Chapter 1- Introduction to Entrepreneurship Cognitively adapt

Describes the extent to which entrepreneurs are:

What is Entrepreneurship-Entrepreneurs assemble and then integrate all the Dynamic, flexible, self-regulating and engaged in the process of
resources needed the money, the people, the business model, the strategy to generating multiple decision frameworks
transform an invention or an idea into a viable business. Focused on sensing and processing changes in their
environments and then acting on them
General traits that many entrepreneurs posses Metacognitive awareness - Ability to reflect upon,understand, and
control ones thinking and learning
Passion - Throughout all the trials, entrepreneurs reward themselves
internally by realizing that theyre on a mission for the greater good. No
Learn from failures
matter how bad it gets, its their passion that motivates them between
paydays and during all the times when everyone else tells them to quit. What factors influence entrepreneurial to act?
2) Resilience - An entrepreneur doesnt stay down when times get rough. 1. Individual facts - desire to do something new
Theyre resilient and thrive off of the negativity. 2. Capital - to establish the enterprise
3) Strong Sense of Self - Entrepreneurs understand that they cant do 3. Leadership - Challenging with thinking possiblities
everything on their own, they realize that they are the only ones to make 4. Right - Protect our idea
their idea a reality.
4) Flexibility - Entrepreneurs are prepared and willing to modify their plan The Intention to Act Entrepreneurially
when new information arrives and when there are changes in
circumstances. Entrepreneurial intentions
5) Vision - Entrepreneurs see opportunity everywhere. Theyre innovators Motivational factors that influence individuals to pursue
who are always on the lookout to either develop a new idea or improve an entrepreneurial outcomes
existing product or service. They actually put a plan in motion. In other Entrepreneurial self-efficacy
words, entrepreneurs have the ability to see the future before it happens. Conviction that one can successfully pursue entrepreneurial
outcomes
Entrepreneurs should: Perceived desirability
Think structurally- Degree to which a potential entrepreneurial outcome is evaluated
Superficial similarities: Basic elements of the technology resemble the as favorable or unfavorable
basic elements of the market
Structural similarities: Underlying mechanisms of the technology
resemble the underlying mechanisms of the market
Engage in bricolage - Applying combinations of the resources at hand to
new problems and opportunities

Effectuate
Causal process
Starts with a desired outcome
Focuses on the means to generate that outcome
Effectuation process
Starts with what one has
Selects among possible outcomes
Chapter 2- Entrepreneurial Intentions and Corporate Entrepreneurship
Causes for Interest in Corporate Entrepreneurship
Corporate entrepreneurship
Entrepreneurial action within an established organization
Capitalizes on individuals who can do things differently and better
Causes for interest
Desire for responsibility
Strong need for individual expression and freedom
Discontent within the structured organization
Has few layers of bureaucracy between top management and the
customer
Entrepreneurial philosophy toward rewards
o Compensation is based on generation and exploitation of
opportunity
Entrepreneurial orientation toward growth
Entrepreneurial orientation toward culture
o Encourages employees to generate ideas, and engage in
tasks that might produce opportunities
Characteristics of an Entrepreneurial Environment

Distinguishing Entrepreneurially from Traditionally Managed Firm

Leadership Characteristics of a Corporate Entrepreneur

Managerial Versus Entrepreneurial Decision Making

Strategic orientation
Focuses on factors that are inputs in formulation of the firms
strategy
Entrepreneurial orientation toward opportunity
Commitment to take action on potential opportunities
Entrepreneurial orientation toward commitment of resources
Minimizes resources that would be required in pursuing a
particular opportunity
Entrepreneurial orientation toward control of resources
Focuses on how to access others resources
Entrepreneurial orientation toward management structure
More organic focus
Establishing Corporate Entrepreneurship in the Organization Learning from Failures
Dual process model of coping with negative emotions
1. Step one Oscillation between a loss orientation and a restoration orientation
Secure a commitment from top, upper, and middle management Loss orientation
levels An approach to negative emotions that involves:
Working through and processing some aspect of the loss
Identify, select, and train corporate entrepreneurs
experience
2. Step two Breaking emotional bonds to the object
Identify ideas and areas that interest top management Restoration orientation
Identify amount of risk money available o An approach to negative emotions based on:
Establish overall program expectations and target results Both avoidance and proactiveness toward secondary
Establish time frame, volume, and profitability requirement sources of stress arising from a major loss
Establish mentor/sponsor system
3. Step three
Use of technology to ensure organizational flexibility
4. Step four
Identify interested managers to train employees
5. Step five
Develop ways to get closer to the customers
6. Step six
Learn to be more productive with fewer resources
7. Step seven
Establish a strong support structure for corporate entrepreneurship

