7-0
Bateman
Snell
Management
Competing
in the
New Era
5th
Edition
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-1
Part Two
Chapter 7 - New Ventures
Chapter Outline
Independent Entrepreneurs
Spin-Offs
Intrapreneurship
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-2
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-3
Learning Objectives (cont.)
After
studying Chapter 7, you will know:
 the
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.
7-4
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-5
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
 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.
7-6
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.
7-7
Independent Entrepreneurs
(cont.)
The
role of the business environment
 entrepreneurs
find success in favorable business
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.
7-8
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
 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.
7-9
Spotting Opportunities
Technological
discoveries
Government
rules changes
Calamities
Demographic
changes
To spot
opportunities,
be aware of:
Lifestyle and
taste changes
Economic
dislocations
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-10
What Does It Take To Be A
Successful Entrepreneur?
Commitment
and determination
Motivation
to excel
Leadership
Successful
entrepreneurs
typically have:
Creativity,
self-reliance,
adaptability
Opportunity
obsession
Tolerance of
risk and
uncertainty
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-11
Independent Entrepreneurs
(cont.)
What
does it take to be successful?
 Making
new
good choices
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-12
Innovation
(creating a unique and
Different product/service)
The Entrepreneurial Strategy
Matrix
High
High innovation
Low risk
High innovation
High risk
Low
Low innovation
Low risk
Low innovation
High risk
Low
High
Risk
(probability of a major loss)
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-13
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.
7-14
Independent Entrepreneurs
(cont.)
Planning
 key
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.
7-15
Independent Entrepreneurs
(cont.)
Planning
(cont.)
 selling
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
resources - crucial to success of new venture
networks
- 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.
7-16
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-17
Independent Entrepreneurs
(cont.)
Entrepreneurial
 hazards
hazards
of striking out on your own are many
may
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

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-18
Independent Entrepreneurs
(cont.)
Entrepreneurial
hazards (cont.)
delegation - entrepreneur’s desire to personally
control every aspect of the business
 inadequate
managers
and workers depend too heavily on entrepreneur’s
decisions
results in lost opportunities and failure to develop employees
 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 be vigilant over other aspects of the business
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-19
Independent Entrepreneurs
(cont.)
Global
start-ups
a
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.
7-20
Should Business Begin
Domestically Or Globally?
Where are the
best people?
Will domestic inertia
cripple international
operations?
Will global operators
compete?
Domestic
or global
outlook?
Where is financing
easiest and
most suitable?
Where are the
Targeted customers?
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-21
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-22
Stages Of The Spin-Off Process
Attract
management
team
Product
life cycle
Spin off
to new
ventures
Established
business
Type of
industry
Success/
failure
Attract
capital
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-23
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.
7-24
Spin-Offs (cont.)
The
spin-off process (cont.)
 attracting
management teams and capital
entrepreneur’s

must build a strong management team
search
Change
time usually spent pursuing her/his specialty
for capital is the greatest challenge for spin-off owners
in industry structure
 may
be the most critical hazard for entrepreneurial firms
 is a common hazard
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-25
Intrapreneurship
Building
support for your idea
 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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
7-26
Intrapreneurship (cont.)
Building
intrapreneurship
 skunkworks
- project team designated to produce a new,
innovative product
have
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
new corporate ventures
 strategic
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.
7-27
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.
7-28
Intrapreneurship (cont.)
Entrepreneurial
orientation
 tendency
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.
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chap007 - Management Class