[Lecturer] Hello, everyone, welcome to week two
and this week we're going to be talking
about situational analysis and opportunity.
So this will be the first chance
for you to get an overview of the concept of marketing
and there will be an exercise at the end
for those of you who haven't thought
about what your business plan,
your marketing plan will be on, help you walk through
and I'm hoping, start to gather and build on ideas
that you have to write your final marketing plan,
which is due near the end of the semester.
If you do not have an idea yet
and many of you probably do not,
then this would be a good thing for you to do
and that is to conduct an environmental scan
and you're gonna learn about that,
so what I want you to do is conduct an environmental scan
of some group that you're associated with,
your friend, a club, people that you hang out with,
your study partners, what are they reading,
what do they listen to, what kind of music,
where are they web surfing, what do they eat,
what are some of the trends of things that they are doing
that you find interesting?
Make a list of this
and think about two or three opportunities that emerge.
So what is a product or service that you could offer
that would be timely and relevant
that there's a need or want for,
and sort of talk to a few folks about this
and see if you can come up with the best one.
Now, know that it can change,
that what you pick now, maybe in a week or two
you figure out really that first idea doesn't work
and I have a great new idea,
the longer you wait, the harder it'll be
but don't feel like you absolutely have to choose
the final decision now,
and note that I don't need to see this
as part of your homework.
So whether you do the environmental scan or not,
you don't have to turn anything in,
just do the homework based on the idea that you generate.
And if you have any questions,
as always, feel free to let me know.
Now I want to get into the main theme of this class,
which is marketing.
I define it as activities which create and retain customers.
And note that I'm not saying it's just selling stuff,
it's not just selling a product,
that so much of marketing is finding the right people
who are really interested in what you have
and creating value for them and communicating the value
and ensuring the value of what you are offering
so that they will be loyal customers
that will keep coming back and supporting you over time.
And it's much more
than just getting someone to buy something one time,
it would be sort of the opposite end of the spectrum there.
Our textbook author, Crane, gives this definition
and basically, I bolded these two phrases, delivering value.
So it's all about delivering value
and to manage relationships,
again, to have a really good relationship
with your customers so that you really understand
where the value comes from
so that you can continue to deliver it.
And it reminds me of, I believe this is an old song,
make new friends but keep the old, one is silver
but the other is gold.
So getting new customers is great
and you will have to do that,
but retaining the ones that you have,
not only probably takes less effort than finding new ones,
but it also, they're sort of the gold standard
of your business.
They're the ones that are really gonna see you through
and help you to succeed.
I think this is the only equation that I will show you
during the whole class and it is not a very complex one,
that's the idea of value again,
that your job as marketing is to deliver customer value.
So you can think of it as the ratio
where on top is the perceived benefits
and the bottom is the cost.
So we'll have a brainstorming class,
but think about some product or service that you buy,
what are the benefits that you gain?
Why do you buy it?
What value do you derive from it,
and in the denominator, what are the kinds of costs?
Not only how much money that you pay for it,
but things like inconvenience and time that you might spend,
hassles, annoyance, anything like that
that you want to minimize.
So clearly to make the term on the left side
as big as you can, you want to make the numerator
as big as you can
and make the denominator as small as you can.
Some early words of wisdom that if you...
One of the most important things
that you can think about early on,
and we're gonna spend a whole week on this,
is when you ask who will buy your products?
And if the answer is everyone, this is a danger sign.
There are very, very few products that everyone buys,
and if they are, they tend to be ones
that are sort of high volume, low price,
where you really only make your way into the world
by being the low cost provider of it,
and it's very hard for a new business to compete
in that world.
So it's much more important
and a lot of this class will be finding those folks,
getting a really rich, detailed description
of the people who are going to gain the most value,
who will be most interested, and to target them.
So what we're going to do in a few weeks,
is to come up with a target market
that there's the saying, don't chase too many rabbits,
that if a beagle here, I think,
starts to chase more than one,
that dog is probably going to get really confused
and will not keep track of any of them,
whereas if you find that one segment of the market
who will become your loyal customers
and be able to pay a lot of attention to them
and what they want and what they need,
it's a lot easier to effectively market to them
than to try to market to everyone.
