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Basics of Business ... (HITO Chart)

basics of business.jpg

Environment: competition, industry, market space
Value capture: revenue minus expenses (cogs, opex, itda) equals profit
Value proposition: why the solutions from this venture are better than the competition and other alternatives


Biz-Speak Basics for Engineers

Biz-Speak Basics for Engineers
Jim Jindrick ... Mentor-in-Residence
University of Arizona – Eller College of Management – McGuire Center for Entrepreneurship
Jindrick@IEEE.org ... VentureNotebook.com


Collaboration between engineers and entrepreneurs has resulted in countless innovative products, services, processes, and methods that have truly made the world a better place.

An innovative engineer creates something new and better, an enterprising entrepreneur puts that something new and better to work. The result are satisfied customers and equitable financial returns that allow a business venture to survive and thrive. That "something new and better" is typically a product, service, process, method, a niche market positioning, or a combination that serves a customer segment better than other alternatives.

Effective communications between technology-focused scientists and engineers and business-focused entrepreneurs is essential to develop and maintain an efficient path to commercialization. Following are a set of core business principles and lingo that engineers can use to help understand the business perspective and focus their activities on developing innovations that will optimize customer value in continually-changing competitive technology and market environments.


The Best Value Wins ...

Economist Peter F Drucker observed that a "business enterprise has two–and only two–basic functions: marketing and innovation." Innovators create value, entrepreneurs market that value to customers. Value is delivered through a combination of products, services, processes, and methods of doing business. In the long run, customers determine the better value between competing alternatives.


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As Ohm's Law is to electricity (I = V / R where I is current, V is voltage, and R is resistance), so the Value Law is to business (V = B / P where V is value, B are benefits receive by the customer, and P is the price paid by the customer). It is a good analogy. With Ohm's Law the more voltage, the greater the current; with the Value Law, the more benefits received by the customer the more value. Similarly, with Ohm's Law the lower the resistance the greater the current; with the Value Law the lower the price, the greater the value.

Every Business Looks Like This ...

Business ventures share a similar structure. Successful business ventures adequately, efficiently, and effectively address each of these elements. While it is not uncommon to give these activities more fashionable titles, the basic functions are the same.


Venture Map E5.png


The #1 Critical Success Factor for Every Business Venture ...

There is a critical success factor every successful business venture must accomplish. It is not a formula for business success where the result is the same every time. Rather, it is a recipe where the end-result will depend on the quality of the ingredients and the skills of the cook. Further, it is not a goal that once achieved can be set aside. Rather, this critical success factor must become a continuing venture mission to survive and thrive in a complex, changing, competitive business environment.

The Critical Success Factor for Every Business Venture ...

Earn a Profit Solving Customer Problems Better than the Competition!

There are seven key elements in this recipe ...

  • Earn ... A business employs a team of people working together to continually and profitably solve customer problems better than competing alternatives. Healthy, growing ventures follow a clear business model. An educated, experienced, collaborative, communicative team with key core competencies is paramount to success.

  • Profit ... The monetary value captured by a business is appropriately called earnings. After all expenses are accounted, the earnings become profit. Profit is a reward for doing a good job solving customer problems. A key source of growth funding for a business venture is earned profit. While the profit reward is "financial", the reward can and should have other elements, too. In a healthy venture culture it can actually be "fun" going to work and being part of the team, and their may well be some "fame" that results from delivering valued solutions to customers.

  • Solving ... Solutions to customer problems are typically combinations of products, services, process, and methods. However, the world keeps changing as do customers and competitors. Solving customer problems, new and old, is a continuing process for sustaining a healthy venture.

  • Customer ... Customers are the primary source of revenue for a business venture. Some business ventures may have only a few key customers, others may have many. A group of customers that share similar traits comprise a market segment. Many business ventures may serve multiple and varied market segments.

  • Problems ... Customer needs, wants, desires, and situations that can be adequately addressed and resolved in a reasonable time and expense are good opportunities for a business venture.

  • Better ... Continually improving value is critical to sustaining a competitive advantage. Scientists and engineers often think about innovative solutions in terms of the fit, form, function, features, and performance. The entrepreneur thinks in terms of the benefits customers will receive. Value is measured by comparing the benefits to the price. Value can be increased by delivering better benefits to customers, by lowering the price, or both. Customers decide what offers the better value. In the long run, the products, services, processes, and methods that deliver a better value win the business. In short: Value = Benefits / Price

  • Competition ... Some competing solutions and ventures are directly comparable. Other competition may be indirect alternatives, substitutes, and replacements that could serve customer requirements. There is always competition. However, competition is not always a bad thing ... competitors can help validate and build new markets, and sometimes competitors can become collaborative partners.