Problems and Successful Efforts

Compared to new ventures started within a corporation, independent start-

ups:
Perform better
End up twice as profitable
Reasons cited
Corporations difficulty in maintaining a long-term commitment
Lack of freedom to make autonomous decisions
Constrained environment
Chapter 3- Entrepreneurial Strategy: Generating and Exploiting New Entries Creating a Resource Bundle

Entrepreneur possesses ability to obtain and recombine resources.

What is a New Entry?
Offering a new product to an established or new market. Market knowledge: information, technology, know-how/ skills that provide
Offering an established product to a new market. insight to market/customers.
Creating a new organization. Technological knowledge: information, technology know-
How / skills that provide insight to create new knowledge
Entrepreneurial strategy
o Set of decisions, actions, and reactions that generate, and exploit, a new Generation of a New Entry Opportunity
entry over time Creating a resource bundle that is valuable, rare, and inimitable
Entrepreneurial resource
Figure 3.1 - Entrepreneurial Strategy: The Generation and Exploitation of Ability to obtain, and recombine, resources into a bundle
New Entry Opportunities that is valuable, rare, and inimitable
Drawn from the unique experiences and knowledge of the
entrepreneurs
Market knowledge
Information, technology, know-how, and skills that provide
insight into a market and its customers

Technological knowledge
Provides insight into ways to create new knowledge

Assessing Attractiveness: Information on a New Entry

Prior knowledge and information search

More knowledge ensures a more efficient search process.

Search process represents a dilemma for an entrepreneur.
Costs: both money and time.

Window of opportunity
Period of time when the environment is favorable for Entrepreneurs to exploit a
particular new entry.
Resources need to be:
Comfort with Making a Decision underUncertainty
Valuable.
Rare. Dilemma arising from the trade-off between more information and
Inimitable the likelihood of closure of the window of opportunity.

Error of commission: negative outcome from acting.

Error of omission: negative outcome from not acting.
Strategy for New Entry: First-Mover Strategies to reduce uncertainties

Advantages Market-scope strategies

There are some advantages to being a first mover. Here are some of them:
First movers have the potential to make a lasting impression on Imitation strategies
customers, which can lead to brand recognition and brand loyalty.
First movers have more time to refine their processes and to perfect their Scope: Choice about which customer groups to serve and how to serve them
products or services.
First movers may have an advantage in controlling resources, such as a MARKET SCOPE STRATEGY
strategic location or an exclusive contract with key suppliers or talented 1) Narrow scope strategy
employees. o offer small products range to a small number of customers to
First movers may have a sustainable advantage when there is a high cost satisfy a particular need.
involved for customers to switch brands at a later date. - focuses on :
Disadvantages a. Producing customized products
There are also some disadvantages to being a first mover, such as: b. Localized business operations
First movers bear the economic burden of developing a new market that c. High level craftmanship
followers into the market can exploit. d. High end of the market
Followers into the market can learn from the mistakes of the first movers, 2) Broad scope strategy
allowing them to reduce their risk and avoid making costly mistakes. o offer range of products across different market segments
Followers may be able to examine the processes of the first movers and o helps gain better understanding of the whole market
modify them for greater efficiency and cost reduction. o opens the firm up to many different "fronts" of competition
Followers can utilize newer technologies that become available, while first o reduced risks associated with market uncertainties
movers may be heavily invested in older technologies. o increases exposure to competition
First movers sometimes rigidly adhere to their original path, even when it
isn't working, which opens the door for followers to move in with a revised Imitation Strategies
version of the product that better serves the market's needs.
First movers may be driven by a fear of missed opportunities, leading them Involves
to launch a new product or service before the market is ready copying the practices of other firms.
Cannot be rare or inimitable.

Entry Strategy for New Entry Exploitation Why Do It?