Another thing that we'll be doing
more toward the end of class,
is the model of the classical marketing mix,
the four P's model.
So the four P's are product, place, price and promotion,
so what do you sell, where do you sell it,
how much do you charge, and how do you tell the story of it?
And I put this graphic here,
one of my very first research projects
when I was a newly minted PhD
was to look at the marketing practices
of organic farmers in the northeast.
And I was doing an interview of one
and said, "So what are your four P's?"
And this farmer said, "Ah, shell peas, snow peas,
snack peas and world peace."
And I had to explain that those are great
but that I was looking for something slightly different
but anyway, that's what it always makes me think of
and makes me laugh.
So here is the diagram that we've seen a few times now,
so you can think
about the two sort of middle horizontal ones,
thinking about our customers,
thinking about target and segmentation,
today we're gonna do the top, middle and right,
the opportunity and the external forces,
and we just touched base upon the four P's
with the main goal being the downward arrow
of creating value
and fulfilling therefore, the mission of the organization.
But these are gonna be both the main topics
that we will cover, and also the parts of the marketing plan
that you will write.
To make sure that you get off onto the right foot
and really understand the environment
in which you are operating,
it's important to do a situational analysis.
And here is a definition
from the American Marketing Association
that I will let you read.
So a situational analysis is a description
of the internal and external environment
of the business or the organization,
so this is an important distinction
that the internal ones are things
that you have some control over,
it tends to be things like strengths, assets,
your resources, the challenges you face, the partnerships,
the lack of things that you have,
but things that you really have control over,
versus the external environment tends to be things
that you have little or no control over.
And being able to sort the right things into the right boxes
in this case, is an important part
of your homework assignment.
So think about, again, internal being things
that you have some control over,
external being things that you have little
or no control over.
So an example, just an easy one
is an external factor might be whether it rains today
or not, you don't have a lot of control,
but the internal is, did you bring an umbrella?
Do you have one?
Did you buy one or do you have a rain suit?
Do you have that asset that you need
to face that external factor.
So my thoughts on this really was shaped
by kind of an early mentor of mine
who I worked with at Michigan State University,
Professor Chris Peterson.
And he talks about how...
(clearing throat)
why having the right assumptions and beliefs
are so important to the performance of the organization.
So if you have the right assumptions and beliefs,
then you will develop strategies
which are sort of big picture,
how do we go about our businesses,
which will leverage the opportunities,
leverage your strength
and help to overcome your weaknesses and threats.
And in that way,
those strategies will inform the operations,
the sort of day-to-day,
how do you put these strategies into place,
how do you allocate your own time, your labor,
your resources, where do you sell and what do you do
and things like that on a more like day-to-day,
which then will result in some sort of performance.
And too often, and Professor Peterson's work suggests
that when you don't get the performance that you want,
that too often folks only go one step back
and they tweak the operations
and they tweak those day-to-day things,
without understanding that those operations
are based on a faulty strategy
and the strategy is faulty because your assumption
and beliefs about the world, about your own organization
and the environment in which it operates, is faulty.
So with bad assumptions, you're gonna have a faulty strategy
and no amount of tweaking of operations
that are based on faulty strategy,
will ever give you the performance that you want.
I'm going to walk you through several models
of situational analysis, the first one is five Ws and an H,
who, what, where, when, why, how,
which is really for the internal,
and then the five C model, and the so-called PEST model,
which will look at both internal and external
and I think like...
I believe that looking at
and thinking about both of these models,
will give you a very broad view of the environment
that you'll be operating in.
So the five W's and an H
is just those five familiar questions, six,
who, what, where and why and how.
So by asking and answering those, it'll tell you a good bit
about your business organization.
First, who, who is or are the entrepreneurs,
what drives them, why are they in business,
what is motivating them, and what are their strengths?
What are their skills and assets
and what are the weaknesses that they may have,
and are there team members who are helping
to shore up those weaknesses?
Who might also apply to the customers.
Who are the current ones, who are the target ones,
who are they going after now?
Who's buying it?
The what is the product or the service,
and what do they sell?
What is the thing that they are providing?
Where looks at location, where is the business located?
What are the advantages or disadvantages?
And one way of thinking about that
is, so if you're on a storefront,
if you are on church street,
the obvious advantage is foot traffic,
people are just gonna walk by and go in there.
