NEW VENTURE DEVELOPMENT (Lecture 5)

In order to build a company that can compete in the market, new venture development involves a
variety of activities (Morse and Mitchell, 2006). The majority of people develop their ideas in
this manner, producing a product or service as a result. A new commercial business, social
enterprise, or other similar type of business is simply referred to as an entrepreneurial venture.
These endeavors may also be referred to as new enterprises or ventures. Due to their own
objectives and aspirations, entrepreneurs significantly contribute to the development of new
businesses. The first stage of the business life cycle is the establishment of a new venture, during
which a new business is first evaluated before being launched. Despite having many similarities,
entrepreneurial ventures and small business enterprises are not the same. Although they are both
economically significant, each offers advantages and results that are unique from the other.
According to Schumpeter, entrepreneurs are those who significantly alter the equilibrium,
resulting in the development of novel goods and methods that fundamentally alter how we live.
Small business owners, on the other hand, operate their companies according to predetermined
rules and do not make the same kinds of changes that entrepreneurs do. Small shops, food stands,
service providers, etc. are a few examples of small businesses. They make up the "economic
core" and are typically slow to adopt paradigms that are already well-established in the market. It
should be remembered, though, that even entrepreneurial endeavors begin on a small scale. The
difference is that compared to small business owners, larger firm entrepreneurs typically set
goals that are more expansive in nature. Companies like Flipkart, E-bay (for online product
purchases), and other entrepreneurial businesses (for online stay booking), Paytm (for making
online recharge payments, etc.), have emerged as a result of the development of internet
marketing and selling, e-commerce of hotel rooms for payment of bills, etc. Entrepreneurial
ventures produce value in many different ways. They have the ability to develop brand-new job
opportunities independent of any currently operating business unit. They put a lot of emphasis on
niche marketing, locating potential clients whose current needs are unmet, and satisfying those
clients. Another trait that distinguishes entrepreneurs is having a distinct vision for the direction
their company needs to go. This might include plans for regional, societal, or even global
expansion.
ESSENTIAL REGUIREMENTS FOR ENTERPRENEURIAL VENTURES

A newly developed business venture requires more dedication because there is more risk
involved in the early stages. A successful business venture can typically be started by
entrepreneurs who are likely to have sufficient knowledge of the market conditions. The
entrepreneur's knowledge is the result of the information and experience he has gathered, as well
as the research he has done. According to this perspective, the following are crucial prerequisites
or needs for a successful business venture:

1) Appropriate market analysis

The business owner must be well-aware of the market's opportunities and the difficulties the
product is likely to face. With the aid of an appropriate market analysis, such an understanding of
the potential opportunities and threats to the business can be developed. The business owner
should evaluate these factors in light of the business plan's advantages and disadvantages. Market
analysis includes evaluating a number of variables, including the market's size, profitability,
growth rate, and price structure, as well as a number of distribution channels. Entrepreneurs
should be aware of current market trends in order to conduct an effective market analysis and to
determine which ones are favorable and unfavorable for their business.

2) Adequate financing for the new venture:

It is crucial for the success of the new business venture to secure sufficient funding. In fact, a
major factor in why new businesses fail is a lack of funding sources. When a business unit first
enters the market, it lacks a core clientele or a well-known brand. The founder's savings and
loans from family members of the entrepreneur are frequently used to fund new businesses.
While there is nothing fundamentally wrong with bootstrapping (i.e., starting a business with
little money), the entrepreneur must evaluate all costs carefully to ensure that the business can
survive in the long run, even if it does not make a profit. In order to prevent the organization
from running too many risks, it is crucial that the sales and profit forecasting be done carefully.
3) Identifying a suitable Niche:

A new business must find a suitable niche segment in order to carve out a distinctive space for
itself in the market. The chosen niche should be such that it plays to the advantages of the new
business venture and reduces its weaknesses. Segmenting your weaknesses is one method for
doing this. Considering the demographics of the market. Then, each segment will be evaluated in
terms of its advantages and disadvantages. The marketing techniques used to identify potential
customers and the level of market competition are among the factors that must be taken into
account when determining the niche. Additionally, the product and service paradigms must be
distinctive. In their early stages, many new ventures have a tendency to focus on a sizable market
segment, which typically puts pressure on them from rising costs (needed for marketing activities
like advertising and promotion) and a sizable number of competitors.