Basic Financial Statements ...

There are a variety of tools used for pro forma financial objectives planning and post-facto reporting.

  • Assumptions: a thing that is accepted as likely to happen ... the probability of a particular customer placing an order in the next 6 weeks, for example

  • Budget: an estimate of income and expenditure for a set period of time

  • Income Statement: provides performance information about a time period. It begins with sales and works down to net income and earnings per share (EPS)

  • Cash Flow Statement: the total amount of money being transferred into and out of a business; a positive cash flow is good.

  • Balance Sheet: a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time.


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Some Key Business Terms ...

  • Accounting: the action or process of keeping financial records relating to a particular period or purpose

  • Advertising: describe or draw attention to a product, service, or event in a public medium in order to promote sales or attendance

  • Assignments: a task given to someone as part of a job

  • Benefit: an advantage or profit gained from something

  • Better: a more excellent or effective type or quality

  • Brand: a type of product manufactured by a particular company under a particular name; an identifying name and/or mark

  • Budget: an estimate of income and expenditure for a set period of time

  • Build-Measure-Learn: the process of creating a new product, service, process, or method through continual incremental change and improvement

  • Business: an organization focused on the work that has to be done to profitably solve customer problems

  • Business Model: a design for the successful operation of a business, identifying revenue sources, customer base, products and services, operational processes, and details of financing

  • Business Model Canvas: a popular visual tool for developing new or documenting existing business models

  • Business Plan: a formal statement of a set of business goals, the reasons they are believed attainable, the plan for reaching those goals, and information about the organization or team attempting to reach those goals

  • Cash Flow: the total amount of money being transferred into and out of a business, especially as affecting liquidity

  • Change: become or make different

  • Copyright: the exclusive legal right, given to an originator or an assignee to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same

  • Core Competency: a defining capability or advantage that distinguishes a venture from its competitors

  • Cost: an amount that has to be paid or spent to buy or obtain something

  • Critical Success Factor (CSF): an element that is necessary for a venture to achieve its mission

  • Desire: strong feeling of wanting to have something that is not absolutely needed

  • Earn: obtain money or other value in return for products or services

  • Elevator Pitch: a short verbal summary used to quickly and simply define a venture, product, service, organization, or event, and its value proposition

  • Enterprise: a project or venture, typically one that is difficult or requires effort, initiative, and resourcefulness.

  • Entrepreneur: a person who organizes and operates a venture

  • Entrepreneurial Mindset: the ability to recognize opportunities for innovation and enterprise

  • Entrepreneurship: the process of starting a business venture or other organization

  • Environment: the setting or conditions in which a particular activity is carried on

  • EPSCPBC: an acronym for "Earn a Profit Solving Customer Problems Better than the Competition" ... a critical success factor for every business venture

  • Executive Summary: a short document or section of a document that summarizes a longer report or proposal or a group of related reports in such a way that readers can rapidly become acquainted with a large body of material without having to read it all

  • Exit Plan: a means of leaving a current situation after a predetermined objective has been achieved

  • Exploration: traveling in or through an unfamiliar area in order to learn about it and uncover new opportunities

  • Forecast: a prediction or estimate of future events

  • Goal: a long-term aim or desired result

  • Ideation: the process of forming ideas or concepts

  • Income Statement: a financial document that gives operating results for a specific period; it typically includes sales revenue, cost of sales, gross income, operating expenses, and earnings

  • Innovation: make something new and better or improvements in something by introducing new methods, ideas, products, services, processes, market positions, paradigms, or combinations thereof

  • Input: a contribution of work, information, money, or material

  • Intellectual Property: a work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, etc.

