Module1: Entrepreneurship.

Entrepreneurial Motivation @@@

Entrepreneurial motivation is the process that motivates the entrepreneur to exert a higher level of
effort for the achievement of his entrepreneurial goals. The motivational factors are the drivers
within an entrepreneur that affect the direction and intensity of his behaviour as an entrepreneur.
They influence the entrepreneurial behaviour and operation of the business.

Entrepreneurial motivation serves as fuel or power that makes the Organization run. The
components of entrepreneurial motivation are as follows."

Internal Factors

1. Desire to do something new:

Human being by nature is always willing to do something new. It inspires people to be innovative
to start up new ventures.
2. Become independent:
There are many people who do not wish to work for a salary. They want to be independent. For
this, they are always willing to start their own business.
3. Achieve, what one wants to have in life:
People have a certain vision in their life to fulfil their own vision, they become entrepreneurs.
4. Be recognized for one's contribution:
Some people are motivated to be recognized in society for their contribution. For this, they involve
themselves in entrepreneurial activities.
5. Educational background:
Educated people are more prone to entrepreneurship. They apply their knowledge achieved
through formal education in the entrepreneurial venture. Hence, a strong educational background
also motivates people towards entrepreneurship.
6. Occupational background and experience:
Some people are motivated towards entrepreneurship due to their occupational background and
the experience that they develop from working in relevant fields.
External Factors
1. Government assistance and support:
If the government assists and supports the people in establishing and operating businesses, it
drives people towards entrepreneurship.
2. Availability of factors of production:
If there is the availability of factors of production such as capital, labour, technology, and raw
material, it drives the people towards entrepreneurship. With an abundance of factors of
production, businesses may be conducted more efficiently and effectively.
3. Encouragement from big business houses:
Big businesses require input from other businesses in the form of raw material or other products.
In such a situation, they encourage people to start different ventures. It provides entrepreneurial
motivation.
4. Promising demand for the product:
If the demand for products is high, there is a possibility of high sales as well as profit. The demand
factor eventually drives people towards entrepreneurship.

Design Thinking – Driven Innovation

Design thinking is both an ideology and a process, concerned with solving complex
problems in a highly user-centric way.

1. What is Design Thinking?

2. What is the Design Thinking process?

3. What is the purpose of Design Thinking?

4. What are the benefits of Design Thinking at work?

1. What is Design Thinking? @@@

Design thinking is an approach used for practical and creative problem-solving. It is based
heavily on the methods and processes that designers use (hence the name), but it has
actually evolved from a range of different fields—including architecture, engineering and business.
Design thinking can also be applied to any field; it doesn’t necessarily have to be design-specific.
Design thinking is extremely user-centric. It focuses on humans first and foremost, seeking to
understand people’s needs and come up with effective solutions to meet those needs. It is what
we call a solution-based approach to problem-solving.

What does this actually mean?

What’s the difference between Solution-Based and Problem-Based Thinking?

As the name suggests, solution-based thinking focuses on finding solutions; coming up with
something constructive to effectively tackle a certain problem. This is the opposite of problem-
based thinking, which tends to fixate on obstacles and limitations.

A good example of these two approaches in action is an empirical study carried out by Bryan
Lawson, a Professor of Architecture at the University of Sheffield. Lawson wanted to investigate
how a group of designers and a group of scientists would approach a particular problem.

He set each group the task of creating one-layer structures from a set of coloured blocks. The
perimeter of the structure had to use either as many red bricks or as many blue bricks as possible
(we can think of this is as the solution, the desired outcome), but there were unspecified rules
regarding the placement and relationship of some of the blocks (the problem or limitation).

Lawson published his findings in his book How Designers Think, in which he observed that the
scientists focused on identifying the problem (problem-based thinking) whilst the designers
prioritized the need to find the right solution:

“The scientists adopted a technique of trying out a series of designs which used as many different
blocks and combinations of blocks as possible as quickly as possible. Thus they tried to maximise
the information available to them about the allowed combinations. If they could discover the rule
governing which combinations of blocks were allowed, they could then search for an arrangement
which would optimise the required colour around the layout.”