4) Workable Marketing Plan:

The success of a business depends on having a workable marketing strategy that is tailored to the
industry of the entrepreneurial venture. The new venture establishes its objectives, course of
action, and purpose with the aid of an effective marketing strategy. Such a plan also contains
pertinent details about the venture's goals, plans, and goods. The expenses related to marketing
functions must be budgeted in order to create an effective marketing plan. This budget should
account for all expenses incurred during one year of marketing activities. The business owner
should assess the effectiveness of their marketing initiatives as well. The marketing strategy
should also aim to compare the product's advantages and disadvantages to the particular
requirements and purchasing patterns of customers in the targeted niche market.
Stages of Entrepreneurial Venture (Five stages of Venture Life Cycle)
Any entrepreneurial venture goes through five main stages (venture life cycle stages) namely,
new venture development, start-up activities, growth, stabilization, and innovation or decline.
These 5 stages have been explained below in detail: 

Stage 1: New-Venture Development: 

This is the initial stage which is associated with the formation of the new venture. It lays down
the processes to develop an entrepreneurial venture and therefore requires appropriate
assessment and innovation. It involves the assimilation and distribution of resources. Beside this,
it resource involves assessment, innovation, and networking at the initial stages of
entrepreneurial venture development strategy. The various ingredients of the strategy like vision,
mission, goals and general direction that the organization will take are decided at this juncture.
Stage 2: Start-Up Activities: 
The next stage is concerned with creating the foundation of the business plan, search for sources
of capital and finance, performing marketing activities and developing an operative
entrepreneurial group. This therefore requires a greater amount of driving force to be
incorporated in the launch plan of the strategy to organization. It can be considered similar to the
description that Chandler has given for the rationalization of the use to resources. It is
characterized by operational and strategic planning procedure specifically designed for
recognizing the competitive advantage of the firm and discovering sources of finance. The
maximum importance is given to marketing and finance functions.
Stage 3: Growth
The growth stage necessitates significant adjustments to the strategy that the entrepreneur has
chosen for the business venture. The strategy needs to be revised while taking the competition,
other forces, and the current business environment into consideration. For instance, many
businesses fail because they are unable to manage the growth of their operations. Many creative
organizations are also frequently unable or unwilling to handle the increased administrative
demands of growth, which forces them to transition to other industries. Instead of one person
exercising leadership (as in the first stage), a team-oriented leadership approach is adopted
during this stage, which is a positive change. At this point, the entrepreneur is dealing with more
issues than they did during the initiation stage. This frequently forces him to acquire an entirely
new set of abilities, preserving his spirit of entrepreneurship for the expansion of the business
venture.
Stage 4: Business Stabilization: 
As the name suggests, the stage of business stabilization is referred to as the stage where the new
venture that has been initiated is now enjoying stability in its endeavors. This stage is a
combination of both the events that happen in the market as well as the efforts made by the
entrepreneur. This stage is characterized by increased level of competition, gaining - recognition
in the market, customer indifference to products/services of entrepreneur, etc. As a result, the
sales of the organization increases to a satisfactory level and the entrepreneur has to think about
the future course of business. This stage is often called as 'swing stage because after this phase,
the organization either enters a path of high growth or sinks down incurring losses. This is why,
innovation plays an important role in this phase.

Stage 5: Innovation or Decline: 

Lastly, the stage associated with entrepreneurial venture development is either innovation or
decline depending on the market positioning and image of the products/services of the new
venture. In this stage, the choice before firms is very simple; they must innovate or they will not
survive. Organisations with great financial resources often resort to acquiring great financial
smaller but more innovative firms. The new may also have a robust new product development
team which works on developing the new products to augment the existing ones in the market.
Different strategies are required to be formulated for each stage involved in the life cycle of the
new venture. All these stages are important as an entrepreneur can readily grow his business by
applying significant strategies at each stage.
Suggestions to Avoid Failures of Entrepreneurial Venture

