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Collegiate
Case
Study www.usatodaycollege.com

Some would like to build a

wall around U.S. economy
Entrepreneurship: Economics
As our global economy expands, businesses and government must be acutely
By David Lynch
aware of the fluctuations and imbalances in markets, oil prices and other eco-
...................................................................................5-7 nomic indicators. Leaders must be able to anticipate potential problems, chal-
lenges and needs. While competition is still a top concern, border security and
globalization are the newest matters shaping world economics and stability.
Business plans should be This case study examines some of the causes and consequences and advan-
simple, passionate tages and disadvantages of the current age of global economic integration.
By Greg Farrell
..................................................................................8-10
World economy expanding, but
What’s your target market?
.....................................................................................9
faces dangerous balancing act
Vulnerable emerging markets, volatile oil prices bear watching
Discussion questions, future
By David Lynch oil and a triple-digit price tag is a strike in
implications and resources USA TODAY Nigeria, unrest in Venezuela or revolution
............................................................................................11 in Saudi Arabia.
If things go according to plan, the world
economy will chug along nicely through For all that, both the International
Case Study Expert the new year. Monetar y Fund and the World Bank
expect solid global growth of 3.2% this
Deborah L. Wince-Smith
That would be comforting news if year, about the same as in 2005.
President, Council on Competitiveness things ever did go according to plan.
...........................................................................................11 If prognosticators seem sanguine,
Actually, 2006 could see plenty of nasty perhaps it's because many of the same
surprises. For one thing, the world warning signals flashed red one year ago,
USA TODAY Snapshots® economy, though expanding, is and yet, the economy still barreled
dangerously imbalanced. The resulting ahead, even overcoming epic natural
U.K. considered the top economic ally U.S. current account deficit — reflecting disasters.
Which country will have the most positive
effect on the future of the U.S. economy? the gap between the nation's ravenous
appetite for imports and its anemic "2005 was a year that has lulled a lot of
United
47%
savings — is now at levels that many investors, policymakers and government
Kingdom
experts fear could trigger a run on the officials into a dangerous and false sense
Japan 40% dollar, soaring interest rates and global of complacency," says Stephen Roach,
European economic pain. chief economist for Morgan Stanley in
Union 29%
New York.
China 23% Meanwhile, investment is pouring into
15%
risky emerging markets as if the past Terror attacks. A trade war with China.
India decade's turmoil in Argentina, Turkey, Even a historic epidemic of potentially
Russia
13% Thailand and Russia never happened. lethal "bird flu." There's no end to the list
Note: Multiple responses allowed.
of potential economic catastrophes that
Source: Harris Interactive online survey of 1,833 adults age 18 and older.
Margin of error: ±2 percentage points.
And all that stands between a barrel of could arise this year.
By Jae Yang and Karl Gelles, USA TODAY

© Copyright 2006 USA TODAY, a division of Gannett Co., Inc. All rights reser ved.
AS SEEN IN USA TODAY’S MONEY SECTION, JANUARY 12, 2006

But three dangers — mushrooming

global imbalances, vulnerable emerging
markets and volatile oil prices — seem
especially noteworthy.

Too much red ink

To many economists, the swollen U.S.

current account deficit looms as the
biggest potential hazard. In a nutshell,
the United States spends too much and
saves too little, and Asia saves too much
and spends too little. (Moribund Europe
doesn't do enough of either.)
“There are significant
No one knows for certain when the downside risks to the
day of reckoning will come. But Roach, global economy.”
and many others, say the USA and the
world cannot go on like this indefinitely. — Nouriel Roubini,
former White House economist
"There are significant downside risks to
the global economy … financial markets
right now are not pricing in any of these
risks," warns Nouriel Roubini, a former
White House economist in the Clinton
administration who runs the influential
www.rgemonitor.com website.