The designers, on the other hand:

“…selected their blocks in order to achieve the appropriately coloured perimeter. If this proved not
to be an acceptable combination, then the next most favourably coloured block combination would
be substituted and so on until an acceptable solution was discovered.”
Lawson’s findings go to the heart of what Design Thinking is all about: it’s an iterative process
which favours ongoing experimentation until the right solution is found.

Design thinking is an approach used for practical and creative problem-solving. It is based heavily
on the methods and processes that designers use (hence the name), but it has actually evolved
from a range of different fields—including architecture, engineering and business. Design thinking
can also be applied to any field; it doesn’t necessarily have to be design-specific.

Design thinking is extremely user-centric. It focuses on humans first and foremost, seeking to
understand people’s needs and come up with effective solutions to meet those needs. It is what
we call a solution-based approach to problem-solving.

2. What is the Design Thinking process?

As already mentioned, the Design Thinking process is progressive and highly user-centric.

Before looking at the process in more detail, let’s consider the four principles of Design Thinking
as laid out by Christoph Meinel and Harry Leifer of the Hasso-Plattner-Institute of Design at
Stanford University, California.

The Four Principles of Design Thinking

 The human rule: No matter what the context, all design activity is social in nature, and any
social innovation will bring us back to the “human-centric point of view”.
  The ambiguity rule: Ambiguity is inevitable, and it cannot be removed or oversimplified.
Experimenting at the limits of your knowledge and ability is crucial in being able to see
things differently.

 The redesign rule: All design is redesign. While technology and social circumstances may
change and evolve, basic human needs remain unchanged. We essentially only redesign
the means of fulfilling these needs or reaching desired outcomes.

 The tangibility rule: Making ideas tangible in the form of prototypes enables designers to
communicate them more effectively.

The Five Phases of Design Thinking @@@

Based on these four principles, the Design Thinking process can be broken down into five steps or
phases, as per the afore mentioned Hasso-Plattner-Institute of Design at Stanford (otherwise
known as d.school): Empathise, Define, Ideate, Prototype and Test. Let’s explore each of these in
more detail.

Phase 1: Empathise

Empathy provides the critical starting point for Design Thinking. The first stage of the
process is spent getting to know the user and understanding their wants, needs and objectives.

This means observing and engaging with people in order to understand them on a psychological
and emotional level. During this phase, the designer seeks to set aside their assumptions and
gather real insights about the user.

Phase 2: Define

The second stage in the Design Thinking process is dedicated to defining the problem. You’ll
gather all of your findings from empathise phase and start to make sense of them: what difficulties
and barriers are your users coming up against? What patterns do you observe? What is the big
user problem that your team needs to solve?

By the end of the define phase, you will have a clear problem statement. The key here is to
frame the problem in a user-centered way; rather than saying “We need to…”, frame it in terms of
your user: “Retirees in the Bay area need…”

Once you’ve formulated the problem into words, you can start to come up with solutions and ideas
— which brings us onto stage three.

Phase 3: Ideate

With a solid understanding of your users and a clear problem statement in mind, it’s time to start
working on potential solutions. The third phase in the Design Thinking process is where the
creativity happens, and it’s crucial to point out that the ideation stage is a judgement-free zone!

Designers will hold ideation sessions in order to come up with as many new angles and ideas as
possible. There are many different types of ideation technique that designers might use, from
brainstorming and mind mapping to body storming (roleplay scenarios) and provocation—an
extreme lateral-thinking technique that gets the designer to challenge established beliefs and
explore new options and alternatives.

Towards the end of the ideation phase, you’ll narrow it down to a few ideas with which to
move forward.

Phase 4: Prototype

The fourth step in the Design Thinking process is all about experimentation and turning ideas into
tangible products. A prototype is basically a scaled-down version of the product which
incorporates the potential solutions identified in the previous stages. This step is key in putting
each solution to the test and highlighting any constraints and flaws.

Throughout the prototype stage, the proposed solutions may be accepted, improved, redesigned
or rejected depending on how they fare in prototype form.