Entrepreneurs can avoid failure of their ventures in the following manner (solutions to business
failure
1) Acquiring Business Insights: 
Entrepreneurs should develop insights of the business in which they are operating by conducting
research activities, interacting with buyers, suppliers, associates, consultants, etc., who are
supposed to provide useful information related with the business. This can help them in avoiding
entrepreneurial failure.
2) Developing Regular Feedback System: 
Performance of a business can be measured with the help of a suitable business plan which helps
in setting a benchmark against which the performance is measured. The results of performance
measurement can be analyzed and feedback should be provided accordingly. This further helps
in taking corrective actions involving rectification of wrong assumptions made initially. Thus, a
new venture should be construed as a series of experiments where the learning of each
experiment reinforces the next stage thereby leading to its success.
3) Managing Financial Resources: 
The entrepreneur needs to have a control on the financial aspects of the business. It is one of the
basic estimation that a start-up venture normally requires thrice the amount of estimated time and
twice the amount of estimated money. For this purpose, appropriate information system needs to
be maintained where all records of business financial prospects are stored so that the
entrepreneurs can take important financial decisions on informed basis
4) Managing People: 
Since the entrepreneur cannot perform every business function alone there is a need of talented
employees. Thus, the success or failure of a new enterprise often lies in the kind of people it is
able to attract and retain.
5) Managing Yourself: 
The success of a venture also depends to a large extent upon the entrepreneur's commitment in
terms of passion, time and capability. The entrepreneur needs to manage himself in terms of
these factors for ensuring the success of business
Reasons for Failure of Entrepreneurial Venture

An entrepreneurial venture may fail due to the following reasons (reasons for business failure) 
1) Selling too cheaply: 
Many business start-ups make the mistake of chasing sales volumes. This is because many
entrepreneurs believe that by keeping prices low, the entrepreneurial venture will be able to
attract more customers. However, in most of the cases, the venture is neither able to: generate
enough profit to cover the manufacturing costs nor provide enough cash flow for the growth of
the venture.
2) Ineffective Marketing and Advertising: 
Many times, the new ventures formulate their own advertising campaigns and marketing plans
without completely understanding the marketing environment in order to manage costs. The
prevailing competition in market may be fierce due to the presence of large number of
competitors. Any new product needs to have an advertising plan that is different from others,
else risk of failure increases.
3) Shortage of Sufficient Capital: 
Many entrepreneurs do not have an accurate estimate of the capital required for running the
business in the start-up phase. Sometimes, they also make the mistake of over-estimating the
revenues that their product will gain through sales during the initial years of its establishment.
The costs involved in the entrepreneurial venture can be huge and entails applying for permits
and licences, purchasing insurance, leasing and rentals along with the costs of holding inventory.
Capital is also required for acquiring a suitable location for setting up the entrepreneurial venture
and developing appropriate infrastructure for accommodating the business files, counters,
departments, stores, etc. Apart from this, capital is also required for paying salaries of the
employees.

