Go to an “ethnic” restaurant. Briefly describe the ethnicity of the restaurant and discuss how do you know what ethnicity the restaurant represents. What aspects of the restaurant are actually culturally part of the mainstream culture? Based on the comparison, just how “ethnic” is this restaurant?

Give examples of five people you know (either famous people or someone you have met or worked with) who exhibit the following types of power: coercive, reward, legitimate, expert, and referent. Provide one example for each type. Did the people use their power effectively or ineffectively? What other, if any, types of power did those people hold?

Write about Collective Bargaining with examples in companies and its benefits.

Write about Communication Mix and its elements and importance for companies.

how would you structure an organization to ensure that its culture of accountability is actually enacted

Please read the article and answear about questions.

The Need for Promotion

You’ve experienced your business “light bulb” idea for a terrific new product or service. You’ve organized an office complete with desk, phone, and computer, and you may possibly even have a small storefront or service vehicle. By all accounts, you are in business. Now ask yourself this: Does your target market know you exist?

In order for customers to purchase your goods and services, you must first go to them. You need to advertise and actively promote your business before you can expect inquiries into what you have to offer. While there are a handful of promotional means that are standard for all business ventures, entrepreneurs’ limit to promotions is their own creativity.

Unless you know enough customers to keep you in business from the day you open up, you need to gain customers. To some extent, that is a game of numbers. To get people to buy what you are offering, you first need to make an impression on them, letting them know who you are and what you are offering. Those who have some interest become your sales leads and the most interested ones become your prospects for a sale. So at a fundamental level, promotion drives sales. How many prospects? Marketers talk about the marketing funnel, a rule of thumb about how many prospective customers it takes to find one who will actually make a purchase. For mass market and Internet advertising, the typical ratio is 1000 to 1.

Promotion is essential to gaining the attention of people in the general audience, and any- thing you can do to improve your marketing will improve your chances of making a sale. The funnel provides some insights into recognizing what is truly important in the marketing process. For this funnel, every customer you keep saves you from having to contact 1,000 new people in the general audience to find a replacement customer—so improving customer loyalty is tremendously important. We will talk about loyalty and other postsale issues later in this chapter.

The funnel illustrates selling to the general public, but what if you could target people you al- ready know have a reason to be interested in your goods or services? Maybe one or two people in a thousand would buy a baseball glove, but what if you could target people playing baseball? Instead of two sales per thousand, with qualified leads like people already playing baseball, you might be able to sell 10 times as many gloves, or more.

Following Figure 10.1, in this chapter we will talk about defining your target market and deter- mining how to identify segments like those already playing baseball. We then discuss the methods of promotion including social media, public relations, and press relations. We conclude the chapter with a discussion of personal selling, and managing postsale relations in order to retain as many customers as you can. But first, as is true in so much of entrepreneurship, it all starts with you, your ideas for your business, and its goods or services. Because all promotion is about the value you can provide your customer.

The Basics: Crafting Your Value Proposition

Chapter 7 introduced the idea of value and cost benefit. This was further developed by talking about your total product in Chapter 9. As you recall, your total product is not just the bare bones object or service you provide, but what it means to your customers. You don’t just do a great job cleaning houses; you provide free time to your customers. You don’t just sell desks; you handcraft beautiful and functional desks in exotic woods. You can talk about your competitive edge—what you do bet- ter than your competition—or your distinctive competency—what you do that no one else does, but what it all boils down to is your value proposition.2

Youcanthinkofdefiningyourvaluepropositionalongthesamecategoriesofvalueandcostben- efits of quality, style, delivery, service, technology, shopping ease, place, and scale and scope. For eachofthecategoriesmentionedinChapter7,thinkabouthowyourcompany,product,orserviceis differentfromanyoneelse’s.Undereachcategory,answerafewquestionsasobjectivelyasyoucan:

?   Why would someone want your product or service? What need does it fill? List the benefits and the problems it solves. In what way does it improve the life of the user?

? Would you personally buy this product? Why or why not? The “why nots” may give you an insight into potential weaknesses or categories of differentiation that you need to work on.

From there, you can then start to determine who will most benefit from your product or service. Begin with these questions:

? Who, in your opinion, is most likely to buy it? Be as specific as you can. How old are they? Male or female? Where do they live? Where do they work? These people are your primary target market. It doesn’t mean that you don’t have second-or third-tier markets.

? How does your primary target market currently go about buying existing products or services of this type? What are its sources of information? Word-of-mouth? Trade publications? Yellow Pages? The Internet?3

By answering these questions, you can start to further develop the value of your product and ways you can find and communicate with your customers. Once you know who needs your product or service, you can begin to craft your value and message directly to where your market would look to find information related to your small business. Skill Module 10.1 will help you develop a value proposition.

Segmenting Your Market

Many entrepreneurs have trouble answering the question, “Who is your target market?” Most en- trepreneurs assume that everyone is their target market. Why should an entrepreneur care who buys their product, as long as it’s sold? If pressed, the entrepreneurs can usually tell you who is most likely to buy their product or service and why. When they can tell you this, they have targeted their market. Although targeting and market segmentation are more fully discussed in Chapter 12, there are some concepts that are important to know in order to understand promotion.

Segmentation is the process of dividing the market into smaller portions of people who have certain common characteristics. Your target market is the segment or segments you select on which to concentrate your marketing efforts. A marketer can chose more than one target market, but it is customary for a smaller business to concentrate its efforts on one target market at the beginning and consider secondary ones later. Marketers use information on the target market’s wants and needs in order to tailor the product or service, as well as its price, distribution, and promotion.4

Dividing the market into different segments can be done in a number of ways. Some of the more typical ways include geographically (in a certain city or neighborhood), demographically (income, age, religion, ethnicity, and many others), or by the benefits sought (clothing that is practical, styl- ish, for a particular sport, etc.). Most companies will use several ways of segmenting to come up with their final target market. For example, the Beacon Street Girls products were segmented by gender (girls) and age (9–13). In addition, the fact that they were into values and community service would be a form of benefit segmentation. Beacon Street Girls also had primary and secondary target markets—the girls and their parents and other gift givers.

Let’s start with an example: you run a day care center. Who is your market? For starters, it is small children, or at least, the parents of small children. You have segmented by life cycle position; that is, you have eliminated children, teenagers, senior citizens, and parents of older children. But this really does not eliminate very many potential customers. How else could you limit your poten- tial customers? Driving distance, say 15 miles, is a popular limit since parents are unlikely to want to drive too far. Income, or disposable income, is also a key segmentation device. Families need to be rich enough to afford your service but not so rich as to hire nannies. Other segmentation ideas include schedule (parents who work evenings and nights) or children’s hobbies (e.g., offering soccer or music lessons). The more accurately you define your segment, the closer you come to defining your target market.

Using our example from above, let’s say that you are located in a town with a large Hispanic population (Phoenix) and all of your day care workers are fluent in Spanish. Your day care center is located in a middle-class, Hispanic area where most households are dual income parents with several children. Your research has shown only a couple of nearby competitors and none of them have the bilingual staff that you have. This opens up the opportunity for the business approach you have in mind, targeting a bilingual day care center for the Hispanic parents needing day care. A potential secondary market might be non-Hispanic families who desire their children to be fluent in Spanish—a market that could be considered at another time.

With the target market defined, it becomes easier to determine what information customers need in order to make a decision to buy your service. The Juarez family (as we imagine our typical cus- tomer) needs to find a day care center for little Tomas, who speaks a mix of English and Spanish. Good news! At your center he is not likely to be misunderstood. Other benefits include being able to leave instructions in English or Spanish or having children get a mix of both cultures, such as holi- day and birthday celebrations, stories that are read, decorating colors, the day care center’s name, and such. These are things that an entrepreneur could use to make this day care center “perfect” for a bilingual clientele.

Promotion includes getting the message out to the target market so that they can make decisions about your product or service. When advertising, your day care center will want to mention the lan- guage abilities and other benefits likely to be important to the target market. In order to catch the eye of the audience, the advertising might make use of Hispanic music, a Hispanic model/spokesperson, or symbols that will resonate with the Hispanic culture. (In the Phoenix area, perhaps a Mexican flag would work well.) It is likely to run ads in Spanish or at least partially in Spanish. It is also likely useful to use local Spanish television, radio, or newspapers depending on its budget and the ability of these media to reach the target market. Your day care center may send out mailers in the local area and other predominately Hispanic neighborhoods.5 Parents who visit the day care center would likely hear a sales pitch that was directed to cares and concerns of this target market.

Consider, for a moment, promotion for the secondary market mentioned earlier: the non-Hispanic parents that wanted their children to be fluent in Spanish. Now the ads are likely to be in English. They are likely to run in different media. Mailings would go out to other areas. The sales pitch that the prospective parents would hear would likely be much different.

So how do you do this for your particular product or service? First of all, consider where your target market gets the information they need to make purchasing decisions. Is it the Internet? From their friends? From magazines such as Consumer Reports? From television or radio ads? From talking to the clerks at the stores? Or is your product something they will buy without much prior thought processes—an impulse purchase. These all have implications on where you will put your message in order to make sure they see it.6

Secondly, what features about your product or service are important to your target market? That is, what is it they are looking for when considering buying this product or service? Is it cost? Reli- ability? Technology? Appearance? Fitting in with their peer group? Convenient location? How do what the customers deem important fit in with your product or service? (If your customers are motivated by price and your product’s distinction is style, technology, or other factors that increase price, maybe you have the wrong target market—or the wrong product for that market.) Knowing what the customer wants will help you determine what to say about your product or service. If you really aren’t sure about where they get their information or what they want, try checking out your competitors’ ads—your successful competitors, that is. While you’ll want to be different in your message content, you can get a lot of hints from what is already working.7

Next, what will get your target market to pay attention to your message? Are you going to use rap music or classical music? Will the people in your message be wearing grunge or high fashion, business professional or jeans and a T-shirt? Will you use bold colors and exotic fonts, or will you use understated elegance? One of the major mistakes an entrepreneur can make is to choose an ap- pealing (to them) message or media, instead of picking one which matches the demographics—and tastes—of the target market.8

The answers to these questions are determined by a person’s age, gender, ethnicity, education, income level, profession, geographic region, personality, and a myriad of other factors. This is what makes defining your target market accurately so important. While many entrepreneurs have dif- ficulty selecting only one target market, it is nearly impossible to design a message that will appeal universally or to find media that will reach all consumers. These rather generic messages often end up appealing to nearly no one and can be a considerable waste of marketing dollars.

A word of caution: unless you are particularly artistic, do not create your own promotional pieces. It is quite acceptable to sketch out concepts, suggest colors, symbols, and other features and to retain final approval, but expect to spend a little money getting professional artistic help. A graphic artist is well worth the investment. If you have an exceptionally tight budget, consider asking a graphic design department at a local university to use you as a class project or for a student who is willing to do the work for minimal cost and a chance to include the results in his or her portfolio.9

Once you have a clear idea of who your target customer is, a world of data is available to help you think about their habits. Many of the large marketing firms offer information on predetermined market segments based on their own unique approaches. Nielsen, a company you probably recall is famous for television ratings, has several types of segmentation analyses. The one that fits for most consumer-oriented firms is called Prizm (www.MyBestSegments.com). For nearly any zip code in the United States, Prizm can tell you the predominant groups in it.

For the day care center, our entrepreneur defined the target market based on personal contacts, discussions, and first-hand research. With the target market defined and the likely areas (specifically zip codes) identified, it is possible to supplement the personal work with information on predeter- mined market segments. Prizm, for example, will identify the five largest market segments within a specific zip code for free. For each segment, Prizm provides a free, detailed, rundown about the buying habits and demographics of this group. For the day care center, one of the likely zip codes is 85008. In that zip code the Prizm segment “New Beginnings” is one of the top five. The information on the segment is shown on this page.

The information in these predetermined market segments can help you identify the financial and shopping characteristics of the group, which can be difficult questions to ask people face to face. These segments can also be a useful check on your own analyses of your target market.

Competitors to Prizm include Esri’s Tapestry model (www.esri.com/data/esri_data/tapestry .html) and Strategic Business Insights’ VALS survey (www.strategicbusinessinsights.com/vals/). Each provides descriptions of their segments, as well as the opportunity to see some data for free by

zip code. Additional data requires a fee. If you want to know the general characteristics of particu- lar zip codes without the addition segmentation analysis, you can use any of the new crop of free zip code data sites, like www.zipwho.com, www.censusscope.org, www.zipskinny.com, or www .city-data.com, the use of which are shown in Skill Module 11.2. There is also a mountain of free data available at www.census.gov for areas, businesses, and households.

Why don’t we recommend using these carefully crafted segments first? Because the essential strength of small business owners is that they are close to their customers. Good entrepreneurs under- stand their customers and their needs at a personal level. It actually hurts your ability to define your own target market if you first rely on some other group’s or firm’s idea of who the target audiences are. The only certain way for you to know your customers is to start looking for them personally, finding out what they are like personally, and hearing what they have to say personally. Then you have a basis for deciding if and how these predetermined market segments fit any of your real cus- tomers. If they do, then these commercial products can help you know more about your customers, but they can never really replace the knowledge you first build about your customers on your own.

