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Entrereneurship

Entrereneurship

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  • ‡ For 1 credit course (PEV)
  • ‡ Some Trends in Research
  • ± Entrepreneurs are Doers and not Thinkers (clear cut business plans)
  • ‡ All Entrepreneurs need is money to start
  • ‡ Entrepreneurs are Extreme Risk Takers (calculated
  • verifiable and logically coherent formulation of
  • activity or provide normative guidance (prescribe
  • Approach
  • ‡ Corporate Entrepreneurship or Intrapreneurship
  • successful innovators (James Quinn)
  • phases)
  • ± Developing a functional perspective (using knife instead of a screw driver)
  • ‡ Ethics & Entrepreneurs I (This topic is a self study
  • exercise)
  • ‡ SELF STUDY (Read page nos. 124 to 146 of
  • ± Lack of objective evaluation
  • ± No real insight into the market
  • ± Inadequate understanding of Technical requirements
  • ± Poor financial understanding (usually less than half costs
  • ± Lack of Venture Uniqueness
  • ± The relative uniqueness of venture
  • ± Investment
  • ± Product (final) availability (bugs in software program)
  • ± Handout : Asking the Right questions
  • ‡ Economic & Industry Environment (Macro View)
  • ‡ Economic & Industry Environment
  • ‡ The Community Perspective (Micro view)
  • offering type
  • ‡ Marketing Stages for Growing Ventures
  • following activities
  • ‡ Benefits of a Business Plan (Class to attempt)
  • ‡ Developing a Well Conceived Business Plan
  • ± HANDOUT: Complete outline of a business
  • plan
  • ± HANDOUT: Writing the Business Plan
  • ± HANDOUT: Helpful hints for developing the
  • business plan
  • ‡ Franchising
  • or have legal expertise but be sufficiently
  • knowledgeable about legal concepts that impact
  • ± Advantages???
  • ± No legal obligation for repayment or interest
  • payment
  • ± Sharing of ownership & profits are the costs of
  • equity financing
  • formal systematic style is due to
  • entrepreneurs make in strategy implementation

Entrepreneurship

‡ Books to consult
‡ For 4 credit course
± Entrepreneurship in the new millennium by
‡ Kurkato & Hodgetts , Cengage Learning

± Entrepreneurship by Rajeev Roy , Oxford

‡ For 1 credit course (PEV)
± Entrepreneurship & new venture creation by A Sahay & V sharma

Entrepreneurship
‡ Some Trends in Research

(PEV)

± Venture financing has emerged as a major source of funds (venture capital as well as angel capital financing) ± Intrapreneurship is gaining attention in organizations ± Entrepreneurial entry strategies have been identified with common denominators, issues and tradeoffs ± Extensive research has been conducted on the psychological aspects that can predict future success

Entrepreneurship
‡ Some Trends in research

(PEV)

± The risks and tradeoffs of an entrepreneurial career have been studied extensively ± Women and minority entrepreneurs have mushroomed ± Entrepreneurial efforts have made major contributions to job creation and innovation in the world economies

‡ New and small firms that have at least 20 % sales growth every year (for five years), starting with a base of at least $100000 has been termed as a GAZELLE

Entrepreneurship (PEV) ‡ Reasons for growth of Entrepreneurship (students) .

Entrepreneurship ‡ Reasons for growth of Entrepreneurship ± Changing Industry Structure ± ± ± ± ± ± ± ± (PEV) New Technologies (flexible specialization) Deregulation & Privatization Increasing demand for variety Emerging Services Sector (software services sector) Easier access to resources Return on Innovation (Strengthening IPR) Rising dissatisfaction at job Acceptance of ex-entrepreneurs in the job market .

Entrepreneurship (students) (PEV) ‡ Major contributions of Entrepreneurship .

Entrepreneurship (PEV) ‡ Major contributions of Entrepreneurship ± ± ± ± Job Creation Economic growth New Technologies. processes & business models Serving small markets (Focus) .

Entrepreneurship (students) (PEV) ‡ Disadvantages of running your own business .

Entrepreneurship ± ± ± ± (PEV) ‡ Disadvantages of running your own business You are alone All decisions are yours All losses are yours You will need to put in long hours with no quick results ± Lack of success affects self esteem ± Exiting the business is usually difficult ± Pressures will affect social and family life .

