GROUP 6

Saratao, Harriette Faith

Lastimoso, Ailyn

Achay, Jeaneth

ASSESSMENT OF ENTREPRENEURIAL OPPORTUNITIES

The Challenge of New – Venture Start – Ups

 400,000 new firms every year since 2010

 1,100 business start-ups per day.

 US Patent Office receives approximately 500,000 applications per

year.

Seven Components of New-Venture Motivation

1) The need for approval

2) The need for independence

3) The need for personal development

4) Welfare (philanthropic) consideration

5) Perception of wealth

6) Tax reduction and indirect benefits

7) Following role models.

Entrepreneurs who successfully started a business were more

aggressive in making their business real; that is, they undertook
activities that made their businesses tangible to others; they looked for
facilities and equipment, sought and got financial support, formed a legal
entity, organized a team, bought facilities and equipment, and devoted
full time to the business.

Arnold C. Cooper

 The challenges to predicting new-firm performance include

environment effects (the risk of new products or services, narrow
markets, and scarce resources), the entrepreneur’s personal goals and
founding processes (reasons for start-up), and the diversity of the
ventures themselves (differing scales and potential).
 The real challenges is for those firms to survive and grow. In order to
do this, they need to have a clear understanding of the critical factor for
selecting venture, the known reasons for venture failure, and effective
evaluation process.

Pitfall In Selecting New Ventures

1. Lack of Objective Evaluation

2. No Real Insight into the Market

3. Inadequate Understanding of Technical Requirements

4. Poor Financial Understanding

5. Lack of Venture Uniqueness

6. Ignorance of Legal Issues

Critical Factors for New – Venture Development

Three Phases of a New Venture

1. Prestart-up Phase – begins with an idea for the venture and ends
when the doors are opened for business.

2. Start-up Phase – commences with the initiation of sales activity and

he delivery of products and services, and ends when the business is
firmly establishes and beyond short-term threats to survival.

3. Poststart-up Phases – lasts until the venture is terminated or the

surviving organizational entity is no longer controlled by an
entrepreneur.

During these two phases (prestart-up and start-up phases), five

factors are critical;

1. The relative Uniqueness of the venture

2. The relative Investment size at start-up

 3. The expected Growth of Sales and/or profits as the venture moves
through its start-up phases

4. The Availability of Products during the prestart-up and start-up

phases

5. The Availability of Customers during the prestart-up phases.

Why New Ventures Fail

• One researcher study examined 250 high-tech and found three major
categories of causes for failure; product/market problems,
financial/difficulties, and managerial problems.

Product / market problems involved the following factors;

• Poor timing

• Product design problems

• Inappropriate distribution strategy

• Unclear business definition

• Overreliance on one customer

Financial Difficulties Category involved the following factors;

• Initial undercapitalization

• Assuming debt too early

• Venture capital relationship problems

Managerial Problems involved two important factors;

 Concept of a team approach

Problems associated with the managerial team were found;

1. Hiring and promotions on the basis of nepotism rather than

qualifications

2. Poor relationship with parent companies and venture capitalist

3. Founders who focused on their weaknesses rather than on their

strengths (though weakening the company, they supposedly were
building their skills)

4. Incompetent support professionals (e.g., attorney who were unable to

read contracts or collect on court judgements that already had been
made).

 Human resource problem

 Interpersonal Problems;

1. Kickbacks and subsequent firings that resulted in an almost total loss

of customers

2. Deceit on the part of a venture capitalist in one case and on the part
of a company presidents in another

3. Verbal agreements between the entrepreneur and the venture

capitalist that were not honored

4. Protracted lawsuit around the time of discontinuance.

Types and Classes of First-Year Problems

1. Obtaining external financing

• Obtaining financing for growth

• Other or general financing problems

2. Internal financial management

• Inadequate working capital

• Cash-flows problems

• Other or general financial management problems

3. Sales/Marketing

• Low sales

• Dependence on one or few clients/customers

• Marketing or distribution channels

• Promotion/public relations/ advertising

• Other or general marketing problem

4. Product Development

• Developing products/services

• Other or general product development problems

5. Production/ operations management

• Establishing or maintaining quality control

• Raw materials/ resources/ supplies

• Other or general production/ operations management problems

6. General Management
 • Lack of management experience

• Only one person/ no time

• Managing/ controlling growth

• Administrative problems

• Other or general management problems

7. Human resource management

• Recruitment/selection

• Turnover/retention

• Satisfaction/morale

• Employee development

• Other or general human resource management problems

8. Economic environment

• Poor economy/recession

• Other or general economic environment problems

9. Regulatory environment

• Insurance

The study recognized the risk associated with the initial size of the
venture being developed. Specific applications of the model included the
following;

1. Role of profitability and cash flows

2. Role of debt

3. Combination of both

4. Role of initial size

5. Role of velocity of capital

6. Role of control
The Traditional Venture Evaluation Processes

Profile Analysis Approach

 A profile analysis is a tool that enables entrepreneur to judge a

business venture's potential by sizzing up the venture’s strengths and
weaknesses along a number of key dimensions or variables.

