Chapter

7 New Ventures
 Learning Objectives

 After studying Chapter 7, you will know:

 the 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

 how to foster intrapreneurship and entrepreneurial orientation

in large companies
 Introduction

 Entrepreneurship
 the pursuit of lucrative opportunities by enterprising
individuals
 initiate and build an organization
 create new systems, resources, or processes to produce new
goods or services and/or to serve new markets
 differs from managing a small business
 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
 Introduction (cont.)

 Entrepreneurial venture
 has 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
 intrapreneurs - corporate entrepreneurs who create a new
venture working in big organizations
 Independent Entrepreneurs

 Why become an independent entrepreneur?

 enjoy the challenge and profit potential
 seek independence and a feeling of being part of the action

 experience the satisfaction in building something from nothing

 see their progress blocked in big corporations

 new immigrants may be blocked from conventional means of

advancement
 Independent Entrepreneurs (cont.)

 The role of the economic environment

 entrepreneurs find success in favorable business environments
 success also depends upon the foresight and talent to survive

hostile environments
 bad times can offer an opportunity to expand
 business incubators - protected environments for new, small
businesses
 offer low rents and shared costs
 staff manager advises the new business owner
 often universities provide technical and business services
 have been successful throughout the U.S. and other regions of
the world
 Independent Entrepreneurs (cont.)

 What business should you start?

 the 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
Spotting Opportunities

Technological Demographic
discoveries changes

To spot
Government Lifestyle and
opportunities,
rules changes taste changes
be aware of:

Economic
Calamities
dislocations
 Independent Entrepreneurs (cont.)

 What business should you start? (cont.)

 the next frontier - outer space
 huge demand for satellite launches
 entrepreneurs face large obstacles
 side streets - heading down a road reveals unknown places
 unexpected opportunities begin to appear
 prepare to enable quick and effective action should an
opportunity appear
What Does It Take To Be A Successful
Entrepreneur?

Commitment
Leadership
and determination

Successful
Motivation Opportunity
entrepreneurs
to excel obsession
typically have:

Creativity, Tolerance of
self-reliance, risk and
adaptability uncertainty
 Independent Entrepreneurs (cont.)

 What does it take to be successful?

 making good choices
 new ventures differ along two dimensions
 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
 The Entrepreneurial Strategy Matrix

different product/service)

High innovation High innovation

(creating a unique and

High Low risk High risk

Innovation

Low innovation Low innovation

Low Low risk High risk

Low High
Risk
(probability of a major loss)
 Independent Entrepreneurs (cont.)

 Planning
 opportunity analysis - provides the basis for making a
decision on whether to act
 includes:
 a description of the product or service
 an assessment of the opportunity and the entrepreneur
 a specification of required activities and resources
 sources of capital
 Questions That Must Be Answered In
An Opportunity Analysis
• What market need does my idea fill?
• What personal observations have I experienced or recorded with regard
to that market need?
• What social condition underlies this market need?
• What market research data can be marshaled to describe this market
need?
• What patents might be available to fulfill this need?
• What competition exists in this market? How would I describe the
behavior of this competition?
• What does the international market look like?
• What does the international competition look like?
• Where is the money to be made in this activity?
 Independent Entrepreneurs (cont.)

 Planning (cont.)
 business plan - formal planning step that focuses on the entire
venture and describes all the elements involved in starting it
 describes the venture and its market, strategies, and future
directions
 helps determine the viability of your enterprise
 guides planning and organizing
 helps to obtain financing
 Independent Entrepreneurs (cont.)

 Planning cont.)
 key planning elements beyond the financial projections are:
 people - should be energetic, have skills and relevant expertise
 the most important element
 opportunity - should allow a defensible competitive advantage
 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
 Independent Entrepreneurs (cont.)

 Planning (cont.)
 selling the plan - who you try to convince to back the plan is
important
 passive versus sophisticated investors
 today plans need to be developed and enacted quickly
 nonfinancial resources - crucial to success of new venture
 networks - create social capital
 top management teams - affect company image, develop long-
term 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
 Independent Entrepreneurs (cont.)

 Planning (cont.)
 nonfinancial resources (cont.)
 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

 Independent Entrepreneurs (cont.)

 Entrepreneurial hazards
 hazards of striking out on your own are many
 poor understanding about new products or new geographic areas
 may find out after starting a company that you don’t enjoy it
 survival is difficult
 failure can be devastating
 mortality - fate of the venture after the founder’s death
 venture can outlive founder if:
 company has gone public
 founder has planned an orderly family succession

 entrepreneurs seldom do either

 Independent Entrepreneurs (cont.)

 Entrepreneurial hazards (cont.)

 inadequate delegation - entrepreneur’s desire to personally
control every aspect of the business
 active leadership deteriorates into micromanagement
 misuse of funds - two types of mistakes
 apply 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 maintain vigilance over other aspects of the business
 Independent Entrepreneurs (cont.)

 Global start-ups
 a new venture that is international from the very beginning
 success factors for global start-ups

 think globally from day one

 communicate your global vision
 management team should have international experience
 develop deep cross-cultural understanding
 develop a network of trusted financiers, suppliers, distributors,
and other business associates
 product (or service) provides a clear advantage to customers
 intangible assets
Should Business Begin Domestically
Or Globally?

Where are the

best people?

Will domestic inertia Where is financing

cripple international Domestic easiest and
operations? or global most suitable?
outlook?

Will global operators Where are the

compete? targeted customers?
 Intrapreneurship

 Building support for your idea

 must build a network of allies who support and will help
implement the idea
 steps in building support include:
 clear 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
 Intrapreneurship (cont.)

 Building intrapreneurship
 skunkworks - project team designated to produce a new,
innovative product
 have a specific goal and time frame
 headed by a respected manager
 risk takers are not punished for taking risks and failing
 bootlegging - informal (secretive) efforts by managers and
employees to create new products or new processes
 intrapreneurial organization should tolerate and even encourage
bootlegging
 Intrapreneurship (cont.)

 Organizing new corporate ventures

 strategic alliances may be required for large scale innovation
 involves cooperation among different organizations
 large companies outsource for innovation, providing
entrepreneurial opportunities for small firms
 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
 Intrapreneurship (cont.)

 Entrepreneurial orientation
 tendency of an organization to identify and capitalize
successfully on opportunities to launch new ventures by
entering new or established markets with new or existing
goods and services
 determined by five tendencies
 allow independent action
 innovativeness
 risk taking
 proactiveness
 competitive aggressiveness