Entrepreneurship (students) (PEV) ‡ Advantages of running your own business .

Entrepreneurship (PEV) ‡ Advantages of running your own business ± ± ± ± ± You are the boss All profits are yours You will experience a great variety of roles and tasks Increases self confidence Immensely satisfying .

COOs. (bill gates. naryanmurthy) ± Entrepreneurs from business families ± Minority entrepreneurs . Ashok Sutta. Steve jobs) ± Experienced (Narayanmurthy) ± Mature (CEOs. Subrato Bagchi) (PEV) ‡ Types of Entrepreneurs (based on timing of venture creation) ‡ Types of Entrepreneurs (based on socio cultural variables) ± First Generation (Dhirubhai ambani.Entrepreneurship ± Early Starters.

Entrepreneurship ± Novice ± Serial Entrepreneur ± Portfolio Entrepreneur (PEV) ‡ Types of Entrepreneurs (based on Entrepreneurial activity) .

Entrepreneurship (PEV) students .

Entrepreneurship ‡ Common Causes of failures (PEV) ± Lack of experienced management ± Shortage of skilled manpower ± Poor financial management (bad receivables. customers) .) ± ± ± ± ± Rapid growth (lack of cash kills) Lack of business linkages Weak Marketing efforts Weak Market research Short term outlook (vendors. unproductive investments.

not made ± Entrepreneurs are always Inventors (Innovators yes) ± Entrepreneurs are Academic and Social Misfits .Entrepreneurship Evolution ‡ Myths or Facts! (PEV) ± Entrepreneurs are Doers and not Thinkers (clear cut business plans) ± Entrepreneurs are born.

3M¶s Post it notes. Sivasankaran) ‡ Entrepreneurs are Extreme Risk Takers (calculated risk) ‡ Case 1.Entrepreneurship Evolution ‡ All Entrepreneurs need is money to start (PEV) ‡ Entrepreneurs experience high failure rates (Corridor Principle: With every venture launched.1 & Handout 1 . new and unintended opportunities arise.

Entrepreneurship Evolution ‡ A Theory of entrepreneurship is defined as a verifiable and logically coherent formulation of relationships. predict entrepreneurial activity or provide normative guidance (prescribe right action in particular circumstances) . or underlying principles that either explain entrepreneurship.

Entrepreneurship Evolution ‡ Basic Approaches to Entrepreneurial Schools of thought ‡ Macro view ± Environmental School of thought ± Financial School of thought ± Displacement School of Thought ‡ Micro View ± People / Entrepreneurial Trait School of thought ± Venture opportunity school of thought ± Strategic Formulation of thought .

or Work environment will influence ± Financial/ Capital School ‡ This school focuses on possibilities of success in seeking seed and growth capital . influence people in strengthening or weakening the desire to be an entrepreneur ‡ Social environment i. values etc.Entrepreneurship Evolution ‡ Macro View (based on external factors that relate to success or failure of ventures) ± Environmental School ‡ Basically factors like institutions.e. influence of friends and relatives.

) .Entrepreneurship Evolution ‡ Macro View (based on factors that relate to success or failure of ventures) ± Displacement School (negative connotation) ‡ It refers to the system making someone feel out of place and getting him or her in feeling frustrated ± Political displacement (negative connotation) ± Cultural displacement (Muslims in Gujarat. minority businesses in US) ± Economic displacement (job losses etc.

. technical knowledge.) ± The Venture Opportunity School ‡ Focuses on opportunity aspect of new venture. idea sources. Creativity & market awareness are the key criterion ‡ Corridor principle: Preparation meeting opportunity equals luck.Entrepreneurship Evolution ‡ Micro View (based on factors that are specific to entrepreneurship) ± People / Entrepreneurial Trait School of thought ‡ This school believes that there are certain characteristics that are common to successful entrepreneurs and if copied would increase success chances (creativity. development of concepts. implementation of opportunities. determination. perseverance etc.

Entrepreneurship Evolution ‡ Micro View (based on factors that are specific to entrepreneurship) ± The Strategic Formulation School ‡ Refers to planning process and identifying ‡ Unique markets (Mountain v/s Mountain gap strategies indicating major markets as well as interstices of larger markets) ‡ Unique People (Great Chef strategies) ‡ Unique Products (Better Widget strategies. gather or harness resources) HANDOUT 2 special . innovations that encompass new or existing markets) ‡ Unique Resources (Water Well strategies.

Entrepreneurship Evolution ‡ Another way to examine entrepreneurship is through a Process Approach ± Integrative Approach (HANDOUT 3) ± Assessment Approach (HANDOUT 4) ± Multidimensional Approach (HANDOUT 5) ‡ Case Study 2.1 .

Corporate Entrepreneurship ‡ Corporate Entrepreneurship or Intrapreneurship ± A process whereby individual/s in an existing organization create a new org or instigate renewal or innovation within the organization ‡ Strategic renewal ‡ Innovation ‡ Corporate venturing .

Corporate Entrepreneurship ‡ Need for Intrapreneurship .

Corporate Entrepreneurship ‡ Need for Intrapreneurship ± Very high competitive intensity ± Losing bright people to self businesses (drivers are venture capital & respect for entrepreneurship) ± Need to improve productivity & efficiency ± Downsizing of major corporations ± HANDOUT 7 .

Corporate Entrepreneurship ‡ Corporate venturing obstacles due to traditional management practices ‡ Handout 6 .

Corporate Entrepreneurship ‡ Factors prevalent in organizations that are successful innovators (James Quinn) ± ± ± ± ± ± Atmosphere and Vision Orientation to the market Small. Flat organizations Interactive learning Skunkworks HANDOUT 9 .

Corporate Entrepreneurship ‡ Reengineering Corporate thinking ± To assess your enterprise on encouraging Intrapreneurship ask the following queries ‡ Does your company encourage self appointed intrapreneurs ‡ Does your company finds ways to retain intrapreneurs ‡ Are people in your company allowed to do the job in their own way ‡ Has your company quick and informal ways to access the resources to try new ideas ‡ Does your company tolerate mistakes .

10 & 11 .Corporate Entrepreneurship ‡ Reengineering Corporate thinking ± To assess your enterprise on encouraging Intrapreneurship ask the following queries ‡ Are people in your company open to new ideas or they protect their turf ‡ Are intrapreneurs in your company forced to use internal skills and resources or can they go outside for help ‡ Are employees allowed to take risks ± Handout 8.

determination & perseverance Drive to achieve & grow Opportunity & Goal orientation Initiative & personal responsibility Persistent problem solving Realism & Sense of humor Seeking & using feedback Internal locus of control¶ Calculated risk taking & risk seeking Low need for status & power Integrity & reliability .Entrepreneurial Individual ‡ Common Characteristics of Entrepreneurs (John Kao) ± ± ± ± ± ± ± ± ± ± ± Commitment.

Entrepreneurial Individual ‡ Risks for Entrepreneurs ± ± ± ± ± ± ± ± Financial Risk Career Risk Family & Social Risk Psychic Risk Loneliness Immersion in business People problems Need to Achieve ‡ Sources of Stress .

Entrepreneurial Individual ‡ Dangers of Inflated ego of an entrepreneur ± ± ± ± Overbearing need for control Sense of distrust Overriding desire for success Unrealistic optimism ‡ Case Study : ³Perseverance & Commitment .

Entrepreneurial Individual ‡ Creative process for an entrepreneur (four phases) ± ± ± ± Background of Knowledge accumulation The Incubation Process (why don¶t you sleep over it) The Idea experience Evaluation & Implementation .

spatial. Intuitive. analytical.Entrepreneurial Individual ‡ Can Creativity be developed? ± Handout: Developing creativity ‡ Some steps for developing creativity ± Developing a functional perspective (using knife instead of a screw driver) ± Using your brains ‡ Left : Verbal. logical. non rational. analogies. linear ‡ Right: Non verbal. rational. Imaginative . abstract.

Entrepreneurial Individual ‡ Some steps for developing creativity ± Eliminating Muddled Mind sets ‡ Security hunting ‡ Stereotyping ‡ Probability thinking .

It is the means by which the entrepreneur either creates new wealth producing resources or endows existing resources with enhanced potential for creating wealth. .Entrepreneurial Individual ‡ Innovation & Entrepreneur ± Innovation definition ‡ It is the specific function of entrepreneurship.