  • I-T-O: abbreviation for Inputs-Transformation-Outputs, the core function of a venture ... Transformation consists of processes and resources

  • Judgment: the ability to make considered decisions or come to sensible conclusions often with limited information

  • Lean: creating or developing something (a business venture, for example) with a limited set of resources

  • Low-hanging Fruit: a thing or person that can be won, obtained, or persuaded with little effort

  • Management: responsibility for applying resources to achieve particular objectives

  • Margin: an amount of something included so as to be sure of success or safety

  • Market: a demand for a particular commodity or service, and the customers that create that demand

  • Marketing: the action or business of identifying, promoting and selling products or services to selected markets

  • Method: a particular form of procedure for accomplishing or approaching something

  • Maximum Value Product: a product, service, process, or method that provides a high level of value to the customer

  • Minimum Viable Product: a product, service, process, or method with just enough features to gather validated learning about the product and its continued development

  • Mission Statement: a statement of the purpose of a venture or organization, and its reason for existing; the mission statement should guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making

  • Need: something that is a necessity as opposed to a preferred want or desire

  • Operations: the harvesting of value from assets owned by a business; manufacturing, production, and delivery of goods and services

  • Organization: the structure of related or connected people, places, and things to achieve specified objectives

  • Output: the amount of something produced by a venture

  • Pain: suffering or discomfort that may be an opportunity for a venture to solve

  • Patent: a government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention

  • Plan: a detailed proposal for doing or achieving something

  • Pleasure: satisfaction and enjoyment benefits delivered to customers

  • Price: the amount of money expected in payment for something

  • Problem: a matter or situation regarded as unwelcome or harmful and needing to be dealt with and overcome

  • Process: a series of actions or steps taken in order to achieve a particular end

  • Product: an article or substance that is manufactured or refined for sale and can typically be defined as having a certain fit, form, function, features, and performance

  • Profit: a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something

  • Pro Forma: a standard document, form or financial statement

  • Research & Development: work directed toward the creation, innovation, improvement, and introduction of products and processes

  • Resources: a stock or supply of money, materials, facilities, staff, time, and other assets that can be drawn on by an organization in order to function effectively

  • Reward: something received as a result of achievement

  • Risk: the possibility that something unpleasant or unwelcome will happen

  • Sales: the exchange of a product or service for money; the action of selling something; the organization within a venture responsible for the selling activities

  • Service: helping or doing work for someone

  • Social Responsibility: an obligation to act in ways that benefit society at large

  • Something: a product, service, process, position, or paradigm

  • Solution: products, services, or processes designed to meet particular need, wants, and desires

  • Strategic Position: the orientation of a venture in relation to the environment, in particular, the competition

  • Tasks: a piece of work to be done

  • Team: two or more people working together

  • Technology: the application of scientific knowledge for practical purposes

  • Time: the indefinite continued progress of existence and events in the past, present, and future regarded as a whole

  • Timing: the choice, judgment, or control of when something should be done

  • Trademark: a symbol, word, or words legally registered or established by use as representing a company or product

  • Trade Secret: a secret device or technique used by a company in manufacturing its products

  • Transformation: a qualitative change from one set of elements into another by a predetermined process utilizing a set of resources

  • Value: the importance, worth, or usefulness of something

  • Value Equation: Value equals Benefits divided by Price (V = B/P) where there are objective and subjective benefits, and a direct and indirect price

  • Value Proposition: a promise of value to be delivered and a belief from the customer that value will be experienced

  • Venture: a business enterprise involving risk but with a significant reward for success

  • Vision: the ability to think about or plan the future with imagination or wisdom

  • Want: a strong wish for something

  • Work: activity involving mental or physical effort done in order to achieve a purpose or result

[Jim Jindrick is a Mentor-in-Residence for the McGuire Entrepreneurship Center at the University of Arizona Eller College of Management. Jim has 30+ years experience in high-tech research and development, product engineering, operations and manufacturing, international marketing, and new business development. He has created internal corporate ventures, spin-off companies, and independent start-ups. Products and ventures Jim developed have generated over one billion dollars in lifetime revenue. Jim is an IEEE Life Member.]

© 2016 by Jim Jindrick ... all rights reserved ... 1.28



Venture Map

Every venture (business, not-for-profit, company, et al) looks like this. Not every venture adequately addresses each of these elements, at their own peril!


From one perspective (of many!), all healthy business ventures look like this. They at least have all these elements in place, if not adequately addressed. So, while every healthy venture does look like this, unhealthy ventures look like this, too! The difference is that the healthy ventures have solid strategies in place for each of these areas ... unhealthy ventures do not.

There are two key activities crucial for creating and maintaining a healthy company ...

1] The core business operations focuses on the Transformation process ... transforming customer needs, wants and desires into products, services, and business methods that keep customers coming and satisfied.

2] There must also be a continual Innovation process in the venture, focusing on sustaining core competencies, solving current and future customer problems, building sustainable competitive advantages, and growing the business in ever-changing environments.

Jim Jindrick

You can send Jim Jindrick a message here: TextJim.VentureNotebook.com Jim's books are available here: Amazon.com/author/JimJindrick

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