The ultimate purpose of a business venture is to successfully establish a new business and generate windfall profits thereof.
Social entrepreneurship is not necessarily profit target, so this article will remain focused on the profit generated by a business project.
You've done all the hard work and planning, funding secured and established his business. But what about the benefits? Where, when and how you can expect your rewards high performance realized, and why should your business venture succeed where others have failed?
Why should Employers Make Windfall Profits
Imagine two hypothetical workers.
Peter goes to the office every day, working a 40-hour workweek and is paid a standard salary. He is good at his job, but his contributions to remain confined to his work.
Paul has a passion to change and improve the world by introducing new products and services. Many works over 40 hours a week, investing their time, capital and energy to try something new you expect the world to be much better than it is today.
Clearly, the world would be a less dynamic place, if I had not Peters and Pauls around. Paul takes more risks and put more effort than Pedro. It seems logical that Paul will have a greater impact on the overall well-being through their contributions. If the reward for Paul is more or less similar to that of Peter, however, Paul will not be happy to put in extra effort to improve the welfare of the world.
Who do you think should get more credit for their contributions?
According to neoclassical economic theory, the lack of appropriate rewards discourages entrepreneurs to take risks and make an extra effort, without which the world stagnates. Government authorities offer special rewards just entrepreneurs through patents, copyrights and royalties. Employers are not going to do their job without extraordinary benefits on your invested time, effort, energy, money and risk taking.
How do entrepreneurs make Windfall Profits?
Entrepreneurs introduced new and innovative products or services that may result in significant improvements in productivity, cost reduction and improved quality of life.
Know your deals much better than anybody and being aware of customer needs, the employer may charge a heavy premium for their path breaking innovations. This high premium translates into big profits, justifying the great risks taken by entrepreneurs during development.
If competitors are not able to build and introduce similar products or services in short span of time, the product becomes a monopoly for the employer, and he or she can expect perks of being the only one manufacturer or service provider.
Even if competitors find it easy to replicate and introduce similar products quickly, the employer can seek safety and protection for innovation through patents, copyrights or royalties. These channels offer protection to the original inventor and act as an important safeguard for successful business projects.
But how long can this monopoly? Not indefinitely, otherwise it will lead to economic and social stagnation. Without government intervention in the form of patents, profitability continues until competitors begin to offer similar products and services. Without patents the market becomes more open and competitive, where new innovations and new variants or modified enhanced offerings appear. Entrepreneurs tend to keep a close eye on these developments and are wise enough to improve their products and keep their edge in the market.
In the case of patent protection is available for a certain amount of time that can span a few months to a few years. (In the United States, patents usually last 20 years.) Depending on local laws may still apply the rights that the patent has expired, but the previously patented article loses performance as no longer remains a "one-man show. "
This encourages healthy competition again: either entrepreneurs start working on something new or succumb to market Darwinism.
Where and when do you make money Entrepreneurs?
When it comes to money matters, time is very important. Here is an illustrative graph showing all possible cash flows and their timing during the different phases of a business project:
Term Term 1 to 4 (Period Pain) - This is the period of initial investment, which will be carried out different activities including, but not limited to product idea development, feasibility study and market, prototyping, and customer identification. The order may be different depending on the company, but the concepts remain the same. It is assumed that funding angel investors is available in Term 4.
Term 5 to Time 6 (The Introduction Period) - The activities covered here you can apply for and secure patents, building sales channels and distribution model for the introduction of the final product to market.
Within 7-9 Deadline (The Benefit Period) - These terms are taking the benefit periods of "monopoly" - or protected by patents or no competition scenarios.
Time 9 is supposed to be the period of maximum gain, just before competitors reach the market. It is during this period that the development is initiated by the introduction of new variants of products for the market, and therefore an investment in the same need. However, reinvestment, research and development can come earlier depending on the product life cycle and other factors. This may also be the time to introduce this offer to new markets.
Period 10 - Term 11 (Sunset Period) - A lot of options are available here. Any out of this adventure completely by sunsetting the supply, sale or stakeholder variants continue developing new parts. The benefits will vary depending on all external factors, competitors and market scenarios.
The Bottom Line
This is an example of a general business cycle. The duration and activities mentioned vary depending on the nature of the product and markets. For example, a pharmaceutical product may have a longer period due to the monopoly of the patent, while a mobile technology can be duplicated in very short time.
All business projects aimed profitability. Due to the high risk, it is expected that high reward scenarios business projects of entrepreneurs to make extraordinary profits, provided that plan their activities carefully with due diligence.