Entrepreneurial Individual ‡ Innovation & Entrepreneur ± Types of Innovation ‡ ‡ ‡ ‡ Invention (light bulb. Tube light) Extension (CFL) Duplication (walmart) Synthesis (Telemedicine) .

Entrepreneurial Individual ‡ Innovation & Entrepreneur ± Sources of Innovation ‡ ‡ ‡ ‡ ‡ ‡ ‡ Unexpected occurrences (apple falling on Newton¶s head) Incongruities (Fed express overnight delivery) Process need (time saving devices) Industry & market changes (New technologies & trends) Demographic changes (population getting older) Perceptual changes (health food) Knowledge based concepts .

Entrepreneurial Individual ‡ Innovation & Entrepreneur ± Myths of Innovation ‡ Innovation is planned & predictable ‡ Creativity relies only on dreams & blue sky ideas ‡ Technology is the driving force of Innovation & success .

Entrepreneurial Individual ‡ Innovation & Entrepreneur ± Principles of Innovation ‡ ‡ ‡ ‡ ‡ ‡ ‡ Be action oriented Make product/service simple Make product/ service customer based Start small Aim High Try/test/revise Learn from failures ± Handout : Five types of Innovators ± Case Study: Case 5.1 .

Entrepreneurial Individual ‡ Ethics & Entrepreneurs I (This topic is a self study exercise) ± If I am operate within laws of land am I ethical? ± Are there any economic tradeoffs by being ethical ± ‡ SELF STUDY (Read page nos. 124 to 146 of Kuratko & hodgetts .

Opportunity Assessment ‡ Pitfalls in Selecting New Ventures ± Lack of objective evaluation ± No real insight into the market ± Inadequate understanding of Technical requirements ± Poor financial understanding (usually less than half costs estimated) ± Lack of Venture Uniqueness ± Ignorance of legal issues ‡ Handout: World Class Failures .

small profitable ventures. high growth ventures) ± Product (final) availability (bugs in software program) ± Customer Availability ‡ Handout : A New Venture Idea Checklist .Opportunity Assessment ‡ Critical factors for New Venture Development (Pre startup & Startup phase) ± The relative uniqueness of venture ± Investment ± Growth of sales (how is the graph going to be) (Lifestyle ventures.

± Financial difficulties ‡ Initial undercapitalization. product design problem. High initial debt. Leidecker & Harder) ± Product/market problems ‡ Poor timing. Wrong distribution strategy. Human resource problems ‡ Handout: Types & Classes of First Year problems . single customer reliance.Opportunity Assessment ‡ Why new ventures fail (Bruno. relationship problem between entrepreneur & venture capitalist ± Managerial problems ‡ Team problems.

Opportunity Assessment ‡ Evaluation Process ± Handout : Asking the Right questions ± Case 7.1 .

Environmental Assessment ‡ Environmental Scanning ‡ Economic & Industry Environment (Macro View) ± Assessing the Economic Environment ± Questions that need to be asked ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ (handout Table 8.1) What is the current state of the economy What is the condition of labor market Are the interest rates rising or stable How many firms are in this industry Do firms vary in size or they similar What is the geographic concentration of these firms Do the firms serve only domestic or exports too What are the governmental regulations for this business .

6 (Competitive Profile Analysis) ± Some important steps » Define the industry for the new venture » Analyze the competition » Determine the strengths & characteristics of suppliers » Establish the value added measure of your venture » Project the market size .5 (Guide to using the Five forces model) ‡ Competitive analysis ± Handout Figure 8.Environmental Assessment ‡ Environmental Scanning ‡ Economic & Industry Environment ± Examining the industry ‡ Handout Figure 8.

etc. types of occupations. educational background.Environmental Assessment ‡ The Community Perspective (Micro view) ± Researching the Location ‡ Community Demographics ± Community size.2 . ‡ Economic Base ‡ Population Trends ‡ Overall Business climate ± Handout: Evaluating Environmental Trends ± Case 8. residents purchasing power.

Entrepreneurial Ventures & Marketing Research ‡ Some specific objectives of marketing research ± Where do potential customers go to purchase the good/service you are planning ± Why do they go there ± What is the size of market ± How much your business can target ± What would be the right business promotion strategy .

