Glossary

The need: A solvent market need, which is either yet unsatisfied or could be aroused. Such potential customers can be identified who might need to have some of their emotional or functional needs met.  The need may arise from: absence, dissatisfaction, a new scientific, cultural, economic, ecological, population-related or political trend in the world or it could simply mean an underlying need that’s never been met.

A Value Proposition is the promise of the entrepreneur to the target market, with which the business wants to convince the customers to prefer their products/services to those of the competition, because they can provide the best value for money. The Value Proposition defines the following: what kind of needs of which target customers, end users will be met by the product/service, what functional and emotional value will the product/service offer mean for the customers, in what way is it different from that of the competition, in what price range will it compete, with what price.

The uniqueness of the offer shows how your product/service is different, better than that of the competition. The offer needs to have at least 3 unique features (competitive advantages), which are good for the customers, limit the competitors and can be flexibly changed in relation to any changes.

The supporting arguments list the unique features, sales arguments that make buying the product/service worthwhile.

Slogan: A short, to-the point description of the product/service or the business (e.g. „Just do it”, „Because you’re worth it”)

The calculation unit determines what and to what proportion will be considered to measure the price range and the expected revenue. The calculation unit can be, for example, one piece of product, one square meter of real estate to be built or refurbished, the typical consumption of a typical customer at a pizzeria (e.g. one pizza, one soft drink), a typical order in a store, one consultancy hour, one hour of massage, the agency fee to be made on an average insurance deal, or the monthly or annual rent of one square meter of a store. It’s worth to take a minute and think about this. It doesn’t always goes without saying what the offer is. For instance, an accountant might think that he is selling his expertise and experience, which is true, but this will only determine the price range. At the end of the day, an accountant is selling his time; therefore his accounting unit will be one consultancy or accounting hour. The final amount for which he will be able to sell this hour will depend on how recognized he is, his competitors, the demand and how much his customers will actually be willing to pay.

The price range shows in which league the business wishes to compete. In a premium category, in exchange for high quality and special uniqueness you can ask for a matching high price. However, the number of potential buyers will be lower in this category and it is likely to have to face strong competition.  In a mid-category you are targeting customers looking for average quality with a matching price. In this category the number of competitors will be high and it is crucial to distinguish yourself well. The low category serves those with a lower need for quality, but highly price-sensitive. This category is suitable for those businesses which can provide an acceptable quality for a sufficiently low price with just the necessary cost to still be able to make a living.

The business model answers at least three questions: 1) Why is there a need for this business (what is the value proposition/offer for what market demand)? 2) What kind of business model will the business adopt; from what and whom will it acquire its revenue? 3) How will the business operate?

The name of the business should stand out and could reflect on the nature of the business, but in any case should not suggest anything contradictory to thereof. Should someone decide to give his/her own name they would take on a higher than average responsibility.

The basic business model is the entrepreneur's description about how he/she imagines the business will operate and compete.

Experts have identified and defined numerous business models to choose from or it is possible to create a new one:

1. Direct sales business model: Using this business model the products/services are advertised and sold directly to the customers, leaving the retailer out of the game.
2. The traditional commercial business model: the business sells the products/services of other businesses. There are many examples of this from small shops, discount stores, through supermarket chains, to special shops and department stores.  
3. Subscription business model: This business model sells monthly or annual subscriptions. It is usually used by magazines, newspapers, phone and Internet providers or fitness centers. It could also be used by websites offering information or a continuous service in exchange for a subscription, such as for example online dating services.
4. The „bait and hook” business model: This business model was made famous by the razor blade industry. Basically they sell the razors for a specific price but their profit really comes from the blades. Since the blades wear out quickly they constantly need to be replaced making the business profitable.
5. Service from a product model: To use a service perspective in case of more expensive and complex products. In the case the value proposition needs to be re-evaluated. Such an example would be the placement of a copy machine free of charge in exchange for a usage based fee.
6. Inclusiveness, creativity business model: Traditionally the customer is involved in the production of the product/service, therefore buying the possibility of creating something as well (an experience as an emotional need). Such an example would be IKEA or the majority of the open source code software.
7. Online auction business model: This business model became famous thanks to the American eBay. The buyers and sellers make contact through the pages of an online auction house.
8. The „bricks and clicks” business model: It is basically an "offline and online" business model for those companies that have real, physical stores and online web stores at the same time.
9. „Freemium” business model: This business model is based on the provision of a basic service free of charge, getting their revenue from providing extra services.
10. Premium business model: These are the companies providing products/services with the latest, most expensive technology. Maserati and Lamborghini, for example, have adopted this business model.
11. Turning a service industrial. This model conducts and optimizes its service business based on principals used at industrial firms, building in quality assurance steps, e.g. McDonald's.
12. Connecting product and service: Cars with warrantees, connecting Iphones with ITunes.
13. Low-budget airline model: The airline offers extremely low airfares after eliminating traditional services (e.g. catering) or only offering them for additional fares. There are even hotels based on this model these days.
14. Model based on network effect: It can be used when the value of a product or service also depends on the number of customers, e.g. bank cards, mobile phone networks.
15. Monopoly: When, by eliminating the competition, there is only one company on the market offering a product or service and there is no threat of even a substitute product/service. A monopoly is legal when established by government regulation. Since there is only one company offering, it can have a significant effect on the price and the quality.
16. Collective business model: It connects similar or related fields by merging their resources, sharing their information, or making their operation more successful in some other way. Such could be for example retail companies, cooperatives, franchise systems, business alliances or networks.