Minimizes risk of downside loss associated with a new entry
Demand uncertainty: Difficulty in estimating:
Potential size, growth, and the key dimensions along Advantages
which a market will grow Help develop skills necessary to be successful in the industry
Technological uncertainty: Difficulty in assessing whether: Provide organizational legitimacy
The technology will perform Reduce costs associated with R&D
Alternate technologies will emerge and leapfrog over Reduce customer uncertainty over the firm
current technologies Make the new entry look legitimate from day one
 Types of imitation strategies
Franchising
Acquiring a proven formula for new entry from a franchisor
Me-too strategy
Copying exist products and attempting to build an advantage
through minor variations
Might be more difficult to successfully implement than initially
expected
Can potentially:
Reduce the entrepreneurs costs associated with R&D.
Reduce customer uncertainty over the firm.
Make the new entry look legitimate from day one.

Risk Reduction Strategies for New Entry Exploitation

Liabilities of newness
Negative implications arising from an organizations newness
Arise from:
Costs in learning new tasks
Conflict arising from overlap or gaps in responsibilities
Informal structures of communication
Assets of newness
Positive implications arising from an organizations newness
Learning advantage
Assets of Newness

Lack of established routines, systems, and processes provide a clean slate, giving
a learning advantage.

Heightened ability to learn new knowledge in a continuously changing

environment.
Flexibility and ability to accommodate new knowledge
Chapter 4- Creativity and the Business Idea Allows people to be stimulated to greater creativity by meeting with others
and participating with the following rules;
Trends 1. No criticism is allowed and no negative comments
The start of a trend that lasts for a considerable period of time provides 2. Freewheeling is encouraged-the wilder the idea the better
one of the greatest opportunities for starting a new venture. 3. Quantity of ideas is desired. The greater the number the greater the
Trends of the Next Decade likelihood of useful ideas
.4. Combinations and improvements of ideas are encouraged
Green
Clean Energy Problem Inventory Analysis
Organic Orientation
A method of obtaining new ideas and solutions by focusing on problems.
Economic Usually the focus is on a general product category that has a particular
Social problem.
Health Results must be carefully evaluated as they may not actually reflect a new
Web businessopportunity.

Sources of New Ideas CREATIVE PROBLEM SOLVING

1. .Brainstorming
Consumers 2. .Reverse Brainstorming if focusing on the negative
Entrepreneurs should: 3. Brain writing- provides time for participants to think about the
Formally or informally monitor potential ideas idea. It is a silent written generation of ideas by a group of people
Ensure that the idea represents a large enough market to 4. Gordon Method.
support a new venture Participants are now aware of the exact nature of the problem.
Existing products and services A general concept associated with the problem is presented and the group
Formally monitor and evaluate competitive products and services respondsexpressing a number of ideas.
on the market Prevents preconceived ideas and behavioral pattern.
Distribution channels 5. Checklist Method
Help suggest and market new products New idea is developed through a list of related issues or suggestions
Federal government The entrepreneur guides the direction of developing new ideas through
Taking cue from pending patents the list.
Ideas evolve in response to government regulations The checklist may take any form and be of any length
Research and development 6. Free Association-is developing new ideas through a chain of
Formal endeavor connected with ones current employment word association
7. Forced Relationships-Creating new ideas by looking at product
Methods of Generating New Ideas combinations
Isolate the elements of the problem.
Focus Groups Find the relationships between these elements.
Groups of consumers provide information in a structured format. Record the relationships in an orderly form.
A moderator leads the group (8-14 people) through an open discussion to Analyze the resulting relationships to find ideas or patterns.
solicit participant response about new products. Develop new ideas from these patterns
This is also an excellent method to initially screen ideas and concepts.
Brainstorming
A group method for obtaining new ideas and solutions
 8. Collective Notebook Method. Defining a new innovation (product or service)
Carry a small notebook with the problem written down. Newness of a product can be attributed to:
Consider the problem and record ideas and possible solutions 1-3 times Consumer concept
per day. Change in the package or container
By the end of the week you should have a list of ideas along with Modifications in the appearance of the product (industrial
suggestions. market)
A central coordinator will organize each notebook and puts ideas in order Classification of New Products
of frequency mentioned. Consumers Viewpoint
9. Attribute Listing The continuum proposed by Thomas Robertson is based
List the attributes of the item or problem. on the disrupting influence that use of the product has on
Look at each from a variety of viewpoints. established consumption patterns.
Originally unrelated objects can be brought together to form new Continuous innovations.
combinations Dynamically continuous.
10. Big Dream Approach. Discontinuous innovations.
Think without constraints. This approach is consistent with the marketing philosophy
Think big! that satisfaction of consumer needs is fundamental to a
Every possibility should be recorded and investigated without regard to ventures existence.
negatives involved or resources required.
Ideas should be conceptualized without constraints until an idea is Continuum for Classifying New Products
developed into a workable form
11. Parameter Analysis
Analyze variables in the situation to determine their relative importance.
The relationships between the parameters that described the underlying
issues are examined.
Through this evaluation one or more solutions are developed and this
called
Creative synthesis