Entrepreneurial Ventures & Marketing Research ‡ Marketing Research questions that you need answers for ± Sales ‡ Do you know in detail about your competitor¶s sales performance by product type & territory wise ‡ Do you know which accounts are profitable ‡ Is your sales power planned to be deployed at the right places ± Distribution ‡ Have you pre tested your product/service to gauge dealer¶s attitude towards it .

Entrepreneurial Ventures & Marketing Research ‡ Marketing Research questions that you need answers for ± Market ‡ Do you know about the buying habits of your target market ‡ Do you know about the repeat purchase behavior ‡ Can you plot your sales month by month ± Product ‡ Have you tested the market acceptability of your offering ‡ Have you tested the price elasticity of your offering .

Entrepreneurial Ventures & Marketing Research ‡ Inhibitors to marketing research ± Cost ± Complexity ± Irrelevancy (in the mind of entrepreneur) .

Entrepreneurial Ventures & Marketing Research ‡ 3 Marketing philosophies of entrepreneurs ± Production driven ± Sales driven ± Consumer driven ‡ Depends on ± Competitive pressure ± Entrepreneur¶s background ± Short term focus .

Entrepreneurial Ventures & Marketing Research ‡ Entrepreneurs need to know distinctly their offering type ± Convenience Goods ‡ Staple goods (food etc.) & Impulse goods ± ± ± ± ± Shopping goods (spend time on comparing prices & specs) Specialty Goods (customers make a special effort to find & purchase) Unsought Goods (encyclopedias etc.) New Products HANDOUT: COMPETITIVE INFORMATION .

Entrepreneurial Ventures & Marketing Research ‡ Marketing Stages for Growing Ventures ± ± ± ± Entrepreneurial Marketing Opportunistic Marketing Responsive marketing Diversified marketing ± HANDOUT : THE EVOLUTION OF MARKETING FUNCTION ± CASE STUDY: DEALING WITH COMPETITION .

common stock. tangible & intangible ‡ Claims against these resources . preferred stock ± In case of dissolution creditors have the first stake. preferred stock holders have the next claim and at last is the common stockholder¶s claim ‡ Assets = Liabilities + Owner¶s Equity (Balance sheet equation) . Fixed assets ± Liabilities: Current liabilities. assets. retained earnings.Entrepreneurial Ventures & Financial Analysis ‡ Understanding the Key financial statements ± The Balance Sheet has two parts (a snapshot of the business at the end of any period) ‡ Financial resources owned by the firm . liabilities ± Creditors ± Owner¶s equity ‡ Types of accounts ± Assets: Current assets. Owner¶s equity: Contributed capital.

Administrative expenses.Entrepreneurial Ventures & Financial Analysis ‡ Income Statement ± Revenue ± Cost of goods sold ± Operating expenses : Selling expenses. Financial Expense (Interest) & Income Tax ± .

Entrepreneurial Ventures & Financial Analysis ‡ Cash Flow Statement ‡ It answers questions like ± ± ± ± How much cash did the firm generate from operations How did the firm finance fixed capital expenditures How much new debt did the firm add Was the cash from operations sufficient to finance fixed assets .

interest payments etc.Entrepreneurial Ventures & Financial Analysis ‡ Cash Flow Statement ‡ Statement of cash flow is broken down into following activities ± Operating : cash generated from or used in the course of business operations ± Investing : cash flow effects from long term investing activities. plant & equipment ± Financing : cash flow effect of financing decisions of the firm. .

Entrepreneurial Ventures & Financial Analysis ‡ Capital Budgeting Methods ± Payback period Method : Length of time required to pay back the original investment is the determining criterion ± Net Present Value Method : Works on the premise that dollar today is worth more than a dollar in the future ± Internal rate of Return method .

no contingency plans) (list possible obstacles & alternative solutions) ± No Commitment or Dedication (No personal investment. hire specific skills) ± No Market Niche (Segment) .Entrepreneurial Ventures & Business Plan ‡ Pitfalls in the planning exercise ± No Realistic Goals. lack of a timeframe. no experience in specific area of the venture) (have experience . no risk taking) ± Lack of Demonstrated Experience (No business experience. lack of action steps (timetable with specific steps) ± Failure to anticipate Roadblocks (immersion in idea leads to lack of objectivity.