The business principals demonstrate how the business plans to achieve professional, sales and financial success.

1. Professional success. A business is able to achieve professional success when it can create a functional product or service in line with what the business was created for. This also means that the company has made an adequate value proposition. Professional success will depend on using the relevant experts and taking into consideration the adequate technical, market, financial and human resource aspects when creating and implementing the product/service.
2. You will achieve sales success, if the business is able to keep up continuous sales. Sales success mainly depends on whether the value proposition offers appropriate value for money, and recognition and accessibility are adequate.
3. Financial success for every company means that the business is able to operate profitably on a permanent basis, creating wealth for its owners. Simply put, financial success will depend on revenue, costs and the size of the investment. In other words: will the revenue exceed the costs, and will there be sufficient equity to launch the business and keep it going.

The revenue stream describes from where business make money.  The source of revenue can be direct and indirect:

4. Direct revenue comes if customers pay for the product/service provided (e.g. payment for the newspaper, bread, haircut, downloaded film).
5. Indirect revenue can be made if users of the product services do not pay with money but with something else (e.g. information) which can be the real source of income. The other indirect revenue stream might be when customers pay primarily not for the product (e.g. mobile phone) but for the service (e.g. calls, SMSs).  More and more cases the revenue comes from additional sources (e.g. advertising on frequently visited sites which available free of charge).    

Operational capabilities: generally a business is able to compete with three types of capabilities: customer intimacy, operational excellence, product leadership. Out of them it can use up to two at the same time.

1. A focus on Customer Intimacy means the company is oriented towards providing customized offerings to specific customers (e.g. hairdressers, consultants).
2. A focus on Operational Excellence means the company is oriented towards providing consistent offerings at a lower price with great service (e.g. fast food chains).
3. A focus on Product Leadership means the company is oriented towards bringing new products to market, continuously (e.g. Nokia used to be like that, these days it’s Samsung and Apple, of course).

Legal requirements for starting a business might cover finding the right legal form, obtaining legal authorization and legal rights. 

1. Legal form of the business can be private enterprise, limited partnership, Ltd., Company Ltd, Plc.
2. Legal authorization is necessary for the distribution of the product/service (e.g. National Public Health, Fire brigade, government).
3. Legal rights might need to be acquired for the product/service (patent, trademark, copyrights).

Personal requirements are the availability and attainability of internal and external experts, expert relationships (lawyer, patent attorney, investment consultant, etc.). The owners (their identity, ownership share, licenses).

Technical and IT requirements include the location, equipment used (machines, furniture, computers, phone, means of transport/delivery), utilities networks (electricity, gas, water, Internet).

The minimum volume– or in other words break-even point – is the amount of product/service the business has to sell within the given timeframe to become profitable, that is the income needs to cover all fixed and variable costs. It is calculated by using the following formula:  Qm = FC/(p-VC), that is the fixed cost is divided by the difference between the unit price and the unit cost, where FC is the yearly fixed cost, VC is the variable unit cost per product/service ($) and p is the unit price per product/service ($).