Crafting Your Message

American consumers are bombarded by messages all day, for example, a Yankelovich Advertising Agency study reported the average person was exposed to 5,000 ad messages a day.10 However, many of us screen out most of the commercials we see or hear. Even when an advertisement catches our eye, we are likely to spend only a few seconds at most considering it unless it is of special importance to us. For example, if you are in the new car market, the car advertisements suddenly become more visible to you, but even when you are interested and move down the marketing funnel from having an impres- sion to becoming a sales lead, you may have a poor recall of any ads you’ve seen. Was it the funny ad or the one with the special effects? Ad recall is a major problem for all advertisers.

The bottom line consists of two questions: How can you get the attention of your potential cus- tomer? If a potential customer sees or hears your message and walks away with only one thought about your firm, your product, or your service, what do you want that to be?

The how has been addressed somewhat by thoroughly investigating your target market and find- ing out what they like. This will give us a good idea of where they are likely to be exposed to our messages. This will also give us a good idea of how our messages should be designed.11 So if you did a good job on the target market analysis introduced earlier, you should know where they look and what they want. That leaves crafting a message that fits their needs.

Figure your goal is to craft one message for your target market. It should be specific to them and appealing to them. You should plan to repeat it, because a message repeated is more often the message recalled. You should also make sure the message is clear. There have been famous com- mercials (like one for Rozerem sleeping pill) where people remembered the commercial (with Abe Lincoln and a talking beaver), but had little recall about the product.

The message you craft should combine the elements of your product or service’s value proposi- tion with the needs of your target customer. If they want speed, you should stress speed in your message. Once you have that key element, what can you do in the message to reinforce, repeat, or otherwise support it? Red is the color of speed, for example, and a fast-paced radio, television, or web ad can also support the impression of speed.

In general, you can structure messages to be similar to the target customers or distinctive. Ads with a similar approach use average-looking people. Ads seeking to be distinctive may opt for mod- els. This is where understanding what your target audience likes is important.

Along the same lines, you need to decide the voice or tone of your message. Tones or voices include humor, fear, patriotism, collegiality, sex, romance, love, and nearly every other emotion. Some, of course, will work better than others, often depending on your product. Humor may de- grade into slapstick (okay for some audiences, but not all); romance or love may become sappy. Medications, insurance, safe cars, security products, mouthwashes, and breath mints may be fine for fear appeals, but they may be tough for other products. Be careful of being too strong. A fear appeal that is too strong may cause the audience to react negatively.

Will your ad show a real-life situation (think ads for paper towels) or will you exaggerate (the less- than-average guy with the super-model girlfriend), use fantasy or cartoons? Will you demonstrate

your product or compare it to competition? If you compare, will it be overt (We are better than Company A) or not (We are the best)? Will you use rational arguments about the size and speed?

The answers to these questions vary based on product/service and target market; there are not al- ways hard and fast rules. Car commercials, for example, range from the excitement of the speeding car on the curving road to rational appeals about miles per gallon and other features of the automo- bile. They use comparisons to others, humor, sex, fear (safety), and feel-good family themes.

Effective messages are succinct messages that will make your business clear to potential clients and customers. You will use more general messages to convey your firm’s overall image.

A great example is Mary Kay’s slogan “Enriching women’s lives.” If used consistently, these mes- sages will ensure the development of a solid business identity.

To start initially, you can use your value propositions for each identified market to help you develop your overall message or slogan. Try to think of three to five key words that would describe your business to anyone. What words capture the essence of what you do and why you exist?

Specific marketing messages use the same principle: What is the key idea I want the potential consumer to leave with? Sometimes these messages are pretty straightforward like “We are having a sale on May 24 through May 26.” Others may take more time to craft your value proposition or other distinct features of your product in a form that will resonate with your target audience. Start out with a strong first mental image—the first thing your client will see in his or her mind when exposed to your message. Avoid overworked verbs; use action wherever you can but pick unexpected words. Saying “We beat the competition” is fine, but how much more interesting is “We wallop the competition”—and even adds a bit of alliteration as well.12

Conveying Your Message

The challenge of conveying your message is knowing that your intended customer has actually heard or seen it. If you are selling face to face, you can be more sure that you and your message are connecting, but when you send out a press kit or have an ad printed in a newspaper, it is harder to know. One of the interesting aspects of Internet advertising is that it provides a somewhat more detailed understanding of who looked at a page, and if a viewer clicks on an ad, you can learn a lot about the potential customer. However, away from the Internet, it is hard to be as sure.

Traditionally marketers think in terms of five types of avenues for getting your message out: advertising, sales promotions, public/press relations, and personal selling that will be covered in this chapter, while direct marketing, will be covered in Chapter 11 as part of distribution. The promotional mix essentially describes how much of each of these five approaches you will use. The key to promotion for you as the entrepreneur is deciding on the promotional mix that works best to meet your needs and your budget.

Advertising

Advertising is the major way most businesses convey their message to potential customers. Adver- tising is the presentation of your company’s image, products, and services to potential customers and the general public. It can be done in print outlets, or electronically via mass media or the Inter- net, or via signs from business cards to billboards to aerial banners. The goal for any advertising is to give customers and the general public a positive impression that they will associate with you, your firm, and its products. If the impression is positive but they don’t recall who you are, the advertising did not work. If they recall who you are, but the ads didn’t make the viewer feel more positive about you, the ad didn’t work.

Because of the Internet, today’s entrepreneurs have never had so many ways to promote their businesses. Traditional media like advertisements in magazines and on billboards can now appear all over web pages. Commercials on TV can also appear on the web. Door hangers with your coupon can be supplemented with local campaigns on Groupon or with Google Local to focus on particular cities or even neighborhoods. There are more places to put the name of your firm or product than ever before—from every square inch of a NASCAR racer’s uniform, to the poles of turnstiles at the amusement park, to pop-ups inside of your YouTube video. Table 10.1 gives you an overview of the many forms of promotion available to you.

As you can imagine, given the enormous number of ways to advertise, it is impossible to give you detailed information on the ins and outs of each type of advertising technique. In fact there are semester-long courses in advertising in most business programs, with whole textbooks going through the many forms. You can get a lot of information online from reputable sources such as www.entrepreneur.com, www.inc.com, www.itsyourbiz.com, www.mashable.com, and www .ducttapemarketing.com. What we can do here is help get you started in advertising your busi- ness. So we will talk about the first steps you take—those you need to pay for and those you can do for free.

Paid Advertising

The first thing you need to do when starting your business is to establish your company identity. While some elements are free, others will take some money up front. Exhibit 10.1 gives you a list- ing of the key elements of creating your corporate identity. Central to the identity is picking your company name, which we discussed in Chapter 9.

You will want a name for which you can get a matching domain name. That domain name is necessary to get your own website, and most websites with domain names also give you the ability to get an e-mail address with your company’s domain name. You can check if prospective names are available at any online firm selling hosting packages or domain names, but if you find that a name

you like is available, plan to buy it that day. There are firms paying each day to see what names were looked for, and they buy the names up for the purpose of reselling them. Search for cheap domains to find low-cost vendors. Many web-hosting companies will give you the domain name free with a web-hosting package. Unless you’re planning to do e-commerce from day one, you can open up a “starter” type website (usually around five pages) for a low fee and upgrade as you get an idea of what your business really needs.

Armed with these you can start making business cards, and then websites and brochures (the print equivalent of your website). If you think a professional-looking logo would help, there are free do-it-yourself sites like www.logomaker.com or www.logosnap.com, or you can post for proposed logos on a site like www.elance.com and offer a price ($25 is typical) for the logo you select. Most marketing and web design firms can help you in this area as well.

Although regular phone service is not free, you need it, and you need the number to include on your business card and website. Think about getting a number that reflects your business—one tile company snagged a phone number they could display as 555-868-TILE (8453). One free service to consider is Google Voice, which will let you program one number to ring in multiple places or across multiple phones. With these basics in place, you can get down to the serious business of ad- vertising your product and service offerings.

From your prior workups of value proposition, target market, and market segmentation, you should have a clear idea of your intended audience. You should have some idea of where they get their information—from TV, radio, newspapers, magazines, direct advertising like mail, or the Internet—and how much they use and trust each of these vehicles. From this, you can begin to think about how to structure your mix as soon as you add one more item—price!

Advertising costs are usually based on cost per thousand (CPM—the M is the Latin mille or thousand). Figure 10.2 shows you CPMs for a number of different forms of paid advertising. What the chart doesn’t show, but you need to keep in mind, is that one ad impression is unlikely to do the job. Marketers talk about needing 15 to 20 impressions for people in the general audience to notice and remember who you are. This is why you will notice that commercials are repeated so often on TV and radio. The companies are trying to get enough impressions to you so that you recall their product. Taking a look at the graphic; knowing the underlying need for ad repetitions, you can quickly see that major advertising campaigns using traditional media are problematic for small businesses— they are just too costly for most start-ups. How can you build an advertising campaign on a limited budget?

For companies whose products have a regional, national, or global audience, there is no real competition to the Internet. Ads bought on the major services like Google, Bing, and Yahoo can be seen by millions around the world every hour. But because Internet ads depend on how often they get shown, you will want to limit who sees the ad to people in particular localities, or people who have searched for a term linked to your product, or people online on certain days or times of day. You will be able to check how many people react to the ad by their click-through rate, the frequency with which they click your ad for more information or to buy the product. You can also test multiple forms of the ad in a day, and adjust the ad as you learn what works best with your target audience.

But as great as web-based advertising is, it is only worthwhile if your intended target audience is on the Internet on sites where you can advertise to them. The story of AO Rafting in the Small Business Insight box shows a powerful way to leverage the web. For our day care center in Phoenix, we could limit online ads to people in Phoenix who search for terms like day care. Services like Google Adwords Express let you focus your paid ads in a relatively small geographic area. Ser- vices like Valpak and competing local coupon mailing or door-hanging services offer a similar service using traditional print media. For our day care center, we could use Google Adwords for people searching for “day care” or “child care” in the local area and supplement that with mailed coupons in areas of town we know have families with children. We could then supplement these with the free techniques discussed below. We also could check locally for neighborhood newspa- pers where we might place ads, as well as church and school newsletters, which tend to be very low cost.

When you think about spending money to buy advertising space, especially when we are talking about traditional media like TV, radio, and print, it can make a lot of sense to also allocate some money to have advertising professionals prepare your ads. There are small advertising and market- ing agencies virtually everywhere (and if you are comfortable working with an online ad agency, they literally could be virtually everywhere). Most good ones will show you a portfolio of their work, and hopefully you can check them out with their other clients. Most will also give you a cost estimate to help you determine quickly if you can afford them.

This can also apply to your Internet ads, especially if you are planning to develop videos or want interactive websites with state-of-the art graphics, or if having a styl- ish site is central to the image you want your firm to project. Otherwise, many people using the Internet seem to prefer the less professional ads that give you the sense of a personal connection to the entrepreneur at some other computer on the World Wide Web. On the other hand, you may want to hire some professional help in order to make your website appear high up on search results, through the techniques of search engine optimization (SEO). Identifying the best keywords and descrip- tion tags to your web pages can be extremely useful, especially if you are new to the intricacies of the World Wide Web.

Free Advertising

There has always been free advertising. It probably started with entrepreneurs telling their friends about the business while working their “day jobs,” or people calling out what they had available in the marketplace, or putting up a self-made sign showing what they were selling. Every one of those forms of free advertising remains very much in force and they still work! But today there is more—a lot more.

For our Phoenix day care center, we already have talked about paid advertis- ing. There are several free ways to get the word out. Posting brochures or business cards on the bulletin boards of supermarkets and pharmacies or other stores in the targeted neighborhoods is one way. Passing out brochures or flyers in local areas or at meetings (e.g., PTO) is very inexpensive, but make sure you get permission first! Think about places families might go and pass out cards and brochures there—think

of parks and playgrounds on weekends, for example. The idea is to think, “Where does my target market go?” and be there to advertise your business. We could look for local bloggers on family topics and send materials about our new day care center to them in hope of getting a mention on the blog. In other words, wherever we can get the word out, we do it. This kind of thinking will be used when building press and public relations programs later in the chapter.

We can make free websites for our business on Facebook (useful if you sell to consumers), LinkedIn.com (useful if you sell primarily to businesses), and Twitter (popular with both groups). These sites give you ways to get involved with customers and with groups as part of an online social exchange, making them feel more connected to your firm. On all three websites, there are groups of people with shared interests, and there is also sharing with the members’ network connections. So if a customer of yours “Likes” your Facebook page, all of their Facebook connections will see that, which can explosively add to your growth. Typically these social networking websites are linked back to our main website, so that customers can easily use all your web resources.