Innovation
Types of innovation
Breakthrough
Extremely unique innovations that establish the platform
on which future innovations can be developed
Should be protected by patents, trademarks, and
copyrights
Technological
Advancements in the product/market area
Needs to be protected
Ordinary
Extend technological innovation into a better product or
service or one that has a different market appeal
Result of market analysis and pull and not technological
push
 Firms viewpoint
An innovative entrepreneurial firm should:
Make a distinction between new products and
new markets
New products - Defined in terms of
amount of improved technology
Market development - Based on the
degree of segmentation
New Product Classification System
A Model of the Opportunity Recognition Process
Product Planning and Development Process
Product life-cycle: Stages each product goes through from introduction to
decline
Product planning and development process: Stages in developing a
new product
Establishing Evaluation Criteria
Criteria should be established at each stage of the product planning and
development process.
It should be all-inclusive and quantitative in nature.
Criteria should evaluate the idea in terms of:
Market opportunity.
Competition.
Marketing system.
Financial factors.
Production factors.
The Product Planning and Development Process
 Idea Stage
Promising ideas should be identified and impractical ones eliminated.
Evaluation method Systematic market evaluation checklist.
Determine the need for the new idea as well as its value to the company.
Concept Stage
Refined idea is tested to determine consumer acceptance which can be measured
through the conversational interview method
Product Development Stage
Consumer reaction to the product/service is determined.
A consumer panel is given a product sample and preference is
determined through methods such as multiple brand comparisons,
risk analysis, etc.
Test Marketing Stage
Increases certainty of successful commercialization.
Actual sales reflect consumer acceptance.
E-commerce and Business Start-up
E-commerce offers entrepreneurs an opportunity to be creative and
innovative.
Factors that facilitate high-growth in electronic commerce:
Widespread use of personal computers.
Adoption of intranets in companies.
Acceptance of the Internet as a business communications
platform.
Faster and more secure systems.
Using E-commerce creatively
An entrepreneur has to decide whether he or she will run the
Internet operations:
Within the company or outsource these operations to
Internet specialists
Integrate front-end and back-end operations
Integrate customer orders, with distribution channels and
manufacturing capabilities
Allow flexibility for specific customer orders
Web Sites
Ease of use.
Structure and organization of information.
Search capability.
E-mail response system.
Speed.
Compatibility with different browsers and platforms.
Product life-cycle: Stages each product goes through from introduction to
decline
Product planning and development process: Stages in developing a new
product
Product Planning and Development Process consists of and Discuss.
Evaluation criteria
Market opportunity
Competition
Marketing system
Financial factor
Production factor
Evaluation criteria-many factors need be to analysed such as market
opportunity, competition, marketing system, financial factors and production
factors. It is to determine which of the ideas have potential and are capable of
making significant contribution to the organisation. the evaluation need to be
comprehensive to ensure that the organisation gain revenue as expected.
Market opportunity- it is regarding how suitable the product with current
demand and its market size. The product need to be up-dated as to meet demand
of society and able to compete with a strategic marketing plan.
Competition- it is to measure the size of the competiton that already exist in that
industry. Current compting producers, the prices offered and the marketing done
need to be analysed as the preparation to enter the market. If see any
uncompleted or unsuccessful action made by competiorse, may make
improvement and come out with a new look.
Marketing system- in product development stages, the potential customers
were given the product sample. the samples may create feedbacks from the
customers which may make improvement to the products. the risk analysis also
need to be stressed on because it involve a bulk resources to make that products.
Financial factor- the main aim of business is to maximize revenue and minimize
the costs. need to find few alternatives suppliers for raw materials as can
compared the price and choose the best one. The price need be along with its
quality.
Production factor- Th eproduction need to be efficient as to accomplish the
products as end product with the most least risk and costs. A high quantity of
production need to undergo the speacial process and procedures as to maintain
the quality and also its physical appearences.
Chapter 5- Identifying and Analyzing Domestic and International
Opportunities
Entrepreneurs find it difficult to both manage and expand the venture they created.
To expand a venture, entrepreneurs need to:
Identify opportunities for domestic and international expansion.
Develop different management s!ills.
Infuse ne" entrepreneurial spirit in entrepreneurships

