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Bateman

Snell

Management
Competing in the New Era

5th Edition

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Part Two
Chapter 7 - New Ventures Chapter Outline Independent Entrepreneurs Spin-Offs Intrapreneurship

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Learning Objectives
After
 the

studying Chapter 7, you will know:

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

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Learning Objectives (cont.)
After
 the

studying Chapter 7, you will know:

process of spinning off new ventures  how to foster intrapreneurship and entrepreneurial orientation in large companies

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Introduction
Entrepreneurship
 occurs

when an enterprising individual pursues a lucrative opportunity  entrepreneurs generate new ideas and turn them into business ventures
A

small business

 has

fewer than 100 employees  is independently owned and operated  is not dominant in its field  is not characterized by many innovative practices

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Introduction (cont.)
Entrepreneurial
 has

venture

growth and high profitability as its primary objectives  is managed aggressively  develops innovative strategies, practices, and products
Sources

of new venture creation

 independent

entrepreneurship - individual establishes a new organization without the benefit of corporate support  spin-offs - corporate managers become entrepreneurs by splitting from the parent firm and creating a new business  intrapreneurs - corporate entrepreneurs who create a new venture working in big organizations

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs
Why

become an independent entrepreneur?

 enjoy

the challenge and profit potential,  seek independence  experience the satisfaction in building something from nothing  may have limited opportunities elsewhere  new immigrants may be blocked from conventional means of advancement

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
The

role of the business environment
find success in favorable business

 entrepreneurs

environments  success depends upon the foresight and talent to survive hostile environments  business incubators - protected environments for new, small businesses
offer

low rents and shared costs often universities provide technical and business services have been successful throughout the U.S. and other regions of the world

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
What
 The

business should you start?

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

inspiration is a great source of ideas idea may be the founder’s desire to build a great organization

sees the product as a vehicle for the company

 The

opportunity - entrepreneurs spot, create, and exploit opportunities in a variety of ways  The next frontier - outer space
entrepreneurs

face huge obstacles

 Side

streets - heading down a road reveals unknown places and unexpected opportunities begin to appear

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Spotting Opportunities
Technological discoveries Demographic changes

Government rules changes

To spot opportunities, be aware of:

Lifestyle and taste changes

Calamities

Economic dislocations

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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What Does It Take To Be A Successful Entrepreneur?
Commitment and determination Leadership

Motivation to excel

Successful entrepreneurs typically have:

Opportunity obsession

Creativity, self-reliance, adaptability

Tolerance of risk and uncertainty

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
What

does it take to be successful?
good choices
ventures differ along two dimensions

 Making
new

innovation - creation of something new and different  risk - probability of major financial loss  psychological risk to reputation and ego
entrepreneurial

strategy matrix

matrix helpful in determining whether a particular venture meets entrepreneur’s particular objectives  matrix helps identify effective strategies
new

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

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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The Entrepreneurial Strategy Matrix
Innovation (creating a unique and Different product/service)
High High innovation Low risk High innovation High risk

Low

Low innovation Low risk Low

Low innovation High risk High

Risk (probability of a major loss)

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Independent Entrepreneurs (cont.)
Planning
 business

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

on the venture’s market, strategies, and future direction opportunity analysis - description of the product or service
assessment of the opportunity and the entrepreneur  specification of required activities and resources  sources of capital

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Planning
 key

Independent Entrepreneurs (cont.)
cont.)
planning elements

people

- should be energetic, and have skills and relevant expertise opportunity - should allow a competitive advantage that can be defended competition - identify competitors and their strengths and weaknesses
predict competition’s responses to a new venture  consider how to collaborate with competitors

contexts

- economic and regulatory environments should be favorable risk - must be understood and fully addressed

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
Planning
 selling

(cont.)

the plan - important is whom you try to convince to back the plan
passive

versus sophisticated investors today plans need to be developed and enacted quickly
 nonfinancial
networks

resources - crucial to success of new venture

- create social capital top management teams - affect company image, develop longterm plans, support daily activities, and create information networks advisory boards - provide expertise about a variety of specific business matters and pass judgment on new ideas

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
Planning

(cont.)
resources (cont.)

 nonfinancial
partners

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

must:  acknowledge one another’s talents  communicate honestly  listen to one another  learn to trust each other

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
Entrepreneurial
 hazards
may

hazards

of striking out on your own are many

find out after starting a company that you don’t enjoy it survival is difficult failure can be devastating
 mortality
venture

- fate of the venture after the founder’s death
can outlive founder if:

company has gone public  founder has planned an orderly family succession  entrepreneurs seldom do either

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Independent Entrepreneurs (cont.)
Entrepreneurial
 inadequate
managers

hazards (cont.)

delegation - entrepreneur’s desire to personally control every aspect of the business
and workers depend too heavily on entrepreneur’s decisions results in lost opportunities and failure to develop employees

 misuse
apply

of funds - two types of mistakes

financial resources to the wrong uses maintain inadequate control over financial resources
 poor

planning and controls - failure to anticipate problems

aversion

to record keeping failure to be vigilant over other aspects of the business

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Independent Entrepreneurs (cont.)
Global
a

start-ups

new venture that is international from the very beginning  costs of doing business internationally have decreased
reduced

the competitive advantage of large organizations presented opportunities for new ventures

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Should Business Begin Domestically Or Globally?
Where are the best people? Will domestic inertia cripple international operations? Where is financing easiest and most suitable?

Domestic or global outlook?

Will global operators compete?

Where are the Targeted customers?

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Spin-Offs
Spin-off
 division

that splits from its parent company to become an independent company  make products similar to those of owners’ former employers
Why

spin-offs occur

 occur

frequently  approved spin-off
established

company senses an opportunity it cannot pursue with internal resources can profit by selling its patents or investing in the new enterprise
 employer

approval of spin-off is not necessary

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Stages Of The Spin-Off Process
Product life cycle Attract management team

Established business

Spin off to new ventures Type of industry Attract capital

Success/ failure

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Spin-Offs (cont.)
The

spin-off process

 early

stage - spin-offs occur most often at the early stages of the product life cycle  industry types - offer different opportunities for spin-offs
fragmented

industry - few entry barriers permit many

competitors mature industry undergoing change - new competitors may have advantage over established competitors declining industry - established companies often seek opportunity in newer industries regardless of the situation, spin-off entrepreneur faces important challenges

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Spin-Offs (cont.)
The

spin-off process (cont.)
management teams and capital
time usually spent pursuing her/his specialty

 attracting

entrepreneur’s

must build a strong management team

search

for capital is the greatest challenge for spin-off owners

Change
 may

in industry structure

be the most critical hazard for entrepreneurial firms  is a common hazard

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Intrapreneurship
Building
 clear

support for your idea

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

the project’s technical and political feasibility

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Intrapreneurship (cont.)
Building

intrapreneurship

 skunkworks
have

- project team designated to produce a new, innovative product
specific goals and time frame headed by respected manager

 bootlegging

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

Organizing
 strategic

new corporate ventures

alliances may be required for large scale innovation  large companies outsource for innovation, providing entrepreneurial opportunities for small firms

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Intrapreneurship (cont.)
Hazards

in intrapreneurship

 obvious

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

large project is a threat as are too many underfunded projects

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

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Intrapreneurship (cont.)
Entrepreneurial
 tendency

orientation

of an organization to engage in activities designed to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods and services  five tendencies
allow

independent action innovativeness risk taking be proactive competitive aggressiveness

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved