Pitfalls in Selecting New Ventures

Lack of objective evaluation

No real insight into the market
Inadequate understanding of technical
requirements
Poor financial understanding
Lack of venture uniqueness
Ignorance of legal issues

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 Critical Factors for
New-Venture Development
Uniqueness
Investment
Sales growth
 Lifestyle ventures
 Small profitable ventures
 High-growth ventures
Product availability
Customer availability

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 Why New Ventures Fail
Product/market problems
Financial difficulties
Managerial problems

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 Causes for Failure
Product/Market Problems Managerial Problems
 Poor timing.  Concept of a team
 Product design problems. approach
 Inappropriate distribution  Human resource problems
strategy.
 Unclear business definition.
 Overreliance on one
customer.
Financial Difficulties
 Initial undercapitalization.
 Assuming debt too early.
 Venture capital relationship
problems.

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 Types and
Classes
of First-
Year
Problems

Source: David E. Terpstra and Philip D. Olson, “Entrepreneurial Start-up and Growth:
A Classification of Problems,” Entrepreneurship Theory and Practice (spring 1993):
19.
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 Internal and External Problems Experienced By
Entrepreneurs

Source: H. Robert Dodge, Sam Fullerton, and John E. Robbins, “Stage of Organizational Life Cycle and Competition as Mediators of Problem
Perception for Small Businesses,” Strategic Management Journal 15(1994): 129. Reprinted by permission of John Wiley & Sons, Ltd.
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 Internal and External Problems Experienced By
Entrepreneurs

Source: H. Robert Dodge, Sam Fullerton, and John E. Robbins, “Stage of Organizational Life Cycle and Competition as Mediators of Problem
Perception for Small Businesses,” Strategic Management Journal 15(1994): 129. Reprinted by permission of John Wiley & Sons, Ltd.
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 Determinants of New-Venture Failures

Source: Andrew L. Zacharakis, G. Dale Meyer, and Julio DeCastro, “Differing Perceptions of New Venture Failure: A Matched
Exploratory Study of Venture Capitalists and Entrepreneurs,” Journal of Small Business Management (July 1999): 8.
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