The disadvantages,
the rent is going to be probably quite high there
in the same way that selling in a big city,
gives you the advantage
of having a lot of potential customers there,
but the downside is you're probably going to have
more competitors as well.
The other rare question is how do your goods
or services get to the customers, do you sell them directly,
do you use intermediaries?
Some of the when questions
include how long have they been in business,
how has it changed over time, and what stage are they in?
Are they in the startup phase
or is it all the way at the end
where thinking about succession
of who will take this business over, I'm ready to retire
or I'm ready to sell or I'm ready to move on,
those are all when questions.
Next come the why questions,
what drives them to be in the business?
What is motivating them?
Is it because they have a passion for what they do,
is it the autonomy, like they want to be their own boss,
a lot of folks do, are they in it for the money,
what combination of this?
And when you look at the mission and vision,
which we already learned about,
that's gonna tell you a lot about why.
Finally how, what is the performance?
How are they doing?
Are they fulfilling the mission and goals?
How do they operationalize values and goals?
How do they actually put these values,
how do they put the mission and vision into place?
And finally a word that we're gonna learn a lot later,
what is its position in the marketplace?
What space do they occupy compared to their competitors?
And stay tuned for a lot more on position as we go through
'cause that's a very important marketing concept.
Another model is the five C's and here are those five C's,
company, competitors, customers, collaborator and climate.
So climate is really going to be thinking
about the external environment
and I'll walk through each one.
So for company, what are its goals, its mission and vision,
what does it sell, what's its position in the marketplace,
what is its performance?
Next week we're gonna talk at length about competitors
and help you think about who they are and why are they,
and why did you choose those as competitors,
what are your competitors' goals, assets, strategies,
strengths, position and what are their weaknesses
and maybe where are they vulnerable
and how does that create space and opportunity
for you to successfully compete?
Also next week we're gonna get into depth about customers,
but for now we're thinking about who they are,
what do they want and how and why and where
and when do they buy?
What is their behavior
around buying your product or service?
Another part of customers is what are the segments,
how do you break them up into coherent groups
to make them easier to reach?
And three types of attributes that we think about,
are demographic, geographic and psychographic,
and again, we're gonna go into more depth
in I think two weeks on these,
but I wanna just sort of introduce them now.
Demographic, demo is the Greek word for people,
so it's the measurement,
the graphic of people, who they are.
So this tends to be things like their age,
their gender identity, gender, race, ethnicity,
their income, occupation, household ties,
so things that sort of describe them as a person,
geographic is where they are,
where they live and, or where they work,
and then psychographic is maybe the more subtle
and less familiar one, but very important in marketing,
and this is sort of the measurement of their psychology.
How do they think?
What do they value?
How do they spend their time?
What are their hobbies, what are their beliefs,
what are their activities?
Questions like this.
And then also thinking about customers,
when and why do they buy,
is your item something they buy every day,
is it a gift for a friend or for someone that they love,
when and how do they buy,
do they buy it in large amounts all at once in bulk,
do they go every day, what's their behavior around that?
And by thinking about their psycho, demo, geographic
and their behaviors, that's going to tell you a lot
about how can you reach them.
The next C is collaborators, so suppliers and distributors.
Where do they buy the things that they need
for their operations, who do they sell to?
Are they distributing it through somebody else,
are they strategic partners,
are they a business who cares about you,
who treats you as a valued partner,
or is it all about buy low, sell high?
Are you replaceable?
Are they gonna invest
in maintaining the relationship with you?
And how do they create or impede value for you?
(plane engine roaring)
Another type of collaborator
is the networks in which you operate.
So who do you learn from, who do you collaborate with,
where do you get technical support and assistance?
What are those individuals or organizations out there
that you have networked with that can help create value
for your business or organization?
The last C, climate, also serves as a segue
into the external environment
and looking at the external factors
in your situational analysis.
So climate, again, in this context
means the external environment,
most of the C's we've done before,
most of those factors
have to do with the internal environment,
you have some control over the attributes of your company
and the customers you seek out
and the collaborators that you work with and so forth.
Now we're gonna focus on the external environment,
and one model that can help you sort of outline that
is the PEST model, which stands for Political, Economic,
Social and Technological.
So the political environment is things like rules, taxes,
regulation, things like that,
the economic environment is incomes, wages, taxes,
things like that, social is things like demographics,
psychographics, tens, fads...
Nah, I'm sorry, trends, fads, opinions, things like that,
and then finally, the technological
is the state of the art of technology
and certainly today, our economy is very dependent
on technology for information and automation
and regulation and many, many other things.
So when thinking of the external environment,
you may wish to think about which of them are accelerators
and which of them are brakes,
what's making your business or idea go faster,
what's making it go slower?
And you can see that the PEST model is embedded here,
there's a number of ways that you can see this,
I'm sort of doing a number of them,
taking a very broad perspective,
showing you a number of models that certainly have overlap,
there may be some redundancy,
but basically, I want to give you all of the tools
and present them so you have many options
to do this analysis.
So forgive me if it gets a little bit repetitive at times.
The first thing we'll look at is social forces.
So one of the things that you can think about
and it's really important in my world
of food and agriculture,
that we really have an aging population,
I am actually one of the very last
or the youngest of the baby boomers,
so feel free to make any boomer jokes at me
that you feel fit, they're probably true,
but when you think about how much of the wealth
and power in our population is skewed to the older folks
and just thinking about age,
that when you look at the advertisement for baseball games,
that tends to be a sport that many older folks like,
you see Advil and life insurance
and when it's football games,
that tend to be like cars and beer.
The advertisements you would see on on YouTube
versus a Hallmark Channel
or when you're streaming music like Pandora,
the advertisements that you would see when you are...
when you say you like the Beatles or Frank Sinatra,
is probably varied different than the advertisement
if you like, I don't know, Jay-Z
or somebody who's actively making music now.
Political forces are also very important,
sadly, it is my view that we live
in a time of extreme political polarization, disengagement,
a lot of apathy or if not apathy, a lot of powerlessness.
I have never lived in a time
where partisanship was more weaponized than it is now
and someone who doesn't agree with you is the enemy
and is a threat and is trying to destroy America
and all kinds of stuff like that.
And this lack of engagement,
I think really has a large impact on our economy
that if we feel like we don't have a voice,
if we're not engaged,
I think it's going to really affect our economy
and it'll affect our business,
we certainly live in an era of extreme income inequality,
extreme debt on the part of young folks
and that certainly influences
sort of what is bought and sold,
and the last thing is one of many plugs
that I am going to give during this semester,
and that is how important voting is.
It may not be or it shouldn't be the only way
that you make your voice heard,
but it is an extremely important one
and I will say that there is no doubt
that when you look at community wellbeing
and what are indicators of that,
what are signs of a healthy community,
voting rate is one of the very most important ones.
As an illustration, if you look at the electoral map
from the 2016 election, maybe you voted for Clinton,
maybe you voted for Trump, maybe you weren't old enough
to vote then or regardless of who you wanted to win,
did not vote, won all but a very small handful of states.
So the number of people who didn't vote,
was greater than the number of people who voted
for anybody else, so none of...
So basically the lack of voice won the election
and I think that that has a great deal
to do with why we are such a fractured
and in my opinion, troubled nation right now.
And I think this speaks volume as well,
that all the vast majority said, "We didn't vote
because we won't make a difference,"
and I think that your vote does matter
and I am going to do all I can
to encourage you to vote in this election
and hope that you will continue to vote
in every election that you can.
I will certainly not tell you who to vote for,
but I will certainly encourage you
and tell you how important it is that you vote.
The next factor is economic forces
and thinking about some of the economic forces
that are shaping our economy right now,
three that leaped to mind for me,
is we have very poor infrastructure right now,
our bridges and roads and many, many other things
are quite out of date, there's a great deal of debt,
most young folks that went to college
did so on student loans,
there's a great deal of debt floating around,
our federal government is in extreme debt,
and the last one is income inequality,
just knowing that the degree of wealth
in the hands of a few is at nearly unprecedented amounts
and as a result of that, and at least in my view,
it means that the power in our society
is, in my view, overly influenced
by those that have a lot of wealth,
and the degree of inequality
means that fewer and fewer people,
feel like they have a stake, and there's lots of research
that shows that income inequality is socially toxic,
that it leads
to many, many, many unwanted socioeconomic indicators.