Phase 5: Test

After prototyping comes user testing, but it’s important to note that this is rarely the end of the
Design Thinking process. In reality, the results of the testing phase will often lead you back to a
previous step, providing the insights you need to redefine the original problem statement or to
come up with new ideas you hadn’t thought of before.

3. What is the purpose of Design Thinking? @@@

Now we know more about how Design Thinking works, let’s consider why it matters. There are
many benefits of using a Design Thinking approach—be it in a business, educational, personal or
social context.

First and foremost, Design Thinking fosters creativity and innovation. As human beings, we
rely on the knowledge and experiences we have accumulated to inform our actions. We form
patterns and habits that, while useful in certain situations, can limit our view of things when it
comes to problem-solving.

Rather than repeating the same tried-and-tested methods, Design Thinking encourages us
to remove our blinkers and consider alternative solutions. The entire process lends itself to
challenging assumptions and exploring new pathways and ideas.

Design Thinking is often cited as the healthy middle ground of problem-solving—it is not steeped
wholly in emotion and intuition, nor does it rely solely on analytics, science and rationale; it uses a
mixture of both.

Another great benefit of Design Thinking is that it puts humans first. By focusing so heavily
on empathy, it encourages businesses and organizations to consider the real people who
use their products and services—meaning they are much more likely to hit the mark when
it comes to creating meaningful user experiences. For the user, this means better, more useful
products that actually improve our lives. For businesses, this means happy customers and a
healthier bottom line.

4. What are the benefits of Design Thinking at work?

As a designer, you have a pivotal role to play in shaping the products and experiences that your
company puts to market. Integrating Design Thinking into your process can add huge
business value, ultimately ensuring that the products you design are not only desirable for
customers, but also viable in terms of company budget and resources.

With that in mind, let’s consider some of the main benefits of using Design Thinking at
work:
  Significantly reduces time-to-market: With its emphasis on problem-solving and finding
viable solutions, Design Thinking can significantly reduce the amount of time spent on
design and development—especially in combination with lean and agile.

 Cost savings and a great ROI: Getting successful products to market faster ultimately
saves the business money. Design Thinking has been proven to yield a significant return on
investment; Improves customer retention and loyalty: Design Thinking ensures a user-
centric approach, which ultimately boosts user engagement and customer retention in the
long term.

 Fosters innovation: Design Thinking is all about challenging assumptions and established
beliefs, encouraging all stakeholders to think outside the box. This fosters a culture of
innovation which extends well beyond the design team.

 Can be applied company-wide: The great thing about Design Thinking is that it’s not just
for designers. It leverages group thinking and encourages cross-team collaboration. What’s
more, it can be applied to virtually any team in any industry.

Whether you’re establishing a Design Thinking culture on a company-wide scale, or simply trying
to improve your approach to user-centric design, Design Thinking will help you to innovate, focus
on the user, and ultimately design products that solve real user problems.

PRIVACY POLICY | IMPRINT | SECURITY

TRIZ – Theory of Inventive Problem Solving @@@

A Powerful Methodology for Creative Problem Solving

Feeding your problem into TRIZ could reveal numerous solutions.

Projects don't always run smoothly. Even with all the analysis and data you need at your fingertips,
sometimes you just can't see a way forward. At times like these, you need to develop creative
solutions to the problems you face.

Chances are you already know about brainstorming , which can help with this sort of situation.
But brainstorming depends on intuition and the existing knowledge of team members, and its
results are often unpredictable and unrepeatable.

TRIZ, however, is a problem-solving philosophy based on logic, data and research, rather than on
intuition.

@@@ It draws on the past knowledge and ingenuity of thousands of engineers to speed
up creative problem solving for project teams. Its approach brings repeatability,
predictability and reliability to the problem-solving process and delivers a set of
dependable tools.

What is TRIZ?

TRIZ is the Russian acronym for the "Theory of Inventive Problem Solving," an international
system of creativity developed in the U.S.S.R. between 1946 and 1985, by engineer and scientist
Genrich S. Altshuller and his colleagues.

According to TRIZ, universal principles of creativity form the basis of innovation. TRIZ identifies
and codifies these principles, and uses them to make the creative process more predictable.