While these sites are free and interactive, giving you a way to exchange ideas and opinions with one another, if you are going to be serious about using these free networks, you need to be consistent about living up to your social obligations. Checking Facebook, LinkedIn, or Twitter every 24 to 48 hours is necessary, and you need to not only check what is happening, but to keep the site’s content fresh, with new postings at least a couple of times a week. A dormant Facebook or Twitter account actually hurts your business reputation because it seems like you don’t care.

The other opportunity that opens up with these social network driven sites is the possibility of buzz or viral marketing. You or one of your customers on your Facebook or Twitter account may post a message, upload a picture or a video that people start sharing, and the sharing becomes explosive, withthousandsorevenmillionsofpeopleseeingandsharingthematerial.Havingsomething“go viral” is not easily done. Some say that it can only occur naturally. But you could get a small-scale virus going. For example, imagine our day care center owner posts on her Facebook page a short video on “How to get your child ready for his or her first day at day care.” The customers on the Facebook page like it enough to pass it on to their friends, who pass it on, and suddenly a reporter at the local TV station sees it and asks the owner for an interview. In the interview, the reporter men- tions the video and links to it from the TV station’s website. Suddenly the owner is the top day care expert in Phoenix. Think about that when you see the local news. There are stories like this happening every few days. The two major sources for these are viral marketing and press relation efforts.

Getting other people to talk about you and your business is one of the best ways to get potential customers’ attention. Since the days of newspapers, this has been called free ink because getting the local gossip columnist to mention your restaurant got your name in ink but didn’t cost you hard dollars (although it might have meant the gossip columnist got a free meal from you). Today there are more ways than ever to get free ink, and it goes far beyond newspapers.

Again the Internet is a major player. For example, NM Incite reported the existence more than 186 million blogs worldwide at the end of 2011.15 There are even blogs like Squidoo (www.squidoo .com/sumbit-startup) or KillerStartups.com that are focused on spotlighting new start-ups.16 With that many blogs, there are bloggers focused on every topic, locality, and industry. There are even directories of blogs, search for blog directory on Google or Bing to help narrow your search.

Whether you are seeking free ink from traditional media or the Internet, you have to do your part, mainly providing them with information ready to be used. For example, Internet marketer Kipp Bodnar17 suggests blog-ready materials might include answering customers questions, aggregating an interpreting industry statistics, or making lists or charts the blogger can quickly incorporate in their next posting. We’ll get more into the details of press releases in the section on press relations later in the chapter.

If you can get the bloggers to like your product or service, they are more likely to mention it. Sending them your press release might work if it is relevant, but a sample of your product might be better. Do some research on the sites to decide which to target. For example, there is Coolhunting for urban living products, Kevin Kelly’s CoolTools for tools and gizmos of all sorts, DailyCandy for fashionable clothing, Gizmodo for electronics, Luxist for luxury items, MoCoLoco for modern furniture, and Treehugger for environmentally friendly products.18

The whole idea of connecting businesses to blogs has itself spawned entrepreneurship oppor- tunities. PayPerPost—which is blog focused but not free—is a firm that connects firms hoping to be featured on blogs with bloggers who don’t mind some extra cash for mentioning their products. The company’s founder counters implications that this is unethical by stating that the firm doesn’t specify whether the content needs to be positive or not; in other words, you can even get paid for complaining about a product or service.19

Another of the original forms of free advertising is word-of-mouth (WOM) advertising because it is passed when one person speaks to another about a product or service they like, or when the entrepreneur makes a personal pitch about their business to someone they just met.

When it comes to promoting a small business that is just starting out, spreading the news by word-of-mouth remains one of the surest ways to build a client base. Whether a potential customer meets the owner directly or hears of the business secondhand, a connectedness is established that cannot be matched by advertising or other marketing methods. Entrepreneurs should make use of every opportunity to meet potential clients and expose them to their products or services.

Network advertising includes referrals as discussed in Chapter 9, but also the information you spread through your own network of family, friends, and business associates, who are described in the social networking discussion of Chapter 3. Ask those clients you’ve satisfied to pass your name along. If possible, give them an incentive—a discount on their next purchase, for example—to do so. Another example is by passing out your business card at every opportunity. (You may even want to print special ones offering the carrier to some token gift—an advertising novelty, perhaps—a free estimate, sample, or discount when they visit your business.)

While a business card goes a long way, prepare yourself to sell your business at every oppor- tunity. Join local groups such as Rotary or Toastmasters. Get involved with trade associations, chambers of commerce, or even local government. If you are able, offer to speak at organizations; perhaps you can share some of your funniest start-up stories and the lessons you learned.21

If you ask most service providers how they get business, the answer is usually referrals or word- of-mouth.22 Carter Prescott, head of New York-based Carter Communications, which provides high-level writing and speaking services for Fortune 500 clients, doesn’t even have a listed phone number. “I’ve never needed one,” she says. “It’s better to have people call you on their own, rather than soliciting calls anyway. You get a better client that way.” She only gets calls when a current client gives her number to a potential client.

One cold call to a dealer can start word-of-mouth advertising23 and get your product into stores. Lynn Gordon, proprietor of French Meadow Bakery in Minneapolis, Minnesota, started her bread- making business in her kitchen, producing 40 loaves a week for local co-ops. One day she made a cold call to a local gourmet shop, which started a word-of-mouth snowball. As luck would have it, the buyer was on a special diet, and Gordon’s bread was just what she was looking for. Soon other grocery stores signed up. Meanwhile, customers sent loaves to friends around the country, who called to order more.

Under pressure from stores, distributors started asking for French Meadow bread. Next, Diane Sawyer and the 60 Minutes crew showed up to do a story about the Women’s Economic Development Corp., a program for women entrepreneurs in which Gordon was involved. Saw- yer highlighted Gordon and her gourmet bread on the show. Then the state helped subsidize a trip to the International Fancy Food & Confection Show in Chicago, where 300 stores placed orders. Will Steger, the tundra explorer, ordered Gordon’s bread for the international trip he was leading across the Antarctic. Even Neiman Marcus bought French Meadow bread to in- clude in a $5,000 Ultimate Cocktail Buffet. As a result of that first cold call, Gordon moved her operation into a 13,500-square-foot storefront bakery in Minneapolis, where she eventually employed 15 people.

Another effective way to create word-of-mouth marketing is to give your product away. Yes, you read that sentence correctly: give your product away. You start by making a list of the top people you would like to have as your customers. Who is your target market? Who do these people listen to when trying to make product decisions? What if these influential people had your product—and didn’t have to pay for it? If your product is as great as you think, won’t these influencers be excited about it and tell everyone else they know?24

Sales Promotions

Sales promotion is a form of communication that encourages the customer to take immediate ac- tion. Good examples of sales promotions include coupons, sales, contests, sweepstakes, giveaways, samples, “buy one get one free,” and other gimmicks. They range from inexpensive—sales fly- ers photocopied—to expensive—all-expenses-paid vacation. They are relatively easy to manage— sales and coupons—to much more complex—contests and sweepstakes. Frequent buyer programs (as described in Chapter 9) are also examples of sales promotion. When using contests and coupons, it is a good idea to check into local and state laws, since there are some places that prohibit or limit

how these are used. For example, if you use a sweepstakes in Florida or New York, you need to post a bond equal to the amount of the prizes.

Building a Press Relations Program

Press relations are those activities you do to influence or increase media coverage of your busi- ness. Media include newspapers, magazines, websites, blogs, radio, and television. These can be targeted to the general public or for specific groups like industry or trade associations, professions, neighborhoods, or lines of business (e.g., gas stations, restaurants, etc.). In this section we talk about how to target media outlets that can do your firm the most good, how to develop the keys to any media strategy—your press release and press kit—and even how to determine what a media outlet might find newsworthy.

Targeting Media Outlets

Building a press relations program is a lot like planning any other aspect of marketing. It starts with your target. In public relations, determining your target is determining which media are likely to reach your customer. This may include radio, newspapers, magazine, television, and newsletters. Since you are a small firm and perhaps local in scope, national media are probably not for you (un- less you have invented the next Google, YouTube, or other breakthrough technology). Most com- munities have local publications promoting local businesses. Local television stations won’t offer you 60 Minutes slots, but like to feature stories as fillers in their newscasts—especially if the story is newsworthy, of human interest, humorous, or generally “feel-good.”

As with personal selling, make a list of these media and then determine which ones are most likely to carry the sorts of news you offer. Treat them as if they are your customers. Find out the main contact people, their phone numbers, and do a Google search to see what stories they cover and find out more about them. Ask if they have any preferences as to how they like the information delivered. Send them your press kit and ask for theirs.25 Some will prefer that you write the story and let them edit. Others will prefer to send out their own reporters.

Additionally, the press release can be used on your website, as handouts to clients, or included in direct mail. If you are a presenter at a meeting or conference, pass it out as background information. Frame it and hang it in your place of business. (Many restaurants hang favorable reviews where

clients can see them as they wait for their table.) And, as with personal selling, continue to build your relationship with the media. Include a link to the article as part of your signature.26 Now, you need to determine which story you will send out and write the press release.

The Basics of a Press Release27

The press release (see Skill Module 10.2), like the one seen in Exhibit 10.2, is the key method for telling your business story. Entrepreneurs can use the AIDA (attention, interest, desire, and action) formula to write press releases well.

? Attention: Get their attention with a catchy headline. Something clever or a play on words may do the trick. It needs to be short—no longer than ten words and preferably less. Some- times a subtitle may be used, especially if the attention-getting title may not give enough in- formation. For example, “Udderly Delicious: Dairy Marketing in Venezuela”28 is the example of a clever title—a pun—and a subtitle to explain what the article is really about. Try to strike an emotional chord with your readers. Empathize or address a problem they have and you may draw their attention further.29

?     Interest: While the title should start to pique their interest, the opening paragraph should really capture them. This first paragraph should include the who, what, when, where, why, and how of the story. If you are really good, you can get all that in the opening sentence. The idea is to “hook” them and get them to read further.

? Desire: Now provide the meat of the press release—details that tell us more about the open- ing information and increase our interest. Depending on what your press release is about, this could include features of your new products, or some biographical information on the new person you hired. Start with the most important information in the story because editors frequently delete ending materials to fit space. Quotes from key people from outside the com- pany can imply third-party endorsements.

? Action: At the end you put contact information. Where can they find out more about your wonderful new product, your exciting new vice president, or this fantastic company that just won an award? The goal is to get them to be potential clients; kind of hard if they don’t know where to find you!

Resources for E-Mailing Press Releases31

Once you have developed your press release, there are a plethora of websites that can assist you in sending or e-mailing your press release to the appropriate media. These include:

? ABYZ News Links—contains links to more than 17,200 newspapers and other news sources from around the world: www.abyznewslinks.com

?                Gebbie Press—where you will find a wealth of media information: www.gebbieinc.com ? American Journalism Review—a great link to media sources that are on the Internet: www

.ajr.org

The press release is often included as part of a press kit. Press kits are a variation of the sales kit mentioned earlier. Press kits include brochures, business cards, product information, and other materials that can provide background material for a reporter. They should include a letter of in- troduction and may include a brief history of the firm and information about the owner and other key managers. Include other press releases, articles, and other newspaper clippings about the firm and other such material. Consider including a “frequently asked questions” page, information about awards, audio and videos of television, or radio interviews. Financial statements, if you are publicly traded, are a must. If appropriate, include samples of your products, camera-ready logo art, statistics specific to your industry or target market, photos, and even an order form—they could be your next customer!32 Whenever you run across a new media outlet appropriate to your clientele, add it to your media list.

What Is Newsworthy?33

Press releases are meant to draw the attention of the public to something that’s new and newsworthy which could be a range of things, from products and people to services and solutions. To further garner serious attention from the media and the public, a news story needs to deliver certain essen- tials that will hold readers’ attention, and keep your news in their thoughts. It should have public recognition, public importance, or public interest.

Public recognition includes issue recognition (Have you solved a problem that is an at- large issue? If your problem is not familiar to the public, people need to be familiarized with it before they understand your news), trendiness (Is your news a low-carb diet or a Cabbage Patch Kid? That is, will you be able to ride the wave of fashion or will you be just another in a long and dated line of related stories?), famous faces (If the news is connected to one or more recognizable people or organizations, the public will already feel a connection to the story.), and proximity (News is sure to attract attention if it can potentially affect a number of people. The more people it will affect, the further your story will spread.). Public importance includes power (Does your news represent a power struggle or shift? Power affects the community, and the farther its potential reaches, the more newsworthy the event.) and currency (Your event will have its greatest importance while the issues are current. Will your news be connected to other recent events?). Finally, public interest includes a good story (Does your news present a good conflict and resolution? Nothing grabs attention and memory better than a good story.), human interest (A character with whom the public can relate helps generate interest and attention. Can you pull human interest into your news? The human interest story line helps connect the news to the audience with emotion.), visuals (graphics—action, photography, and so on—draw atten- tion to the piece, making another connection between viewer and the news. Are there interest- ing visuals in the piece?), and cultural resonance (Broad cultural themes expose the event or

news to a wider audience. Does the event or campaign speak to a wide demographic range? Is it meant to?).