Entrepreneurial Ventures & Business Plan ‡ Business Plan is the written document that details the proposed venture ‡ It must describe ± Current status ± Expected Needs ± Projected results ‡ And it must cover the following aspects ± ± ± ± ± ± ± ± ± Project details Marketing R&D Manufacturing Management Critical risks Financing Milestones revenues .

Entrepreneurial Ventures & Business Plan ‡ Benefits of a Business Plan (Class to attempt) ± ± ± ± ± ± ± ± ± ± Provides Direction Financial Requirements become clearer Better risk projection Smooth running Positive motivation Vision & mission gets crystallized Can attract investors Better implementation Gaps may become visible Identify unanticipated impediments .

providing measurable benchmarks for comparing forecast with actual results ‡ It acts as a communication tool for outside financing resources ‡ It helps investors to understand ± Market potential & plans for securing a share of that ± The financial statements which illustrate the venture¶s ability to service debt and provide an adequate return on equity ± critical risks and contingency plans ± Individual entrepreneur¶s planning & managerial ability .Entrepreneurial Ventures & Business Plan (BP) ‡ Time. research and discipline needed force the entrepreneur to view the venture critically & objectively ‡ The competitive. economic and financial analyses subject entrepreneur to scrutinize the basic assumptions ‡ BP quantifies objectives. effort.

Entrepreneurial Ventures & Business Plan ‡ Developing a Well Conceived Business Plan ± Who reads the plan (venture capitalists. consultants) ‡ Five minute reading process of venture capitalists ± ± ± ± ± ± Look at the characteristics of venture & its industry Financial Structure of the plan (debt or equity) Balance sheet (liquidity) Quality of entrepreneurs USP of the venture Look at entire plan cursorily . lawyers. bankers.

proposed products or services. amount of financing needed and how the investor¶s will benefit ± Table of Contents ± HANDOUT: Common Business Plan Phrases: Statement versus Reality . venture¶s objective in 3-5 years.50 pages max ± Executive Summary ‡ 2-3 pages having the current status.Entrepreneurial Ventures & Business Plan ‡ Putting the package together ± Appearance ‡ Neither sloppy. financial forecasts. benefits to customers. nor lavish ± Length ‡ 40.

Entrepreneurial Ventures & Business Plan ‡ Guidelines for a business plan by experts ± Keep the plan short (max 50 pages) ± Orient the plan toward the Future (trends & forecasts of opportunities for the use of the product & service) ± Avoid exaggeration (show best case. worst case & probable case scenarios) ± Highlight Critical Risks ± Evidence of an Effective Entrepreneurial team (skills of each key person) ± Desist from Over-diversification ± Identify & defend target market segment .

1 .Entrepreneurial Ventures & Business Plan ‡ Elements of a Business plan ± HANDOUT: Complete outline of a business plan ± HANDOUT: Writing the Business Plan ± HANDOUT: Helpful hints for developing the business plan ± Case 11.

Public Ltd) .Entrepreneurial Organizations & Legal Forms ‡ Three primary legal forms ± Sole Proprietorship ± Partnership ± Corporation (Pvt Ltd.

Entrepreneurial Organizations & Legal Forms ‡ Sole Proprietorships ‡ Advantages ??? .

control Freedom from Corporate business taxes (taxed as individual tax payers) .Entrepreneurial Organizations & Legal Forms ‡ Sole Proprietorships ‡ Advantages ± ± ± ± ± ± Ease of formation Sole Ownership of profits Decision making & control Flexibility Relative Freedom from Govt.

Entrepreneurial Organizations & Legal Forms ‡ Sole Proprietorships ‡ Disadvantages??? .

Entrepreneurial Organizations & Legal Forms ‡ Sole Proprietorships ‡ Disadvantages ± ± ± ± ± Unlimited Liability including personal assets Lack of continuity Less Available capital Obtaining long term debt relatively difficult Relatively limited viewpoint & experience .

± . ± Duration of agreement ± Character of partners (general or limited. active or silent) ± Contributions of partner ± Division of profits and losses ± Draws or salaries ± Death of a partner clauses ± Release of debts ± Business expenses handling ± Arbitration ± Etc. purpose.Entrepreneurial Organizations & Legal Forms ‡ Partnerships ‡ Articles of partnership are usually executed and contain ± Name.