In other words, whatever problem you're facing, somebody, somewhere, has already solved
it (or one very like it). Creative problem solving involves finding that solution and adapting
it to your problem.

TRIZ is most useful in roles such as product development, design engineering, and process
management. For example, Six Sigma quality improvement processes often make use of TRIZ.

The Key TRIZ Tools

Let's look at two of the central concepts behind TRIZ: generalizing problems and solutions, and
eliminating contradictions.

1. Generalizing Problems and Solutions

The primary findings of TRIZ research are as follows:

 Problems and solutions are repeated across industries and sciences. By representing a
problem as a "contradiction", you can predict creative solutions to that problem.

 Patterns of technical evolution tend to repeat themselves across industries and sciences.

 Creative innovations often use scientific effects outside the field where they were developed.

Using TRIZ consists of learning these repeating patterns of problem and solution,
understanding the contradictions present in a situation, and developing new methods of
using scientific effects.

You then apply the general TRIZ patterns to the specific situation that confronts you, and discover
a generalized version of the problem.
Figure 1 – The TRIZ Problem-Solving Method

Here, you take the specific problem that you face and generalize it to one of the TRIZ general
problems. From the TRIZ general problems, you identify the general TRIZ solution you need, and
then consider how you can apply it to your specific problem.

The TRIZ databases are actually a collection of "open source" resources compiled by users and
adherents of the system (such as the 40 Principles and 76 Standard Solutions,

2. Eliminating Contradictions

Another fundamental TRIZ concept is that there are fundamental contradictions at the root
of most problems. In many cases, a reliable way to solve a problem is to eliminate these
contradictions.

TRIZ recognizes two categories of contradictions:

1. Technical contradictions. These are classical engineering "trade-offs," where you can't reach
the desired state because something else in the system prevents it. In other words, when
something gets better, something else automatically gets worse. For example:
 The product gets stronger (good), but the weight increases (bad).

 Service is customized to each customer (good), but the service delivery system gets
complicated (bad).
  Training is comprehensive (good), but it keeps employees away from their assignments
(bad).

2. Physical (or "inherent") contradictions. These are situations in which an object or system
suffers contradictory, opposite requirements. Everyday examples include:
 Software should be complex (to have many features), but simple (to be easy to learn).

 Coffee should be hot (to be enjoyed), but cool (to avoid burning the drinker).

 An umbrella should be large (to keep the rain off), but small (to be manoeuvrable in a
crowd).

How to Use TRIZ Principles – an Example

Begin to explore TRIZ by applying it to a simple, practical problem.

For example, consider the specific problem of a furniture store in a small building. The store wants
to attract customers, so it needs to have its goods on display. But it also needs to have enough
storage space to keep a range of products ready for sale.

Using TRIZ, you can establish that the store has a physical contradiction. The furniture needs to
be large (to be useful and attractive), but also small (to be stored in as little space as possible).
Using TRIZ, the store owners generalize this contradiction into a general problem and apply one of
the 40 Principles of Problem Solving – a key TRIZ technique – to it.
They find a viable general solution in Principle 1 – Segmentation. This advocates dividing an
object or system into different parts, or making it easy to take apart. This could lead the owners to
devise flat-pack versions of their furniture, so that display models can take up the room that they
need while inventory occupies much less space per unit. This is the specific solution.

You, too, can use the 40 Principles of Problem Solving, or the 40 Inventive Principles, and the
Contradiction Matrix to help you with your problem-solving.

Five Top TRIZ Concepts and Techniques

TRIZ comes with a range of ideas and techniques beyond the basic principles outlined above.
Some are conceptual and analytical, such as:

 The Law of Ideality. This states that any system tends to become more reliable throughout its
life, through regular improvement.

 Functional Modelling, Analysis and Trimming. TRIZ uses these methods to define
problems.
 Locating the Zones of Conflict. (This is known to Six Sigma problem-solvers as "Root Cause
Analysis .")

 The Laws of Technical Evolution and Technology Forecasting. These categorize technical
evolution by demand, function and system.

 The 76 Standard Solutions. These are specific solutions devised to a range of common
problems in design and innovation.You can use one such tool or many to solve a problem,
depending on its nature.