Last year, the U.S. financed its excessive

spending by selling almost $800 billion Healthy growth forecast
The global economy looks set to continue expanding in
worth of Treasury securities to foreign 2006. Will it? Percentage change from previous year in real
central banks and investors. GDP global growth:
4.0%
3.8%
3.4% 3.5%
3.2%
At 6.4% of total economic output, that's 3.0%
2.5% 3.2%
an unprecedented level for a major 2.1%
economy. The U.S. is able to get away 1.4%
1.7%
with such profligacy largely because the
dollar plays a uniquely central role in
global commerce. 1996 1997 1998 1999 2000 2001 2002 2003 2004 20051 20061
1 – Projection Source: World Bank By Sam Ward and Julie Snider, USA TODAY

But here's how a crisis could unfold: If

foreigners conclude the dollar was
headed for a fall because of the
enormous U.S. deficit, they would cut
back on purchases of U.S. debt. To entice
them to buy, the Federal Reserve would
have to raise interest rates, perhaps
significantly. Higher interest rates could
choke off economic growth, even as the
falling dollar ignited inflation by boosting
the prices of imported goods.
In 2005, the dollar defied predictions of
an inevitable decline. But it is unlikely to
keep doing so, according to Roubini.
The greenback benefited last year from willingness is going to be shrinking (this)
a one-time change in U.S. tax law that year," Roubini says.
encouraged companies to repatriate
foreign profits and from the Fed's rate Even under optimistic assumptions,
increases. once the crisis hits, the economic pain in
the USA could be like nothing the
The tax provision has expired, and the country has suffered in decades.
Fed is believed to be near the end of its
monetary tightening. An abrupt end to the USA's ability to
obtain sufficient foreign financing could
"Our ability to finance ourselves send the dollar into free fall, cutting 21%
depends upon the willingness of foreign to 28% from its value, according to
central banks to hold dollars. That research by Sebastian Edwards, a

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Trouble spots could derail global economy gains economies greater stability. Rather than
Though the outlook is good, it isn’t hard to imagine what could go wrong. depend on private capital flows from rich
countries as they did in the 1990s,
developing nations now rely on strong
export industries.

Bond holders are so impressed that

they regard emerging market securities
as little riskier than U.S. Treasuries,
according to the JPMorgan Emerging
Markets Bond Index Global (EMBIG). In
late 2002, investors demanded an
additional 91/2 percentage points of
yield as compensation for the risk
involved in holding emerging markets
bonds compared with U.S. Treasuries.
USA: Unprecedented Venezuela: Charismatic
current account deficit leftist leader fomenting
Brazil: One of nine
Latin American
European
Union: Little sign
Hungary: Runaway
finances suggest this
Saudi Arabia:
Al-Qaeda would
China: Epidemic of
localized protests could
Today, the spread on the EMBIG is down
threatens financial
meltdown.
anti-American alliance. countries scheduled
to hold elections,
that sluggish
economies are
emerging market
could stumble.
love to disrupt
the kingdom’s oil
get out of hand or escalate
trade tensions with USA.
to little more than 2 percentage points.
unsettling markets. getting in gear. industry.

U.S. current account deficit deepens

The U.S. current account deficit, reflecting
Capital flows to emerging markets
Shrugging off memories of recent cri-
Emerging market spread
Bond holders are now asking only a
Oil prices rise
With little spare capacity, oil prices
But emerging markets also have had
the nation’s reliance upon foreign bor-
rowing to finance today’s consumption,
ses in Asia, Latin America and Russia,
yield-hungry investors are shoveling
small premium to buy securities from
developing nations. The spread is less
could continue their climb. In dol-
lars per barrel:
the economic winds at their back for the
is now history’s largest. Annual deficits: cash at developing nations.
(in billions)
than 2.5 percentage points over the
return on U.S. 10-year Treasuries.
past couple of years. Strong global
$63.94
(in billions) $317.9 (percentage point premium)
$44.08
demand boosted commodity prices, a
$323.9
0
7.51 $60
major help for soybean exporters such as
-$200
$300
8.00 Argentina and oil producers such as
$40
$200
Venezuela. And U.S. interest rates were
-$400 -$124.9 2.37
4.00 $20
so low, yield-hungr y investors —
-$600
-$668.1
$100
including normally cautious pension
-$800 -$800.0 0 0 0 funds — were drawn into countries such
’96 ’98 ’00 ’02 ’04 ’051 ’96 ’051’061 12/99 ’00 ’01 ’02 ’03 ’04 12/05 1/7/05 Wed.
1 – projection 1 – projections; Source: Institute of Sources: World Bank, JPMorgan Source: Energy Information Administration
as Brazil or Hungary.
Source: Bureau of Economic Statistics International Finance

