arguments and all your scenario. 1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

3-NEGOTIATING TECHNIQUES
When they deal with negotiations, business schools emphasize on the quality of the relationship between the two parties. The negotiation is mainly described as a conversation between polite persons. The two parties explore their common interests and try to reach the win-win option.

Real life example

These scholars have certainly only experienced negotiations in an academic context. In this case, the win-win option is perceived like the politically correct option between well educated persons. Unfortunately, I must tell you that the small business world is merciless. People fight like dogs because their own money is at stake. It's no more a conversation in an academic lounge. Any negotiation is heavily stressing! According to the balance of powers, we have two main strategy: Attack or appease. In fact, during the negotiation the two can be mixed.

31-Attack
The balance of power is clearly in your favor. Don't hesitate: Attack immediately once the negotiation is open.

Real life example

We take again our previous example about the complaint of a supplier. First, I entered into the negotiation room looking absolutely furious just like if I had swallowed a living frog ( I precise a living one because thanks to our british friends, we have the reputation to eat cooked frogs with all our meals!) "What is this cranky paper!" I screamed out in showing the complaint letter. " you can sue me" I said " I do not care about it. But prepare you to leave any business because I will not renew your contract!" "No! No!" said the other party. "We has never intended to sue you or to ask any indemnities! Don't take any account of this letter that has been written by a young clerk we have just fired few days ago" . I go on in grumbling a little, then after several heavy sighs, I just said "OK, I prefer that". And the so called negotiation ended. Of course we do not paid any indemnities but I gave them a little advantage about another clause of the contract. Even when you win, never humiliate your opponent and always try to give him a small reward. Of course, even when the balance of power is clearly on your side, things are not always so easy and we have to envisage all the type of situations

311-Opening:
As in chess game, the opening is very important in any negotiation. As the balance is for you, begin by stating your upper position and make clear that it is also your only possible solution. You have to opt for an aggressive opening but it's better for everybody to avoid to make threats, menace, insult and so on.

Down earth advice

Unfortunately, in many small business, people are not very polite. If you are too cool, be sure that they will think that you are weak. Consequently, I recommend you to be polite but to look tough once the negotiation is open. A firm behavior could prevent the other party to play the aggressive role.

312-Middle course:
Usually, during the middle course, each party tries to concentrate on the core of common interests. Negotiation then comprises common thought and not confrontation. Try as much as possible to change from being an opponent to advisor analyzing with him his own options. In the event of deadlock, proceed as follows: Re-clarify the common aims. Reformulate the questions that have been badly posed. It is sometimes just necessary to call things otherwise to free the situation. Faced with an option, rather than refusing it, propose another option. Remember, as a last resort, the negative consequences of failure for the other party. Always stay calm when your opponent becomes aggressive. Disassociate yourself to remain in control of your emotions. However, most negotiators try to manage a crisis during the middle course. When they feel that things are not doing in their way, they suddenly menace to leave the negotiation and so on. This crisis is a part of the negotiation and must be carefully prepared and managed. As the balance is on your side, you have interest to take the initiative of the crisis.

Down earth advice

A good tip is to have a colleague that plays the inverse role of you. You are the naughty and he is the good. When you have just attacked, he comes to appease. The goal is to destabilize the opponent with a constant mixture of hot and cold!

313-End of the negotiation:

Be very careful about the final minutes of the negotiation. You think that you have gotten your goals and you relax. What is more you want to be friendly with your opponent. It's at this time that an agile opponent can demand one-sided gains. You could agree because you have down your defense and sometimes you realize that these outside gains give to the opponent an advantage that you should have never conceded in the cursus of the negotiation!

32-Appease
321-Opening:
It's not your interest to attack. Just start with your upper position but try to explain it as fairly as you can. Insist on the idea that your goal is to find a common agreement with a

high value placed on the constant relationship between you and your opponent. Play the good Guy. Be courteous but nevertheless be firm to deter the aggressiveness of the other party.

322-Middle course:
Do not hesitate to make one sided concessions with the expectation that the opponent will reciprocate. You don't lost anything because anyway you should have been quite obliged to make these concessions. Consequently, go to the win-win position and try to defend it. Always say that you are seeking for solving a problem and not to gain a benefit. Explore and take in account the problem of the other party. Your fellow should now be the naughty. Let's him complaint and try to place you above the fight just as if you were a mediator between two parties! If you are under a strong pressure, use the following tips: Say that you do not understand, come back in the previous discussions, make your best to keep the debate unclear and confuse. By the end your opponents can lose the follow of their arguments and concede a card just because they have been too much confused! On the other hand, prepare to face a crisis. The opponent will say that they are losing their time, that you are incompetent, that they have never experienced a so stupid bargaining. No matter. Keep cool and play the outrageous dignity. Give a feeling of culprit to your opponents. Bored by this feeling, they can left you more advantages than you expected!

323-End of the negotiation:

Thanks if you have survived. If the result is too bad, you always can ask for a delay. Anyway, when you have given your agreement, you have to respect it. A person who does not respect his parole is "burned" on the market place.

External readings:
Go to www.pertinent.com and click on negotiation. You will find here a lot of short articles regarding all the tips used by a famous negotiator. Go to http://negotiations.org . Click on "major negotiations topics" and you will find interesting papers about culture and negotiations and about regulatory negotiations: This paper deals with the negotiations between you and the government agencies. It's a must for any business! Go to http://peerspectives.org . Click on "Building and inspiring an organization" then click on negotiation". You will find here 6 quick reads. I recommend you "Art of smart negotiation". 1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

Lesson summary
Business life is a permanent negotiation with others people who are defending their own interests.

You have to know your files, to define you goals and to schedule a strategy.
Any negotiation must be carefully planned: There are two main strategic movements depending on the balance of power: The balance of power weights in your favor:

Attack and destabilize the

opponent. You can get the deal closed in a short time!

The balance of power does not weight in your favor: Appease or attempt to convert. 1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

DO IT YOURSELF:
Just like for the programming communication, you have to find some opportunities to

apply these principles in your daily life.

You can perform the following exercise: Read the survey about Ecology in "global leader" and meet a friend or a relative who is interested by this topic. (Today, many people are aware about ecological problems). Ask your interlocutor what is his point of view about the global warming. Knowing it, try to defend the opposite point of view. Make your best for persuading him as if it was a real negotiation! Then, repeat the same exercise with four successive interlocutors! Take notice of the progress you have made since the first discussion. Analyze your strengths and your weaknesses. This analyze is not related to the content of the case but to your ability in persuading! Report these results on your log. Count about five hours to perform these five exercises. 1. General Principles 2. Preparation 3. Negotiating Techniques Yourself 5. Coaching 4. Do It

FW27-RAISING MONEY

YOUR POSITION
Look at the map MAP

145 days before opening.

1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

INTRODUCTION
Many web sites are telling that it's not difficult to raise money. Don't listen them. It's very difficult to get money from other people and to say the truth the best way is always to work with your own money. It means that you have to establish a plan and a strategy in order to raise the money. You cannot ask everybody, everywhere. You have to follow a fund raising program in beginning by the easier steps and going to the harder. What is more, you will have to use your skills regarding communication and negotiation!

Duration
Lesson: 1,5 hours External readings: 1,5

Do it yourself: 40 hours Total: 43 hours

Objectives
Our objectives are to show you:

-How to estimate your savings and the money coming from family and friends -How to raise money from biz angels -How to obtain a bank loan By the end , you will know the real money that you can expect for starting your business.
1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

1-PERSONAL SAVINGS
The first step is to know the amount of personal money that you can invest. It's a quite easy step! You can use the money set aside or sell some assets you do not need. We recommend to be cautious because many events such as illness can happen. You must always have a little bit of personal savings.

External reading:
Go to www.pncbank.com . Click on "pnclearning link". This site shows how to deal with all the needs coming from events such as illness, wedding and so on. It could enable you to evaluate what is the real amount of savings you can dedicate to start a biz. What is more, many people has no money at all. It means that in many situations, you have to find money from other people.

Real life example:

In developing countries, I have often observed that middle class people were very reluctant about the idea to raise money. They feared to look poor or to appear like beggars.

On the contrary, the wealthy people did not hesitate to raise money from other people. What is more, they were very cautious about their personal savings! Consequently, we must recall the following basic notions: -The business world is made up of companies. -Why were these companies invented? -Answer: So that people with ideas could find money. You have an idea. You are therefore going to propose this idea to other people in order to create a company. We shall examine the strategy regarding private people (family, friends, acquaintances), business angels and venture capital, and finally the banking system. 1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

2-HOW TO RAISE MONEY FROM PRIVATE PEOPLE

Private people mean your family, relatives, friends and the persons who are living around you. Regarding these people, there are some general rules to follow.

21-General rules
As you have not much money, your only asset is your idea. It consists in selling goods and services, but you must first "sell" your idea to collect the funds to start the business. It means that your idea must be attractive.

211-The idea must be attractive

Let's suppose that your project is very profitable because it must earn you $100,000 in 5 years for $20,000 invested. If your personal savings only amount $10,000, the idea must enable you to collect the $10,000 you are missing! Your idea must satisfy an emotional or intellectual need for the people you are offering it. In short, your future business associates have their own vision, to which your idea must correspond. Let us take two examples: First example: Your project is to equip a trawler to fish for shrimps in the Caribbean. The world shrimp market is growing and your project could prove very profitable. Second example:Your project is to create a luxurious hotel on a Caribbean island.

The first idea will be more difficult to "sell" than the second. The first makes you visualize sailors handling shrimps. It is not clean, it smells bad, it is not attractive. The second idea on the other hand makes you visualize a 5 star hostel with beautiful people! This idea is pleasant to imagine. It will please more easily. It will be easier to sell in order to collect money. In short, it is better if your idea calls money and luxury to mind rather than hard work in difficult conditions! Your idea must flash! In our case, a toy fabric is in the medium between the two previous: Toys call for sympathy and many adults play with the toys of their kids!