Need for Achievement theory, Risk taking behaviour, Innovation &

Entrepreneur. @@@

McClelland’s Theory of Needs (Power, Achievement, and Affiliation)

McClelland’s theory of needs is one such theory that explains this process of motivation by
breaking down what and how needs are and how they have to be approached. David McClelland
was an American Psychologist who developed his theory of needs or Achievement Theory of
Motivation which revolves around three important aspects, namely, Achievement, Power, And
Affiliation.

This theory was developed in the 1960s and McClelland points out that regardless of our age, sex,
race, or culture, all of us possess one of these needs and are driven by it. This theory is also
known as the Acquired Needs as McClelland put forth that the specific needs of an individual are
acquired and shaped over time through the experiences he has had in life.
Psychologist David McClelland advocated the Need theory, also popular as Three Needs
Theory. This motivational theory states that the needs for achievement, power,
and affiliation significantly influence the behaviour of an individual, which is useful to understand
from a managerial context.

This theory can be considered an extension of Maslow’s hierarchy of needs. Per McClelland,
every individual has these three types of motivational needs irrespective of their demography,
culture, or wealth. These motivation types are driven by real-life experiences and the views of their
ethos.
 Maslow’s Hierarchy of Needs

1. Need for Achievement

The need for achievement as the name itself suggests is the urge to achieve something in what
you do. If you are a lawyer it is the need to win cases and be recognized, if you are a painter it is
the need to paint a famous painting.

It is the need that drives a person to work and even struggle for the objective that he wants to
achieve. People who possess high achievement needs are people who always work to excel by
particularly avoiding low reward low-risk situations and difficult to achieve high-risk situations.

Such people avoid low-risk situations because of the lack of a real challenge and their
understanding that such achievement is not genuine. They also avoid high-risk situations because
they perceive and understand it to be more about luck and chance and not about one’s own effort.
The more achievements they make the higher their performance because of higher levels of
motivation.

These people find innovative clever ways to achieve goals and consider their achievement a better
reward than financial ones. They take calculated decision and always appreciate feedback and
usually works alone.

The individuals motivated by needs for achievement usually have a strong desire of setting up
difficult objectives and accomplishing them. Their preference is to work in a results-oriented work
environment and always appreciate any feedback on their work. Achievement-based individuals
take calculated risks to reach their goals and may circumvent both high-risk and low-risk
situations.
They often prefer working alone. This personality type believes in a hierarchical structure
derived primarily from work-based achievements.

2. Need for Power

The need for power is the desire within a person to hold control and authority over another person
and influence and change their decision in accordance with his own needs or desires. The need to
enhance their self-esteem and reputation drives these people and they desire their views and
ideas to be accepted and implemented over the views and ideas over others.

These people are strong leaders and can be best suited to leading positions. They either belong to
Personal or Institutional power motivator groups. If they are a personal power motivator they would
have the need to control others and an institutional power motivator seeks to lead
and coordinate a team towards an end.

The individuals motivated by the need for power have a desire to control and influence others.
Competition motivates them and they enjoy winning arguments. Status and recognition is
something they aspire for and do not like being on the losing side.

They are self-disciplined and expect the same from their peers and teams. They do not mind
playing a zero-sum game, where, for one person to win, another must lose and collaboration is not
an option. This motivational type is accompanied by needs for personal prestige, and better
personal status.

3. Need for Affiliation

The need for affiliation is the urge of a person to have interpersonal and social relationships with
others or a particular set of people. They seek to work in groups by creating friendly and lasting
relationships and have the urge to be liked by others. They tend to like collaborating with others to
competing with them and usually avoids high-risk situations and uncertainty

The individuals motivated by the need for affiliation prefer being part of a group. They like
spending their time socializing and maintaining relationships and possess a strong desire to be
loved and accepted. These individuals stick to basics and play by the books without feeling a need
to change things, primarily due to a fear of being rejected.

People in this group tend to adhere to the norms of the culture in that workplace and typically do
not change the norms of the workplace for fear of rejection. Collaboration is the way to work for
the competition remains secondary. They are not risk seekers and are more cautious in their
approach. These individuals work effectively in roles based on social interactions, for instance,
client service and other customer interaction positions.