Reporting by David Lynch and George Petras, USA TODAY; graphic by Adrienne Lewis, USA TODAY

Now, global growth is slowing, and U.S.

professor at UCLA's Anderson School of Emerging market risks rates are higher. "There's a lot to worry
Management. That would increase the about," says Desmond Lachman of the
price of a $21,000 foreign-made sedan to Another danger might be brewing in American Enterprise Institute, who was
almost $27,000, unless dealers opted to the so-called emerging markets. Capital among the first to warn of problems in
absorb the blow. flows this year into developing nations in Argentina before its historic default.
Latin America, Asia and Central Europe
In the first year, 3.6% to 5% would be are expected to hit a record $345.2 While no one is predicting a repeat of
slashed from per capita economic billion, according to the Institute of the problems that rocked half a dozen
growth. That would almost certainly International Finance. That surpasses the countries in the 1990s, emerging
push the USA into recession, perhaps for previous high set in 1996, just before the markets remain vulnerable to sharp
several years, according to Edwards, who Asian financial crisis, and is up 62% in the changes in the global environment. If the
presented his findings at last summer's past two years. dollar tanks, their surging exports would
annual Federal Reserve conference in stall. Higher oil prices could deal them a
Jackson Hole, Wyo. Emerging markets enthusiasts shrug off double whammy, inflating their energy
reminders of the euphoria-and-collapse costs while depressing the economies of
"Never in the histor y of modern cycles that hit Thailand in 1997, Russia in major customers.
economics has a large industrial country 1998, and Argentina in 2000. It's different
run persistent current account deficits of this time, say firms such as JPMorgan. Any unexpected mishap could cause
the magnitude posted by the U.S. since Countries, particularly in Latin America, the spreads between emerging market
2000." have built up foreign-exchange reserves debt and U.S. securities to balloon,
that should allow them to ride out any making it more expensive for
financial crisis and have introduced corporations in developing countries to
economic reforms that give their finance their operations, Lachman says.

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Politics also might complicate the economic outlook,
especially in Latin America. Elections are scheduled in eight
countries this year, including presidential and legislative
contests in Brazil and Mexico. The voting takes place amid a
clear drift away from the free-market policies favored by the
United States.
So far, little of this seems to be making an impression. "The
markets seem to be pricing in close to zero probability of
something going wrong," Barclays Capital wrote in a Dec. 8
note to clients.
Energy 'super spike'
One year ago, no one predicted twin hurricanes would wreck
much of the U.S. Gulf Coast oil infrastructure, sparking gas
shortages and soaring pump prices. But today, with oil prices at
about $64 per barrel, it doesn't take much imagination to
conjure up fresh scenarios of price jumps.
Spare oil supplies amount to 1.9 million barrels per day, down
from more than 6 million a day three years ago. Any event that
idles significant output for a prolonged period — political
turmoil in Venezuela, revolution in Saudi Arabia, a general
strike in Nigeria — would threaten the world economy.
"With spare production capacity so low, the market is
particularly vulnerable to a supply shock," the World Bank said
in its 2006 economic forecast.
If oil supplies were cut by 2 million barrels per day, prices
would hit $90 a barrel this year and remain at $70 next year,
according to the World Bank. The price spike would add 2.6
percentage points to the inflation rate, which is 2.1% now, and
cut global growth in half.
Reprinted with permission. All rights reser ved.
How likely is such a price spike? Goldman Sachs oil analyst
Arjun Murti spooked markets in March with a forecast of a
"super spike" taking oil prices as high as $105 per barrel. On
Dec. 12, he reiterated that view in a note to clients, adding that
"non-existent spare capacity" supported the prediction.
John Kingston, global director of oil for Platts, is more
optimistic. He expects prices to ease this year with new
producing wells in the Gulf of Mexico, Russia and Nigeria
boosting the market's cushion.
Still, he frets that continued Iraqi turmoil could pinch. Daily
exports there of 1.4 million barrels remain below prewar levels,
according to Platts. Anti-U.S. insurgents last year mounted 96
attacks on the country's aging network of pipelines and
production facilities, or one every four days. There is little
reason to expect quick improvement.
"The spot that concerns me the most is Iraq, and not so much
the insurgents," he says. "The oil industry there has been held
together by spit and bailing wire. … It's antiquated and needs
massive capital investment."
To those such as Roach, who are inclined to emphasize the
risks that things won't go exactly as expected, the links
between potential problems are the most worrisome element.
The USA's fat current account deficit could sink the dollar. As it
plummets, emerging markets' exports dry up and oil prices,
which are denominated in dollars, rise. In no time, what starts
as one country's difficulty becomes a global contagion.
"This is what we signed up for when we bought into
globalization," Roach says. "The next global adjustment or
downturn most likely will reverberate very quickly around the
world with a speed we haven't seen before."
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AS SEEN IN USA TODAY’S MONEY SECTION, MARCH 15, 2006