Opportunity assessment plan

o Determines the profitability of a product/service idea
o Constitutes of four sections
First section - Identifies:
Uniqueness of the idea in terms of its unique
selling propositions
Available competitive products
Companies in the product market space
Second section- Focuses on the market
Size
Trends
Characteristics
Growth rate
Third section - Focuses on the entrepreneurs and
management teams skills and experience
Fourth section - Develops a time line indicating the steps
to successfully launch the venture

Factors contributing to international expansion:

Opening up of controlled economies to market-oriented enterprise.

Self-interest of organizations as well as the impact of external events and
forces.
Developing countries need training and education as well as infrastructure
to support their development and growth in the next century

TRADE BARRIERS
- Hindrances to doing international business
a) Initiatives to reduce trade barriers
1. General Agreement of Tariffs and Trade (GATT)
2. Trade Blocs and free trade areas
- Free trade area (FTA)
b) Impact of trade barriers
1. Increase cost of exporting products to a country Entrepreneurs Entry Strategies
2. Limit entrepreneur's ability to sell products in a country from productions
facilities outside the country Entry Mode Advantage Disadvantage
3. Necessitate re-locating production facilities to conform to local
regulations Manufacturing is home base thus so
Exporting
is less risky than overseas based High transport costs
four (4) elements of culture Gives an opportunity to learn the Trade barriers
oversea markets before investing. Problems with local
Reduces the potential wastages of
Social structure: Refers to family unit, social class or stratification and resources by operating abroad.
marketing agents
reference group which affect the role of manager and subordinate. Creation of efficient
Religion: It defines the ideas for life that are reflected in the value and Turn-keys contracts Ability to earn returns from process, competitors
technology skills in countries where
attitudes of individuals and the overall society. FDI is restricted Lack of long term
Political philosophy: The rules and regulations of a country, especially market presence
the trading rules or business regulations. Lack of control over
Economic and economic philosophy: The economic conditions and the technology
countrys economic philosophy on trade, balance of payment, import Inability to realize
location and
duties, tariffs, taxes etc. Licensing Low development costs and risks experience curve
Education: The education level, the literacy rate, the degree of emphasis economies
on particular skills or career path of country. Inability to engage in
Manner and customs: An important sub-aspect of culture, such as global strategic
peoples behavior on gift giving, hand-shakes, eating habits etc. coordination
Language: Composed of two components: Lack of control over
quality
Franchising Low development cost and risks Inability to engage in
Verbal Spoken and written language
global strategic
Non-verbal Includes body position, eye-contact, gesture, voice tone etc coordination
Lack of control over
Licensing: In return of payment of royalty, giving a foreign manufacturer the right technology
to use a: Inability to engage in
Patent Access to local partners knowledge global strategic
Trademark Joint ventures Shared development costs and risks coordination
Technology Politically acceptable Inability to realize
Production process location and
Product experience curve
economies
Protection of technology
Wholly owned Ability to engage in global strategic
subsidiaries coordination High costs and risks
Ability to realize location and
experience curve economies
Chapter 6- STARTING A NEW VENTURE

Summary of Business Forms & Governing Legislations

Factors in Business Forms

Business Form Governing Legislation
Factors Sole Proprietorship Partnership Private Limited
Company
Ownership One individual Up to 20 Up to 50
Sole Registration of Businesses Act 1956 (Amendment
individuals individuals
Proprietorship 1978) Share of Owner receives all Profits depend on Shareholder
profits & profits & bears all amount of receives share of
losses losses investment or as profits through
specified in dividend payouts
Partnership Registration of Businesses Act 1956 (Amendment partnership
1978) agreement
Liability of Unlimited liability Unlimited liability Shareholder
owners extending to personal unless otherwise liability limited to
assets specified in a amount of share
Private Limited Companies Act 1965 partnership or capital
Company agreement contribution
(Sendirian Management Owner makes all All partners have In the hands of a
control management equal control management team
Berhad) decisions and acts unless otherwise guided by a Board
freely specified in a of Directors
partnership
Examples of Special Business Licenses agreement
Business Category Example Continuity of Death of owner Death of any Death or
business dissolves the business partner dissolves withdrawal of
Manufacturing Manufacturing license required for the business shareholder has
manufacturing business with at least 75 full- unless otherwise no effect on
time employees. Apply for license from specified in a existence of
Malaysian Investment Development Authority partnership company
(MIDA). agreement