212-You have to be a salesman

It isn't enough for the idea to flash. You have to flash, too! In order to "sell" your idea, you have to transform yourself into a salesman with the relevant qualities. -You must have a business plan In order to convince your future partners, you will have to supply them with your business plan. In fact, use mainly your Executive summary that will form the basis for all your contacts. File the studies (market analysis, technical study, financial projections and so on) in folders with removable pages so that you can remove or add details depending on the person you are speaking to.

213-You must adapt your objectives

Associates participate in the risks and the profits made by the company. You share the equity and the losses, but you also have to share the profits. In our example, if the capital of $20,000 is shared between yourself ($10,000) and two other associates who both contribute an additional $10,000, after 5 years you will earn $50,000 instead of $100,000! To compensate this dilution effect, you have to find some tips: For example, envisage to increase your salary as manager in order to compensate the dilution of your capital!

214-You have to be cautious

Having to share the capital is not the best issue. This is just one more reason for you to be rigorous. -Beware of false promises. Check that your future business associates are financially solvent. -Always demand contributions in cash. Refuse contributions in kind, which are always difficult to evaluate.

-Follow the golden rule for partnerships: Always make sure that you or your family remain in control of the company -Pay special attention to the company statutes. Always consult specialists in this area (lawyers). We will now explain how to proceed to raise money from different categories of private people.

22-Your family
The simplest way of supplementing your equity is to call on members of your family. In many merchant communities, it's the traditional way to get money. If you do not belong to these communities, the task is more difficult. Never borrow, but ask your parents, brothers and sisters to buy shares in the business. You will need your mission statement and a preliminary project, since decisions in the family environment are often based on affection.

Down earth advice:

Be very careful since family relations are expected to last lifelong. Do not obliterate your capacity to inherit. You have to think and plan your family fund raising. Avoid to ask your brothers or sisters: It could be a cause of conflicts. Avoid to ask your parents because you would have to bear their lasting authority. On the contrary, favor the grand parents (Great Dad if you are a girl and great Mum if you are a boy). In large families such as in India, target the old uncle or aunt who have no child: Implicate them in a biz is a good way to get an inheritance that you would not have obtained by the natural filiation!

23-Friends and acquaintances

The second way to get money is to tap in your friends and acquaintances. It isn't as simple as that! You have to find people with money. You need money and not only acquaintances or friends!

Down earth advice

A common adage says that the best way to lose a friend is to lend him some money and reciprocally. In fact among the circle of friends, some of them can be eager to participate to a biz. It means that you must target people on the basis of their business awareness rather than on the quality of the friendship you have with them.

If your best friend mainly shares with you the passion of sea surfing, it 's not the most appropriate person to start a biz in selling pizzas! Anyway, you have to ask yourself the following questions: Who and How?

231-Who?
In fact, there are people with money all around you and you already know some of them: Your doctor, your dentist, your notary, your lawyer, the key tradesmen from whom you usually purchase your daily requirements.

Down earth advice

This advice applies mainly in small towns or rural areas where everybody know everybody. If you live in a big town, you could find these persons through associations such as charities, college alumni, cultural groups and so on. I already recommended you to apply for membership in the most associations you can and to make you visible in delivering voluntary activities and speeches on general topics such as ecology, economy and so on. You can focus on medical and health care professions: These people make a lot of money but they are bored with their jobs. They are eager to find some fascinating opportunities!

Real life example:

As investor consultant, I met a lot of doctors, surgeons, architects and so on who want to invest their large personal savings in some business. Most of the time, I realized that they were blindly ignorant about the business rules and nevertheless eager to enter in the most risky ventures (notably the women!).

232-How?
Your idea must flash and be very profitable. These people will only be interested in your project if you can persuade them that they can achieve very high financial rewards in a short time. In concrete terms, you have to convince them that they will multiply their investment by 5 or 10 within 3 to 5 years! Remember the two following principles: No big money expected=No associates. No quick money expected=No associates From a practical point of view, here's how to proceed: -Contact people you know already either in person or by telephone and ask them to give you three minutes of their time.

-These people are no financial experts. For your initial discussion, you won't need a 60 page business plan. Your mission statement and preliminary project will suffice. -On the other hand, you need to attract them by talking about the huge profits they could make. Attracted by the possibility of making big money, their judgment will be altered and they will be less demanding in terms of project content! -Show them a simple graph describing how much $1,000 invested in your project now will be worth in 3 years.(Use the return on equity and the cumulative cash flow projections) INVESTMENT: $1,000 YEAR 1:------ $4,000 YEAR 2: ------$7,000 YEAR 3: -----$10,000 Compare this development with an ordinary business which would earn between 8 and 10% per year (i.e. $1,330 after 3 years compared with $10,000 with your project!) Talk about your project as a treasure island! Don't be afraid to exaggerate. The bigger the bait, the easier your message will be accepted! On the other hand, be prepared to answer the following question: "How can I get my money back in 3 years time?" You have 4 possible answers: 2 wrong answers and 2 right. -Wrong answer: "You will be paid dividends every year". Do not make rash promises. The payment of dividends would reduce your available cash, and you will not definitely be able to pay such high amounts every year -Second wrong answer: "You stay in the business, and your $1,000 might turn into $100,000 in ten years". Your prospective investor doesn't care about what may happen in 10 years. He wants to be sure that he can get his money back in 3 years. -First right answer: "The market is very competitive. In 3 years time, we'll sell the business to a big company for 10 times its starting price" -Second right answer: "In three years, we'll float the company on the stock market and you'll be able to sell your shares for 10 times as much as they're worth now". You can choose between the 2 right answers depending on the person you're speaking to. For example, don't talk about the stock market to somebody who has never speculated!

Real life example

Be very careful about the time and money you spend in contacting these people. People always agree to meet you when you invite them to have dinner in a fine restaurant. Most of the time, they only pay you with lip service. I knew a poor guy who had organized cocktails and lunch with a lot of people during one year without having collected a single dime. By the end of the year, my guy had spent more money in lunch than the funds he expected to get for completing his equity! 1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

3-BUSINESS ANGELS AND VENTURE CAPITAL

After the relatives, the friends and the informal relations, the biz angels are the main resource for funding. About business angels, it is currently said that their available money is more abundant than existing business ideas: You have just to tap in it. Be careful. It's not so easy and with the Dot-com crash, business angels are becoming very cautious! Keep in mind that an average of 100 projects are examined for every one selected.

31-General rules
All that we have said about the private persons are enhanced regarding the business angels: Your project needs to be profitable in a very short time and you will need to prepare the two right answers about how they can get their money back. What is more, you are dealing with professionals who know more about business than you do. Consequently, you must present a complete and irrefutable business plan. If you do not satisfy these three conditions, your project is very unlikely to be selected.

32-How to join them?

Clubs of business angels or venture capital exist all over the place. You can find their addresses from your local chamber of commerce and on the web: ( See "other links by the end of the course). Although most of them are in the US or United Kingdom, don't hesitate to send them your summary even if you are living in India or other countries. Nevertheless take the time to read carefully the advices they give on their web sites: Some are specialized by sectors and it's fruitless to send them a biz idea outside the sector they cover. Some are specialized by geographical areas. If you are living in India, do not apply

for a biz angel who only covers the middle west! Some indicate the minimum or maximum amount of money they could invest. Take notice of these information's.

Down earth advice

As it's difficult to be selected, take the time to carefully target the business angels according to the characteristics they indicate on their web sites. Be reasonable in your capital requirement. If you have only invested $10,000 don't ask $10,000,000! Anyway, Business angels focus mainly on 3 facts: The idea, the gross margin, and the quality of the team. Put these facts in good place in your presentation. You can also join the biz angels through some directories but I think that the best way is to look for a direct contact.

33-What is the process?

Most of them agree to receive the executive summary by e-mail. More they receive, and more they have a big choice to select the best.

Down earth advice:

Try to get a first appointment before sending you executive summary. For example, make a cold call and say " I am calling you because I have your name from X or Y". It should give the feeling that you already belong to the biz community! Thanks for this prior meeting, you can tackle with that your biz angel is expecting. Consequently, correct your executive summary before sending it. What is more, if your idea is bright, it's better to expose it shortly face to face, instead of taking the risk to be rejected on your writing skills! They shall read your executive summary and you can expect a quick answer. If their opinion is positive they will ask your complete business plan. If they feel that your project is worth to be examined, they will call you for a meeting. You have to negotiate and finally you can get a positive and final decision. Be aware that all this process could get a bit of time.

Down earth advice:

You will meet either young golden boys or old crocodiles. In negotiating, be a tough guy. They don't care for you. They just want to benefit from your idea. There is not any room for good feelings in business!

Be speedy. Do not implore them. Do you finance my project: Yes or no? If they can't make up their mind, do not lose your time. Give up and look for another biz angel. Compared to family and friends, the great advantage of business angels and venture companies relies on their ability to provide you with "smart money". It means that beside the money, they can also bring experience in management or in other fields useful for your biz.

External readings
Go to www.iversonsoftware.com and click on "success tools" and then on "How to raise money for starting your business". Then go to www.powerhomebiz.com and click on "financing your biz". You will find here some information's about "free money" that is to say grants distributed by public agencies in order to help small biz. These two web sites will provide you with a lot of complementary advices. Scroll the two entire sites because their content is specifically adapted to small biz needs.

34-Fundraising
In most countries, flotation on the stock is monitored by regulatory authorities. In general, a small company cannot be listed on the stock exchange unless it starts out with a large capital and is already very well known. On the other hand, even if you can't yet be listed on the stock exchange, you can collect money from the public by using modern Fund raising methods. The principle is as follows: Instead of asking for large amount of money from a few persons, collect big money by asking for small sums from thousands of individuals contacted by advertising. Be aware that regulations in certain countries forbid this type collection. In practice, proceed as follows: -You pay for an advertisement in economic / financial newspapers, backed up by a direct mailing sent out to self employed professionals and key tradesmen. Information you supply should include: Your mission statement, prospect of making a profit, shares people can buy: 100, 500, 1 000$, where you can be contacted: Phone, e-mail, fax. -Invite everybody who has replied to a luxurious hotel and present them your business using diagrams and graphs, just as you did previously for the private persons. (Insist on the prospect of making a profit, present your business as a one-off chance that only comes along once in a lifetime etc.) After the meeting, register share reservations. You can organize this type of meeting in several different towns so that people don't have to travel too far.