Some would like to build a

wall around U.S. economy
By David Lynch
USA TODAY
Protectionism makes
Can the United States run a war and an
a big comeback,
open economy at the same time? grounded in fear and
In the wake of the Dubai por ts
imbroglio, some lawmakers are saying
growing distrust
the U.S. needs to rethink its openness.
Rep. Duncan Hunter, R-Calif., chairman of
the House Armed Services Committee,
for example, is demanding that all of the
USA's "critical infrastructure" be owned
and managed by American citizens.

While there is no across-the-board

move to erect walls around the U.S.
economy yet, some analysts worry that
the combination of national security and
industry-specific economic fears could
spiral.

Hunter's legislation would require

foreign companies that own anything
deemed "critical" to national security,
economic security or public health to sell
within five years. Sen. Charles Schumer,
D-N.Y., reacting to the surging U.S. trade
deficit, has proposed imposing a blanket
27.5% tariff on Chinese imports if Beijing
doesn't allow its currency to appreciate.

"Today, it's the Middle East. L ast

summer … it was China. Next it could be
Russia," frets Nouriel Roubini, an
economist who operates the
rgemonitor.com global economy website. By Sam Ward, USA TODAY

A combustible mix of security and
economic dangers has left Americans
increasingly unsettled about their
engagement with the rest of the world.
Color-coded terror aler ts and the
persistence of the global al-Qaeda
network mean danger is a fact of daily
life. Compounding public unease is the
relentless economic rise of China and
India, which seems to imperil many
Americans' financial futures.
From 1994 until last year, a solid
plurality of Americans saw foreign trade
as an opportunity rather than a threat,
according to USA TODAY polling. In May
2000, for example, trade was backed 56%
to 36%. But in a June 2005 survey, by a
48% to 44% margin, more respondents
judged it a threat.
"Globalization creates vulnerabilities.
There's no question about it," says Mira
Wilkins, an expert on foreign investment