Even though something is “new,” it might not have enough of the three “essentials” above to grab the attention you had hoped. For example, hiring nonexecutives doesn’t hold importance for the media. Even new products aren’t newsworthy unless they are something new and innovative on the market.

Leveraging the Press and Generating Publicity

How do you further leverage the press to grow your business? The press can be extremely valu- able in helping businesses of all sizes succeed and gain market share by generating a high level of exposure to a wide audience. As discussed above, the first challenge is to develop that unique story or angle, but once that is done the next task is to find the appropriate person at specific press outlets that would be interested in this news. All reporters or editors have their own beat, so it’s imperative that you do your research before approaching them to find out what kinds of stories they typically write, what trends might be interesting to the audiences they write for, and whether or not they just did a similar story last week.

For a small business, mentions in the “corporate notes” sections of the daily and local business papers are a good way to start. These are great places to list new client acquisitions, project comple- tions with substantial results, and new hires—all reflective of a solid, growing company. Consumers and companies want to buy goods and services from a company that has demonstrated it’s going to be around in a few years, not one that has an interesting idea but can’t properly articulate why the idea is good.

Building a Public Relations Program34

Public relations include publicity and other forms of communication to the public in general in order to promote a favorable opinion by the public about your firm. For example, corporations send out shareholders’ reports in order to provide information and create a favorable impression about the firm with the shareholders who may never be one of their customers. Other publics that are rou- tinely the target of these messages include government, education systems, special interest groups, neighbors to the firm, competition, other business in general, employees and potential employees, investors, and, of course, potential clients.

Public relations have some weaknesses as a tool. Many people regard public relations stories skeptically: “Of course they will tell us only the good things and not the bad.” Some feel that these stories are a thinly veiled advertisement. Also, these are very difficult to control. A firm may spend many hours and resources developing and submitting press releases or other publicity and the news media may never use them. Or, often worse yet, the news media will edit the press release to the point that the original intent is totally distorted.

Public relations are those things you do to help create a favorable opinion of your firm in the mind of people in general. For most businesses, the more people who know about your business the better, but this only works if people have a positive opinion about your firm. Often it is easy to do things which help get you a favorable opinion from others. Activities you undertake which show your willingness to help others, through pitching in or sharing time or expertise, can do a lot to build favorable public opinion.

To show your expertise, consider writing articles for magazines35—not press releases, but an article addressing a problem you can solve, a human interest story, or something about which you are an expert. If it relates to your business, this will help establish you as an expert in your field.36 (College professors do this all the time.) This gets your name out among potential clients, generates referrals and strengthens your competitive advantage. You can also offer different media to consider you as an expert opinion on related news articles. Include the articles in your press kit or use them as you would other public relations materials.37

To show your good will, consider sponsorships or donations. For example sponsorships can be a good way to get the word out about your firm. Your budget will not cover renaming a local major league baseball stadium, but it might put your name on the back of a T-ball team’s uniforms

in a neighborhood where your target market lives and plays. This spreads good will among the local community and might even be picked up in the press. If a community group has a program which would attract your target market, approach the group about sponsorship. Unexpected money is often the most persuasive to sponsored organizations.

Donations are the other paying forward approach, and do not need to be millions of dollars. Products that are nearing expiration, returns, or slightly out of specification may be donated to shelters or other nonprofits. Time maybe donated to read books for the blind; small cash or product donations to local theaters will get your name in the program. Some of these will not result in instant publicity, but can be worked into company history or biographical information.39 In addition, dona- tions can have tax benefits for your business.

There is another approach for building positive public awareness of your business—creating a publicity event. This works best if it is tied into what you sell. Additionally, it is likely to get more press if the idea is not seen as self-promotion. For example, Immaculate Baking Company baked the world’s largest cookie—100 feet in diameter and 40,000 pounds. This put it in the Guinness Book of World Records but also generated publicity. What made it even better was that Immaculate Baking tied this into a fundraiser for the construction of a local folk art museum. Sales went from about $500,000 to over 7 million and the museum gained $20,000 in dona- tions.40 Even simple approaches can pay handsome dividends. Hold an open house or a tour. Have a booth at a local street fair. Celebrate Grover Cleveland’s birthday with special activities throughout the day. You can even hold seminars or programs on issues of immediate interest when your firm has topical expertise, or you can give your site to the media as a place to film outside of the studio, but if you do, make sure your signs are visible. These approaches are not the only ones possible. Others can be found in The Thoughtful Entrepreneur: Tips for Generating Publicity.

Two Ways to Generate Publicity41

Even though it may be the latest innovation on the market, a newsworthy product, event, or service always benefits from well-planned publicity. Aside from advertising, there are several tools that can help your news gather a piece of the limelight.

1. Write or provide materials:

? Offer exclusive articles, photos, or columns to publications that are read by your target audience.

?      Offer (through a national service) ready-to-reproduce, typeset feature stories to smaller news- papers (mat releases, color pages).

? Not-for-profit organizations can produce public service announcements for broadcast, print, and other media.

?       Produce and distribute video or audio news releases for the broadcast media. ?      Produce your own program or short feature for the broadcast media. Depending on distribu-

tion rights, this might also be used as a video brochure or for other groups. ?       Include your products as props for films and TV shows (consider whether the show’s message

would help or hinder your product’s image). 2. Conduct interviews:

?                         Appear on local TV talk shows or radio call-in shows. ?              Hire a professional spokesperson to make appearances and talk about your product or service. ?                      Take your message to the media on a multicity media tour.

Having a great product or service does not do you or your business any good if potential customers do not know about it. Getting the word out about your business and its offerings is the purpose of promotion in small business. The avenues for getting the word out are fairly well known—current or potential customers, the press, and these days the Internet—but because everyone knows those avenues, crafting and distributing a message that people will notice and respond to amid all the ads they face is an ever-increasing challenge. This chapter focuses on preparing you with the basic skills of press and public relations, as well as advice on what makes promotion efforts pay off. Armed with these ideas, you can make your business stand out and be noticed. The other key role of this chapter is to discuss the specifics of selling—how to get started and how to close sales. In the end, sales are everything, because everything in business depends on sales. If you can master promotion and selling, your business will have gone much of the way toward eventual success.

1. According to this chapter, what five elements of the “promotional mix” are included in the typical message conveyance?

2. According to this chapter, what are the 5 elements of the general formula for generating interest in your product or service (and getting sales)?

3. What are the categories of tips given by Cord Cooper of Investor’s Business Daily listed in this chapter?

(The second number indicates the chapter from which the question was taken (e.g., 3.1 means it is the third of ten essay questions and the answer to the question can be found in Chapter 1. )Depending upon the requirements of the question, your response to each should be a minimum of five sentences.)

Chapter 11-15 Essay Questions

1.11 Describe the typical steps followed in a grievance case.

2.11 Grievance arbitration procedures are often very costly and time-consuming. What are some of the alternatives to this process in the union sector?

3.12 Give a brief overview of how participation programs evolved in the union sector from the 1970s on.

4.12 How do labor leaders and unions generally view employee ownership?

5.13 What factors contributed to the growth of public sector unions and public sector collective bargaining in the 1960s?

6.13 Describe the reforms that have taken place in public education in the late 1990s. Discuss the reasons for these reforms.

7.14 Briefly describe how codetermination works in Germany.

8.14 What are some of the factors that make it difficult for unions to coordinate their efforts across national borders?

9.15 What are some of the key components of the current U.S. labor policy?

10.15 Describe the key features of the new labor policy advocated by the authors.

Please read the article and answear about questions.

Strategy in the Small Business

Strategy is the idea and actions that explain how a firm will make its profit. Whether you know it or not, all small businesses have a strategy. The strategy may be a blueprint for planning or a standard to compare actions against. Either way, strategy defines for you, your customers, and your competi- tion how your business operates.

Good strategy leads to greater chances for survival and higher profits for a small business. What makes a strategy good is its fit to the particulars of your business and the resources you can bring to it. In this chapter, we consider how strategy can be created and applied to help your business be its best.

Strategy in small business is special because most small businesses are more imitative than inno- vative. If you are opening a home day care center, a machine shop, an Italian restaurant, or an online collectible figurine store, these types of businesses already exist. You can find examples, books, and often even magazines to study, as well as trade and professional associations to join. There are special strategies that aim to help imitative businesses be successful.

Getting to the useful strategies for a small business is a four-step process. Figure 7.1 shows the strategic planning process for small businesses. The first step involves reviewing and confirming the goals that define your firm and knowing your magic number. The second step is where you consider your customers and the benefits you want to offer them and plot these out in a procedure called perceptual mapping. The third step is to study the dynamics and trends of your industry using a technique called industry analysis in order to identify the best way and time to enter busi- ness. The fourth step involves building on the prior three steps to determine the best strategic direc- tion and strategy for the firm. After this four-step process, there is a continuing effort called post start-up which aims to refine your firm’s strategies and tactics in order to maintain a competitive advantage.

As you can see in Figure 7.1, strategy builds on four key types of decisions you make about your firm. These may be made formally or informally in your opportunity analysis or feasibility analysis. These decisions are:

1.         The major goals you set for your firm. 2.       The types of customers you seek and what benefits you plan to offer them.

3.         The stage and trend of your chosen industry. 4.         The specific generic and supra strategies you choose to pursue.

Goals: The First Step of Strategic Planning

Before getting into industry analysis, you as the entrepreneur need to make some very basic deci- sions about your goals for your prospective business—you, your idea, and your firm. These goal decisions will set the stage for the kind of business you will have and are the foundation for further analyses. There are five initial key goal decisions:

1.         As owner, what do you expect out of the business? 2.           What is your product or service idea (and its industry)? 3. For your product or service, how innovative or imitative will you be? 4.           Who do you plan to sell to—everyone or targeted markets? 5.    Where do you plan to sell—locally, regionally, nationally, globally?

Owner Rewards

For a small business that is starting out, all strategy starts with the owner. As owner, what do you want out of your business? In Chapter 1 we introduced the rewards sought by entrepreneurs from their businesses. Some, like flexibility, personal growth, and a solid personal income, were pretty universal. Skill Module 7.1 looks at how you can determine your magic number, which is the income you personally seek from the business. Knowing that number from the start, you are better able to evaluate if your proposed business can deliver on that very basic need that everyone reports needing. Other rewards like great wealth and developing a new product or service was mentioned occasionally, while recognition, admiration, power, and family tradition get mentioned least often of all rewards. For EnableMart, the original reward was to generate the wealth necessary to bring Mindnautilus to market, and also provide a service that made it easier for America’s 54 million disabled to get the products they need to make their lives better.

Whatever the reward or rewards you seek—it is fine to want more than one—it should be central to your creating the business. In a very real sense, what you want from the business is the core of your and your firm’s strategy. It is the “why” which drives the process of entrepreneurship.

in Chapter 5. Either way, the idea gets made real as a product (something physical a customer buys) or a service (activities undertaken on a customer’s behalf). It is possible to combine products and services, like a GM auto that comes with the OnStar cell phone service. You can learn more about that in Chapter 9.

If you have in mind a product or service, you also have an industry. Industry is the general name for the line of product or service being sold. Examples include the restaurant industry, the computer consulting industry, and the collectible doll industry. In addition to a name, industries have numeric codes, called SIC or NAICS codes,3 which are discussed below. Industry is vitally important to your core strategy decisions because simply put, there are industries that are more profitable than others.

In fact, picking the right industry is key to the success of your small business. Stanley and Danko,4 in The Millionaire Next Door, point out that two-thirds of all millionaires are self-employed. They say that the key to being successful is selecting an industry that offers good potential for making a profit and attractive opportunities to work with a minimum of risk and competition. These industries are described as having high industry attractiveness. Stanley and Danko were surprised to discover that most millionaires who owned businesses are in industries like scrap metal, coal mining, and dry cleaning. It turns out that industries that are attractive from a profit-making sense may not be the industries thought of as attractive places to work. But choosing one of these attractive industries can do a lot to help your firm survive and you to be successful.

Industries which do well in good times and poor historically include financial firms tied to bank- ing, health-related firms, insurance firms (especially related to health), and business consulting.5 When talking about the small business myths in Chapter 1, other occupations that came up included bookkeeping, credit counseling, and tax preparers.6 Figure 7.2 gives information about a number of industry sectors and some popular individual businesses to help you get an idea of the relative attractiveness of industries (based on their profitability), and the expected level of sales.

If you know the industry’s code number (see Skill Module 7.2 to find out how to do this), you can find out a tremendous amount of information about the industry. This is because most informa- tion is coded using the industry number. From the work done by marketing researchers Stanley and Danko7 as well as BizMiner.com and others, we know there are between 15,000 to 30,000 different industries in the United States.

There are two major classification systems that code industries: the new NAICS (North Ameri- can industry classification system) and the better-known standard industrial classification system, or SIC. SIC codes have four digits; NAICS have six. NAICS covers more industries and more of the newer types of industries. Skill Module 7.2 gives you help in finding the NAICS and SIC codes for the industry for your business. The Skill Module is also on the Online Learning Center.