And just as an example, one study by Oxfam.org,
globally found that 82% of the wealth created in 2017
went to 1% of the people.
And certainly the COVID-19 pandemic
has led to a whole other set of economic (mumbles).
The overarching economic force that I want to talk about
and introduce you to is the idea of neoliberalism.
And in many ways, it is the overarching social paradigm
of our time.
I wanna make clear, that in some ways this is a clumsy word
in that it refers to the idea of liberalism
in the classic sense, which would be more attuned
to something that the Libertarian Party would believe in,
not sort of, we think of liberal as being the left
and it is not about that,
although I would say that both of our main political parties
have helped to advance this paradigm.
So basically, neoliberalism is basically putting the markets
in charge of anything.
And one of the thing that is a hallmark of it,
is taking power away from any kind of public institution.
So basically defunding education, defunding libraries,
any sort of counterbalance to economic forces
and I'll let you read this paragraph here,
and again a disclaimer, that this is written
by someone who opposes it,
who doesn't see it as a good thing.
But basically, it's the idea that the market is the best
and therefore should be really
the only decision making mechanism that we have,
that the only way that we should try to change the world
is as consumers to vote with our dollars,
as it says here, that we will reward merit
and punishes inefficiency,
and that the market should determine everything.
So basically in the US since about 1980,
this has been the economic ideology and the social ideology.
It may be a good thing, it may not be,
I really leave it up to you
and I'll say a bit more about it, so here is a quotation
of someone who would think that it's a good thing,
that the only social responsibility of a business
is to increase the profits and returns to its shareholder
and this is by Nobel laureate, economist Milton Friedman,
and that the market knows best
and by all of us pursuing our self-interest,
that's how we make a world as good as we can.
So here are some of the things that we see
under neoliberalism, we minimize tax and regulation,
privatize services, the devaluation of labor unions,
the defunding of most public institutions,
the main exceptions being the military
and the sort of prison industry,
which both have grown greatly under this,
it sort of posits that the pursuit of wealth
is what we should all be doing
and that the market allocates rewards based on merit.
And another way of thinking about this
is the so-called trickle down or supply side economics.
Another thing to look for is that under neoliberalism,
because the market is given so much influence
and the influence of any countervailing power is decreased,
the market tends to remake all of our institutions
in its own image.
And three really obvious examples to me,
are how over the years, religion, government and education
have more and more become to resemble
being run like a business and expected to earn money
and be efficient, rather than looking at as a service
or as an institution that has its own merit
and that we should be supporting.
Continuing on with factors in the external environment,
we can think about technological forces.
So I just made a list here of all of the businesses
and applications and activities that we do
that depend on technology and it's difficult to think
where we would be or none of these arguably would exist,
but it's certainly without having a strong online presence
and use of social media, I can't imagine
that you're going to reach very many consumers
since so much of us for better or worse, spend so much time,
but you can also think about do we have broadband access
and can you get cellphone coverage everywhere,
and questions like that.
To what extent is the technology available
when your potential customers need it
to get in touch with you?
Another external factor is the competitive environment.
How competitive is your product or service space?
Do you have a lot of direct competitors or don't you?
And to think about that, I'm going to walk through
a continuum that you'll see on the next slide,
which may be the single most important concept in this class
because understanding where you are on this continuum
is going to tell you a whole lot
about what kind of business that you're going to be
and how you should market.
So here is the continuum
and each of the columns can be thought of as being ends
and certainly there's a lot of gray area,
but on the left is a commodity.
So a commodity is something
where basically all of the items are the same,
they're very homogeneous, so they're all the same.
One is the same as the other and maybe a great example
that you might be familiar with, is a gallon of whole milk.
Whether you buy it at Price Chopper or Shoals
or at a convenience store,
that bottle of milk is pretty much the same,
it's again, homogenous.
What you get in that bottle no matter where you buy it,
basically anywhere in the nation,
it's very interchangeable with any other bottle of milk.
There's low information there, there really...
other than vitamin D whole milk,
there really is no other information there.
Because they're all the same, those who produce and sell it
engage in so-called price taking behavior,
that there is a price and basically, the price of that milk
is not going to change much no matter where you buy it.