The minimum unit price is the minimum price necessary for covering your own cost, in other words to ensure profitability. It can be calculated by using the following simple formula: pm ($) = (VCxQ+FC)/Q, that is the minimum unit price equals total cost divided by the realistically sellable amount, where FC: monthly fixed cost ($); VC: variable cost per unit ($); Q: sold amount (pieces of units);  pm: minimum unit price.

Revenue equals sold quantity within the given period multiplied by the calculated unit price, which has to at least equal the production/own cost and be no more than what the target customers will still be willing to pay.

Total cost (CT) equals the sum of fixed costs (FC) and all variable costs (VCT= Q x vC) within the given period: CT = FC + VCT = FC + Q x vC

Fixed Cost (FC) is present regardless of the sold volume. These are the salaries and taxes, rent and utility costs (gas, electricity, etc.), accounting and other consultancy fees (e.g. IT system administrator), banking and insurance fees and Internet and telephone costs.

Variable Costs (vC) only arise when the business sells its products/services. These are material costs and costs of goods/services, sub-contractor costs relating only to production of the products/service or the direct costs of sales (e.g. commission). The variable cost needs to be calculated per unit of product/service (e.g. one price of product, one hour of service).

The Total Variable Cost (VCT) equals the sold quantity (Q) multiplied by the unit variable cost (vC), that is VCT= Q x vC

Financing needs: the reason and amount you need to spend to launch the business and to offset any potential deficit within the first year.

Development costs: material costs, salaries, sub-contractor fees related to the creation and development of the product/service. E.g. Consumables, office, store furniture, renovation, software development, purchases.

Investment costs: The cost of assets, real estate that can be used for over a year (e.g. machinery, computers, tools, property).

Founding costs: A sum of costs related to founding, made up of numerous items, which include legal fees, duties of permits, industry authorization, patent, trademark fees. In the explanation box, list the items the sum is made up of.

Temporary operational reserves: the cover for the operational costs of the first six months, so that the business is able to meet payments even if there is no income in the meantime. Its value – according to experts – should be half of the annual fixed costs.

Total start-up equity requirement (EQ) is the amount of money necessary for the launch and at least the first six month’s operation. It is made up of the development and investment costs and the temporary operational reserves.

Owner's Equity, a resource or start-up capital provided by the owner or co-owners at the start without limitation on its use.

External resource (ER) is called for when there isn’t enough equity to launch or keep the business in operation. Its value equals the difference between the Total start-up capital need and the equity. ER= EQ – E

The expected profit margin shows –based on experience – what percentage of the income – after the deduction of costs – can be considered profit at different types of businesses. According to a close estimate, the expected profit margin at production companies is approximately 10 %, in retail it is 15%, in wholesale it is 10 %, in service it is 30%, with broker firms it is 10 %, at leasing companies it is 80 %. Obviously these percentages may differ significantly in specific cases, based on the adopted business model.

Risk is the probable loss. In this case you can only use the following formula to calculate the approximate amounts:

IF NI realistic>= EQ, your risk is minimal

IF NI min< EQ, your risk is maximum

NI is the expected net income, which is derived from the multiplication of the possible income by the profit margin.

The owner is the person, who is in charge of the business, who makes the strategic decisions. Expert opinion: There are many reasons why a business sometimes should have more than one owner. Primarily, this is down to the complimentary personal traits, knowledge, experience and connections. Secondarily, there is a need for start-up capital to launch the business or for developments. Experience shows that having even as few as three owners during the initial years can make a business successful if owners have complementary competencies. The more the owners, however, the more difficult this gets. In case of diverse ownership, the decisions are usually made based on ownership ratio, unless specified otherwise.

Success factors are features, abilities, capabilities supporting the launching of the new venture. A Major success factors are those features, abilities, capabilities which are inevitably important for the success a new venture according to seasoned professionals. Utilizing these factors the chance to succeed is most probable.

Risk factors are those features, abilities, capabilities which would lead negative consequences in life of the new venture.  Dangerous risk factors might jeopardize even the launch of the venture. It is not recommended to start the business unless the dangerous risk factors are eliminated.  Other risk factors are important to consider and worth managing to reduce risk but are not dangerous.

Out of the risk factors listed by the user of StartMyBusiness123TM when testing the viability of the business concept the dangerous risk factors were classified by professionals via built in expert system.

A strategic issue is an important task that needs to be sorted to ensure a successful launch. Such strategic issue at the launch can be achieving recognition, getting attention, acquiring the necessary licenses for operation or finding and acquiring the right people to work for the business.