-Invite everybody who has made reservations to meet your lawyer. This is when they will pay for their shares. The method appears simple and seductive, and is often used for charities. Let us suppose that we want to finance a dispensary worth $50,000 in Mali. We spend $100,000 on advertising. We obtain $150,000 worth of donations, and are able to put the dispensary in place with our margin of $50,000. However, in your case, you aren't trying to finance a dispensary! If you spend $100,000 on advertising to collect $150,000 worth of contributions to your equity, your accounts will have to show $150,000 equity and $100,000 expenditure on advertising. In concrete terms, this means that you will record a loss of $100,000 for this attempt to increase your equity. With methods like that, you'll be bankrupt in no time! In fact, you must never spend on advertising more than 10% of the amount you want to collect. Now, if we consider that: -For every 1 000 people affected by your advert, even though it was targeted, only one will end up paying you any money in the notary's office, -In order for 50 000 people to receive your targeted mailing, in the USA you would have to spend approximately $50,000 (1 dollar per letter), -At most, you can expect 50 people to be present at the notary's office. -Each person must therefore pay $10,000 to complete the operation: $10,000 x 50 = $500,000 collected for $50,000 worth of advertising. Note that an operation of fund raising like this is a project within your project. It requires market studies and several consultations with advertising agencies and legal firms.

Down earth advice:

I don't recommend such a method: The campaign cost is definite. The result is always random. If you fail, you will have wasted your money on nothing but hot air.

External readings
If you are nevertheless curious about fund raising go to www.raise-funds.com . You will find here a complete web site dedicated to this fascinating topic! 1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

4-BORROW MONEY FROM BANKS

We advise you about the risks of borrowing money from your parents or friends. Consequently, we will restrict ourselves to borrowing from banks.

41-General rule
The advantage of taking out a bank loan is its lever effect. If you borrow money at 10% and if your return on investment is 50% per year, then it's obvious that the more you get into debt, the richer you will become! Although sharing your capital decreases your prospect of making a profit, as we have seen (the dilution effect), getting into debt increases it. If you aren't making results, the lever effect turns into a bludgeon effect and you are in danger of not meeting your payments. This would be the case if, for example, your return on investment is only 8% whereas you are paying the bank 10% interest.

Real life example:

The dot-com and telecom companies have made an extensive use of the lever effect! As a result, they are today heavily indebted. As their expected profits have turned into big losses, their stocks are currently falling down and they must fire a large part of their staff. There is a perfect illustration of the bludgeon effect. Working with money belonging to other people is always tempting, but you must remember that a new company always has problems getting bank loans (statistically your chances are 1 in 100). Observe the following notions: -The rule of 1 for 1: There is no point going to see a banker if you're going to tell him: "My project costs $100. I've got $20. Lend me the $80 I'm missing". A banker always applies the 1 for 1 rule. I'll lend 1$ for every 1$ the promoter invests in the business. What is more, the banker analyses all the company's needs: Let's take a toy factory as an example: There are $10,000 worth of investments. You pay for equipment and salaries all year round, but sales are only made at Christmas. You therefore require a cash flow of $15,000 until Christmas. Your total financing requirement is therefore: Investment: -$10,000 Cash flow:--- $15,000

Total:------- $25,000 If we apply the 1 for 1 rule: You contribute: -------$12,500 The bank will lend you: $12,500 -The rule 1,5 for 1: For a new company, the bank generally demands guarantees worth more than the amount they will lend you. If the bank lends you $12,500, they will require guarantees worth $18,000. Since the company is new, it does not have many guarantees: Its land and machines may be worth $6,000. So you have to expect the bank to ask you for an extra guarantee of $12,000 on your personal goods: a mortgage on yours and your spouse's house. Here is our advice in this situation: Never give personal guarantees and consequently do not approach banks for financing the start up of your business. Go to banks only once your business is 2 or 3 years old.

Real life example:

Too often along my banker career, I have dealt with poor guys heavily indebted, unable to repay and who had given personal guarantees such as their family house. It was like a tragedy not only for the borrower but also for his spouse and kids. A new biz is always a very risky deal even when all has been carefully evaluated. You are required to invest your savings and may be the savings of some private fellows and relatives. Don't engage any more! It's a good bit of advice! Try to recall it. If you follow this advice, you can take out a loan only when your biz is three years old either to increase your production capacities (investment) or to finance short term cash flow requirements. We will now look at these two objectives.

42-Target your goals

Firstly, you have to clearly define what you want and what the banker is expected to want. As you shall see, some of the objectives are quite opposed!

421-Your objectives:
You want to: -Find the financing you're missing

- Find it at a cost (interest rate) that does not burden the profitability of your business, -Find it quickly -Avoid giving any guarantees that are higher than those the company can offer.

422-The banker's objectives

The banker is generally a senior executive. What is his motivation? -His management has given him objectives to achieve in terms of turnover. He must therefore negotiate as many loans as possible. -He has objectives in terms of margins. He has to lend money at the highest possible interest rate. -He must take as few risks as possible. He must therefore ask for as many guarantees as possible. -He must justify to his management that his decisions are founded. He therefore requires detailed, thorough, extensive studies that he probably won't even read. Considering these banker objectives, there is at least one that you can easily satisfy: Product many surveys. The more documents you give him, the happier he will be. It's the nature of bureaucrats to be reassured by paperwork!

43-Negotiation
Time is coming to apply that you have learnt in the "negotiation module"

431-Initial meeting
You have several trump cards: -There are more and more banks having to compete against each other -Your company already exists (Recall that it's our hypothesis in this case). Your company's accounts are already with this bank. You are well known there. You have a good reputation (You are always smiling, always polite to the staff, you give them little presents at the end of the year and give chocolates to the secretary whenever you come in etc.) -You have the largest possible file to support your demand. Do not attempt to exaggerate prospects for making a profit. Unlike an associate or a business angel, a bank executive is not interested in becoming rich. Figures that look too promising could even make him jealous and less favorable to your request -On the other hand, stress how careful you are, and emphasize the lasting nature of the company, its financial solidity, the serious way in which it is managed, its earnest social policy etc.

Then, You present your file: Watch your banker's reaction closely: -He shows a degree of interest: "Your project seems interesting. I'll take a look at it". -He is reserved: "Write me. Send me more information's on paper". In the second case, give up. Do not get dragged into interminable delays. Withdraw your accounts from this bank and go somewhere else.

432-Content of the loan:

Your loan must be suited to the object it is financing. Let us look back at the example of the toy factory. For example, you need $10,000 for extra investments and $15,000 for cash flow requirements. The 1 for 1 rule still applies, but it can take into account the equity that already appears in your results. The banker will demand a contribution of 50% for the investment, i.e. $5,000 but in view of your previous accounts, he may accept to finance the bulk of your cash flow requirements. However, let us suppose that the 1 for 1 rule is applied strictly. The bank's $12,500 loan will then has to be split in two according to the following diagram: $5,000 $5,000 $7,500 $7,500

Investment

$10,000

Equity: Medium term loan: Equity: Short term loan:

Cash flow requirements

$15,000

Question: Why not finance the entire investments yourself and use the whole bank loan for your cash flow requirements? Answer: The money financing the investment is stuck for a long time. The money financing the cash flow requirement is repaid at Christmas when sales are made. In order to avoid immobilizing too much Cash, you have better to use a part of the bank loan for your investments.

433-Term of the loans:

Medium term: -Check that the term of the loan is equal to the life time of the investment it is financing.

-Choose the lowest possible interest rate. If the rates are high, choose a shorter loan in order to avoid interest payments. Short terms: -Prefer an authorized overdraft facility that limits paperwork and gives you more freedom. -Watch out for rates that are excessively high. Negotiate as hard as you can, or you will find yourself working for the bank!

434-Other conditions:
-Limit the guarantees to those that can be given by the company. Mortgaging land and securing machines for a medium term loan; for a short term loan, bank domiciliation for invoice payments and securities in its favor -Check all the clauses of the bank loan thoroughly: Refuse any obligation to buy new equipment -Refuse any obligation to take out full risk insurance for equipment and vehicles. -Read attentively all the conditions regarding loan installment payment. If they are any restrictive clauses, refuse to sign and see another bank! You have already lost a lot of time on paperwork and formalities trying to get a loan. You should not lose any more time obtaining the funds

Real life example:

It happens that the bank manager comes to a decision that makes the clerks unhappy because their unfavorable advice has not been followed. In this case, I have often observed that they had fun in writing specific conditions which practically prevent the customer to withdraw the funds!

435-Before signing the loan contract, ask the opinion of a lawyer.

44-Relationship with your banker

Loans are based on trust. In order to maintain this trust, you must have a permanent relationship with your banker. -Show him round your company. Clerks are always happy to get an opportunity for leaving their desks and make a promenade! -Go and see him regularly and chat with him. Ask him for advice every time you visit him. He will be flattered, and you don't have to take the advice he gives you. -At the same time, give him information about the market situation or about the competition. Avoid being overly critical of your competitors!

Real life example:

Every banker considers his customers just like a school mistress considers her pupils! I recognize that I ever indulged for customers who currently visited me to talk about the market situation. In fact, they usually told me horrible stories about their competitors but when one of them was also my customer I was happy to hear about some facts that I ignored because he never visited me ( the typical bad pupil!) -Before he even asks, provide him with studies, management data charts, provisional or definitive company accounts. -In case of difficulties, go and see him immediately. He is there to advise you.