Especially if you go from Price Chopper to Shoals
to Hannaford's, basically it's going to be the same price
and therefore, it's very competitive
that since they're all basically alike,
none of them stands out, there are a lot of options,
and the way that you can make your way in the world in that,
is that producing and selling a high volume.
So another example is corn, like field corn,
number two, yellow corn, it's basically all the same,
there's not a lot of information there,
and no matter where it's grown
it's very interchangeable, et cetera.
On the other side of the continuum
is the differentiated product.
So now, this is where whoever is producing it
is making claims that it's not the ordinary thing.
That mine is in some way different, possibly unique,
and hopefully in my case, better, it's better in some way,
it stands out from the crowd,
therefore there's high information.
So example in milk, might be locally produced,
single herd, organic, grass-fed milk.
So there's a lot of information there.
It's not just milk, I gave a a lot of attributes
that I'm claiming that my milk has,
and since it's not the same as everything else,
that hopefully some consumers will value it more
and they might be willing to pay a slightly higher price,
the so-called price making behavior.
The more unique or the more differentiated my product is,
the less competition there is.
So the more that my product stands out from the crowd,
the more attributes that it has.
Free range, grass-fed, organic cows, locally-grown,
hand-milked, blah, blah, blah,
a lot of information means
that there aren't a lot of others out there doing it
and producing the exact same product I am.
And since these do tend to be sort of artisanal or craft,
they are produced in a lower volume.
So when you look at things like heirloom, fair trade,
organic or any of the other attributes that I mentioned,
these are the attributes
that help these products stand apart from the crowds.
You can think about the product or the service
that you are going to be providing,
are you competing with everybody else just doing milk,
just doing corn, or are you doing something
that stands apart?
By some service that you offer, yours is better, stronger,
faster, quicker, more convenient, last longer,
some attributes that make you stand apart from the crowd.
Another framework is the red or blue ocean,
so you can think of these as being at the extreme ends.
So a red ocean tends to be more commodity items.
There's lots of competitors, it's highly contested,
it's a fairly crowded market space,
there's blood in the water, that's why it's red,
versus a blue ocean, there are few competitors
at least for now,
although if you have a really good selling product,
certainly others are going to notice that
and try to produce and sell a very similar product
so you have to keep re-innovating.
But if it's a new value, a new innovation and a new idea,
it's a blue ocean, it's calm water,
not a lot of competitors, not highly contested.
You can also think of the competitive forces
in terms of like globalization,
that we're seeing a lot of trade disputes now,
many, many businesses outsource,
so they get their parts from far away,
and we certainly saw during the early days
of the COVID crisis, how we ran out of basic things
like toilet paper and isopropyl alcohol
because they're produced so far away.
Now there's an advantage of that,
in that it's produced in the place where it can be produced
at the least expensive cost, which keeps prices down,
but we saw
that this sort of global just-in-time delivery market
didn't do well in the face of a big disruption.
On the other end of the scale,
we have niche markets and we have localization
and here in Vermont,
there's a lot of local support for that.
People I think more than some of the other places
I've lived anyway,
really think about supporting local businesses,
the Keep Vermont Weird thing, more local restaurants,
less chain stores, like there's no fast food place downtown,
at least I think not, and a lot of locally-grown
sort of unique taste of Vermont.
You can also think in terms of regulatory forces.
What are the environmental regs that we're facing?
What are the labor regulations?
Are there harsh or are there strict safety laws?
We have things like OSHA for workers' safety,
but the things like a lot of agricultural enterprises
are exempt from.
We have, is there taxation, is there wage controls,
and when you get into things like drugs or food,
there's a lot of safety regs, communication,
transportation, zoning laws,
all those affect the environment
in which your business or organization, will be operating.
To think back about how different factors of production work
against each other or compete against each other,
there's the idea that capital and labor
are often competitive goods,
that they are substitutes.
So there's this push to try to get rid of an employee
and replace it with an automated thing
like the automated lines in a grocery store
or the robot arm that welds something onto a car
instead of a human.
And one way to think about this
is through taxation and subsidy.
So a tax means when you buy something,
you have to pay an additional fee to the government,
like a sales tax, and a subsidy means that the government
is paying a part of this
or keeping the price artificially low.