The key to finding information about industries is knowing how to check the information, and NAICS and SIC codes are essential to that. It is also important to know that there are no “safe” industries. In much the same way that families and societies are living things—things that are born, mature, and can die—industries can be considered living too. Ten years ago, coffee shops were a dead industry in most of the country. However, today, with Starbucks, Panera Bread, Seattle’s Best, and a host of independent coffee shops blanketing the country, the industry has been revived through franchises, company-owned stores, and innovative independents.

Imitation and Innovation

This chapter’s subtitle is “Imitation with a Twist.” The idea reflects the fact that for most small busi- nesses, the owner wants to be a lot like others in the industry, but not exactly like them. Owners who elect to imitate their competitors still want to have something that distinguishes them from the oth- ers—something that makes the owner’s firm special and better. That special and better element—that innovation amid a lot of imitation—gives us the kind of entrepreneurial thinking behind the chapter title.

The choice between imitation and innovation is truly important and often overlooked. Busi- nesses, especially new firms, can do more or less what others are already doing—an imitative strategy—or they can start doing something that is very different from what others do—an innovative strategy. Imitation is the classic small business strategy. We know from the PSED that almost two-thirds of people starting businesses today plan to use imitation as their approach.8

There are several advantages to using an imitative strategy.9 You benefit from being able to buy existing technologies, such as industrial grade washing machines for a laundromat, web servers for a hosting service, or calligraphy pens for greeting card publishing. Architects, builders, real estate

agents, zoning boards, equipment manufacturers, equipment servicing companies, and banks are more likely to understand the industry and what is expected. Because of this, they can give you firm estimates of costs and schedules. With imitative approaches, there is also the possibility to buy existing businesses.

Perhaps the key benefit of an imitative strategy comes from your customers. Chances are they already know about the kind of product or service you are offering. This means your marketing ef- forts can focus on the benefits you offer instead of explaining the product itself.

When you elect an innovative strategy, you have the benefit of making your business precisely fit your own ideas and preferences. Take the example of snowboards. When Dimitrije Milovich built the first modern snowboard in 1969, he not only had to have the product available for purchase, but he also had to inform the customers that such a product existed and how it could be used. With highly innovative businesses, there is often not much opportunity to sell the business, and the owner spends a lot of energy in creating the processes and markets as well as informing suppliers, resellers, and investors about the new product or service.

In practice, most firms use imitation plus or minus one degree of similarity. Imitation minus one degree of similarity would be the business equivalent of cloning. It is franchising, first dis- cussed in Chapter 6, in which you purchase a precise and complete copy of an existing busi- ness from the franchisor. Imitation itself involves patterning a business on existing firms and processes. Your imitation is not likely to match the precision or completeness of copying seen in franchising, since you are unlikely to have all the information about the model businesses or processes. You may also adapt your business to fit local situations or your current situation. You might pattern your new Italian restaurant after the Olive Garden, but you end up buying your equipment and food from different sources and add local favorites, such as toasted ravioli in St. Louis, barbeque pizza in Memphis, or deep-dish pizza in Chicago. This approach is called parallel competition.

Imitation plus one degree of similarity is where you look at existing businesses and pattern yourself after them, with the exception of one or two key areas in which you seek to do things in a

new, and hopefully better, way. This is called incremental innovation and is second only to par- allel competition in frequency. You have seen it in the fast-food business where Burger King told customers “have it your way.” This approach was bettered by Wendy’s, which offered custom-built hamburgers that were, in addition, “hot and juicy.” Hardees moved into the fray with supersized custom burgers. Each company makes custom-built hamburgers, but each added a small innovation to differentiate it from its competition. Small businesses do the same thing, whether they are offer- ing haircuts or golf clubs.

The last type is pure innovation, also called a blue ocean strategy, which results in a new product or service. These situations are rare. Typically with a new product or service, you also have a unique setting. For example, Philadelphia chef Joseph Poon was one of the early developers of a food style called Asian Fusion, which combined Asian food with contemporary American and nouvelle cuisine elements. His restaurant reflected the Asian Fusion theme with light woods, simple lines, and oriental details. Other Asian Fusion restaurants, such as Roy’s of Seattle or the E&O Trading Company in San Jose, California,10 added different wines, beers, and liquors, and even new types of mixed drinks developed to complement the food. After all this, the Asian Fusion chefs had to convince diners to try these new combinations of flavors.

These ideas lead to a simple set of strategic moves that can help you think about how to compete better as an imitator. Think of the case of the upstart Netflix, which became a major player in the video rental business, but was a relative latecomer.11

?

?

Parallel Innovation ? Use the standard-setter’s approach for lower start-up costs: Blockbuster set the standard, so

the software and basic inventory for video rental existed. ? Don’t make the mistakes the leader is making: Blockbuster customers complained about

lack of selection, and out-of-stock movies, so Netflix had a larger selection and arranged to

avoid stock-outs. Incremental Innovation ?   Take it to the next level: Pick one area important to customers to do much better than the

pioneer. You can be easier, cheaper, or offer higher quality. Netflix offered avid movie

renters a better financial deal and better selection. ? Borrow from Outside: If another industry has a solution that works (and people know about

and like), imitate that idea in your home industry. Netflix married the book clubs’ use of mail and the video rental model of Blockbuster.

Remember that a lot of research shows that imitators do better than pioneers in the long run.12 For example, we know Boeing, Microsoft, and Google, but these are all imitative companies. The pio- neers in their industries were companies like Wright or Curtis (airplanes), Digital Research (PC operating systems), Wandex (web searching), and Overture (keyword ad sales). When you do imita- tion well, it can do well by you.

Markets

A market is the business term for the population of customers for your product or service. If you know your market inside and out, you are likely to know much of the key information for how to be successful in your line of business. There are two market decisions you need to make early in the process of going into business. One of these is the scale of the market, which is the size of the market—whether you plan to aim for a mass market or a niche market. The other is the scope of the market, which defines the geographic range covered by the market—from local to global. manufacturers in your city. Niche markets are specific and narrow, and in a niche market approach, you try to target only customers in the niche.

Most industries have both mass and niche markets. For example, the greeting card industry has mass-market giants like Hallmark and American Greetings, which advertise nationally on TV (a sure sign of a mass marketer). However, the industry is also full of niche markets. For example, Maria Peevey and Lisa Bicker started SimplyShe with greeting cards targeting women going through try- ing life experiences such as breaking up, motherhood, or weddings. Having identified their niche and its needs, they market their cards through specialty fashion boutiques such as Henri Bendel, as well as online.13

Scope: Local to Global

Market scope is related to market scale. Market scope refers to the geography of your target market. It can be local (like a neighborhood or a city), regional (e.g., a metropolitan area or a state), national, international (usually meaning two to a few countries), or global (meaning everywhere). Owners of the businesses studied in the PSED14 were asked how much of their business they thought would come from each of the geographic categories. Overall, they estimated that 58 percent of sales would be local (within 20 miles), 30 percent would be regional (from 21–100 miles), 22 percent would be national (from 100 miles out to the rest of the United States), and only 4 percent would be interna- tional (outside the United States).

Market scope is important for two reasons. First, knowing your market scope helps you decide where to focus your sales and advertising efforts. The second benefit is that knowing your target market gives you a way to determine which potential competitors you need to worry about most, namely those also in your market scope.

In the Goal step, the key is to bring together the decisions that underlie the business you hope to own. This starts with you and the rewards you seek; the product or service you plan to offer for sale to achieve those rewards; and the industry and markets with which you and your firm will plan to deal. Armed with this basic understanding of your firm, you are ready to begin developing a strategy to achieve your goals. Very often, it starts with a closer consideration of your potential customers and what you can do with your product or service to best catch their attention.

Customers and Benefits: The Second Step of Strategic Planning

In this second step of the strategic planning process, the focus is on the kind of customer to whom you want to sell, and the benefits that will attract them. Just as there are industries that offer better and worse opportunities, there are customers that entrepreneurs prefer. Customers who offer the kinds of rewards you are seeking are generally those you are most likely to view positively. If you are interested in great wealth, having customers who are themselves wealthy and not very sensitive to price issues would be seen as rewarding. If growth is your goal, having customers from whom you can learn and who expect things to be constantly new and improved will help you meet your goal.

There are also some types of customers often seen as particularly attractive. These include:

?          Corporate customers: Look at Figure 7.2 and compare the B2B (wholesale) to B2C (retail) sales. Selling to other businesses may produce greater profits.

? Loyal customers: Loyal customers return and are already presold, making your life easier. They also refer friends, another source of revenue.

?          Local customers: This was originally true because as the owner you could keep tabs on the sat- isfaction of local customers more easily than distant ones; but in the digital age, it is less about geographic proximity than about you taking the time to stay in touch with your customers.

?          Passionate customers: People who are not just loyal but are likely to rave about your business are likely to generate more potential customers than any other type.

There are literally dozens of beliefs about the best customers. Most of them have at least a germ of truth about them. You can learn about the types of customers in your intended line of business by

talking to other entrepreneurs already in the business, and by researching the business in the trade press (to find these, refer back to Skill Module 3.1). Look for terms like “customer profile” and “preferred customers” as well as articles about “loyalty programs” and “repeat customers.” These articles are most likely to have information about the most prized customers in your proposed line of business.

The point is that thinking ahead about the kind of customer with whom you want to deal is the best way to orient your strategic planning process toward finding those customers when you get to picking a strategy. As you decide on the type of customer you want to encounter, your next step is thinking about the kind of benefits you can offer them to help meet their needs with your product or service.

Value and Cost Benefits

Benefits are characteristics of a product or service that the target customer would consider worthwhile, such as low cost or high quality. The best way to identify desirable benefits is through potential customers. You can do this directly through interviews, focus groups, or ques- tionnaires (see Chapter 12 for more details on how to do this), or indirectly through reviewing websites using the techniques given in Skill Module 7.3. Ratings and complaints for products

and companies can give you valuable information on what benefits people want, and might want more of. Usually the benefits focus on value added to the product or service or on the cost of the product or service.

Benefits are usually characterized as value benefits or cost benefits. A value benefit displays characteristics related to the nature of the product or service itself. Things like quality, fashion, and reputation are elements that give a product or service value in the eyes of the customer. A complete list is given in The Thoughtful Entrepreneur box on value and cost benefits.15 Value benefits are important because they are almost always what lead to higher prices and higher prof- its. For example, McDonald’s Big Mac often costs $2 more than their double cheeseburger. The difference between them are some sesame seeds, a third piece of bun between the top and bottom patty, the “special” Big Mac sauce, and some lettuce. Both have two all-beef patties, two buns, and cheese, which you would figure (correctly) are the major costs of the sandwiches. But people pay far more for the Big Mac and pay it far more often. Next time, ask your friends why they do that. The answers you will get will tell you a lot about value benefits, and how much people will pay for them.

While value benefits refer to what the customer senses in the product or service, cost benefits refer to the ways by which a firm can keep costs low for the customer. These include scale and scope savings, and a full list is given in the same Thoughtful Entrepreneur box. It is often important for customers to know one of these cost benefit reasons why a product or service has a low price so that they do not erroneously conclude that your firm has cut price by cutting quality.

Benefits are central to how you appeal to your target customer base. Picking benefits customers find attractive makes your firm attractive to them. Picking customer-desired benefits that your com- petitors do not offer is a powerful way to make your firm stand out from the competition. Benefits drive your firm’s offering to its customers and influence every part of the strategy process. As we will see later, benefits can be combined to offer themed strategic packages.

Offering the benefits your customers want opens up the possibility of your being able to charge a premium price and make higher profits, since people are willing to pay for value-based benefits they desire. Having cost-based benefits can also increase profits by lowering your cost of doing business, and thereby increasing your margin relative to your competition’s. Therefore, it is easy to see how benefits help you select a strategy that improves your firm’s profitability.

As you decide what benefits to offer, you open up the possibility of using a powerful strategic analysis tool called a perceptual map. Perceptual maps are a graphic display of products, services, brands, or companies evaluated in two or more ways at once. Very often one of these ways is cost or price or one of the cost-related ideas from the Cost Benefits list in the Thoughtful Entrepreneur box, since most consumers have ideas about what they are willing to pay. So price becomes one of the dimensions of your perceptual map.

The other dimension can be what you think you or your customer will think is most important. It could be the stylishness of an item of clothing, the speed of a cell phone app or car, any of the Value Benefit ideas mentioned in the Thoughtful Entrepreneur box. You are not limited to one idea. Entrepreneurs often make different perceptual maps to find a benefit that the competition is

not delivering on, but their own company could. That kind of opportunity is the goal of perceptual mapping—a combination of Value and Cost benefits your firm provides and makes your firm stand out from others in your industry or market. Skill Module 7.4 takes you through developing a perceptual map.

Industry Dynamics and Analysis: The Third Step of Strategic Planning

Industry refers not only to your product or service, but also to all the firms also selling that product or service, in other words, your competitors. In setting strategy you need to look at your competitors in order to best position your firm, but you also want to look at the changes in competitors, sales, and prof- its in your industry—what are called the industry dynamics—to make sure it is a good time to enter it.