External readings:
Go to http://tenonline.org . There is the Entrepreneur.Network: A very useful web site dedicated to small biz. Click on "Score" and you will read two good papers from Jerry Chautin and Jerry Glen about how to get loans from banks. 1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

Lesson summary
1-The first step is to know the amount of personal money that you can invest. We recommend to be cautious because many events such as illness can happen. You must always have a little bit of personal savings. As you have not much money, your only asset is your idea. It consists in selling goods and services, but you must first "sell" your idea to collect the funds to start the business. 2-Firstly, you can target your family, friends and local or close relation. You must target people on the basis of their business awareness rather than on the quality of the friendship you have with them. 3-After the relatives, the friends and the informal relations, the biz angels are the main resource for funding. Keep in mind that an average of

100 projects are

examined for every one selected.

What is more, you are dealing with professionals who know more about business than you do. Consequently, you must present a complete and

irrefutable

business plan.

4-Working with money belonging to other people is always tempting, but you must remember that a new company always has problems getting bank loans (statistically your chances are 1 in 100).

Never give personal guarantees

and consequently do not approach banks for financing the start up of your business. Go to banks only once your business is 2 or 3 years old. 1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

DO IT YOURSELF
1-Follow the action plan outlined below:
Action 1. Assess your own means 2. Approach your family You now know the amount of your equity: yours and your familys affectivity X = --------------------------$10 000 3. Approach external Brilliant and associates profitable idea 4. Fund raising from Ditto + advertising the public You now have the necessary equity to start : X = $20 000 5. Approach your bank Complete business plan Means Examine your accounts Objectives Starting point

The company has been operating for 3 years- X = $40 000 (1)

(1) If we apply the rule of 1 for 1

You provide:--------------------------------------- $20,000 The bank will lend you:------------------------------$20,000 Total:-----------------------------------------------$40,000 Finally, You started out with 1$ and have attained 4$.

2-Minimum timing:
It's difficult to predict how much time you will need for getting this money. Family and close friends or private relation: of contacts, meetings and formalities.

1 month. It means about 40 hours

It's the only figure we can retain in our global program. Once again , I encourage you to start with your own and private saving. No matter you start small but it's very important to start quickly because it is quite impossible to keep a high mental pressure on a period over than one year. Afterwards you risk to despair or just to change your mind! Business angels:

3 months 6 months.

Banks (first contact):

Useful links: URL:

www.zizzoo.com/guides/venturecapital/index.php : Learn how to acquire venture capital for your business. Help your business grow by giving it the funding it requires. www.cockburn-group.co.uk : Independent Consultants, Banking Advisors and Corporate Finance Brokers. www.ecosse-intl.com : Independent Consultants, Banking Advisors and Corporate Finance Brokers. This web site provides advices and services for ex-pat and offshore. www.us-government-money.com : Free money grant and loan information resources. Helpful resource for obtaining a grant or a loan for small business. www.pensiontransfers.net/resources.htm Fund Your Business From Your 401K or IRA. Pension Transfer Advisors offers an IRS-approved plan which allows you to fund a new business with monies from your 401k or IRA account - with no taxes or early-distribution penalties. www.businessfinance.com www.equityinternational.com www.nationalbusangels.com www.businessjeeves.com www.businesspartners.com Never despair. Constantly expand your vision. Never forget that it is your main weapon.

Visualize!

1. Personal savings 2. Private people 3. Biz angels 4. Banks 5. Do it yourself 6. Coaching

FW28-PROJECT MANAGEMENT
YOUR POSITION
Look at the map. MAP

115 days before opening.

1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

INTRODUCTION
Once your preparation is finished, the project can be implemented: It means project management: Executing and controlling. Project management implies very precise techniques. Your role is to implement a real business in using project management techniques. It means that you are reaching your no return point!

Duration Lesson: 1 hour

External readings: 4 hours Do it yourself: Implementation (45 days) Total: 5 hours

Objectives:
The objectives of project management are to show you:

-How to define and schedule your project objectives. -How to cope with the investment decision making process. -How to follow your delays and your starting costs budget. By the end of the course, thanks for the project management techniques, you will implement your biz.
1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

1-SET UP YOUR OBJECTIVES.

Project management is the application of a broad range of knowledge's and skills tools and techniques to realize a project The fist step is to set up a precise objective. In our case, your objective is to have your business operational . This objective must satisfy three characteristics: It must be unique. Somebody who tries to achieve several aims is in serious danger of achieving none of them. It must have a date. There must be a precise dead line: It must be measurable. In the business world, an aim is measured in dollars: For example, my starting costs must not exceed $20000. Obviously, to achieve an unique aim, you will need to set yourself intermediary aims. To achieve these, you will also need to set yourself interim deadlines, which we call milestones. In our case we have a dead line: According to the program you must open your business within three months!

As for the measures, you have your budget of starting costs that you have finalized in FW24 (Check up point). Of course this budget must be your ultimate law. You must not overpass it. That is a question of death or life for your business!

External readings:
Go to: www.tenstep.com . Click on "Define" and "Work plan". This site shows a methodology about the preparation of small and medium projects. 1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

2-IDENTIFYING AND SCHEDULING THE TASKS

Your objective being well defined, you have to identify all the tasks you have to perform.

21-Identifying the tasks

The tasks are the action you have to conduct in order to realize your project. We have already seen this process when studying the manufacturing process. We shall recall the tools you can use in adapting them to the global project. Once you have described the tasks you will plan their implementation with a timing. Very often, this timing will show that you can modify the tasks or that you have omitted some of them. Regarding the timing, you have to correctly forecast the time length of the different tasks. Very often, people underestimate the time and it results in delays and additional costs. Consequently, allot a time limit for each task. We shall use once again the simple example of the John project: Implementing his travel agency. In order to open his travel agency, he must: -Find the premises in town: 3 weeks -Negotiate the lease: 1 week -Recruit a secretary: 3 weeks -Buy a computer: 1 week -Buy a vehicle: 2 weeks -Recruit a driver and a guide: 1 week -Advertise: 4 weeks

In adding the length of each task you get 15 weeks. Thanks to some advanced tools, you can reduce this global time.

22-Tools
We have said a word about these tools in the manufacturing process but we shall be more specific.

221-Gantt chart:
We recommend to use a Gantt chart. It's a very easy tool. Firstly, you report the tasks in the following table and for each task, you determine the previous stage. 1 Find premises in the town 3 weeks Previous stage 0 2 Negotiate the lease 3 Recruit a secretary 4 Buy a computer 5 Buy a vehicle 6 Recruit a driver 7 Launch advertising 1 week 3 weeks 1 week 2 weeks 1 week 4 weeks 1 1 and 2 1, 2 and 3 1 5 1, 2 and 3

-In order to negotiate the lease, you must have found premises: Stage 1 - In order to recruit a secretary, you must be in the premises: Stages 1 and 2 -In order to buy a computer, you must have completed stages 1, 2 and 3 -Once you have premises and a parking, you can buy a vehicle: Stages 1 and 2 -In order to recruit a driver, you must have a vehicle and a secretary to prepare his pay : Stages 1 to 5 - You can launch your advertising campaign as soon as the lease has been signed: Stages 1, 2 and 3 Secondly, you report these information's on the Gantt chart. You have already seen how to use it in FW16. Many computer program are available on the market place and they are a must for complex project. In the case of your small business, I think you can write down and establish this chart more quickly with a pen and a paper!

222-Critical path analysis

Critical path analysis is a more complex system. Starting from the table above, you try to visualize all the time lengths and tasks on a graph whereby the figures in brackets show the number of weeks required for each task. 1 PREMISES (3) 2 LEASE (1) 5 VEHICLE (2) 3 SECRETARY (3) 6 DRIVER (1) 7 ADVERTISING (4) The graph shows that you can manage the project in 10 weeks. It means that you have gained 5 weeks compared to the 15 weeks represented by adding each task together! AIM 4 COMPUTER (1)

223-PERT
Pert means Program Evaluation and Review Technique. Just like in our quantitative analyze, it introduces three options for each length of time for a specific task: The shortest possible time, the most likely and the longest. Then a formula gives the probability of the real time. You will find it in the next reading.

Down earth advice:

Do not increase the options and calculations. Regarding a small biz, allot reasonable time to each task and respect it. It means that when you are in late, instead of write down new graphs, options and calculus, just work more! For example 14 hours per day instead of 10. Do you get it!

External readings
Go to www.mindtools.com. Click on "project planning and management skills". Then click on "Gantt chart: planning and scheduling middle size project" and finally click on "Critical path analysis: planning more complex project". You will also find here some tools for the PERT analysis. 1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

3-INVESTMENT DECISION MAKING

You have now to really buy the different equipments that you need. They can differ according to their price and you have to focus on your starting cost budget that you have yet estimated. According to the category of investment and its impact you have different tools to use.

31-Strategic decisions
Strategic decisions correspond to heavy investments that can affect your entire business: It may be the buying of a building, the buying of an important machine or equipment. You have to use two tools: The net present value and the internal rate of return

311-Net present value

Let's suppose that John intends to buy a bus that costs 100. Firstly, he calculates the life duration of the bus: For example 5 years. It means that the calculations should be limited to the next five years. Then, he calculates the cash flow produced by the equipment. It could be the following sequence: Cost ----year 1---- year 2---- year 3---- year 4---- year 5 100 ------30--------- 30-------- 30-------- 30--------- 30 At fist glance, the investment yields 150 for a cost of 100 but this result do not take in account the time value. The time value means that a dollar to day has more value than a dollar in five years. So john must calculate the net present value of the dollars he expects to get in three or five years For calculating it, he must apply a discount rate to the cash flow sequence. How to choose this discount rate. The discount rate must take in account the risks of the operation. Regarding a new business I recommend you to just take a 20% discount rate. It seems to me a good average .