4) Poor Planning: 
Many entrepreneurial ventures also fail due to lack of effective business planning. If the
entrepreneur wants to succeed in exploring and winning the commercial activities and business
opportunities, then it is imperative that he develops a well thought out and researched business
plan which covers all the scenarios that the organisation is likely to face.
5) Impractical Expectations: 
Sometimes, the impractical expectations of the entrepreneur from his newly established business
endeavors also become the reasons for failure of entrepreneurial venture. Entrepreneurs often
start business with the notion that it will create huge profits in short period of time which often
proves to be wrong.
6) Inappropriate Location: 
Sometimes, the best business plans can also fail if the location of the business is not appropriate.
For example, business plan to open a retail store having all household items under one roof is an
effective plan, but it may fail if its location is chosen at some place where the customers find
inconvenience in terms of huge traffic, narrow roads, unavailability of parking facility, unsafe
area, etc.
7) Lack of Knowledge about Market and Industry: 
Starting an entrepreneurial venture without obtaining the required level of knowledge about the
core industry and market proves disadvantageous for the entrepreneurs. Many entrepreneurs start
their business without doing any research for understanding the opportunities and threats of
industry in which they have entered and market which they targeting.
8) Underestimating Market Competition: 
Entrepreneurial ventures also make the mistake of underestimating the intensity of prevailing
competition in the market. The existing ventures will not allow a new entrant to take away its
customers and will typically spend heavily on advertising and promotions to retain their
customers.
9) Poor Skills of Human Resource Management: 
It is the stated policy of many successful entrepreneurial ventures like Infosys that employees are
their most valuable assets. Business ventures which do not treat their employees well often suffer
from high attrition rates. This also affects the trust that the customer places on the company and
its products. Also, if the organization desires certain traits and characteristics in its employees,
then it may be difficult to find a replacement for them. In such cases, the overall quality and
productivity of employees tend to suffer.
10) Anti-Entrepreneurial Environments: 
Certain environmental factors are inherently growth of disadvantageous for the entrepreneurship.
No matter how much skilled an entrepreneur may be, environments that are anti-entrepreneurial
in nature will never support him. This can be the case where the society is such that it does not
appreciate and reward entrepreneurship and risk-taking. In such situations, the entrepreneur does
not get the much needed support which further leads to their failure during the initial stages of
starting the entrepreneurial venture.
11) Undiversified Market and Lack of Information about Customers: 
Entrepreneurial ventures also make the mistake of relying on a few customers for their business.
When these customers back-out, then the business has to suffer huge losses and may become
bankrupt. Another reason for failure of entrepreneurial ventures may be lack of information
about the prospective customers. Sometimes, the business firms do not investigate about the past
credit records of the customers as some of them may be fraud and suffer from problems like
delay or arrears in payments
12) Legal Problems: 
Several times, the entrepreneurs do not pay much attention to the legal requirements and issues
that may be faced by the business in near future. For example, in cases when the drawn-out
proceedings of patent infringement become essential, entrepreneurs are often not prepared to
encounter such problems. This can be handled by keeping foresightedness about the legal issues
and seeking timely advices from the legal advisers.
Advantages of Entrepreneurial Venture
 Many of the entrepreneurial ventures have failed during their initial years of operation; however,
this does not stop the desire in people to become an entrepreneur. This is due to the following
advantages of entrepreneurial venture:

1) Independence: 
The freedom of being one's own boss is one of the utmost benefits of starting a new
entrepreneurial venture. The entrepreneur does not need to take orders from anyone unlike an
employee of a company. He does not have to report to a boss or give reasons for his actions.
Thus, an entrepreneur becomes independent and self-governing.
2) Financial Opportunities: 
The second big advantage of having an entrepreneurial venture is the availability of lucrative
financial opportunities and profits that it offers. Entrepreneurs can earn more money in their own
entrepreneurial endeavors as compared to working as an employee in some other organization.
3) Community Service: 
An entrepreneur by starting a new venture can engage himself in providing community services
by fulfilling the needs and demands of the public in the form of products and services. Often, the
new entrepreneurial ventures provide community service by manufacturing a product which is
currently unavailable in the market by predicting its future demand.
4) Job Security: 
By starting a new venture, the job security of the entrepreneur is ensured. He does not have to
worry about retirement as he can engage himself in his business as long as he can run the
business profitably.
5) Family Employment: 
Starting an entrepreneurial venture also provides the entrepreneur with the opportunity to employ
members of the family. Some other benefits are:

 It allows the entrepreneurs to implement a succession plan as the entrepreneur can forward the
main powers of business into the hands of other family members. 

 Family run businesses tend to have greater morale and bonding. 

 The business can provide employment to family members even during economic crisis.

6) Motivation through Challenging Opportunities:

Entrepreneurs often get a motivation boost from the challenge that they encounter in establishing
a business. Various researches state that entrepreneurs get motivated when they face a situation
where the chances of success or failure are not known but are greatly dependent on the abilities
of the entrepreneur. Entrepreneurs often get a psychological satisfaction when they face such
challenges.