It turns out the fortunes of industries move in a predictable way. Figure 7.3 shows the two ways the number of firms in an industry change.16 Most industries’ introduction stage starts with only a few firms. These firms elected to be innovative in their approach, making a new product or offering a new service. The number of firms typically grows slowly at first. Sales are probably small, and most customers are largely unaware of the offering. When enough customers have bought the product so that it begins to draw the attention of the general public, there are two possibilities for the growth stage. Most products and services tend to grow at a regular rate, one at which the growth in the num- ber of firms more or less meets customer demand. However, some products or services turn out to be extremely popular or “hot” and grow very rapidly. In these cases, the original firms are unable to keep up with consumer demand. Other firms jump in to take advantage of the growth; this stage is often called the boom. Firms begin to compete on features and price, and there may seem to be an explosion

of choices. Eventually, all such booms come to an end, and there is a stage called the shake-out in which many of the firms close down. This phase ends as the rapid die-off of firms stops.

Whether through slow and steady growth or a boom and shake-out cycle, the industry eventually reaches a relatively stable number of firms, with minor variations and a slow drop in numbers. This is called the maturity stage. Eventually mature industries begin a decline stage. Some industries face death, while others find new life in a process called retrenchment. We will look at those later stages later in this chapter.

Starting early is not always a guarantee of eventual success. Consider cars—the original car com- panies were small businesses. Charles and Frank Duryea, brothers who created a family business, made the first production car in the United States in 1893. Firms from the start-up stage included Duryea, Winton, and Studebaker as well as Olds, Cadillac, and Ford. The boom started in 1905 and went to 1915 with over 75 auto manufacturers, many of them still small businesses. In the shake-out during World War I, the number dropped into the teens, settling into the maturity phase of the Big 3 (GM, Ford, and Chrysler) who survived into the 21st century.

Industry dynamics are important in telling you and potential partners or investors about the pros- pects for the industry as a whole. Obviously it is easier to sell people on your business when the whole industry is growing. But if the industry is not growing there are still ways to be successful, but as a start-up you need to have worked these through ahead of time. As mentioned before, the market relinquishment in the declining airline industry after 9/11 opened up opportunities for new small airlines in the cities abandoned by the major airlines. Remember, there are small businesses started in every industry at every stage of the industry life cycle. Knowing where your industry is in the life cycle helps you to craft the best strategy for success.

Tool: Industry Analysis

Armed with the concepts and preliminary information about the product/service and the market, you are ready to do a preliminary industry analysis. Industry analysis (IA) is a research process

that provides the entrepreneur with key information about the industry, such as its current situation and trends. Most entrepreneurs initially do an IA to find out what the profits are in an industry in order to better estimate possible financial returns. Taking this one step further, finding out how those profits are generated often makes the difference between success and failure. Armed with this information, the entrepreneur can tell if the industry is growing, stable, or in decline and what the degree of competition is. Skill Module 7.5 provides a how-to description for gathering the key types of information needed to perform an industry analysis. It also explains how the information is use- ful. For a complete example of an industry analysis, see this chapter’s appendix.

What are you looking for in your industry analysis? You want a business that can help you meet the magic number you determined earlier in the chapter. In looking at the other numbers in the industry

analysis, you may see ways to cut costs, or leverage friends or expertise or other resources available to you to make your business more profitable than the average one. That can be a tremendously useful finding.

Knowing the stage and trend in the industry is important to thinking about how you will enter the industry. Going into an established industry means it is easy to find locations, equipment, and experienced people (think pizza parlors). Going into an industry early may mean you have to spend more time and money doing things for yourself. It is better to know these things early. If the analysis tells you that you are facing a lot of competition, you want to pay particular attention in building or rebuilding your perceptual map to find a set of benefits that will help your firm stand out. All in all, an industry analysis is central to your plotting of your firm’s strategy.

Table 7.1 provides a listing of many of the key databases used in assembling industry analy- ses. Some are online, while others are in book form and available in local libraries. Armed withthe information from your industry analysis, you are in a better position to decide if the industry meets your needs for income (which comes from profits and operating revenues), financial growth (depending on the trend of the industry as a whole), and competitive challenge (depending on the number and concentration of competitors). It can also help you determine if you have or can get the expertise needed to run a profitable business (comparing how profits are made to how you would run your business if you started now). If the IA outcomes do not look promising, there are thousands of other industries to try, and it is time to think about what you can offer to attract customers to your business.

Strategy Selection: The Fourth Step in Strategic Planning

There are three classic strategies for businesses of all types—differentiation, cost, and focus.17 Because they are so widely applicable, they are called generic strategies. Differentiation strategies are aimed at mass markets—situations in which nearly everyone might buy your product or service. With this strategy, you try to show how your firm offers some combina- tion of value benefits that is different from and better for the customer than those offered by competitors.

Relatively few small businesses use differentiation strategies, because it is hard for small busi- nesses to have the resources to pursue mass markets. It happens most often when a small business offers a mass-market product or service locally. For example, a gas station offers a mass-market service, but its sales are naturally limited to a particular location. This business reality sets boundar- ies for where the firm competes, which help target advertising and pricing.

Cost strategies are also aimed at mass markets. In a cost strategy, you try to show how your firm offers a combination of cost benefits that appeal to the customer. Small businesses in a va- riety of industries make use of mass-market cost strategies. Typically, this comes when the small business can pursue a very low cost operation. For example, one gravel supplier in Memphis, Tennessee, was the undisputed low-cost provider. His secret? A farmer by trade, he discovered gravel under one of his farm fields. He sold directly to the users, cutting out intermediaries and their costs.

Focus strategies target a portion of the market, called a segment or niche. Instead of selling mass-market gravel for everyone, a focus strategy might target people seeking decorative gravel. For example, Scott Stone Company in Mebane, North Carolina, offers eleven different types of gravel that differ in color, stone size, and durability. By ensuring the quality and consistency of the gravel and knowing which types work best in specialized settings, such as oriental gar- dens or waterscapes, Scott Stone offers customers products and expertise not readily available elsewhere.

Small businesses often use a combination strategy that can use aspects of differentiation or cost approaches that are reformulated for the niche market. You identify a focus or combination strat- egy by figuring out what benefits your market most wants. This can be done by asking customers outright, through surveys, or by looking at what is working among your competitors locally or in more advanced markets. Often you will find that your market seems to want several benefits at once.

Building from this, strategy researchers such as Dean Shepherd and Mark Shanley as well as Mi- chael Porter have identified classic benefit combinations which they call supra-strategies 18 which are given in Exhibit 7.1. All are designed to work where there are many small businesses in an industry, along with a few larger firms.

Tightly managed decentralization can also work in more conventional firms too. The Men- love family mastered the auto business in southern Utah with a Dodge dealership that started in 1962. Family members opened a Toyota dealership in 1986, and a Mitsubishi-Subaru dealership in 2002. Each one is highly rated in customer satisfaction and sales volume.19 Part of the un- derlying reason for their success is their ability to transplant the skills they mastered in the first dealership. Armed with these strategic choices, it is possible to profile the most typical strategies for new businesses. Table 7.2 shows four types of start-ups and outlines how they align with the scope, ge- neric strategies, imitiation/innovation choice, and supra-strategies discussed above.

It might help to think about how Table 7.2 applies in a particular industry. Let’s look at Italian restaurants (part of NAICS 72211). There are probably several Italian restaurants where you live or go to school. If you think about it, the vast majority offer the same sorts of dishes. They are funda- mentally imitators of one another. Most of them differentiate themselves based on one or two menu items (one has cannoli, another has Italian wedding cake, etc.). That is their craftsmanship. Another may differentiate on the basis of atmosphere (i.e., best place to take a date) or location (close enough to walk to from class). They probably have nearly identical kitchens and bought most of their furni- ture and serving ware from the same restaurant supply store. That is their formula facility. Together, these restaurants are classic imitators.

There is also probably another Italian restaurant known as the place to go toward the end of the month, when money is tight. The menu has the same sort of items, but the quality of the ingredients may be less (e.g., more like institutional food) or the de?cor may be nothing to look at, but the prices are always low. That restaurant is your classic cost leader.

Last, think about the Italian restaurant that has the most different menu. It may be hard to find a marinara sauce on the menu. The de?cor may look more at home in a Scandinavian restaurant, and the menu may change with the season and what looks good locally. Here you have a firm pursuingan innovator strategy. It may appeal only to a few individuals. Because the food varies so much, they are more willing to tweak recipes to fit the customer’s wishes. Some of the equipment in the kitchen or the seating area will probably be different from what the other local Italian restaurants have. That too is part of the innovator strategy. Innovators either grow enough to become mainstream, or they die out fairly quickly.

Innovators may also come along as drivers of the retrenchment of an industry. The growth of northern Italian cuisine (Italian without red sauce) revitalized the Italian restaurant industry by ex- panding the menu and reenergizing bored customers to come back and learn about new dishes. The growth of the wine industry in the United States also led to a revitalization of Italian eating. The Internet version of the Italian restaurant is the online ordering system pioneered by big chains like Pizza Hut, but is now available for small restaurants everywhere. The food is the same. The prices are the same, but the difference is the ability to order online. For some other businesses, the online inventory may be larger than the one at the store, because the entrepreneur can fill an online order through their supplier, without adding to their own inventory. So it is possible to be more comprehensive online than in the store.

Most of the time your preferences for a particular type of business or industry and the industry analysis you perform are closely tied together. But there are times when opportunities pop up unex- pectedly, and suddenly you can find yourself trying to decide if the opportunity is the right business and industry for you. This ability to quickly pivot is one of the classic strengths of the entrepreneur. Retired entrepreneurship professor Karl Vesper21 named these opportunities entry wedges, and he identified seven that come-up again and again:

? Supply shortages: Supply shortages occur when a new product is in demand. The target audience is leading-edge buyers who are willing to pay a premium to be the first to have the product. This is a short-term market and one that changes rapidly. The key benefits are deliv- ery, shopping ease, and style.

?          Unutilized resources: Unutilized resources can be a physical resource like gravel in a farm field or even entire inner cities (see Small Business Insight: Initiative for a Competitive Inner City). It can also be a human resource. Tax Resources, Inc. was started in 1988 by people ex- perienced in dealing with the IRS in order to advise taxpayers on legal strategies to minimize their taxes or handle audits.22 The key benefits are lower costs, scale savings, or organizational practices.

? Customer contracting: Customer contracting occurs when a customer, most often a busi- ness, is willing to sign a contract with a small business to ensure a product or service. Because big businesses frequently downsize, they have ongoing needs to outsource work. Former em- ployees are often the preferred source for independent subcontractors. The key benefits are quality, delivery, technology, shopping ease, brand/reputation, and assurance. Style and per- sonalization are often factors too.

?          Second sourcing: Second sourcing seeks out customers who are already being serviced by another firm. The strategy is to offer customers a second place to obtain goods or services. Often the advantage the small business offers is being locally based. Second sourcing pro- vides the customer with greater certainty of supplies or services, and at its best provides a competitive pressure to keep both suppliers providing the best service and prices. Like cus- tomer contracting, the key benefits are quality, delivery, technology, shopping ease, brand/ reputation, and assurance.

?          Market relinquishment: Market relinquishment occurs when business firms leave a market. Since the 9/11 terrorist attacks, the major American airlines have dramatically scaled back their service. For small commuter airlines, these market relinquishments have been opportuni- ties to expand and provide ongoing service to smaller airports. Key benefits are place, shop- ping ease, quality, delivery, and service.

?          Favored purchasing: Favored purchasing occurs because government agencies, government- sponsored commercial contracts, and many big businesses have policies that provide for set- asides or quotas for purchases from small businesses. You can find out more at the SBA’s online government contracting site. Key benefits are quality, delivery, service, assurance, place, and belonging.

?          Government rules: Rule changes by the government can help small firms compete. For ex- ample, when the Environmental Protection Agency let small construction firms out of some of the water pollution treatment requirements that large firms must face, it gave the small businesses a savings of $1.5 billion, which made them more competitive. The Regulatory Flexibility Act of 1980 drives many of these rule changes in government.23 Key benefits here are technology, service, personalization, lower costs, and organizational practices.

The industry analysis helps confirm that you have chosen the right industry, and also where your competitors are and the current industry stage. That and your own decisions earlier about the scope of your business and whether you plan to pursue an imitative or innovative strategy give you the fundamentals for deciding the type of small business strategy that makes the most sense for your start-up. With that information in mind, it is time to think about how you will set up your firm to implement the strategy.

Post Start-Up Tactics

The goal of strategy after the start-up stage is to maximize profits (or any other reward you specify as meeting your criteria for success) and protect your business from the competition. To secure suc- cess, there is a step you need to take past picking and implementing the right strategy. It is the step of securing competitive advantage. Competitive advantage is the particular way you implement your customer benefits that keeps your firm ahead of other firms in your industry or market. Com- petitive advantage is your firm’s edge in meeting and beating the competition.