Entrepreneurial Organizations & Legal Forms ‡ Partnerships ‡ Advantages ??? .

Entrepreneurial Organizations & Legal Forms ‡ Partnerships ‡ Advantages ± ± ± ± ± Ease of Formation Direct Rewards Growth & Performance facilitated (more capital & skills) Flexibility Relative freedom from Governmental control .

Entrepreneurial Organizations & Legal Forms ‡ Partnerships ‡ Disadvantages?? .

can sign any contracts and obligations) .Entrepreneurial Organizations & Legal Forms ‡ Partnerships ‡ Disadvantages ± ± ± ± Unlimited liability at least of one partner Lack of continuity Relative difficulty in getting large sums of capital Bound by the acts of just one partner (general.

Entrepreneurial Organizations & Legal Forms ‡ Partnership Success ± Partnership Attributes ‡ Commitment ‡ Coordination ‡ Trust & Interdependence ± Communication Behavior ‡ Quality ‡ Information Sharing & Participation ± Conflict Resolution Techniques ‡ Persuasion & Smoothing ‡ Arbitration & Joint Problem solving .

Entrepreneurial Organizations & Legal Forms ‡ Corporations ‡ A separate legal entity apart from the individuals who own it ‡ Advantages ???? .

Entrepreneurial Organizations & Legal Forms Advantages ‡ ‡ ‡ ‡ ‡ Limited Liability Easy Transfer of ownership Unlimited life Relative ease of securing capital Increased ability & Expertise .

Entrepreneurial Organizations & Legal Forms ‡ Corporations ‡ Disadvantages ??? .

Entrepreneurial Organizations & Legal Forms ‡ Corporations ‡ Disadvantages ± ± ± ± ± Activity Restrictions (Limited by Charter) Lack of participation for minority stockholders Regulation Organizing expenses Double taxation (on corporate profits as well as individual income) .

will be one of the earlier discussed forms) ‡ Advantages ± ± ± ± Training & Guidance Brand Name Appeal Proven Track Record Financial Assistance . being shared for its uniqueness.Entrepreneurial Organizations & Legal Forms ‡ Franchising (Franchisee & Franchisor.

Entrepreneurial Organizations & Legal Forms ‡ Franchising ‡ Disadvantages ± Franchisee Fees ± Control exercised by the franchisor ± Unfulfilled promises by some franchisors ‡ Case 12.2 .

Legal Environment & Entrepreneurship
‡ Entrepreneurs are not supposed to be lawyers or have legal expertise but be sufficiently knowledgeable about legal concepts that impact businesses ‡ Review laws that relate to
± Inception of the venture ± Growth & continuity of the venture

Legal Environment & Entrepreneurship
‡ Patents
± Processes, machines, plants, products, plants, chemical compounds, & improvements in already existing items ± Protection for 14 years ± Temporary monopoly to encourage creation of new ideas ± Can sell, license etc.

‡ Copyright
± Protection of literary & artistic productions (60 years, proposed for 70 years, might have already been done)

± Books, periodicals, dramas, music, art, motion pictures, lectures, sound recording , computer programs
± HANDOUT: Post Internet Copyright protection

Legal Environment & Entrepreneurship
‡ Trademarks
± A distinctive name, mark, symbol, motto identified with a company¶s product (s) ± HANDOUT: Nike vs. Mike

Equity ± Debt ‡ Repayment plus interest ± Equity ‡ Relinquishing control ± A mix of both ± Debt financing is usually necessary ‡ Working capital ‡ Long term debt (for property & equipment) .Financial Sources for Entrepreneurial Venture ‡ Debt vs.

Financial Sources for Entrepreneurial Venture ‡ Sources of Debt ± Banks ‡ Queries of the bank are ± ± ± ± ± What do you want money for How much you need When do you need it How long will you need it How will you repay the loan ‡ Trade credit ‡ Accounts Receivables factoring ‡ Finance companies .

Financial Sources for Entrepreneurial Venture ‡ Debt Financing ± Advantages??? ± Disadvantages?? .

Financial Sources for Entrepreneurial Venture ‡ Debt Financing ± Advantages ‡ No relinquishing of ownership ‡ More borrowing allows greater return on equity ± Disadvantages ‡ Regular interest payments are required ‡ Affects cash flow ‡ Decreases P&L .