For more educational resources,

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International trade
The U.S. economy has become more dependent on foreign trade over the past 35 years. Imports as percentage of GDP:
16%
14%
12%
10%
8%
6%
4%
5.4%
2%
0
1970 1980
Source: Bureau of Economic Analysis
at Florida International University in Miami.
The USA isn't alone in getting cold feet over globalization.
Europe, too, is witnessing a renewed concern. In France, Spain
and Poland, governments are blocking foreign firms from
acquiring companies even in seemingly benign consumer
industries.
Global ties grow
If the concerns suddenly seem acute, it may be because in
recent years the globalization era that began with the collapse
of communism in 1989 has intensified dramatically. Example:
Cross-border mergers and acquisitions totaled a staggering $3.2
trillion last year, almost three times the level just five years
earlier, according to the Bank for International Settlements in
Basel, Switzerland.
The U.S. certainly is much more intertwined with other
economies than ever. In 1971, when President Nixon cut the
link between the dollar and gold, U.S. imports were equivalent
to 5.5% of the economy. Last year, they hit 16.2%.
The furor over the DP World ports takeover may have
surprised the White House. But it didn't come out of nowhere.
Last summer, it took enormous political arm-twisting to get a
very modest Central American trade deal through Congress.
Then, in the fall, a Chinese enterprise was forced to abandon its
planned acquisition of Unocal, a second-tier American oil
company, after Congress heatedly objected. And now an Arab
firm has been told it can't be trusted to operate cargo terminals
at American ports.
"I think we're riding a wave of xenophobia," says William
Reprinted with permission. All rights reser ved.
16.2%
1990 2000 2005
By Marcy E. Mullins, USA TODAY
Reinsch, president of the National Foreign Trade Council, a pro-
trade group.
Still, the reaction to date against foreign investment —
whether for national security or economic reasons — has been
limited. Both the ports controversy and last year's Unocal dust-
up involved foreign companies that were government-
controlled. Moves to limit Chinese imports have been confined
to specific industries, notably textiles and apparel.
"It's not competitive concerns like the 1980s. GM and Ford
are in rough shape, but there's not much sympathy for helping
them" with import limits, says Todd Malan, president of the
Organization for International Investment.
The ports furor catalyzed the debate over security and
globalization, though the immediate prospect of an Arab
company operating terminals at several U.S. ports appears to
have faded. On March 9, Dubai Ports World announced it
would spin off its newly acquired American operations so long
as it could do so without losing money.
More complicated times
This isn't the first time the U.S. has faced the issue. An earlier
age of global economic integration in the decades before World
War I ended with the guns of August 1914. After the war, trade
recovered in fits and starts. But then the 1930 Smoot-Hawley
Tariff triggered a protectionist frenzy that by 1934 had slashed
international trade by two-thirds.
During the Cold War, the relationship between national
security and commerce seemed clear. Buttressing the
economies of Western Europe helped knit together an anti-
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Soviet alliance. There was no question about who the enemy
was and no question of trading with him. Today, life isn't so
simple. Instead of a government like the Soviet Union, the
enemy in the war on terror is a stateless network of Islamic
extremists.
"We're now in an era where the national security interests of
the United States are a lot more ambiguous, and there's more
disagreement about them," says Jeffry Frieden of Harvard
University. "Even if there's agreement on fighting terrorism, it's
not clear what the economic implications of that are."
Those who argue for changing the rules of the game target
the inter-agency Committee on Foreign Investment in the
United States (CFIUS), which approved the ill-fated ports deal.
The committee gathers representatives of 12 agencies to
balance foreign investments' gains against potential security
threats.
Hunter, who helped kill the ports deal, wants to tighten the
government's method of reviewing proposed foreign
acquisitions of U.S. companies. Currently, "Economic or
commercial implications apparently supersede national
security considerations," the lawmaker wrote in a March 6
letter to colleagues.
A Government Accountability Office investigation last year
also concluded that the panel "narrowly defines what
constitutes a threat to national security." Since 1988, CFIUS has
rejected only one of more than 1,500 proposed foreign
acquisitions of U.S. companies: China National Aero-Technology
Import & Export's 1990 attempt to acquire a Seattle aircraft
parts maker.
Among those approved was a deal that left another Chinese
firm producing 80% of the magnets used in the Pentagon's
"smart bombs," according to Sen. Evan Bayh, D-Ind.
If any security worries are found in the panel's standard 30-
day review, an additional 45-day probe can be launched. But
the GAO report said that the committee, which is chaired by
the Treasur y Depar tment, is reluctant to order such
investigations for fear of discouraging foreign investment. Of
470 proposed deals from 1997 to 2004, CFIUS initiated only
eight investigations, the report said.
Hunter's proposed legislation would mandate 45-day probes
for "transactions that may have national security implications."
Treasury Secretary John Snow on Tuesday backed increased
scrutiny for deals involving state-owned foreign companies but
warned against "isolationist" moves.
Reprinted with permission. All rights reser ved.
Others say the criticisms are overstated. Phillip Swagel, who
was chief of staff for the White House Council of Economic
Advisers in President Bush's first term, says the Pentagon
representatives on the panel had a myopic focus on security.
"They just didn't understand the value of foreign investment in
the United States," says Swagel, now a fellow at the American
Enterprise Institute. "They'd rather foreigners not be here at
all."
Edward Graham of the Institute for International Economics,
author of a forthcoming book on national security and foreign
investment, says CFIUS has been more effective than the
statistics suggest. Although the panel formally rejected only
one deal, it effectively blocked 20 others, he says. Many others
were modified by compelling the foreign acquirer to accept
changes in how it would operate the American asset.
"What major security failure has happened in the U.S.? None
that we know of," Graham says.
U.S. dependent on foreign investment
As Congress rethinks foreign investment, Clyde Prestowitz,
president of the Economic Strategy Institute, thinks the new
focus on security ignores the U.S. economy's dependence upon
foreign investment. The USA requires about $3 billion in
foreign capital every working day to finance the huge gap
between its consumption of foreign goods and its exports. The
country just doesn't have the luxury of walling itself off,
Prestowitz says: "We're shooting ourselves in the foot here.
People don't realize this, but our economy is on life support
from foreign lenders and investors."
Questions over foreign investment aren't going away. Next
month, Chinese President Hu Jintao is scheduled to meet with
President Bush at the White House even as the Treasury
Department nears a decision on formally stating that China
manipulates its currency for trade advantage.
Likewise, thanks to high oil prices, the Dubai Ports deal won't
be the last Arab investment here. Since 1998, members of the
OPEC oil cartel have earned $1.3 trillion in petrodollars,
according to the Bank for International Settlements. Much of it
is staying home, helping fuel enormous increases in regional
stock markets. But tens of billions of petrodollars have surged
into U.S. corporate bonds, equities and direct investment. And
more are probably coming.
"Foreigners have a whole pile of dollars," says Reinsch. "I
don't know what we expect them to do with them."
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Business plans
should be
simple,
passionate
Keep financial projections
minimal, anticipate trouble By Robert Deutsch, USA TODAY