Wholesale, retail, trading, import Wholesale & Retail Trade (WRT) license.
& export business License is applied for from the Ministry of
Domestic Trade & Consumer Affairs

Building & Construction Need a specific license from the Construction

Industry Development Board (CIDB) to
undertake any building and construction
activities
Examples of Business Permits Forms of intellectual property

Business permits allows business to undertake certain business related activities Patent
that are regulated by governing authorities at either the federal, state or local level Patents are used primarily to protect inventions that represent a new way
of doing things
Inventions normally involve some level of technology and can be in the
Business Activity Example form of a product or process
A registered patent gives exclusive right to the patent owner to make, use
and sell the patented product or process for up to 20 years
A patent owner can still retain all rights to the invention but license another
party to use the patent within certain agreed upon conditions and
Foreign worker entry Allows a business to bring into the stipulations
permit country workers from other countries The patent owner can also choose to sell the patent to another party
to work in their business operations hence severing all rights to the invention concerned.
Patent rights are noted by the words Patent followed by the patent
registration number.
Because patents take time to register, companies can deter infringements
by displaying the words Patent Pending or Patent in Progress.
Even so these deterrents have no legal impact until the patent is fully
Retail sale event Allows a retail or wholesale business registered and given a patent number.
to advertise and conduct a sale of Copyright
goods at prices below normal retail Copyrights are used to protect a wide range of original creative, intellectual
prices for a specific time frame. or artistic works or authorship
This can include original works of art and literature, music composition,
audio recordings, drawings, sculptures, broadcasts films and computer
programs.
The idea behind the creative work is itself not protected and as such some
else can use the same idea but it must be in a significantly different form
Intellectual Property as a Business Right or composition so as to not infringe on an existing copyright.
A business that has invested time, money and intellectual capital to A copyright can exist for up to 50 years after the death of the registered
produce something unique or different has the right to protect the author
outcome. The symbol is universally used to denote a copyright
The outcomes are considered as company assets that are able to keep Trademark or Brand
the company ahead of its competitors and lead to greater money making In Malaysia, a patent, copyright or trademark must be registered with
capacities Intellectual Property Cooperation of Malaysia (MyIPO).
These assets are often categorized as intellectual property and can be For international protection, an intellectual property may need to be
legally protected as patents, copyrights and trademarks or brands. registered in multiple countries or with the World Intellectual Property
Registering the companys intellectual property gives the company the Organization (WiPO)
exclusive right to use the property and to take against any unauthorized The WIPO is a United Nations agency based in Geneva that represents
use of the registered property mainly patent protection agreements valid in over 100 member nations.
Malaysia is one of the member countries
Where to Register an Intellectual Property
In Malaysia, a patent, copyright or trademark must be registered with
Intellectual Property Cooperation of Malaysia (MyIPO).
For international protection, an intellectual property may need to be
registered in multiple countries or with the World Intellectual Property
Organization (WiPO)
The WIPO is a United Nations agency based in Geneva that represents
mainly patent protection agreements valid in over 100 member nations.
Malaysia is one of the member countries
 Sources of Finance
Chapter 7-FINANCING THE NEW VENTURE
Debt financing involves the business owners taking on borrowings that have to be
paid back over a period of time with additional charges (interest or administrative
fee)
Qualifying for the borrowings often requires some form of collateral (e.g. land,
buildings) or surety to protect the financier in case of non-payment.
o Debt financing allows the entrepreneur to have control of the business,
strategic decisions and return on equity.
o Debt financing puts a strain on the business to consistently pay on the
borrowings.
o If the business fails to make the business to consistently, it may face legal
action that can hamper business credibility, growth or lead to foreclosure
or bankruptcy.
o Debt financing can expose the business to too much borrowing and ends
up with heavy debt.
o II. The contribution from family and friends are often limited
Equity financing primarily involves funds (cash or asset) from parties who expect
to take some form of ownership stake in the new venture to represent the extend
of their contribution.
o Parties who extend equity financing expect to earn yearly dividends from
business profits as well as the possibility of a handsome return on
investment upon selling back the shares after a period of business growth
o Equity financing from parties other than the founding entrepreneur(s) can
dilute the entrepreneurs control over business direction and strategic
decisions as well as return on equity.
o A good financing package for a new business normally starts with equity