It can be harder than it looks. Why? In part because most small businesses face a lot more forms of competition than they initially realize. Strategy guru Porter25 identifies five different threats of competition for any business, see Figure 7.4. Imagine you plan to start a web development firm in Pocatello, Idaho.

The first place to look at for competitive threats are existing firms in your industry. Pretty much all the other web developers in the Pocatello vicinity pose the threat of rivalry. Since web development is even being taught in high schools, another potential competitive threat will be potential entrants, other web development firms that open after yours. If you think about why people come to a web developer, you realize that there is a very broad threat of substitutes with which you compete. Prepackaged website templates are offered by many hosting services, com- panies like monstercommerce.com and Amazon.com sell whole e-commerce sites already laid out using templates, and people can buy their own templates from companies on the Internet like websitetemplates.com or even freewebsitetemplates.com. But customers can substitute whole other approaches, so you compete with free blogs from Blogger.com and Wordpress.com, and the growing possibility of running a company site from MySpace.com and other social network- ing sites.

Part of what will make your web development firm special might be the advanced services you offer. Perhaps you licensed one of the large archives of photos to include in your customers’ Websites. If your supplier of photos raises prices, your profits could take a hit. Similarly, if your customers have done their homework and checked out what other local developers offer and are charging,

These five—rivals, entrants, substitutes, suppliers, and customers—are aspects of your industry which can change your profitability and give an edge to any of the many types of competitors you face. The major ways you cope with these competitive pressures is by undertaking some combi- nation of strategic actions and tactical actions. Exhibit 7.2 shows some of the best-knownProduct/Service Idea and Industry

Along with this pursuit of rewards, there is often an idea for the business. Recall in Chapter 4 we saw that 37 percent of businesses start with an idea which energizes the entrepreneur to start a firm. For 42 percent the idea of starting their own business comes first, while for 21 percent the idea and the desire to start a business are simultaneous.2 EnableMart was one of those cases where the idea (Mindnautilus) came first. This is an example of a pivot, described in Chapter 1. The feasibility study Nick and Dennis did showed that it would take time to bring this product to market (and for customers to be able to use it easily). Then came the idea for a business to sup- port Mindnautilus, which became EnableMart. Whichever applies in your case, the fact is that the idea for a product or service and the idea to start a business to earn rewards make up the core of strategy—what you plan to do and why you are doing that. The process for evaluating ideas, called the feasibility study, was detailed in Chapter 4. For the purposes of this chapter, we will assume you know your idea is feasible.

Some entrepreneurs may start a firm to get the product or service out, while others may create the product or service and have agents find firms to use it, which is the consignment process described

Post Start-Up Tactics

The goal of strategy after the start-up stage is to maximize profits (or any other reward you specify as meeting your criteria for success) and protect your business from the competition. To secure suc- cess, there is a step you need to take past picking and implementing the right strategy. It is the step of securing competitive advantage. Competitive advantage is the particular way you implement your customer benefits that keeps your firm ahead of other firms in your industry or market. Com- petitive advantage is your firm’s edge in meeting and beating the competition.

It can be harder than it looks. Why? In part because most small businesses face a lot more forms of competition than they initially realize. Strategy guru Porter25 identifies five different threats of competition for any business, see Figure 7.4. Imagine you plan to start a web development firm in Pocatello, Idaho.

The first place to look at for competitive threats are existing firms in your industry. Pretty much all the other web developers in the Pocatello vicinity pose the threat of rivalry. Since web development is even being taught in high schools, another potential competitive threat will be potential entrants, other web development firms that open after yours. If you think about why people come to a web developer, you realize that there is a very broad threat of substitutes with which you compete. Prepackaged website templates are offered by many hosting services, com- panies like monstercommerce.com and Amazon.com sell whole e-commerce sites already laid out using templates, and people can buy their own templates from companies on the Internet like websitetemplates.com or even freewebsitetemplates.com. But customers can substitute whole other approaches, so you compete with free blogs from Blogger.com and Wordpress.com, and the growing possibility of running a company site from MySpace.com and other social network- ing sites.

Part of what will make your web development firm special might be the advanced services you offer. Perhaps you licensed one of the large archives of photos to include in your customers’ Websites. If your supplier of photos raises prices, your profits could take a hit. Similarly, if your customers have done their homework and checked out what other local developers offer and are charging,

These five—rivals, entrants, substitutes, suppliers, and customers—are aspects of your industry which can change your profitability and give an edge to any of the many types of competitors you face. The major ways you cope with these competitive pressures is by undertaking some combi- nation of strategic actions and tactical actions. Exhibit 7.2 shows some of the best-known

examples of each type. Generally strategic actions require more time, money, and specialized expertise (which collectively are known as your firm’s resources) than most tactical actions. That means a tactical response is most often your first response, with strategic actions building behind the scenes.

From all this, you can see that strategy represents the way by which an entrepreneur plots a path to success. For strategy to work, it needs to draw on most of the elements discussed in the chapter. When Nick and Dennis were putting together the idea for Mindnautilus.com, they were trying to strategize the right way. You know by now that they did an industry analysis that led them to see that Mindnautilus faced significant threats, and at that time, the partners lacked the strengths, especially financial strength, to overcome the threats. They kept thinking through what they could offer and eventually found an innovative option, creating EnableMart, which was ultimately a very successful firm.

Long term or short, every small business has a strategy, and successful small businesses have strategies that fit their industry, market, and resources. Strategy is one of those areas in which you can take charge and think through the options available to you and your firm. For all the ideas on which strategy touches, in the end there are some straightforward ways to help you decide on strategies, such as industry analyses and perceptual maps. These analysis techniques can help you narrow down your choices to a model of strategy that can help you succeed. For the vast majority of small businesses, the most powerful technique is to pursue an imitative strategy. By following the industry standard practices, with only one or two innovations to differentiate your firm from others, you can gain many of the benefits of established businesses and industries and still benefit from the power of innovation along smaller lines, which can make a real difference for your customers. For many owners, strategy is the grand game of business, but it is a game in which winning can make a major difference in the success of your firm and your life.

1. What are the three classic strategies for businesses of all types?

2. According to this chapter, what are the 7 entry wedges specific to small businesses pursuing an imitation strategy?

Frederick Cooper Lamp Company was founded in Chicago in 1923 by Frederick Cooper, an artist specializing in sculpture and watercolor art. The firm was launched in response to requests from clients that Cooper incorporate his works of art into lamps.

Relying on hand labour alone to make its lamps, chandeliers, and sconces, Cooper’s company quickly became recognized as a manufacturer of high-quality, distinctive products. Throughout its history, one of Cooper Lamp’s signature treatments was “the use of silk and other fine and exotic materials to produce unique hand sewn lampshades, many of which are adorned with distinctive bead and fringe treatments.” The firm used the focused differentiation business-level strategy, which essentially means that Cooper Lamp made expensive products that provided unique value to a small group of customers who were willing to pay a premium to purchase uniqueness (we fully describe the focused differentiation strategy later in the chapter).The words of a company official reflect Cooper Lamp’s strategy: “We offer a very high quality product. Our shades are hand-sewn, using unique fabrics. We use unique materials. We put things together in a unique fashion and as a result we have a very good name among the designers and decorators, and the stores. We sell to very high-end stores, [including] Bloomingdale’s, Neiman Marcus, [and] Horchow.” Thus, Cooper made “really expensive lamps for a niche market.” Cooper’s cheapest lamps sold for $200, while its crystal chandeliers cost upwards of thousands of dollars.

The reason we use the past tense to describe Cooper’s strategy is that the firm as it was known changed in August 2005. At that time, Cooper left its historic Chicago manufacturing facility, as required by the terms of its sale to developers who intend to convert its historic 240,000- square foot building into residential condos. The four-story building was sold and workers were laid off because the firm had to reduce the costs it incurred to manufacture its high-quality products. Some of the dismissed workers had been with the company for over 40 years. Other changes were in play as well, as indicated by the following comments from an employee: “We’ve sold the name but we can’t say who bought it. That was part of the deal. But we can say Frederick Cooper will not be who it was before. But we’re not going out of business. The new name will be Frederick Cooper Chicago.”

What caused the demise of Frederick Cooper Lamp Company? The answer is perhaps familiar: declining demand for high-quality handmade products; inefficient, high-cost manufacturing facilities; and cheap imports from other nations that offer customers a reasonable degree of quality at a substantially lower price. From a strategic perspective, the firm’s demise resulted from its below-average returns, which was a direct result of its not successfully implementing its business-level strategy.

Sources: R. Berg, 2005, Frederick Cooper workers to strike, Chicago Indymedia, www.chicago.indymedia.org,

Question: Using the case example of the Frederick Cooper Lamp, Identify evidence of the different types of generic strategies being pursued by the company. Then, explain what factors are influencing the choice of strategies that you identify and why? Provide current examples to support your answers by exemplifying each generic strategy alone.

Imagine that you have recently finished your MBA and have a company that has entered the arena of Project Management. During your interview, you are told that project management is not something that the company has always done. In fact, the company began as a retail software design company. As the company grew from small to medium-sized, it became apparent that they needed to employ Project Managers to help their clients rollout the use of their software and not leave the PM to the client. As their newest hire, you have been asked to create a proposal for the management team to consider the installation of a bonafide Project Management Department. Your duty is to prepare a concise (about 2-pages) proposal addressing the value of robust project management approach will bring to the company. Be as concise as possible and ensure that at least three key benefits are clearly emphasized.

The following are two case study examples from NASA’s Aviation Safety Reporting System (ASRS), in the original text submitted, including grammatical errors. The reader will see traces to the different components of individual human performance, professionalism, and the components of the CRM Pyramid model. Finally, we will consider the case of a solid CRM positive example in the case of JetBlue Flight 292.a

Ramp Operations: Example of Disregard for Authority

On gate and time for push back, the push crew said that they would take the brakes and hold the push waiting for clrnc from ramp. There was an acft behind us, so the wait was extended. Without prior coordination, the forward cargo door opened, and bags were loaded. I asked the tug driver who had given clrnc for the pit to be opened. He said that we were just sitting there, and he had told the rampers to throw the bags into the pit. I reminded him that the capt was the one who gave permission to open the doors after the brakes have been released. This opening the doors without coordination has become common with the rampers. The tug driver then stated that they could do this if we were waiting for clrnc. I then said, ‘not without talking to the crew.’ He then said, ‘so write it up.’ I then stated that he should read up on the procs. At this point we had been given permission to push and I informed the tug driver. He started the push by pumping the accelerator on the tug and bunching the tow bar against the nose gear several times. At least four times. I then directed him to stop the push, without a response at first. I had concern for the acft nose gear and for the flt attendants standing in the aisle doing their demos. Only after the second command to stop the push did the tug driver stop. Not wanting him to continue the bumping of the acft and realizing that he was mad at me, I directed a return to the gate and then directed for another push crew. We informed ramp of the problem and informed coordination ctl. The coordination ctlr was of no help in the sit and became very unprofessional and abusive to the crew insisting that the push crew was qualified to do the push and thus should be allowed to do it. She stated that we were being very unprofessional for keeping the pax waiting and that we should accept the push crew and go. The coordination ctlr made these statements without knowing what was going on. The ramp lead got on the headset and informed me that I had ‘no right’ to request another crew. I informed him that I had every right to protect the acft and the crew and that I would not accept an individual who takes his irritation out on the acft. He informed me that it would be five to ten minutes before they could get another crew, and I said fine. Soon after, the ramp supervisor arrived and had the jet bridge pulled back, and we discussed the sit. He said that he would look into the prob and requested a rpt be filed. I told him I would file the rpt and forward it to him. We pushed back with the new crew and departed. Ramp personnel opening the cargo doors without clrnc from the flt crew, tug drivers not using the proper terminology, or improper pushes have become a problem. Intentionally taking frustration out on an acft cannot be accepted.

Discussion question for the reader: How can an airline encourage the concept of professionalism known as empowered accountability among employees who are paid minimum wage or close to minimum wage?

List at least two actions a company should consider taking, in order to combat negative impacts of the competititive driving forces and what signifigance do these actions have in a competitive marketplace?

Please provide any sources used.

Which of the following include the three primary network access technologies?

A. DSL, Cable Modem, Broadband

B. LAN, WAN, MAN

C. VoIP, UC, IPTV

D. TCP/IP, FTP, DHCP

What are the five elements that are needed to create a connected world or a network?

A. categories, programs, alternatives, people, and core philosophy

B. program, providers, access, mechanics, and teachers

C. categories, providers, access technologies, protocols, and convergence

D. LAN, WAN, MAN, PAN, and SAN

What is a large computer network usually spanning a city or a specific infrastructure like a

college?

A. metropolitan area network (MAN)

B. local area network (LAN)

C. wide area network (WAN)

D. secure area network (SAN)

LANs, WANs, and MANs all provide users with an accessible and reliable network

infrastructure. Which of the below are the most important network differentiating dimensions?