By Greg Farrell Venture capitalists and successful entrepreneurs stress that

USA TODAY the best business plans should be:

Eureka! You've come up with a great idea for an invention or Short — and simple
a new business. Or you've discovered a niche in the
marketplace crying out to be filled. What's the next step? Extensive financial projections aren't needed. Clarity about
the start-up's product or service is.
In a perfect world, you simply set up shop, watch
your business flourish, and count the money as it
“The real key to "The first piece should be an executive summary,"
flows over the transom. being an entre- says Shanda Bahles, general partner at El Dorado
preneur who Ventures, which backed EarthLink and a variety of
But in an imperfect world, you need seed money other technology companies.
to launch your business. And to get that capital,
has a chance to
you'll have to go begging for investment, either from succeed is "Think of it as a calling card to get you in the door,
a bank, a venture capitalist, an angel investor or your knowing pre- to get me asking questions. Do NOT write a 50-page
uncle. business plan with five-year financial models. It's
cisely what garbage in and garbage out."
Most of these sources of funds, except maybe your business you’re
uncle, will want to see a business plan. For many in. If you don’t, "It should be two pages," declares Stuart Reid, co-
entrepreneurs and Bill Gates wannabes, that's the founder of Urban Communications Transport, a
most difficult par t of launching a business:
you die. start-up broadband provider in New York City. "If
translating your idea, your vision, into a dry little you can't say it in two pages, you can't do anything."
document designed to win over a skeptical investor. — Doug Frazier,
co-founder of Urban Chip Hazard, a general partner at IDG Ventures in
It's even more difficult than closing the first sale Communications Boston, says the plan should be "precise, crystal
Transport clear" about what the new company is all about. "It
for your business.
never ceases to amaze me how many business
A business plan has to convince an investor that your idea for plans I see where after you read it once or twice, you still don't
a company is solid and that you're the right person to make the know what a company does."
whole thing work.
The key to describing your business is understanding what