financing that needs to be supplemented with debt financing as the
business grows
The entrepreneur who is able to attract debt as well as equity financing can take advantage
of how the outside financing reflects confidence in the business potential
Financing for a new own business can come from both internal and
external sources
In this module, the key sources of financing discussed are:
Personal funds
I. All new ventures start with an initial capital contribution by
the entrepreneur(s)
II. The entrepreneurs own contribution or personal funds is
regarded as equity financing that is reflected in the
ownership of the business
III. Most new ventures however need more capital to operate
than what the entrepreneur is able to commit or make
available.
Family & friends
I. It is not uncommon for a new entrepreneur to rely on
family and friends to raise more initial capital for a
business start-up
but is more easily obtainable at the early stages of
business start-up because :
o They know the entrepreneur and
o They want to support his undertaking especially
when they think the business has growth
potential.
III. Friends and family capital contribution is likely to be in the
form of equity financing that gives them ownership in the
business
Angel financing
I. Business angels or angel investors are normally wealthy
or high net worth individuals who provide capital for a
business start-up in return for equity in the business
II. Most angel investors are successful entrepreneurs and
retired executives that want to get involved in helping
small start-ups succeed by offering private financing and
sometimes, valuable expertise & experience as well. They
are well educated and often in their 40s or 50s and look
for investments across a broad range of businesses that
offer high growth potential
 III. Angels assume high risks by providing capital at very early
stages of business start-up and normally look for a 30-
40% desired return on investment (ROI) or 5-7 times ROI
IV. Angels also have to have patience in realizing their ROI
since on average an angle investor looks to wait at least 5
years before cashing in.
Bank Term Loans
I. Commercial banks offer an important source of financing primarily
in the form of term loans (short & long-term loans)
II. Bank term loans are a form of debt financing that requires the
business to repay the loan in progressive (usually monthly)
payments with additional interest or administration fees over a
stipulated period of time
III. Banks are generally cautious about approving loans particularly to
new ventures because of the high risk of non-payment of monthly
payments
IV. Once the business has progressed to a more stable stage with
definite financial records to show repayment capabilities, banks
will be a more viable source of finance
Venture capital financing
I. Venture capital can be broadly regarded as a pool of equity capital
that come from different individuals or groups of individuals who
want to invest in high growth businesses for high returns
II. Unlike angel investors that invest their own funds, venture
capitalists are professional managers investing money from a pool
of funds (equity capital pool) parked under registered venture
capital companies
III. Collateral can be in the form of:
IV. assets of the business (e.g. land, equipment, business premise or
building)
V. entrepreneurs personal assets ( own house, landed property)
VI. guarantor assets
Government loans & grants
I. Government offers financial assistance in the form of loans &
grants at all level of business development
II. Government assistance is meant to supplement other sources of
financing and not in anyway compete or take over the primary role
played by the other sources discussed earlier.
III. Government financial assistance serve more an economic or
social development purpose than a profitable return on investment
objective.
IV. For that reason, financing from government sources normally incur
a comparatively lower interest rate or fee (for loans) or are in the
form of one-time cash payouts with no repayment necessary
(grants)
Bootstrap financing
I. Bootstrap financing is an internal financing approach that is
derived from conserving cash in the business operations by
utilizing various facilities offered by suppliers & vendors
II. Bootstrapping is particularly important at the start-up & early
stages of the business when debt financing is difficult to qualify for
and too much equity financing can erode entrepreneur control over
the business
III. This form of financing requires the entrepreneur to:
IV. understand what facilities are available and
V. be able to convince the various supplier & financing parties to
extend the facility.
VI. A key element in convincing & accessing the financing facilities is
through a well prepared financial plan that highlight the business
cash flow planning & potential to meet financing requirements.
VII. Some of the common facilities include:
Trade credit
Obtain goods from suppliers and only pay in 30, 60 or 90 days
hence allowing the business to trade with the goods without
expanding valuable cash upfront
Supplier discounts
Saving cash by taking advantage of discounts given for buying in
large amounts (bulk purchase), buying promotion items and for
being a frequent buyer
Consignment financing
Facility to make an order for goods required over a period of time
but only receive and pay for what is delivered as it is needed over
that period. Can obtain bulk purchase price but save cost on
storage and paying up front
 Fig. 1: Summary of Sources & Stages of
Financing for New Venture