Down earth advice:

A common mistake is to choose the banking discount rate applied to day to day money or to the saving accounts. As this rate is ordinary low, all the projects show

a good profitability. It's a non sense. Your discount rate must reflect the risk of the operation. Another common mistake is to choose 10% just because it facilitates the calculations! When John applies a discount rate of 20% to his above sequence, it gives another picture: Discount rate tables show that the present value of one dollar with a discount rate of 20% is the following: One dollar--- year 1--- year 2--- year 3--- year 4--- year 5 1------------- 0,83----- 0,69------ 0,57----- 0,48----- 0,40 Applied to the bus investment of 100, it gives the following sequence: Cost ----year 1---- year 2---- year 3---- year 4---- year 5 100 -------25---------21-------- 17-------- 14--------- 12 For an investment of 100, you just get 89. It means that the investment choice is certainly not good. By the same way you can compare two different investments and calculate a profitability index. This index is given by the following formula: NET PRESENT VALUE OF FUTURE CASH FLOW (89 in our example) / INVESTMENT (100 in our example) = 0,9 in our example. Obviously the profitability index must be above 1.

312-Internal rate of return

The internal rate of return is the discount rate at which the discount cash flow in the future (that is to say 89 in our example) equalizes the value of the investment to day (100 in our example) In our example the internal rate of return should be about 15%. I do not recommend to use the internal rate of return to rank projects because it does not take in account the risk.

Real life example

Most aid agencies use internal rate of return for ranking projects in undeveloped countries such as Africa. When a rate of return is above 10%, the project is usually graded as an acceptable project. In fact, considering the risk, a project in Congo should have an internal

rate of return of 60% for being equally ranked with a project with an IRR of only 10% in Senegal!

External readings
Go to www.toolkit.cch.com . Click on "Business tools"and then on "Present value tables". You will find the tables which give you the present value of one dollar after X years and with a given discount rate.

32-Daily decisions
Business life implies many investment decisions that not require long calculations because the money at stake is not too much important. In this case, use the pay back period and the cross over analysis.

321-Pay back period

We recommend the easiest one: Pay back period This is how to proceed: We keep our investment of 100 and its useful life of 5 years. Then you calculate is average yearly cash flow over the period. In our example, it's 150 / 5 = 30 Its pay back period will then be: Amount of the investment(100) / yearly cash flow(30) =PAY BACK PERIOD= About 3 years The longer the recovery period, the higher the risk. Anyway, recovering period should not be longer than the useful life of the investment. It means that this investment has a yield of 30*100/100 =30%. Now lets compare this rate with the ROE of your company. Suppose that the ROE is 50% As 30<50, it means that in affecting money to this investment, your gain will be lower than the profit you get from the money affected to the entire company (your equity). It means that you will lower your global ROE. This investment deserves a serious examination: Would it be better to rent, could we obtain the same results by other means? On the other hand, if the gain of the investment is 75% you should engage yourself, because it is higher than your ROE. The investment in this case will contribute to increase your global ROE.

322-Cross over analysis

Lets' suppose that John has to choose between two vehicles:

Vehicle 1: Buying cost: $10000. Variable cost per miles: $0,20 Vehicle 2: Buying cost: $5000. Variable cost: $0,50 Firstly, you look for the cross over point, that is to say the number of miles at which the cost of the two vehicles are equal: It is given by the following formula: 10000-5000/0,50-0,20= 16,666 miles It means that above or below this number one vehicle is preferable. For example, let's suppose that you expect 20,000 miles in this case you make the following calculations Vehicle 1: 20000 * 0,20+10000 =14000 Vehicle 2: 20000 * 0,50+ 5000 = 15000 Vehicle 1 is the better choice. Now lets suppose that you only expect 15000 miles: Vehicle 1: 15000 * 0,20+ 10000= 13000 Vehicle 2: 15000 * 0,50 + 5000 = 12500 In this case, vehicle 2 should be a better choice. 1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

4-READY FOR EXECUTION

You will begin right now to order your equipments and to hire people you need. You must have two tools for controlling your progress:

41-The Gantt chart:

A blank Gantt chart is required. You report the length of each action and you compare with the scheduled timing. Delays are very frequent. You must control and correct them and not simply register them like too many people do! Remember that you have only 3 months. A delay must be absolutely compensated by a gain on the next task. If you are not able to make hard work for gaining time, you should have better to give up right now!

42-The budget chart control:

Compare each cost once it is realized with the previous cost. Do not only compare, correct! If a cost appears to be higher than previous, you must immediately compensate in reducing other costs. The budget is your own money. Do not take it easy. It means that you must constantly reanalyze your grid cost: Is this cost really useful ? Can I rent it instead of buying it? Look for cheaper opportunities among the suppliers, extend your investigations to find a really low cost, try to find free resources such as students during vacations and so on. In short, do not be passive, constantly react and pilot your project.

External readings:
Once again go to www.tenstep.com . Click on "manage" and you will find a detailed program for executing and controlling a project with a lot of additional tools. Just choose those which are useful for your business 1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

Lesson summary
Project management begins in setting goals: In this matter, we have a dead line:

According to the program you must open your business within three months! We have also a measure: It is your starting costs

budget finalized in FW24 (Check up point). You must not overpass it. That is a question of death or life for your business! Once you have described the tasks for implementing your business, you will plan them with a timing: For this purpose, you will use once again Gantt chart, Critical path analysis and PERT. You have now to really buy the different equipments that you need. For well establishing your investment decision making, you can use different tools: Net present value, pay back period and cross over analysis. You must have two tools for controlling your progress: The Gantt chart and the chart control enable you to supervise your costs and to stay in line with your

Do not be passive, constantly react and pilot your project.

budget. 1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

DO IT YOURSELF
You have now to buy all your equipments and to hire your first people.
It means that you have reached your no return point! You are engaging a lot of money and a stop should be a catastrophic failure. Visit again the web sites I indicated you in FW12, FW16 and FW24. What is more, explore the following web sites:

Useful links
Go to http://www.businessweek.com . Click on "Small business" and then on "Suppliers research". You will have free access to a data base of more 550000 distributors, and manufacturers in all key US industrial markets. Go to http://www.yahoo.com/business , www.buyerzone.com and to http://www.business.com . www.thetrade-world.com . You will find here directories about suppliers. Go to www.toolkit.cch.com . Click on "Business tools" . you will find here many samples of most of biz forms: Contracts, employment, IRS, and so on. A precious web site for simplifying your back office. Keep also in mind the help you can get from business incubation: Go to www.nbia.org Visit frequently an easy to use directory: www.sightquest.com : Online directory providing searchable topics such as health, business, computers, shopping travel, sports and more.

This implementation could take 45 days or more.

1. Objectives 2. Tasks 3. Investment decision making 4. Execution 5. Do it yourself 6. Coaching

FW29-MANAGEMENT
YOUR POSITION
Look at the map

MAP

60 days before opening.

1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

INTRODUCTION
All the MBA schools emphasize on leadership. Thousand of books are available in the US libraries on this topic. Sometimes it is said that you have to distinguish leader and manager. Leaders develop a vision, are able to communicate, or to share their vision with other people. Leaders define goals and are creative. They invent new concepts. On the contrary, managers solve problems and exercise authority. These distinctions do not apply to a small biz because you have to be both a leader and a manager! It's the real management.

Duration of the lesson: 1,5 Hour Duration of external readings: 3,5 Hour Duration of Do it yourself: 25 Hours Total duration: 30 HOURS

Objectives:

Organization gives a static image. We shall turn it in a moving image in showing how to easily manage. Our objectives are:

-To prescribe you the best business behavior -To show you how to set up objectives and manage their achievement. -To show you how have the things done and not doing them. By the end, you will discover the easy management rules.
1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

1-BEHAVIOR
A french proverb says that the clothes made the monk. It means that in society, everybody has a role to play and people who attend the comedy expect to recognize easily the role. As a boss, you cannot behave like a hippy. As we have seen in the communication course be very careful about your look and your behavior.

11-Leader or manager
As we have seen in introduction biz gurus claim that you must be both a leader and a manager

Real life example:

I had known a very creative and pro visioning leader. Obviously, he had all the qualities that the biz schools recommend. Unfortunately, he was unable to be obeyed by his own secretary. Despite the vision, the company had gone to bankrupt within a very astonishing short period! On the contrary, I had known many conservative boss who were very good managers. Unfortunately, they had no sense of humour! It is not easy to be both a leader and a manager! The VCM model: Vision, Commitment, Management describes how these qualities must be mixed in a single man.

The real problem is that it is difficult to really connect all these qualities. For example, many creative person are solitary and don't want to deal with people. It means that the concept of leadership defined as above is quite impossible to meet in one single person. So, we shall propose an empirical approach: What qualities must you have to succeed? These qualities are twice: You must be likeable because friendship is a key for a good salesman. In the same time, you must inspire authority because it is a core matter for a manager. As a businessman is both a salesman and a manager, you must gather these two qualities! Look at the following drawing which illustrates this new approach.

External reading:

Go to www.ivysea.com . This leadership and communication center is an award public-service web site designed to foster the spirit of conscious enterprise and inspired leadership. A vast array of topics enable you to revise and complete the creativity and the visioning modules. Go to www.eaglesflight.com. Click on "Harness leadership potential" and then on "Leadership articles" Go to www.academicleadership.org. You will find here a vast array of articles and essays that go to the major issues of leadership faced by those in leadership roles.

12-Friendship
Regarding friendship , the real measurement is your ability to make friends. A good leader has many friends. As a result, these friends expand your own visibility and your own vision. Then you get a leadership statute in your community. You can rely on this statute to start your biz. It means also that the customers will look for your company. In this matter, I invite you to go to the following site:

External readings
Go to www.dale-carnegie.com . Then click on site map and then on "dale carnegie's golden books" You can load and read these "golden rules" for free in your computer. It's the best lesson I have ever learnt on such a matter. I have read these books 30 years ago and I had been highly impressed by the optimistic view of the author. It is a good reading for the entire personal development course.

13-Authority
No authority, no management. The first you have to do is to show your authority, for avoiding to use it too much. I mean that you have to keep your distance with the persons you employ. Always remember that you have to reward but that you have also to reprimand them if they do not fill up their job. In such a situation, it's always a bad policy to make friends with people and worst to be familiar. Always be courteous but professional.