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AS SEEN IN USA TODAY’S MONEY SECTION, JULY 31, 2006
benefit you're providing to your
customers, says Doug Frazier, the other
co-founder of Urban Communications
Transport.
"You have to learn what business
you're in," says Frazier, whose previous
company was a cable television provider.
With cable, "People told us we were in
the communications business. Nope, we
were in the entertainment business."
Now, with broadband, "We realized we
were in the problem-solving business.
People use the Internet so they can
work. They use their telephone to
communicate and solve problems.
"The real key to being an entrepreneur
who has a chance to succeed is knowing
precisely what business you're in. If you
don't, you die."
Introduce the management team
Obviously, investors want to know the
ways in which you plan to build the
better mousetrap. But venture capitalists
will be most interested in the people
behind the product.
"The management team is key," says
Reid. "Investors invest in people, not
ideas. You've got to pull a strong team
together."
"Investors are always going to look at
management," says Thomas Cooper, a
doctor who has started four successful
businesses in the medical field and
teaches entrepreneurship at Columbia
Business School. "Who are these people
and can they pull it off? What are their
backgrounds?"
Contrar y to conventional wisdom,
Cooper says it's not always a plus when
the management team has vast
experience in the industry in which it
wants to launch the new business.
"If someone's too steeped in an
industry, they think there's only one way
things can be done," he says. "I'd rather
look for someone on the peripher y,
someone who knows enough to be
Reprinted with permission. All rights reser ved.
What's your target market?
Identifying the target market is an
essential part of a good business
plan. Author Rhonda Abrams,
whose columns on small business
strategies appear Fridays at usato-
day.com, offers advice on target
market planning in her book,
Business Plan in a Day. She says that
section of a business plan should:
u Identify the geographic location
of your target market.
u Describe demographic charac-
teristics of target customers — traits
such as age, income level, family
size, gender and ethnic group.
u Explain customer motivations
and purchasing patterns.
u Define the market's size. "Is your
market big enough to keep you in
business? … If you're looking for
investors, you need to convince
potential funders that your compa-
ny can grow to a size that will make
their investment profitable."
Resources to assess a target mar-
ket include: maps of the target
market area; customer surveys;
market-research reports; industry
research indicating market trends;
books, magazines and other media
geared toward the target market;
Census data showing customer
demographics.
dangerous."
People on the outside are usually
willing to try new ways to do business,
Cooper says. As an example, Cooper
recalls an experience he had in medical
school in the 1960s. Doctors then tried
to determine if a patient had fluid in his
lungs by tapping an area between the
patient's ribs and listening to the sound.
"It was a technique called percussion,"
Cooper says. "People would get real good
at that. I was thinking, can't you come up
with a device that would measure that?
Eventually, it became ultrasound. In
1966, I knew just enough to be
dangerous, but if I'd been practicing
medicine for 20 years and had that
technique down, why would I do it any
way but that?"
Anticipate problems and challenges
Pollyannas don't make good
entrepreneurs.
"Anybody can have a great idea, and
anybody can be an entrepreneur," says
Frazier. But the business plan has to
"explain that you've thought the
problems through."
Addressing your business' potential
problems is a must, Cooper says.
"Writing a business plan, a formal
business plan, forces you to answer the
tough questions," he says. "It's one thing
to be out with a bunch of guys at a bar,
and you're having a beer and you're
telling them about your business idea.
Everything sounds great. You can do this
and you can do that, and it all looks easy.
A business plan forces you to address the
holes in your idea."
Finding those holes and thinking
through your responses to them is
crucial, says Cooper, who scans lots of
business plans as a partner at Aperture
Venture Partners.
"Rather than have investors raise these
issues to you, it's better if you've thought
them through," Cooper says. "Any sharp
investor will figure out the weakness, so
it's much better if you come out with
them. Most people don't want to enter
into the negatives, but I want to hear it. If
investors have to bring up the negatives
to you, it makes them think you haven't
thought your business through very
well."
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AS SEEN IN USA TODAY’S MONEY SECTION, JULY 31, 2006
Show a path to profit
A good business plan isn't stuffed with financial projections,
but it does explain how the business will make money.
"The most important thing is sales," says Cooper. "If you can't
get someone else to open up their wallet and turn money over
to you, it doesn't make any difference how great the idea is."
Cooper described a failed business venture he started, to
provide dental and eye care to patients in nursing homes. There
was such an obvious need for this service that he figured the
sales would be automatic.
"The need was so great that I assumed there would be a
payment source, but there wasn't and I failed."
Cooper wants details on how an entrepreneur is going to
close the first sale, how many sales he or she can make in the
first year and how long it will take to close those sales.
"The more specific they are, the more credibility they have,"
he says. "It's one area that people don't emphasize enough."
Reid echoes that sentiment, saying that the business idea can
be great, but investors want to know how the new company
will actually make its money.
Reprinted with permission. All rights reser ved.
"It's the end part that young entrepreneurs don't recognize,"
he says. "There's got to be an exit strategy so the investors get
their money out, a financial plan that the money guys
understand."
"They're in the business of building wealth," adds Frazier. "If
you're not furthering that goal, why would they give you
money?"
Make it personal
Finally, a good business plan should not be a formulaic, fill-in-
the-blanks document that looks squeezed out of some cookie-
cutter computer program.
"There are ideas that you don't think are interesting," says
IDG's Hazard, "and then there are business plans that I get
where somebody has used a software package and followed a
template. They all have a common format and they follow them
to a T. That just shows you that someone's going through the
motions."
Hazard says he'd much rather see an entrepreneur's fire
reflected in the executive summary. "The passion that an
entrepreneur has is fabulous. It's a burning desire to change the
world. You love that when that comes through."
Page 10
1. Reflecting on the risks in emerging markets and the energy sector that
David Lynch outlines in the article World Economy Expanding, how can DISCUSSION QUESTIONS
thinking about macroeconomic trends in the global economy help new
businesses make choices that will boost their competitiveness?