Now when you tax something, you will have less of it,
and when you subsidize, you'll have more of it.
And when you think
about the difference between labor and capital,
we tax labor, especially fairly low income (murmurs) labor,
something like seven times.
So myself, my own labor, I pay income tax in the federal,
I pay state income tax, I pay into social security,
I pay into healthcare, I pay into Medicare,
and my employer matches a lot of those,
and then my employer also has to pay
for unemployment insurance, workman's comp insurance,
all of these things increase the price of labor
and make labor more expensive.
So it's very hard,
there's a disincentive for hiring folks.
On the other hand, the price of capital
is the interest rate.
And this is not set by the supply of savings
and the demand for investment because we are terrible savers
and we want lots and lots of credit for our businesses
or to buy things, to buy homes, to buy cars
or just putting things on our credit cards.
So if it were set by the market,
the rate of interest would be much, much, much higher,
but it's actually set largely by a government bureaucracy.
So note that we tax labor, we subsidize capital
and then as a result, the incentives in the marketplace
are to get rid of labor and replace it with a machine.
Yet we all need job,
but then we think about, well, we have jobs
and so we're in many cases maybe lowering
our environmental standards or giving huge tax breaks
to someone who will provide jobs.
So to me, the things that we tax
and the things that we subsidize,
don't always make sense
for the kind of outcomes that we want.
A huge external factor that we're facing now
is climate change as well as biodiversity loss
and all of the ecological problems that our earth is facing.
Phosphorus in Lake Champlain and cyanobacteria,
lots and lots of environmental challenges
that we are facing
and I will talk more a bit in the discussion
about how that may impact your business or organization.
So again, looking at the external environment,
helps you to see opportunities and overcome barriers.
So for those of you who don't have a business idea yet,
refer to the homework
and think about environmental scanning.
So this is something that savvy entrepreneurs
are doing all the time, learning how to trendspot,
looking beyond the ordinary.
So this photo that you see here, is sort of an echo chamber
where this person is just hearing their own thoughts.
But to trendspot,
you really wanna step out of your same old same old,
and notice what are people doing,
what sort of media are they consuming?
Networking with folks in other walks of life,
self-observing, challenging assumptions
and talking with and observing customers of your products
and with products of your competitors,
and notice where do they get information?
Well, what are they trying, what's the new trend,
what is hot?
Because only by having a good understanding
of the external environment,
will you have these true and deep
and meaningful assumptions and beliefs,
which you can then use to develop strategies and operations,
which will then give you the performance that you want.
So once you've gone through
and made a big list of the external
and internal environment, you can put it
into what is called a SWOT analysis.
So SWOT stands for Strengths, Weaknesses,
Opportunities and Threats.
So note that strengths and weaknesses are internal things
that you might have some or a large amount of control over,
what are your resources and capacities?
What is your brand, how strong is your brand?
How's your cost, do you have expertise?
What is your location, things that you choose,
and then weakness are the lack of these things
or the other factors that you may have control over,
that work against you.
Whereas here in the yellow print are the external factors,
the opportunities and threats that you have
that are external, the opportunities work for you,
the threats work against you.
And do the...
through an environmental scan, you can make a list
of the technological, social, economic,
competitive and regulatory opportunities.
How are these external factors working in your favor?
Those are opportunities, how are they working against you?
Those are threats.
And then once you're done with that,
then you can try to put it into this two by two graph.
So hopefully, you'll be up in the top right,
you'll be playing offense, it's first in 10,
it's your ball, do your thing.
If you're in the the top left,
there's a really strong opportunity there,
but the weakness prevents you from beating that.
So you wanna strengthen those places where you are weak,
so you have a chance to meet the opportunity.
If you're in the bottom right, you have a lot of strengths,
but your threats are greater than the opportunities
that you may wish to diversify
and put those strengths that you have
toward another opportunity to get back to the top right,
and if you are in the bottom left, you are playing defense
and it may reach a point
where you simply close the business.
The last topic is an opportunity,
which is the beginning of any venture.
So any organization, any business that begins,
should find an unmet need or want
that they are going to meet.
So we've talked about the external factors
and environmental scan on how to find them,
and now we're going to talk about how to evaluate them.
I'm gonna walk through in summary, the characteristics
and then go through each one.
