LECTURE 4

ASSESMENT AND
EVALUATION
OF ENTREPRENEURIAL
OPPORTUNITIES
 LEARNING OUTCOMES
• To explain the challenge of new-venture
start-ups
• To review common pitfalls in the selection of
new-venture ideas
• To present critical factors involved in new-
venture development.
• To examine why new ventures fail
• To analyze the evaluation process methods
 The Challenge of New-Venture
Start-Ups
• 600,000 new firms have emerged in the
United States every year since the early
1990s.
• The U.S. Patent Office currently reviews
more than 375,000 patent applications
per year.
 The Elements Affecting New-
Venture Performance
Environment

Entrepreneur’s Founding Initial Firm

Performance
Characteristics Processes Characteristics
 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
Critical Factors for New-Venture
Development
• Uniqueness
• Investment
• Sales Growth
– Lifestyle ventures
– Small profitable ventures
– High-growth ventures
• Product Availability
• Customer Availability
 Why New Ventures Fail
• Product/Market Problems
• Financial Difficulties
• Managerial Problems
Types and Classes of First-Year Problems
1. Obtaining external financing
2. Internal financial management
3. Sales/marketing
4. Product development
5. Production/operations management
6. General management
7. Human resource management
8. Economic environment
9. Regulatory environment
 External Problems Experienced by
Entrepreneurs
Pricing Expansion
8.4% 5.5%
Location
Market Knowledge
11.1%
19.3%

Product Issues
7.6%

Market Planning
14.4% Customer Contact
Competitors 27.3%
6.3%
 Internal Problems Experienced by
Entrepreneurs
Inventory Control Facilities/Equipment
12.3% 12.6%

Human Resources
12.0% Cash Flow
14.9%

Leadership
11.1%

Adequate Capital
15.9%
Organizational Structure
10.8% Accounting Systems
10.4%
 Determinants of New-Venture Failures
Entrepreneur Rank Venture Capitalist Rank

I-Lack of mgt. skill 1 I-Lack of mgt. skill 1

I-Poor mgt. strategy 2 I-Poor mgt. strategy 2
I-Lack of capitalization 3 I-Lack of capitalization 3
I-Lack of vision 4 E-Poor external market 4
I-Poor product design 5 conditions
I-Key personnel 6 I-Poor product design 5
incompetent I-Poor product timing 6
The Evaluation
Process
Asking the Right
Questions
 Comprehensive
Feasibility Approach
 Key Areas for Assessing the
Feasibility of a New Venture
Technical – Feasibility analysis of
product or service

Market – Determination of market

opportunities and risks
Determination
New- of Feasibility
Financial – Analysis of financial
Venture feasibility & resources of Planned
Idea Organizational – Analysis of
New Venture

organizational capabilities and

personnel requirements

Competitive – Analysis of the

competition
THANK YOU