2. In what ways could the focus on the current U.S. deficit stifle entrepreneurship and innovation?

3. How would limiting imports decrease the competitiveness of the U.S.?

ADDITIONAL RESOURCES
4. Many Americans are worried about the degree to which the U.S. economy is tied to
other countries. Do you see this as a threat? Can you imagine any means by which u Council on Competitiveness
the U.S. could use this interdependence to boost our national security? www.compete.org

5. The article on business plans for start-ups suggests that templates or standard u Innovate America
formats should not be used for business plans. Do you agree? How could such www.innovateamerica.org
standardization help start-ups and the overall competitiveness of the country?
u Small Business Administration
6. Why do you think investors in new businesses look for management that www.sba.gov/starting_business
doesn’t have significant experience in the industry in which they want to launch /index.html
their start-up?

1. How do you think global economic and political instability affect

FUTURE IMPLICATIONS entrepreneurs’ and investors’ willingness to take risks? Think of historical
examples of entrepreneurs, and discuss the benefits and disadvantages during
similar economic and political environments. How would the instability described in the articles affect you?

2. As the global economy becomes increasingly interdependent, do you think investment in new businesses should become
more global, too? What would be some of the advantages and disadvantages of having, for example, an Asian investor finance a
North American start-up?

CASE STUDY EXPERT: DEBORAH L. WINCE-SMITH

Deborah L. Wince-Smith is president of the Council on Competitiveness. Founded in 1986, the Council is the
only national organization that brings together leading CEOs, university presidents and labor leaders to
promote U.S. productivity growth, success in global markets and a rising standard of living for all Americans.
Deborah L. Wince-Smith The Council’s regional, national and global portfolio aims to strengthen America’s innovation capacity.

An internationally recognized expert on innovation strategy, science and technology policy, regional economic development and
global competition, Wince-Smith was most recently nominated by President Bush to serve as a member of the Oversight Board of
the Internal Revenue Service. Wince-Smith serves on a number of boards and committees, including the Board of Directors of the
NASDAQ Stock Market, the National Science Board’s Task Force on Transformative Research, the Secretary of Energy Advisory
Board’s Nuclear Energy Task Force; the National Research Council’s Committee on Innovation Models for Aerospace Technologies;
the Board of Governors for Argonne National Laboratory, the University of California President’s Council for Los Alamos and
Lawrence Livermore National Laboratories; and the University of Pennsylvania Museum of Archaeology and Anthropology. She is a
trustee of the National Inventors Hall of Fame and a national juror for the MIT Lemelson Award for Invention.

Wince-Smith graduated Phi Beta Kappa and Magna cum Laude from Vassar College and received her master’s degree from
King’s College, Cambridge University. She is a frequent speaker at conferences and symposia and an author on innovation
and competitiveness.
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