Harvesting Strategy @@@

The Product or Business Life Cycle

To fully comprehend the use and applicability of a harvest strategy, it is beneficial to understand
the business/product life cycle. There are four common stages that every business or product line
is expected to follow. They include the start-up or introduction stage, the growth stage, the
maturity stage, and the renewal or decline stage.

 The start-up stage is the very beginning of the cycle. The business model is still being
developed, and significant amounts of investment is needed to market the release of the
new product or business line. The start-up stage focuses on increasing customer
awareness and generating initial sales.
 The growth stage of a product or business line is the stage at which demand starts to
increase, thereby offsetting an increase in overall production and product access and
availability. At the growth stage, the existing consumer base begins to mature, while
traction for new customers continues to increase.
 The maturity stage of a business is the stage at which a business’ marketing and
production costs begin to decrease, and the business is generating its highest profits. At the
maturity stage, revenue is constant, and operations are efficient.
 The renewal or decline stage is the stage where a product or business line starts to lose
market share as a result of increased competition and/or stagnant revenues. It is also
known as the cash-cow stage of the business or product, where more investment is not
necessary, as further investments may not result in increased sales.
A business faces three considerations for employing a harvest strategy – a reduction or
complete cut in capital expenditure and spending, a reduction or complete cut in marketing
expenditure, or a reduction or complete cut in operating expenditure. The strategy can also
include a plan on new avenues of investment where resources can be channelled to.

Reasons to Employ a Harvesting Strategy @@@

A business may decide to employ a harvesting strategy for reasons including (but not limited to):

 Arrival of a product or business line at the cash-cow or declination stage. Here,

marketing the product is no longer necessary, and resources can be allocated to other
avenues that may be generating increased revenues.
 Development of new products and other interests. The new product development may
require additional resources and investment to encourage increased income generation.
 Discontinuation of a product or business line. As a result of a business’ decision to
discontinue a product, further marketing and reinvestment are no longer necessary.
https://corporatefinanceinstitute.com/resources/knowledge/strategy/harvest-strategy/

Harvest Strategies: Definitions, Benefits and Types

As a product or line of business reaches the end of its useful life, companies may employ a
harvest strategy. This marketing or business strategy occurs when a company determines that
further investment will no longer increase product revenue. Employing a harvest strategy allows a
company to reap the maximum profits or benefits before the product reaches its decline stage.

What are harvest strategies?

Harvest strategies are business and marketing strategies that involve reducing or cancelling
marketing spending on a product so that a company involved can get the maximum profits.
Employing a harvest strategy allows a company to reap the maximum profits before the product
becomes obsolete or reaches the end of its life cycle.

For example, consider a company that sells video games. One particular video game has always
been one of the company's most popular. However, since it's played on a game system that is
gradually becoming obsolete, the company decides upon a harvest strategy and stops marketing
the game. Any sales of the video game from that point will be entirely profit, as there's no
investment going into it. In that case, will simply generate extra income until it finally becomes
obsolete.
Companies have a range of harvest strategy options. They often rely on brand loyalty to increase
sales, thereby eliminating or reducing marketing expenses for new products. When a company
employs a harvest strategy, it can eliminate or limit capital expenses, such as the purchase of new
equipment necessary to support the ending item. They may also limit spending on operations.

Benefits of harvest strategies @@@

A harvest strategy can provide your company with an income with minimal investment. This can
increase profit and also free up resources for other ventures. For example, if you're exploring new
entrepreneurial activities, a harvest strategy can give you an opportunity to move ahead sacrificing

the profits that your product can still provide.

Types of harvest strategies @@@

There are several types of harvest strategies. These include:

Selling harvest strategy

A selling harvest strategy, often referred to as an exit strategy, involves selling the company or
product line to another person or company. Business owners who choose an outright sale of their
company as the harvesting option sell the entire company to any entity that is interested in paying
for the asking price.

Gradual harvest strategy

A gradual harvest strategy involves keeping the company or its product and focusing more on
creating profits than growth or expansion. The goal of this strategy is to cut the cost associated
with business expansion and keeping the revenue coming in, thereby creating profit.