Feasibility Criteria Approach

 Is it proprietary?

 Are initial production costs realistic?

 Are the initial market cost realistic?

 Does the product have potential for very high margins?

 Is the time required to get to market and to reach the break-even

point realistic?

 Is the potential market large?

 Is the product the first of a growing family?

 Does and initial customer exist?

 Are the development costs and calendar times realistic?

 Is this growing industry?

 Can the product and the need for it be understood by the financial
community?

Comprehensive Feasibility Approach

A comprehensive feasibility study of a new venture;

• Technical

• Market

• Financial

• Organizational

• Competitive
 Two merit special attention;

• Technical

• Market

Technical Feasibility

 Functional designs of the product and attractiveness in appearance

 Flexibility, permitting ready modification of the external features of the

product to meet customer demands or technological and competitive
changes

 Durability of the materials from which the product is made

 Reliability, ensuring performance as expected under normal operating

conditions

 Product safety, posing no potential dangers under normal operating

conditions

THE ENTREPRENEURIAL PROCESS

Facing Your Fears!

1. Say yes to your yearning

2. Visualize our success

3. Evaluate your beliefs

4. Do what you love

5. Get educated

6. Eliminate your excuses

 7. Know that there is no “right time”

8. Start small

9. Answer “what ifs”

10. Ask for help

Marketability

Three major area in this type of analysis are;

1. Investing the full market potential and identifying customers (for

users) for the goods or service

2. Analyzing the extent to which the enterprise might exploit this

potential market

3. Using analysis to determine the opportunities and risk associated with

the venture

General Sources

 General Economic trends

 Market data

 Pricing data

 Competitive data

The Contemporary Methodologies for Venture Evaluation

The Design Methodology

 This methodology can be a vital source of assessment for

entrepreneurs and their early-stage venture concepts

Design and Learn

 Design is a learning process that shapes ad converts ideas into form,

whether that is a plan of action, an experience, or physical thing.

 Example; Learning for qualitative research, Learning from prototyping

and Learning from feedback

Design Development

 Utilize skills we all possess but are generally ignored due to more
conventional problem-solving practices.

 The design method converts ideas into form by integrating what is

desirable from user’s point of view with what is technically and
economically viable.
 Proof of Concept Feasibility, Proof of concept Desirability and Proof of
Concept Viability

Design-Centered Entrepreneurship

 Researcher Michael G. Goldsby, Donald F Kurakto, Matther R. Marvel,

and Thomas Nelson

Four Action Stages of developing an opportunity;

• Ideation – involves taking action and leering that culminates in a

venture concept for further development.

• Prototyping Stage – addresses the technical issues of the concept, and

ensures that a feasible product or service can be made and delivered

• Market Engagement Stage – refines the concept for the customers, as

well contributing to the acquisition of knowledge, or learning, from
early users.

• Business Model Action Stage – completes the development of the

opportunity by identifying the varying components of the model that
will need to be in place for the concept to be financially viable.

The Lean Start-Up Methodology

 Provides a scientific approach to creating early venture concepts and

delivers a desire product to customers'’ hands faster.

 Its philosophy originates from Japanese concept of lean

manufacturing, which seeks to increase value-creating practices and
eliminate wasteful practices.
  It begins with the premise that every new venture is a grand
experiment that attempts to answer questions such as “Should this
venture be created” and “Will it be sustainable business?

 First developed in 2011 by Eric Ries, founder of IMVU Inc. as a way to

prevent waste in startups and ensure that the business plan remains
a living document.

Key Lean Start-Up Key Terminology

Minimum Viable Product (MVP)

 The goal of producing an MVP is to get started learning as soon as

possible. This is the version of the product that enables a full turn on
the feedback loop with a minimum of effort.

Three A’s of Metrics;

1. Actionable – report must demonstrate clear cause and effect.

2. Accessible – report must be clear to entrepreneurs who are
supposed to use them to guide their decision-making
3. Auditable – entrepreneurs need the ability to spot check the data
with real customers and the report mechanism should not be too
complex.

Pivot

 A structured course correction designed to test a new fundamental

hypothesis about this product, strategy, and engine of growth.

Build-Measure-Learn Feedback Loop

 Think of this as applying the scientific method to your start-up.

Validated Learning

 Is defined as a process in which one learns by trying out an initial

idea ant then measuring is to validated the effect.