Financial Sources for Entrepreneurial Venture ‡ Equity Financing ± Advantages ± Disadvantages .

Financial Sources for Entrepreneurial Venture ‡ Equity Financing ± No legal obligation for repayment or interest payment ± Sharing of ownership & profits are the costs of equity financing ± Can be raised ‡ Public stock offerings ‡ Private Placements .

Financial Sources for Entrepreneurial Venture ‡ Public offerings ± Advantages ± Disadvantages .

Financial Sources for Entrepreneurial Venture ‡ Public offerings ± Advantages ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Size of capital amount Liquidity of Owner¶s stock Valuation gets easier Image Costs (accounting fees.) Disclosure Norms Requirements of paperwork Shareholder Pressure ± Disadvantages . underwriting stock etc. legal fees.

Financial Sources for Entrepreneurial Venture ‡ Some equity instruments ± Convertible Debentures (unsecured loans that can be converted into stock) ± Preferred Stock (gives preferential treatment to investors in case of dissolution) ± Common Stock ± Private Placement ± Handout: GOING PUBLIC: THE ACID TEST (p421) .

audit & evaluation ‡ Contacts with prospective customers.Financial Sources for Entrepreneurial Venture ‡ Venture Capital market ± Offer following services ‡ Capital for start ups & expansion ‡ Market research & strategy for business that do not have their own marketing depts. ‡ Management consulting.. suppliers ‡ Establishing management & accounting controls ‡ Employee selection .

management is secondary ± HANDOUT: Venture Capitalists¶ Screening criteria .Financial Sources for Entrepreneurial Venture ‡ Venture Capital Myths ± Venture capital firms want to own control of your company & tell you how to run the business ± VCs are satisfied with a reasonable return on investments ± VCs are quick to invest ( 1 out of 100 that they see in a month) ± VCs are interested in backing new ideas/ high tech inventions.

Financial Sources for Entrepreneurial Venture ‡ Angel Investors ± Handout: Main differences between Angels & VCs ± Advantages?? ± Disadvantages?? .

Financial Sources for Entrepreneurial Venture ‡ Angel Investors ± Advantages ‡ Value adding ‡ Prefer start up & early stage ‡ Leveraging effect ± Disadvantages ‡ Little Follow on money ‡ Want a say in the firm ‡ No national reputation to leverage .

Strategic Planning & Entrepreneurship ‡ The need to shift from informal planning to a formal systematic style is due to ± Degree of uncertainty ± Strength of competition ± Amount and type of experience ‡ Formal Planning ± Strategic ± Operational .

opportunities. weaknesses.Strategic Planning & Entrepreneurship ‡ Basic steps of Strategic planning ± Examine the internal & external environments of the venture (strengths. strategies. policies) ± Implement the strategic plan (programs. budgets. procedures) ± Evaluate the performance of the strategy ± Take follow up action through continuous feedback ± HANDOUT: The Strategic Management Process . threats) ± Formulate the venture¶s long range and short range strategies (mission. objectives.

Strategic Planning & Entrepreneurship ‡ Five factors that influence strategic management ± ± ± ± ± Demand on Strategic Manager¶s time Decision making speed (delegation demands) Environmental uncertainty Problems of Internal politics Entrepreneur¶s vision .

Strategic Planning & Entrepreneurship ‡ Lack of strategic planning is due to?? .

Strategic Planning & Entrepreneurship ‡ Lack of strategic planning is due to ± ± ± ± ± Time scarcity Lack of knowledge Lack of expertise/skills Lack of trust and openness Perception of high cost .

Strategic Planning & Entrepreneurship ‡ Porter identified five fatal mistakes entrepreneurs make in strategy implementation ± ± ± ± ± Misunderstanding industry attractiveness No real competitive advantage Pursuing an unattainable competitive position Compromising strategy for growth Failure to communicate the venture¶s strategy to employees ± HANDOUT: Objections to Planning .

innovation ± HANDOUT: Figure 15.Strategic Planning & Entrepreneurship ‡ An entrepreneurial Strategy Matrix model (Sonfield & Lussier) ± This model is based on Risk Vs.4 .3 ± HANDOUT: Figure 15.

Challenge of Entrepreneurial Growth .

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