Down earth advice

It is said that a boss must share his vision with the employees: The vision should motivate people and improve staff productivity. Unproductive people in such a situation should leave the company spontaneously. Be careful about this advice: In continental Europe, labor unions rally the unproductive people and counterbalance easily the boss vision. As a vision is

subjective, it's easy to contest it and if you attempt to impose it you risk to be sued for moral harassment! Do you discuss religious or political matters with your staff? No and you are right. In the same way, do not talk about your vision with your employees. Just ask people to do their job! I know that this advice is quite the contrary of those you find in biz books. You have to understand that these books are dedicated to executive of big corporate's and not to small biz boss. Of course, a young executive is very often involved in some complex plan to climb in the hierarchy. He has to make friend with the boss secretary, he has to give a good and friendly image, he has to flatter everybody! It's not your situation! You have nobody to flatter and you don't care about climbing in the hierarchy! You are just the boss. Your own authority is the only thing you have to care about. You have constantly to check that your authority is respected. Make test to check it and do not take it easy. If your authority is going to be contested, be sure to get troubles with everybody.

External readings:
Go to the following sites: www.cio.com and www.venturecoach.com. They contain a lot of papers and stories about leadership. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

2-DAY TO DAY MANAGEMENT

Do not expect to properly organize your biz if you are not yourself a very well organized person. In organizing yourself, always ask the following question: How shall I organize myself to bring value to the customer. You do not organize for your convenience or pleasure. You do not organize to please the staff. You organize for the customer.

Real life example:

A lot of managers give a sad example : confused timetable, office encumbered with papers, disorganized activities, no singleness of mind, inability to keep schedules, sustained attention for insignificant matters while important ones are forgotten, urgent works carried out at the last minute, appointments to several persons for different interviews at the same hour, etc. I have observed that these defects were frequent among the managers appointed by favoritism in the public sector and who were working with the taxpayers money. On the contrary, you will rarely observe such defects among the real businessmen who are working with their own money.

21-Time management
I will only focus on six crucial theorems or postulates ( in fact down earth advice), that you could learn by heart and immediately apply: 1-Devote 80% of your time to important and urgent matters and 20% to accessory ones. It looks obvious but it's worth to repeat it! 2-Do urgent things first. Whatever important or accessory matters may be, they are sometimes urgent (for example: sending your income tax form within the required time before additional charge). 3-Start with the most unpleasant task and carry them out quickly. Among the unpleasant task, you will find all the papers to fill up for different administrations. Regarding income tax and so on, fill up them carefully or give the job to an external lawyer. As for others feed back, take the habit to fill up quickly. When you lack an information, do not lose your time in searching it in your files. Do not leave an empty case, because the administration should be happy to send you back the paper in asking you to properly complete it! Just write anything which could look reasonable and send the paper. 4-Set up a time allowed to each task and respect it Do not be perfectionist. 5-When you begin a task, do not interrupt it as long it is not completely finished An interrupted work is less effective and take more time than when it is done continuously. 6-Have a daily, monthly, yearly planning. Communicate this planning to your staff No daily planning = a wasted day.

22-Phone management.
Most of people recommend to have a voice mail and to return the calls in the evening or the next morning. I don't agree with that because people do not like to wait so long and notably your customers. So I suggest that you open your phone on the early morning for example between 8 PM and 9,30 PM. It enables people who have urgent matter to call you. Then you put your voice

mail from 9,30 PM to 5,30 AM. At 5,30AM you take the calls and you return them until 7 AM. Then you put the voice mail until the next morning. As for the email, check you box twice a day.

23-Meeting management
In a bad organized company, meetings are too often a loss of time for you and for the persons who attend. You have to carefully organize and plan your meetings: -There are some common rules: Every meeting need a preparation. In any situation, you chair the meeting. Never arrive in advance. It's a good thing to make people waiting a little (no more than fives minutes). You will have three categories of meetings:

231-Weekly meetings:
They are dedicated to follow up the company and sometimes to deal with some urgent problems. For urgent problems, you can organize a meeting at any times within a short announce. Otherwise, indicate to your staff that you will hold a meeting each week, on monday for example at ten o clock. Choose a day convenient for everybody. Do not put the meeting early in the morning or to late in the evening! Only invite those who need to attend. Beginning the meeting, indicate a duration: starting time and closing time. Ask someone to take note. Firstly, read the minute of the previous week. Do not allow people to chat or to come in late or to leave before the end of the meeting except if they ask permission for a real reason. By the end of the meeting, set up next steps and tasks to do.

232-Communication meeting:
It means that you have something to communicate to your staff or to other people. For example, it can be a meeting for your sales force. As the audience is larger, you can need a micro and a podium. You have to prepare you for the speech. Visualize it and train yourself several times. Never read your notes, never recite your speech, never get off the subject. Avoid to enter in too much details. Avoid computer, slides and transparencies. If it is necessary, use paper board or have a person to assist you for moving transparencies and preparing the meeting. A boss does not use such equipments. You have to command. A slide or a transparencies does not command! Rely on your note content, your voice tune and your look. Present the point, support it, sum up and close. Count about ten minutes and no more. Answer question at the end and group several questions calling for only one answer.

233-Social meetings:
It includes for example cocktails of new year, greetings of external participants and so on. Remember that every time people are in a meeting, a little speech is expected from you even if it has not been scheduled. In this case, you have to speak just like if you were improvising and in a cheerful way. Most of the time, you stand up with a glass in hand and people gather around you in an informal circle. Of course, you have to prepare you for the speech and to repeat it several time because it is a difficult exercise. When you begin, breathe at large. It will give you confidence. Never put your hands in your pocket. Just put your hand cross on the stomach: it's a peaceful posture and it enables you to lift your hand for underlining a fact and then to go back easily to your former position. Avoid to walk or to move in speaking. Anyway be short: two or three minutes are sufficient.

234-Official meetings:
Sometimes, you can have to deliver a short speech in a formal manner. In this case, establish a writing text and read it very slowly. You could then give this text to people who require it. Act in this way, when you have an important message to deliver to the press.

235-Toasts:
Ending an official dinner, it is usual to deliver a little speech and to address toasts. In this case you have better to write your text but you must not read it. Be short: No more than one minute. It is always the host who opens the toasts. If he says nothing, of course do nothing. If it's you who invites, at the end of the dinner click on your glass with a fork to call for a silence. Then, either you stay sitting if it is a small audience, either you stand up if it is a large one and you deliver your speech and toast. In foreign countries, check the habits with you embassy.

24-Social management:
Being a boss you can be invited to many external events such as charities and so one. If you say always yes you will lose a bit of time. So when you receive such invitations just ask yourself the following question: "Is it useful for my biz or my image: yes or No" Of course if the answer is yes, go to the events. If you can't decide because you are not sure, ask yourself the second question: "does it please me: Yes or No". If the answer is yes, go to the event.

As a boss, try to be at your office the longer time possible. Do not past your time in having lunch or in chatting in saloon! Take the habit to ask the suppliers to hold meetings at your office. As for the customers, it is polite to hold meeting at their office if they ask it. To gain time and avoid the traffic jam and the parking, try to have a driver. If you have the choice between a secretary and a driver who also could be your body guard, choose the driver. It will be more useful since you do all the secretarial work by yourself with your computer.

External readings:
Go to: http://peerspectives.org . Click on "Building and inspiring an organization". Then click on "Time management", "Meetings", "Presentation and presentation skills" Go to: www.leadersstudio.com: The community features engaging discussions, blogs, and webinars on emerging leadership by a group of top experts, consultants, and senior corporate executives.URL: Go to: www.performance-timemanagement.com/ Description: Articles and news, including tips on managing performance and time, especially time wasters. Includes tips on managing stress and similar issues. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

3-GOAL SETTING
Everybody say that a manager has to set up objectives or goals. It's good but I will go further. I assert that you have only one goal: Bring value to the customer. Unfortunately, you will observe the common following trends: 1-Any structure tends to produce complexity. 2-Any staff tends to measure its work with the volume of paper produced 3-Any executive tends to measure his competency with the complexity of procedures he invents Facing these trends, a good boss must ask the following question : " What does it bring to the customer? How does it cost? If the answer is evasive, your reaction must be immediate."You do not know, neither do I! Suppress this task !"

31-One goal and no more

The value you bring increases in return your profitability. As the profitability is the most tangible sign of the value you bring, it means that you must always increase your profitability, years after years. In this context, you have not fifty goals depending on your mood. You must have on unique and constant goal: Increase the profitability.

Real life example:

This demonstration seems obvious but I can assure you that many people even in the business circles disagree with it. In this case, I usually ask them what are the goals of their business. Most often, they present a shopping list with five to ten objectives! That is to say no real goals at all. Then, I usually say " If I was working in your biz, I would be unable to understand for why I am here (except to get a salary!) and what I am supposed to do. Moreover, I expect that if I'd ask you these questions, you would be unable to answer me!" An objective of profitability is measured by the return on equity (ROE). We have studied this notion in a former module : If you have invested $10,000 and if you get a profit of $2000 at the end of the year, your return on equity amounts 20%. If you plan an objective of 30% the following year, it means that you must gain 10 points during the year. We shall give you a practical example of how to proceed.

32-Case study
Let us take the data below: - Your turnover is $20 000. - Your production costs reach $18 000 - Your profits are therefore $2 000 To increase the profits from 2 000 to $3 000, supposing that your sales prices remain constant, you can either increase sales or increase your margin per unit sold by decreasing your production costs. You will therefore entrust your manager in charge of sales with the task of increasing sales from 20 000 to $25 000. Since $20 000 of sales produced a profit of 2 000, it means that $25 000 will guarantee profits of 2 500. You will therefore increase your return on equity from 20 to 25%. You have already gained 5 points by adjusting sales. At the same time, you will entrust your task manager in charge of production with the task of decreasing costs by 2.5% Your production costs, which were $18 000 before the increase in sales, are now $20 500. A decrease of 2.5% therefore leads to savings of $500 and your profits increase from 2 500 to $3 000, in accordance with your objective.