7) Increased Level of Income: 

Entrepreneurs also see the entrepreneurial venture as a way through which they can become
financially independent. Unlike an employee who has a limited level of earnings and whose
increments and promotions depends on the decision of his senior manager, an entrepreneur has
no such predicament. He can enjoy the fruits of his success and there is no limit to what he can
earn.
8) Creation of Family Wealth: 
The efforts of the entrepreneur towards the success of entrepreneurial venture not only help in
providing benefits to the society but also lead to the creation of family health which can be
enjoyed by the future generations of the entrepreneur as well.
9) Employment Opportunities: 
The new venture is also a source of employment to society. When an entrepreneur opens his
business venture in a region, it gives job opportunities to individuals living in and around that
region. For example, a biscuit factory started by Parle provided jobs to many workers living near
the factory.
10) Innovations: 
Entrepreneurial ventures generally bring innovations in the market in the form of new products
and services, innovative buying and selling methods, creative marketing techniques, etc. One of
the recent examples of such businesses is online shopping which is done through various e-
commerce service providers.
11) Adds Diversity: 
Entrepreneurial ventures also add diversity to the business world. It not only covers the most
profitable and generally opted businesses but also include minority-based businesses such as
beauty parlors.
12) Acts as Inspiration for Future Generations: 
New ventures also serve as a source of inspiration to the young generation. For example, the
growth of innovation inspired Sachin and Binny Bansal to start Flipkart in India. Future
generations therefore get inspired to innovate and start their own business ventures.

Disadvantages of Entrepreneurial Venture

There are various disadvantages associated with the entrepreneurial ventures which are explained
as follows:

1) Fluctuations in Sales: 
When an individual is working in a large company he might receive a regular and predictable
flow of income. He is therefore able to plan his various expenses like medical, household,
education, etc. However, in the case of new venture, there are high fluctuations in the sales and
no definite pattern. In some months, sales are very low, while in other months, sales become very
high. The business owner therefore needs to balance his cash outflows with his inflows on a
regular basis so that there is no liquidity trap. At times, he may also need to take a personal loan
to deal with temporary liquidity problems. This problematic situation is common across most
start-ups ventures.
2) Competition: 
The increased risk of competition is another problem associated with entrepreneurial an business
venture. An entrepreneur may face intense competition after starting the business and running it
successfully. Also, a new venture is prone to various changes in the business environment like
changes in the demand patterns. For example, various small diners and restaurants often lose
their customers to McDonalds and other popular eating places.
3) Financial Losses: 
It is not always essential that all the decisions made by the entrepreneur are likely to be
successful. Some of them may not be fruitful. Wrong decisions may create undesirable situations
such as excess inventory, stock-out situations, lower revenues due to low prices of products,
ineffective advertising campaign, etc. In such cases, the entrepreneurial venture will suffer from
financial losses.
4) Employee Relations: 
Unsatisfied employees hinder the growth of an entrepreneurial venture. The new venture may
suffer losses if the entrepreneur does not invest much in managing employee relations. Not
allowing the employees to talk with each other during work hours may create monotony and
dissatisfaction, which further reduces the work efficiency and performance of employees. The
belief is that if the employees spend time interacting with each other than the official work may
suffer. However, research reveals that treating employees in this manner actually reduces their
productivity. They become irritable and do not deal with customers properly. Therefore, the
enterprise needs to find a balanced approach towards resolving this problem.
5) Laws and Regulations: 
Every entrepreneurial venture is subjected to numerous laws and regulations which have to be
followed for undertaking the business operations. For example, Indian business start-ups have to
deduct TDS from its employees and also satisfy other regulations like Income Tax, Service Tax.
VAT, etc. Many businesses are also required to obtain a permit or a license before starting their
business operations. The ventures also have to adhere with laws associated with location
and .construction of business venture, employee remuneration, safety norms, working hours, etc.
6) Risk of Failure: 
The biggest risk that an entrepreneur faces is the risk that his business plan will not succeed and
he will have to shut down the business. Such a business failure causes loss to all the investments
made in business. This is a huge risk which is faced by all business enterprises, even if the best
marketing plans and capital sources are used. This is because those risks involve factors which
are beyond the control of the entrepreneurs. For example, events like an economic recession or
draining out of financial resources by some dishonest associate could obstruct entrepreneurial
growth. The entrepreneurial venture may also face unexpected troubles from natural calamities
like earthquakes or floods. Moreover, mismanagement of operations authorities/managers can
also create risks leading to failure of entrepreneurial venture.
7) Responsibility: 
A new business venture puts a lot of responsibility on the entrepreneur. The success or failure of
the business entirely rests upon his shoulders. In case the entrepreneur faces any problem or the
results are not at expected, he has to solve the problem on his own. Thus, the responsibility of
running business venture is very hectic and is not suitable for every individual.