Buyout

A buyout refers to the acquisition of a controlling interest in a company or organization. It typically

occurs when a buyer acquires over 50% of the company, resulting in a change of control.
Companies that specialize in funding and facilitating buyouts may act alone or together on deals.
They get financial support from banks, wealthy individuals or institutional investors. Buyouts have
five types, including:

 Leveraged buyout: A leveraged buyout (LBO) refers to the acquisition of another company
using a large sum of borrowed money to meet the acquisition cost. Companies typically
conduct an LBO for several reasons, including taking a public company private, spinning off
a portion of an existing company by selling it or transferring private property.
  Management buyout: A management buyout (MBO) occurs when a company's
management team buys the operations and assets of the business they manage. An
MBO is popular among professional managers due to the greater potential rewards and
control from being owners of the company.
 Management buy-in: A management buy-in (MBI) happens when an outside manager or
management team buys a controlling ownership stake in a company and replaces its
existing management team. This type of buyout can occur when a business is poorly
managed or appears to be undervalued.
 Institutional buyout: An institutional buyout (IBO) is the acquisition of a controlling interest
in a business by an institutional investor such as venture capital firms, private equity,
commercial banks and other financial institutions. Institutional buyouts are the opposite
of MBO, in which a company's existing management buys all or part of the company.
 Leveraged build-up (LBU): When the goal of a private equity company is to generate
revenue from a buy-in or buyout investment, they practice leveraged build-up (LBU). An
LBU happens when the acquiring company uses the newly acquired company as an
investment platform in which they continuously add a series of acquisitions to it, creating a
large corporate group.

Business mergers

A business merger refers to an agreement that unites two existing businesses into one new
company. Companies usually conduct mergers to broaden their reach, gain market share or
expand into new segments. These steps are done to improve shareholder value. During a merger,
companies often have a no-shop clause to prevent acquisition or mergers by additional
companies. There are several types of business mergers. These include:

Conglomerate

This is a merger between multiple companies engaged in unrelated business activities. The
companies may operate in different geographical regions or in different industries. An
example of a conglomerate merger would be a paper products company merging with a fashion
accessory brand. While the new company would still face the same competition as before, it would
benefit from its newly increased resources.

There are two types of conglomerate mergers. These include a pure conglomerate and a mixed
conglomerate. A pure conglomerate involves two companies that have nothing in common. A
mixed conglomerate, on the contrary, occurs between companies that, while engaging in unrelated
business activities, are actually trying to gain market or product extensions through the merger.
Congeneric

Also known as a product extension merger, a congeneric merger combines two or more
companies that operate in the same sector or industry with overlapping factors, such as research
and development (R&D), production processes, marketing and technology.

Companies can achieve a congeneric merger when a company adds its new product line to an
existing product line of the other company. When two companies merge under a product
extension, they can gain access to a larger group of clients and a bigger market share.

Market extension

This type of business merger occurs between companies that market similar products but compete
in different markets. Companies that engage in a market extension merger seek to expand their
market or client base.

A soft drink company based in Japan merging with a soft drink company in the United States
would be an example of a market extension. This would allow the newly formed company to sell its
product line in both countries without the cost of securing international vendors, training new
employees and opening new facilities.

Horizontal Merger

A horizontal merger occurs between companies that operate in the same industry. The merger is
usually part of consolidation between multiple competitors that offer the same services or
products. A horizontal merger is common in industries with fewer companies, and the goal is to
create a larger company with greater market share and economies of scale.

Horizontal mergers may involve a revision of company policies, rebranding and a redesign of
production facilities. An example of a horizontal merger would be two car manufacturers who
merge to outperform their competitors.

Vertical Merger

A vertical merger occurs when two companies that operate at different levels within the same
sector's supply chain fuse their operations. Companies engage in a vertical merger to increase
synergies realized through the cost reduction, which results from merging with supply companies.

An example of a vertical merger is an email service provider merging with a media conglomerate.
This agreement would create a more cohesive brand, consolidate marketing efforts and centralize
inter-department communication.