So there's five of them and the first one,
so the first three here, so good opportunities,
first they create value.
So there is a real need, a desire or a problem
that they address and remembering our value equation,
that they provide benefits.
Next is the potential for profit.
So if you are a for-profit organization,
that the expected reward in the longterm,
the revenue should be greater than the risk and the costs.
And looking at the internal analysis,
that it should be a good fit for the firm's resources,
that the strengths that the firm or the organization has
for addressing it should be greater than the weaknesses
that the organization should have,
the experience, the skills,
the resources like labor and management
and have the values and the passions to meet this need
or solve this problem.
The last four are, will the demand for this
be durable over time?
It's not based on some fad or some obsolete technology,
and finally, can it obtain financing?
And then a few extras that I want you to ponder,
are for the community entrepreneurs,
does it protect and enhance the natural
and built environment, and does it equitably share risk
and reward among all stakeholders at...
Is it a YIMBY, a Yes, In My Back Yard?
So if you put all of those things together
and if you can say yes,
then I think that would be an excellent opportunity
for a budding community entrepreneur such as yourself.
So again, looking at sustainability,
looking at the three legs of the stool
or the triple bottom line, how does it do that
and how would you operationalize this?
What are the key decisions you have to make
and what the trade-offs that you might have to make?
Who's going to win and lose from this?
One step in any opportunity, is to be able to validate it
with potential customers, that if we remember back
and we ask who will buy it and they say everyone,
that they probably haven't done a very good job
of thinking through who their customers are.
So by thinking about who are folks that would buy this
and then well, would they buy it
and how much would they pay, and to get feedback
so they can help co-create the value
to really help to design its attributes
to meet their needs and wants even better.
So I'll go through each one of those five,
first is creating value.
So the better product or service, it performs better
or a better price, faster, more reliable,
there has to be something it does
that the existing products don't,
one thing is to serve dissatisfied customers
or if it's a new product or service,
to make this a latent need or desire.
But there has to be something about it that creates value
for someone who will then buy it
or if it's an organization, fits a need
so that someone will support you.
Next, is it a good fit based on your passions
and your commitment and your skills
and the skills and knowledge and abilities
of the team that you're going to put around yourself?
Is it a good fit for your internal resources?
Do you have the needed knowledge, experience and technology,
and is it a good fit for your firm's mission statement?
To think back to our grid,
is it an opportunity greater than the threats,
and are the strengths
that you have to put toward meeting it greater
than the weaknesses, can you play offense?
Next is durability,
that if it's an opportunity that will fade over time,
it may not be worthwhile going after.
Is it based on a fad
such as a One Hit Wonder band merchandise or diet books
or things that tend to change very quickly,
is it hard to copy?
Will somebody have a hard time copying what you're offering?
Maybe you have a path, maybe you have a unique location,
but the most important thing is authenticity,
that's the hardest thing to copy.
That if you're sort of the real deal,
and if you offer something that is truly unique
based on your own identity and your own ability to make it,
if you do it authentically, that is also very hard to copy.
Next, can it get in the level of financing needed?
Could you, if possible, finance it from your savings,
then down to the next step is to ask the three F's,
friends, family and fools,
and once you've sort of tapped them out,
can you get banks or angel investors?
And basically, if you're going to use anything
other than your own savings,
you're gonna have to sell the idea to somebody else.
As an aside, the four C's of credit worthiness are...
and you can think of these as all being internal resources,
first is your own character,
your financial history and credit report,
the capacity of your firm to generate revenue and cash flow,
do you have a good business plan,
do you have a good marketing plan, do you have the capital,
the machinery and equipment and building
to put it into place,
and do you have collateral assets to back up this loan?
So we can think of where to look for opportunity
in the external forces in needs not being met,
do the environmental scan to think about what are needs
or wants out there or problems that are not being solved?
So the overarching theme, is does it create value?
Does it have a lower price and a lot of benefit,
does it respond to a real need,
and for community entrepreneurs,
does it advance the triple bottom line?
If you don't have an idea, do this environmental scan.
And here is the recap of this class,
I look forward to our discussion in class.
Thank you for your time.
Next up, we're gonna talk about customers and competitors.
(bright upbeat music)
Thank you.