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Chapter

7
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New Ventures

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Learning Objectives

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After studying Chapter 7, you will know:

the activities of entrepreneurship how to find and evaluate ideas for new business ventures what it takes to be a successful entrepreneur how to write a great business plan the important management skills, resources, and strategies needed to avoid failure and achieve success key criteria for deciding whether your start-up should be global from the outset how to foster intrapreneurship and entrepreneurial orientation in large companies
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Introduction

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Entrepreneurship

the pursuit of lucrative opportunities by enterprising individuals

initiate and build an organization create new systems, resources, or processes to produce new goods or services and/or to serve new markets

differs from managing a small business

A small business
has fewer than 100 employees is independently owned and operated is not dominant in its field is not characterized by many innovative practices

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Introduction (cont.)

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Entrepreneurial venture

has growth and high profitability as its primary objectives is managed aggressively develops innovative strategies, practices, and products
independent entrepreneurship - individual establishes a new organization without the benefit of corporate support intrapreneurs - corporate entrepreneurs who create a new venture working in big organizations

Sources of new venture creation

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Independent Entrepreneurs

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Why become an independent entrepreneur?

enjoy the challenge and profit potential seek independence and a feeling of being part of the action experience the satisfaction in building something from nothing see their progress blocked in big corporations new immigrants may be blocked from conventional means of advancement

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Independent Entrepreneurs (cont.)

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The role of the economic environment

entrepreneurs find success in favorable business environments success also depends upon the foresight and talent to survive hostile environments

bad times can offer an opportunity to expand

business incubators - protected environments for new, small businesses

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offer low rents and shared costs staff manager advises the new business owner often universities provide technical and business services have been successful throughout the U.S. and other regions of the world
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Independent Entrepreneurs (cont.)

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What business should you start?

the idea - a great product, an untapped market, and good timing are essential ingredients for success

personal inspiration is a great source of ideas idea may be the founders desire to build a great organization

sees the product as a vehicle for the company

the opportunity - entrepreneurs spot, create, and exploit opportunities in a variety of ways

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Spotting Opportunities

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Technological discoveries

Demographic changes

Government rules changes

To spot opportunities, be aware of:

Lifestyle and taste changes

Calamities
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Economic dislocations
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Independent Entrepreneurs (cont.)

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What business should you start? (cont.)

the next frontier - outer space

huge demand for satellite launches entrepreneurs face large obstacles unexpected opportunities begin to appear prepare to enable quick and effective action should an opportunity appear

side streets - heading down a road reveals unknown places

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What Does It Take To Be A Successful Entrepreneur?

Commitment and determination Leadership

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Motivation to excel

Successful entrepreneurs typically have:

Opportunity obsession

Creativity, self-reliance, adaptability

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Tolerance of risk and uncertainty

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Independent Entrepreneurs (cont.)

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What does it take to be successful?

making good choices

new ventures differ along two dimensions

innovation - creation of something new and different risk - probability of major financial loss psychological risk to reputation and ego matrix helpful in determining whether a particular venture meets entrepreneurs particular objectives matrix helps identify effective strategies

entrepreneurial strategy matrix

new ventures do not always require cutting-edge technology or a new product

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The Entrepreneurial Strategy Matrix

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Innovation (creating a unique and different product/service)

High

High innovation Low risk

High innovation High risk

Low

Low innovation Low risk

Low innovation High risk

Low
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High
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Risk (probability of a major loss)

Independent Entrepreneurs (cont.)

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Planning

opportunity analysis - provides the basis for making a decision on whether to act

includes:

a description of the product or service an assessment of the opportunity and the entrepreneur a specification of required activities and resources sources of capital

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Questions That Must Be Answered In An Opportunity Analysis

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What market need does my idea fill? What personal observations have I experienced or recorded with regard to that market need? What social condition underlies this market need? What market research data can be marshaled to describe this market need? What patents might be available to fulfill this need? What competition exists in this market? How would I describe the behavior of this competition? What does the international market look like? What does the international competition look like? Where is the money to be made in this activity?

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Independent Entrepreneurs (cont.)