FULL GROWTH &

PRE-STARTUP START-UP EARLY GROWTH
EXPANSION

Seed financing Start-up or 1st level 2nd level financing 3rd level financing
financing
Own, Family & Friends Funds

Business Angels Financing

Venture Capital Financing

Banks Term Loans

Government Financing Schemes (loan, grants & govt. venture capital funds)

Bootstrap Financing

Adapted from ENT600 Teaching Slides, FBM, UiTM, 2009

Fauziah Pawan, Sept 2012 (ENT 530) 30

 Chapter 8-Strategies for Growth and Managing the Implication of Growth
Diversification strategies
Selling a new product to a new market
Backward integration: A step back (up) in the value-added chain
Growth Strategies Based upon Knowledge of Product and/or Market
toward the raw materials
Forward integration: A step forward (down) in the value-added
chain toward the customers
Horizontal integration: Involves a different, but complementary,
value-added chain

Implications of Growth for the Firm

o Pressures on human resources

o Pressures on the management of employees
o Pressures on entrepreneurs time
o Pressures on existing financial resources

Overcoming Pressures on Existing Human Resource

o Using professional employer organizations (PEOs) for various HR

Penetration strategy activities
Encouraging existing customers to buy more of the firms current o Giving employees regular feedback
products o Identifying problems along with a proposed solution
Relies on taking market share from competitors and/or expanding
Overcoming Pressures on the Management of Employees
the size of the existing market
Market development strategy o Participative style of management: Manager involves others in decision
Selling the firms existing products to new groups of customers making
New geographical market - Selling in new locations o To institute participative style of management:
Establish a team spirit
New geographical market - Selling in new locations
Communicate with employees
New demographic market - Selling to a different demographic group Provide feedback
New product use - Selling an existing product, which may have a Delegate responsibility
new use, to new groups of buyers Provide continuous training to employees
Product development strategies
Developing and selling new products to people already purchasing
the firms existing products
Capitalizes on existing distribution systems and on the corporate
reputation of the firm
Overcoming Pressures on Entrepreneurs Time Managing costs and profits
Compute net income for interim periods during the year
Time management Assess each item to determine cost reduction
Process of improving an individuals productivity through more Consider raising prices to ensure positive profits
efficient use of time Compare current actual costs with prior incurred costs
Advantages of efficient time management
Increased productivity Taxes
Increased job satisfaction An entrepreneur is required to:
Increased interpersonal relationships Withhold federal and state taxes for employees
Reduced time anxiety and tension Pay a number of taxes (state and federal unemployment
Better health taxes and business taxes)
Basic principles of time management Allocate taxes as part of any budget
Principle of desire File end-of-year returns of the business
Recognition of the need to change personal attitudes and Consider use of a tax accountant
habits regarding the allocation of time Record keeping
Principle of effectiveness System for storing and using customer information
Focus on the most important issues Helps build organizational knowledge to reduce dependency on
Principle of analysis any one individual
Understanding how time is currently being allocated, and Increases capacity to hold and process information
where it is being inefficiently invested
Principle of teamwork: Acknowledgment that: Four Types of Entrepreneurs and Firm Growth
Only a small amount of time is actually under ones control
Most of ones time is taken up by others
Principle of prioritized planning
Categorization of tasks by their degree of importance
Allocation of time to tasks based on this categorization
Principle of reanalysis: Periodic review of ones time management
process

Financial Control
Managing cash flow
Have an up-to-date assessment of the cash position
Maintain a daily cash sheet
Compare budgeted or expected cash flows with actual cash flows
Managing inventory
Physically count inventory periodically
Link the needs of a retailer with the wholesaler and producer
Select an appropriate mode of transportation
Managing fixed assets
Involves long-term commitments and large investments
Leasing can be an alternative to buying depending on:
Terms of the lease
Type of asset
Usage demand
Lease payments can be used as a tax deduction