A. reliability and timing

B. confidentiality and performance

C. security and cost

D. cost and performance

The Internet is a hierarchical structure linking different levels of service providers whose

millions of devices supply all the interconnections. The three levels outlined in the book from the

top down include ________.

A. new system provider (NSP), current system provider (CSP), and order entry system provider

(OSP)

B. national service provider (NSP), regional service provider (RSP), and internet service

provider (ISP)

C. net server point (NSP), radio server point (RSP), and internet server point (ISP)

D. None of these are correct.

The speed of transmission of a network is determined by the speed of its smallest ________.

A. unit of time

B. number of computers

C. amount of bandwidth

D. number of customers

What measures bandwidth in terms of numbers transferred or received per unit of time?

A. connection time

B. broadband

C. protocol

D. bit rate

What are the two most prevalent types of broadband access?

A. data subscriber and cable connection

B. digital subscriber line and cable connection

C. digital line and client line

D. digital server and client server

What allows users to work from remote locations such as home or hotel using high-speed

Internet to access business applications and data?

A. telecommuting

B. repeater

C. packet header

D. virtual attenuation

What is traceroute?

A. a single unit of binary data routed through a network

B. lists the destination (for example, in IP packets the destination is the IP address) along with

the length of the message data

C. represents the end of the packet or transmission end

D. a utility application that monitors the network path of packet data sent to a remote computer

What lists the destination (for example in IP packets the destination is the IP address) along with

the length of the message data?

A. traceroute

B. standard packet

C. packet header

D. packet footer

What is a utility application that monitors the network path of packet data sent to a remote

computer?

A. traceroute

B. standard packet

C. packet header

D. packet footer

What is the standard Internet protocol, which provides the technical foundation for the public

Internet?

A. data streaming and DSL protocols

B. transmission control protocol/Internet protocol (TCP/IP)

C. data streaming rules and regulations

D. Internet protocol/Transmission control protocol (IP/TCP)

How do TCP and IP differ?

A. TCP verifies the correct delivery of data in case it is corrupted, where IP verifies the data are

sent to the correct IP address.

B. TCP verifies the information is reliable, and IP verifies that the data is sent.

C. IP verifies the correct delivery of data in case it is corrupted, where TCP verifies the data are

sent to the correct IP address.

D. IP verifies connectivity, and TCP verifies the rate at which the data is sent.

What is the conversion of IP addresses that identifies labels that use a variety of recognizable

naming conventions?

A. domain grades

B. URL spaces

C. domain national sequences (DNS)

D. domain name system (DNS)

What is a benefit of network convergence?

A. the uncoupling of voice, data, and video service

B. multiple services offered from several different vendors

C. multiple devices supported by one provider

D. All of these are correct.

What is the biggest benefit of VoIP?

A. lowers costs

B. clear connection

C. higher expenses

D. All of these are correct.

What is an extension of an intranet that is available only to authorized outsiders?

A. national ISP

B. regional ISP

C. intranet

D. extranet

What is the major challenge of networking or performing business in a connected world?

A. personal issues

B. society demands

C. security issues

D. telecommuting demands

Which of the statements below is not accurate in reference to mobile and wireless computing?

A. Mobile technology can travel with the user.

B. Wireless technology is any type of operation accomplished without the use of a hard-wired

connection.

C. Wireless technology is any type of operation accomplished with the use of a hard-wired

connection.

D. Mobile technology allows a user to download software to a laptop or cell phone for portable

reading or reference.

A wireless WAN (WWAN) is a wide area network that uses radio signals to transmit and receive

data and can be divided into which two categories?

A. cellular communications and multiple user communication systems

B. mobile and wireless technologies

C. cellular and satellite communication systems

D. client and server systems

What is mobile device management (MDM)?

A. allows mobile voice calls to be made over broadband networks, creating—under the right

network conditions—clearer audio and fewer dropped calls

B. remotely controls smart phones and tablets, ensuring data security

C. the blending of personal and business use of technology devices and applications

D. administers and delivers applications to corporate and personal smart phones and tablets

Which of the following is not a primary use of GIS?

A. finding what is nearby from a specific location

B. mapping densities

C. routing information

D. ensuring safety equipment is on an airplane before a flight

What allows separate systems to communicate directly with each other, eliminating the need for

manual entry into multiple systems?

A. integration

B. intelligence

C. data interchange

D. demand plan

What is the integration of data from multiple sources, which provides a unified view of all data?

A. backward integration

B. application integration

C. data integration

D. forward integration

What provides enterprisewide support and data access for a firm’s operations and business

processes?

A. enterprise systems

B. enterprise application integration

C. middleware

D. enterprise application integration middleware

What connects the plans, methods, and tools aimed at integrating separate enterprise systems?

A. enterprise systems

B. enterprise application integration

C. middleware

D. enterprise application integration middleware

What are several different types of software that sit between and provide connectivity for two or

more software applications?

A. enterprise systems

B. enterprise application integration

C. middleware

D. enterprise application integration middleware

In which of the five basic supply chain activities do you prepare to manage all resources required

to meet demand?

A. plan

B. source

C. deliver

D. return

In which of the five basic supply chain activities do you plan for the transportation of goods to

customers?

A. plan

B. source

C. deliver

D. return

Where would you find the suppliers' suppler in a typical supply chain?

A. upstream

B. downstream

C. in the middle

D. not on the supply chain

Where would you find the manufacturer and distributor in a typical supply chain?

A. upstream

B. downstream

C. in the middle

D. not on the supply chain

Which of the following is not one of the five basic components of supply chain management?

A. plan

B. source

C. analyze

D. deliver

What can effective and efficient supply chain management systems enable an organization to

accomplish?

A. increase the power of its buyers

B. increase its supplier power

C. increase switching costs to increase the threat of substitute products or services

D. All of these are correct.

Which of the metrics below represents the agreed upon time between the purchase of a product

and the delivery of the product?

A. back order

B. inventory cycle time

C. customer order cycle time

D. inventory turnover

What is the purchasing of goods and services to meet the needs of the supply chain?

A. procurement

B. logistics

C. materials management

D. bullwhip effect

What includes the increasingly complex management of processes, information, and

communication to take a product from cradle to grave?

A. inbound logistics

B. outbound logistics

C. logistics

D. cradle to grave

What are systems are used to create the digital designs and then manufacture the products?

A. computer-aided design/computer-aided manufacturing.

B. maker movement

C. makerspace

D. RFID electronic product code

What is a community center that provides technology, manufacturing equipment, and

educational opportunities to the public that would otherwise be inaccessible or unaffordable?

A. computer-aided design/computer-aided manufacturing

B. maker movement

C. makerspace

D. RFID electronic product code

Which of the following is not a current CRM trend?

A. partner relationship management

B. supplier relationship management

C. employee relationship management

D. distributor relationship management

Which of the following is not a valid way that a CRM system can collect information?

A. accounting system

B. order fulfillment system

C. inventory system

D. customer’s personal computer

Which of the following is a common marketing CRM metric?

A. number of new prospective customers

B. average number of service calls per day

C. average time to resolution

D. cost per interaction by marketing campaign

Which question below represents a CRM reporting technology example?

A. Why did sales not meet forecasts?

B. What customers are at risk of leaving?

C. What is the total revenue by customer?

D. All of these are correct.

Which question below represents a CRM predicting technology question?

A. Why did sales not meet forecasts?

B. What customers are at risk of leaving?

C. What is the total revenue by customer?

D. All of these are correct.

Which of the following is not considered a feature in a contact center?

A. automatic call distribution

B. interactive voice response

C. predictive dialing

D. automatic predictive dialing

Which of the following is where customer service representatives answer customer inquiries and

respond to problems through a number of different customer touchpoints?

A. contact center

B. web-based self-service

C. call scripting

D. website personalization

What is the primary difference between contact management and opportunity management?

A. Contact management deals with new customers; opportunity management deals with existing

customers.

B. Contact management deals with existing customers; opportunity management deals with

existing customers.

C. Contact management deals with new customers; opportunity management deals with new

customers.

D. Contact management deals with existing customers; opportunity management deals with new

customers.

Which of the following occurs when everyone involved in sourcing, producing, and delivering

the company’s product works with the same information?

A. eliminates redundancies

B. cuts down wasted time

C. removes misinformation

D. All of these are correct.

Which of the following describes an ERP system?

A. ERP systems provide a foundation for collaboration between departments.

B. ERP systems enable people in different business areas to communicate.

C. ERP systems have been widely adopted in large organizations to store critical knowledge used

to make the decisions that drive the organization’s performance.

D. All of these are correct.

Which of the following is a business-related consequence of successful software?

A. increased revenues

B. damage to brand reputation

C. increased liabilities

D. increased expenses

Which of the following represents the phases in the SDLC?

A. plan, analysis, design, test, maintain, develop, implement

B. analysis, plan, design, test, develop, maintain, implement

C. plan, analysis, design, develop, test, implement, maintain

D. analysis, plan, develop, design, test, implement, maintain

What is a project manager?

A. the application of knowledge, skills, tools, and techniques to project activities in order to meet

or exceed stakeholder needs and expectations from a project

B. any measurable, tangible, verifiable outcome, result, or item that is produced to complete a

project or part of a project

C. the representation of key dates when a certain group of activities must be performed

D. an individual who is an expert in project planning and management

Which of the following does a project manager perform?

A. defines and develops the project plan

B. tracks the plan to ensure all key project milestones are completed on time

C. expert in project planning and management

D. All of these are correct.

Which phase of the SDLC gathers business requirements?

A. plan

B. analysis

C. test

D. design

What is a data flow diagram (DFD)?

A. an illustration of the movement of information between external entities and the processes and

data stores within the system

B. software suites that automate systems analysis, design, and development

C. a formal, approved document that manages and controls the entire project

D. a graphical representation of the processes that capture, manipulate, store, and distribute

information between a system and its environment

Which phase takes all the detailed design documents from the design phase and transforms them

into the actual system?

A. testing phase

B. analysis phase

C. development phase

D. planning phase

What are defects in the code of an information system?

A. testing

B. bugs

C. insects

D. All of these are correct.

What assesses if the entire system meets the design requirements of the users?

A. alpha testing

B. development testing

C. integration testing

D. system testing

What verifies that separate systems can work together passing data back and forth correctly?

A. alpha testing

B. development testing

C. integration testing

D. system testing

What is the implementation phase in the SDLC?

A. Involves establishing a high-level plan of the intended project and determining project goals.

B. Involves analyzing end-user business requirements and refining project goals into defined

functions and operations of the intended system.

C. Involves describing the desired features and operations of the system.

D. Involves placing the system into production so users can begin to perform actual business

operations with the system.

What makes system changes to repair design flaws, coding errors, or implementation issues?

A. corrective maintenance

B. preventative maintenance

C. pilot implementation

D. phased implementation

What is an activity-based process in which each phase in the SDLC is performed sequentially

from planning through implementation and maintenance?

A. RAD methodology

B. agile methodology

C. waterfall methodology

D. extreme programming

Which of the following is an issue related to the waterfall methodology?

A. flaws in accurately defining and articulating the business problem

B. managing costs, resources, and time constraints

C. assumes users can specify all business requirements in advance

D. All of these are correct.

What breaks a project into tiny phases, and developers cannot continue on to the next phase until

the first phase is complete?

A. RAD methodology

B. agile methodology

C. waterfall methodology

D. extreme programming

Which gate in the RUP methodology expands on the agreed-upon details of the system,

including the ability to provide an architecture to support and build it?

A. inception

B. elaboration

C. construction

D. transition

Which gate in the RUP methodology includes building and developing the project?

A. inception

B. elaboration

C. construction

D. transition

Which methodology begins or ends each day with a stand-up meeting to monitor and control the

development effort?

A. Scrum

B. XP

C. RUP

D. RAD

What measures how well the solution will be accepted in a given opportunity?

A. political feasibility

B. operational feasibility

C. schedule feasibility

D. legal feasibility

What is the number one reason that IT projects fall behind schedule or fail?

A. change in business goals during the project

B. lack of support from business management

C. unclear or missing business requirements

D. change in technology during the project

What defines the how, what, when, and who regarding the flow of project information to

stakeholders and is key for managing expectations?

A. communication plan

B. executive sponsor

C. project assumptions

D. project deliverable

Which of the following is not a characteristic of a well-defined project plan?

A. prepared by the project manager

B. easy to read

C. appropriate to the project’s size

D. communicated to all key participants

What is the most important part of the project plan?

A. Gantt chart

B. specification

C. communication

D. None of these are correct.

What type of chart typically displays the critical path?

A. Gantt chart

B. PERT chart

C. All of these are correct.

D. None of these are correct.

Which of the following is the primary reason why companies outsource?

A. tap outside sources of expertise for a low cost

B. concentrate resources on core business

C. reduce headcount and related expenses

D. better manage the costs of internal processes

Which of the following is the least common reason why companies outsource?

A. tap outside sources of expertise for a low cost

B. concentrate resources on core business

C. reduce headcount and related expenses

D. better manage the costs of internal processes