By acting on these two ways, you increase your chances of gaining 10 points and achieving your objective. Be very precise in fixing goals: Do not say "I would like", Say "I want you report me that the task is achieved before to morrow morning at ten!" This example shows that when you choose the good goal, management becomes easy. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

4-FINANCIAL MANAGEMENT
Setting up budgets is a core task for any real manager and it needs a bit of authority. To establish a budget means to decide what amount of money should be allocated to each function of the company. The budget is normally prepared in the beginning of the year for the year to come. Then, the money you have budgeted will enter in the monthly cash flow projections. It means that regarding expenses, the budgeting decisions you have taken at the beginning of the year are reflected in the cash flow projections. Of course, you cannot allocate money if you do not know the cost of each function. This knowledge is coming from the cost accounting.

Down earth advice

Never delegate the power to allocate the money. Follow carefully the budget preparation and execution.

41-Expenditure budget
To establish a budget means to decide what amount of money should be allocated to each function of the company: What amount for the salesmen, What amount for the production, What amount for the management of the group: Secretarial, rent, papers etc.

411-Salesmen budget
The salesmen must have a budget. They must know how much can be spent to win sales: Travel expenses, phone etc. If you increase the salesmen budget by 10 %, you must be assured that the sale will increase by the same percentage. To appreciate the evolution of sales, you have two tools: Sales prices and sales volume variance. Sales price variance: It is given by the following formula:

Actual sale price - Previous sales price* Actual quantity sold = sales price variance. Let 'suppose your actual sale price is $8. Your previous price was $12, and the quantity sold amount 500. It means that your sale variance is: $8 - $12 = -$4 * 500 = -$2000. Volume price variance: It is given by the following formula: Standard sale price * (actual quantity sold - budgeted quantity) = Sales volume variance. Let's suppose your unchanged price is $8. The actual quantity sold is 500 while the budgeted quantity was 800. Your volume variance is: $8 * (500 - 800) = -$2400. These two tools enable you to evaluate the salesmen results. In the first case (price variance) and as long as the fall in sales does not exceed $2000, the salesmen do not bear any responsibilities. On the contrary, there is something to elucidate in the second case (volume variance). The salesmen must: -Explain why -Find solutions If your sales decrease and the budget increases, change the salesman!

412- Production budget

As variable costs will increase proportionally with the production, the budget allowed to the production must be adapted to the production: Production + 10 % = Budget + 10 % Production 10 % = Budget 10 % The variations observed in report to the equations above can be explained by: -Increase or decrease of prices on raw materials (petrol, spare parts). -Augmentation or drop of salaries for the production staff (hand workers, foremen, engineers). If the sale, and by consequence the production drops, it is absurd to increase salaries. If this augmentation is imposed by the Government, you must immediately reduce your staff (always have in mind the Possibility Production Frontier). Once again, you can use two tools: the purchase price and volume variance (it's the same as the sales price and volume variance) and the efficiency variance which can be used for machinery: Budgeted or standard oil spent by the machine - actual quantity spent * cost of a liter of oil = efficiency variance of the machine.

413-Management budget: fixed costs

Fixed costs are not proportional with sales and production. They are decided once and for all. Once decided, this budget has no reason to increase. Nevertheless, because of inflation, this budget will increase over the years. So, if your sales are falling, this is where you must cut first!

414-Control and profitability methods

You must also have the control over the execution of these budgets. Make a follow-up of your budget every third month. Your control panel is quite simple:

Sales decide the level of production. The sales and the production budgets must move in the same direction. Any imbalance is irregular. If any imbalance appears, do not wait until the end of the year to make adjustments: Change the salesmen, Freeze salaries, Reduce the groups management expenses. If you produce several products and one of them becomes an element of loss, stop the production of this product immediately. Invest the money you have liberated in the production of other products or reduce in the same time these expenses. Abolishing a source of loss means making a profit. In a company producing three products:

Profit A: B: C: Total profit: + 10 +5 -6 +9

The quickest and most economic way to increase general profit is not to increase the sale of A and B but simply to abolish C. Profit A: B: Total profit: + 10 +5 + 15 instead of 9

Always remember this maxim: Not profitable = stop the production

42-Capital budgeting
A certain amount is to be granted to the different sections of your company every year to acquire different equipments which are to be paid off over several years: Machines, vehicles etc. We are talking about a Capital budget. These budgets are easy to prepare and to follow up. Preparation: You ask at least three suppliers to make an offer, and you calculate your budget. Follow up: Your budget should be the same as the best offer you have received. Best offer: Less expensive with the same or better qualities and delivery dates as the others. The real difficulty consists in deciding to make the investment or not. You have studied that with the previous course FW 28. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

5-DELEGATE-CONTROL-REWARD 51-Delegate:
You do not do things. You have things done. You can delegate under 3 conditions: your staff must be honest, trained and motivated. These 3 conditions being supposed gathered, you must delegate. Any delegation gives an area of authority and a lot of goals to achieve. Once, you have delegated a goal and an authority on one person, do not interfere in his business. For example, the sales manager knows his job. He is responsible for using the budget you have allocated him. He has to organize himself. In order to reach their objectives, the task managers need means. You must therefore allocate them a budget (see above). A budget represents money or staff. Since you asked the sales staff to increase sales in the previous example, you will probably have to allocate them additional means.

52-Control:
A good manager must be intuitive in order to perceive that something goes wrong and to rectify it before it worsens. He must require management control data regularly. A good manager is also a good supervisor. You must regularly monitor the level of objectives reached. You must follow up this objective every trimester and every semester. In order to gain 10 points by the end of the year, you must gain 3 by the end of the first trimester, a cumulated total of 6 by the end of the second, and so on. Remember that any objective must be measurable and therefore measured. The task manager must account for his progress by means of management control charts drawn up every month, every trimester and at the end of the year. Do not wait the year end to monitor his progress.

53-Reward
Three situations can arise in meetings when you examine the management control charts: If the objective has been reached, nothing to say or do. If the objective has been exceeded, give a reward with bonus or stock options. If the objective has not been reached, discuss the problem with the task manager. If his budget has been used correctly, give him another chance for an extra trimester. If, at the end of this period, the result is still poor, Fire him and recruit somebody else.

As you can see, if you have chosen a good staff and set up clear goals, management becomes much easy and can be summarized by the following drawing:

It is not always possible to establish ideal conditions. In practice, things can be more complicated but keep this model in mind to guide your action. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

Lesson summary
Once your corporate is well organized, take the command of the biz and behave as a leader. A biz leader must be friendly with the customers and respectable with his employees. His personal authority is a core matter. He tries constantly to increase the value to the customers. He shares this objective with his executives and he delegates.

The budget

is normally prepared in the beginning of the year for the year to come. It means to decide what amount of money should be allocated to each function of the company: Sales force, production, management and back office. The sales and the production budgets must move in the same direction. Any imbalance is irregular. If any imbalance appears, do not wait until the end of the year to make adjustments!

If you produce several products and one of them becomes an element of loss, stop the production of this product immediately. For checking that the objectives are reached,

he must control by himself

the big figures. In case of poor results, he does not hesitate to reprimand and
he is happy to reward when the objectives are surpassed!

It relies on the capacity to make up sound decisions and to organize with authority.
Following these advices and standing close to them, management is easy. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

DO IT YOURSELF:
1-Regarding friendship, we ask you to apply to all the organizations located
around you and which have some close or far connections with your expected business purpose. Fill up the applications forms, go to the meetings and

begin

to make friends.
Do not hide that you expect to establish a business. You can find here some future customers, suppliers and partners. It's difficult to set up a time but such a task could require about 20 hours within one month.

2-Try to follow right now the advices regarding your time management. Every morning set up the goals and tasks of the day.
Exercise you to deliver several short speeches in different circumstances. Choose a predictable occasion ( for example a birthday) and prepare you intensively for your speech in looking in a mirror and in hearing your voice on a magneto phone. Count about 5 hours for 5 exercises. 1. Behavior 2. Day to day 3. Goal setting 4. Financial management 5. Delegatecontrol-reward 6. Do it yourself 7. Coaching

FW30-BUSINESS STRATEGIES

YOUR POSITION
Look at the map MAP

30 days before opening.

1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

INTRODUCTION
Strategy is the art to combine all your means to achieve goals. According to economics laws, the best strategy is the movement that goes from the back to the top along the value chain. What is more, a long term strategy must take Ethics in account.

Duration
Lesson: 1 hour External readings: 1 hour Do it yourself: 0 Total: 2 hours

Objectives

Our objectives are to give you

-Long range advices for piloting your business in the future. -Ethical advices for surviving in some difficult areas.
1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

1-ASSESS YOUR BUSINESS

There are many fads about strategy. Some of them looks like good jokes! They have just been invented to provide high priced consultancies! In the modern world, your company goal is to maximize the value you bring to your customers. As a result , you will increase the long term value of your business.

11-Focus on the value chain

What is the value added by your company and where does it come from? For example, lets suppose a corporate that constructs and sells cars; Its value chain looks like that: 1-You buy steel: Cost of steel bought:---------- 200 2-You employ machines and workers: Cost of workers and depreciation machines:------------------------- 700 3-You employ trucks and stores: Cost of Depreciation: -------------------------------------------------- 100 4-You have a retailer network Sales force:------ 300 5-Administrative Costs of the lobbies:----------- 200 TOTAL:------------------------------------------ 1500 Of course, you have to make a profit. Due to competition, you cannot sell your cars above $2000. Now, you must determine where is this profit coming from? Obviously, it does not come from operation 1: Anybody could buy steel. It does not come from operation 3 and 5 because anybody is able to own or manage stores and too much

people pay already useless money for luxurious lobbies, idle secretaries and ineffective executives! In fact, value comes from operations 2 and 4: Of course, machines and workers do not produce value by themselves but their combination involves creativity, and knowledge. That is this skill which brings the value. On the other hand, anybody is not able to sell cars: brands, trademarks, sales channel, sales force are very strong assets and provide a great value. If you refer to the costs, you can see that your profit (500) is coming from the productive process: 500*700/1000=350 and from the sales force: 500*300/1000=150.