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Planning (cont.)

business plan - formal planning step that focuses on the entire venture and describes all the elements involved in starting it

describes the venture and its market, strategies, and future directions helps determine the viability of your enterprise guides planning and organizing helps to obtain financing

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Independent Entrepreneurs (cont.)

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Planning cont.)

key planning elements beyond the financial projections are:

people - should be energetic, have skills and relevant expertise

the most important element

opportunity - should allow a defensible competitive advantage competition - identify competitors and their strengths and weaknesses

predict competitions responses to a new venture consider how to collaborate with competitors

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contexts - economic and regulatory environments should be favorable risk - must be understood and fully addressed
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Independent Entrepreneurs (cont.)

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Planning (cont.)

selling the plan - who you try to convince to back the plan is important

passive versus sophisticated investors today plans need to be developed and enacted quickly networks - create social capital top management teams - affect company image, develop longterm plans, support daily activities, and create information networks advisory boards - provide expertise about a variety of specific business matters and pass judgment on new ideas
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nonfinancial resources - crucial to success of new venture

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Independent Entrepreneurs (cont.)

Planning (cont.)

nonfinancial resources (cont.)

partners - help one another access capital, spread the workload, share the risk, and furnish expertise

must: acknowledge one anothers talents communicate honestly listen to one another learn to trust each other

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Independent Entrepreneurs (cont.)

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Entrepreneurial hazards

hazards of striking out on your own are many

poor understanding about new products or new geographic areas may find out after starting a company that you dont enjoy it survival is difficult failure can be devastating venture can outlive founder if:
company has gone public founder has planned an orderly family succession entrepreneurs seldom do either

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mortality - fate of the venture after the founders death

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Independent Entrepreneurs (cont.)

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Entrepreneurial hazards (cont.)

inadequate delegation - entrepreneurs desire to personally control every aspect of the business

active leadership deteriorates into micromanagement apply financial resources to the wrong uses maintain inadequate control over financial resources

misuse of funds - two types of mistakes

poor planning and controls - failure to anticipate problems

aversion to record keeping failure to maintain vigilance over other aspects of the business

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Independent Entrepreneurs (cont.)

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Global start-ups

a new venture that is international from the very beginning success factors for global start-ups

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think globally from day one communicate your global vision management team should have international experience develop deep cross-cultural understanding develop a network of trusted financiers, suppliers, distributors, and other business associates product (or service) provides a clear advantage to customers intangible assets
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Should Business Begin Domestically Or Globally?

Where are the best people?
Will domestic inertia cripple international operations?

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Domestic or global outlook?

Where is financing easiest and most suitable?

Will global operators compete?

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Where are the targeted customers?

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Intrapreneurship

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Building support for your idea

must build a network of allies who support and will help implement the idea steps in building support include:

clear the investment with your immediate boss or bosses make cheerleaders - people who support the manager before formal approval from higher levels horse trading- offer promises of payoffs from the project in return for sponsor support get the blessing of relevant higher officials

guarantee the projects technical and political feasibility

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Intrapreneurship (cont.)

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Building intrapreneurship

skunkworks - project team designated to produce a new, innovative product

have a specific goal and time frame headed by a respected manager risk takers are not punished for taking risks and failing

bootlegging - informal (secretive) efforts by managers and employees to create new products or new processes

intrapreneurial organization should tolerate and even encourage bootlegging

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Intrapreneurship (cont.)

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Organizing new corporate ventures

strategic alliances may be required for large scale innovation

involves cooperation among different organizations

large companies outsource for innovation, providing entrepreneurial opportunities for small firms

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Intrapreneurship (cont.)

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Hazards in intrapreneurship

obvious risk: the effort can fail subtler, but possibly greater, risk is failing to foster intrapreneurship greatest risk is overreliance on a single project it is also risky to spread intrapreneurial efforts over too many projects hazards are related to scale

one large project is a threat as are too many underfunded projects

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Intrapreneurship (cont.)

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Entrepreneurial orientation
tendency of an organization to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods and services determined by five tendencies

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allow independent action innovativeness risk taking proactiveness competitive aggressiveness

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