12-Strengths and weaknesses

Now, you could reason like that: Since my value comes from 2 and 4, how can I increase the share of these operations in my global cost (1500)? The best way is to fill up a matrix where you note with A (very good) to D (very bad) the main departments of your enterprise. -Staff: Remind that human resources are the key asset of any modern business. You have to realize a close inventory of skills, motivations and knowledge. Higher the knowledge, higher the note. -Productive capacity: What is the quality of the machinery, what does it require in maintenance? If the machinery is updated, you put a D. -Systems: Are all the procedures focused on the customer? Accounting, data base, information system have to be comprehensive. -Intangibles: Patents, trademarks, brands, sales channel are very important assets and must be carefully graded. -Structure: The structure is the whole organization. Does this structure focus on the customer or simply enjoy trade unions? According to your business, you can investigate other fields: For example, a famous guru, Thomas Peter recommends the seven S model ( Structure, system, skills, style, staff, super ordinate goals, strategy). It looks nice! Of course, when all these elements work together the company is a success story. Now, you know yourself. Time is coming to enter in the battlefield! 1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

2-THREATS AND OPPORTUNITIES

Once again there are five key points: Competition including new entrants is the law of free trade. If you fear new entrants, do not enter in business. In fact, you can protect yourself with brands. But brands follow fashion and they disappear and appear every year on the world market. Nevertheless, when you observe a bulk of new entrants, it means that you have lost your competitive advantage and that you have certainly some movement to prepare! -The power of buyers is the rule in a free economy: You have not to contest it, you have just to play with it. Never forget: the customer is always right! Analyze the customers needs; hear the sale force, look at the business press. Every morning, when you get up, put your feet in the customer shoes! -The power of suppliers is a threat because they can increase their prices but we have seen that in the case of the oil producers, this power did not work. In fact, suppliers are also in competition. What is more and thanks to technical progress, customers get the opportunity to use substitutes. -The threat of substitutes (For instance synthetic rubber) must be carefully evaluated: So, you have to analyze technical progress trough the scientific press. As substitutes appear every day, you have to determine if they can offer a competitive price. For example, there are substitutes to fuel such as solar energy but insofar as their prices remain higher than fuel, the oil business can be quiet. Anyway, when a substitute exists there is a real threat that it will get quickly a competitive price. In our opinion, substitutes are a real threat for existing business and reciprocally the best luck for new business! -State regulations represent undoubtedly the worst threat and a serious cause of bankruptcy for any business: For example, tobacco industry has been seriously affected by increasing regulations. Some politicians seem to confuse an enterprise with some vacation resorts, hospitals, or mental clinics! In fact, when you are faced with such a situation, the only way is to get away from the game and to start your business in another country. Now, you have the elements that enable you to act. 1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

3-STRATEGIC MOVEMENTS
The value chain provides a ground for strategic movements. There are mainly three strategic movement both adapted to a defensive or to an expansion strategy.

31-Vertical integration

You buy the steel 200 and you know that the steel plant makes a profit on you evaluated to 40. So, if you mine and transform the steel, you will add 40 to your value chain. In this case, there is a vertical integration. As it operates, at the beginning of the value chain (the mine in this example) it is a backward integration. Now, lets suppose you do the same, with distribution, in being retailer by yourself, it would be then a forward integration because you move to the end of the value chain. Now, focus on the strategic reasoning: If you produce your own steel, you add 40 to the value chain and you have to invest 500. In investing only 1000 in the car process you already add 350. Obviously, with your backward integration, you could weaken your global productivity and it does not look as a good idea. Be very careful about vertical integration: When you go backward, toward raw materials and agricultural products, you will probably become impoverished. Inversely, when you go forward, you incorporate more knowledge into the product and consequently you get more value (remind economics)

32-Horizontal integration
When you have determined that building car is the best way to add value, a good idea to raise your profit is to acquire the competitors who do the same thing. For example, you buy a foreign competitor who constructs the same type of car for another market. It is an horizontal integration and an expansion strategy since there is a new market. When you do not change the market, the horizontal integration just enables you to get a bigger share of the market. That is called a penetration strategy. When opportunity exists, horizontal integration is a good way to expand or to penetrate quickly: Instead of investing by yourself, you will benefit from the existing investment. Nevertheless, it is not always the best way: Maybe, the existing investment is outdated. In this case, you have rather to invest by yourself than to acquire obsolete technologies. Moreover, in investing by yourself, it will be easier to standardize the product, to realize economies of scale and to get low costs, than with an horizontal integration. Many mergers have failed because this important aspect had been forgotten.

33-Diversification
Now, lets suppose you are in the steel business. As we have seen, steel does not add much value because it is a primary technology with many new entrants from the far east Asia. With the money you have accumulated along the years, you have rather to create a bank than to invest more money in the declining steel business. For this reason you see many conglomerates that are appearing.

That is a diversification. It is a related diversification, when you change the product but you keep the same market and a unrelated diversification when you change both the product and the market. In the globalization context, a diversification often means relocation. When you move to new activities requiring more knowledge, you free the place for less advanced countries that are happy to produce steel. As these new entrants produce at low prices, the money the customers save can be spent for new activities requiring high technologies. These new activities recruit the guys who have lost their job in the steel industry and finally every people benefit from this diversification. The ability to diversify requires different conditions: -Firstly, your initial business must be a cash cow. It means a business which has a large market share in a low growth industry. Thanks to the cash this business provides, you do not need bank loans to invest in a new sector. Otherwise, if your initial business is a dog, that is to say an out dated business with a small market share, the move to diversification presents more risks than in the former situation. -Secondly, you must have a new business in high growth sector. A business with a small market share in such a sector is a question mark. A business with a potential big share ( because its possible to cut cost) is called a star. Everybody wants to own a star. For example, on line education is a star. -Thirdly, a diversification needs a very articulated staff since it is difficult to manage, in the same time, a steel plant and a biotech start-up. To day, conglomerates have lost the favor of investors because they think that when you have no more core business, time is coming to leave the competition.

34-The knowledge movement

In our opinion, the best strategy is to move from the back to the top along the value chain. It is that we call the knowledge movement because it implies to acquire more and more knowledge both in the process of production and in the final product by itself The main arguments are the following: -In moving along the value chain, you keep the same basic skills: to construct cars for example. You just improve the quality of your product or the effectiveness of your sale force. So you remain on your core business and in upgrading constantly your products, you keep the new entrants at bay. -In improving technologies, you can use more and more capital rather than labor. It means that you will reduce your costs and consequently your selling prices. -As you have moved to the top of the value chain and to the tertiary services, you will find here a growing demand. Thanks to this demand, a cost strategy can work. It means that

your market will increase in proportion of the reduction of your costs because the elasticity of the demand is very high for such products or services ( for example computer and compact disks) You must take notice that a cost strategy is only adapted to products including knowledge. If you sell wheat or barley, the effect of low prices will not automatically increase your market share! Finally, the best strategy is: -to include more knowledge in the product in order to reach a growing demand (see economics) -to include more knowledge in the productive process in order to reduce the costs ( new technologies instead of labor) Of course this ability depends on the quality of the staff. More you go to the products including knowledge, more you need educated people. Remind that you have learnt in former chapters: The only worth raw material is located beyond your ears! In other words, knowledge is the road to success.

Down earth advice:

Remind that the value chain is your north pole! It will prevent you to go on the bad side of the analysis. There are here some usual mistakes: -"I make a vertical integration because I want to take the control over my sector". That is a common saying in European business, maybe a nostalgia from feudalism! Your job is not to get power and fame but to add value for the customers! -"I make an horizontal integration because I want to get a complementary activity". Why ? Does this complementary activity add value? -We have kept the best for the end: "I make a diversification to procure jobs in a rural area". When you hear a guy saying that, you have better to sell all the stocks you own in his company! The goal of a company is not to procure jobs but to provide with goods the customers.

External readings:
Go to www.businessinsight.org www.hbsp.harvard.edu www.mitforumcambridge.org . There is not hurry. Read it only if you have a bit of time. Implementing your business is your core priority! 1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

4-ETHICAL ADVICES
Ethics has become a part of business curriculum because corporate's must be aware of their social responsibilities. Today, Ethics cannot be separated from strategy. In fact, you have to consider two situations: Your business is located in a liberal Democracy: As we say in global philosophy, liberal Democracy is the frame of happiness and so of good. In a liberal Democracy, to do good means to obey to the laws. There is no more to say. Your business is not located in a liberal Democracy: In this case, your business will face every day with some ethical dilemmas. 1-To solve them, you can use a stakeholder analysis that describes harms and benefits for people affected by a business decision: Environmental groups, local communities, political interests, children, animal rights and so one. As there are no laws or regulations, you have to make up your mind and to refer to that would be permitted or forbidden in a liberal Democracy. This analysis is a good practice to avoid trouble with your neighborhood. 2-In general, you must follow some strong principles: Never be involved in some traffic or rotten bargains. More precisely, be very clean about every kind of bribery. Do not accept gifts. Never give bribes. Bribery can put the trouble among your own staff and will surely expose you to blackmail. Remind that it is better to lose a contract than to be involved in some monkey business! What is more, if a civil servant asks you a bribe, report it to your embassy and to international organizations. Bribery is a plague for free trade. Fight it! 3-In foreign countries, try to understand the host culture but do not copy it: With globalization, business behaviors tend to be the same everywhere. Keep close to the best practices and every people will understand and respect you. Do good and you are sure to do well!

External readings:
Go to www.transparency.org . It's a prestigious and honorable site dedicated to the struggle against corruption. 1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

Lesson summary and farewell!

It's now up to you!
One final piece of advice: You are going to come across unforeseen difficulties, just like anybody else. Whenever you have a problem, whenever you're feeling disheartened: Look back at the visioning course and do the specified exercises. Always keep focused on your vision!

Have confidence in your vision and you will succeed!

1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching

DO IT YOURSELF
Prepare your

opening day!

1. Assess your biz 2. Threats and opportunities 3. Strategic movements 4. Ethical advices 5. Do it yourself 6. Coaching