What is entrepreneurship?
 Entrepreneurship
– Strategic thinking and risk-taking behavior that
results in the creation of new opportunities for
individuals and/or organizations.
 Entrepreneurs
– Risk-taking individuals who take actions to
pursue opportunities and situations others may
fail to recognize or may view as problems or
threats.
1
 Entrepreneurs are …
– Founders of businesses that become large-scale
enterprises.
– People who:
• Buy a local franchise outlet
• Open a small retail shop
• Operate a self-employed service business
– People who introduce a new product or
operational change in an existing organization.
2
 Typical characteristics of entrepreneurs:
– Internal locus of control
– High energy level
– High need for achievement
– Tolerance for ambiguity
– Self-confidence
– Passion and action-orientation
– Self-reliance and desire for independence
– Flexibility
3
4
What is entrepreneurship?
 Common myths about entrepreneurs:
– Entrepreneurs are born, not made.
– Entrepreneurs are gamblers.
– Money is the key to entrepreneurial success.
– You have to be young to be an entrepreneur.
– You must have a degree in business to be an
entrepreneur.
5
 Family businesses …
– Owned and financially controlled by family
members.
– Largest percentage of businesses worldwide.
– Can provide an ideal business situation.
– Problems unique to family businesses:
• Family business feud
• Succession problem
6
 Reasons for small business failures:
– Lack of experience
– Lack of expertise
– Lack of strategy and strategic leadership
– Poor financial control
– Growing too fast
– Insufficient commitment
– Ethical failure
7
How does one start
a new venture?
 Life cycle of entrepreneurial firms
– Birth stage
– Breakthrough stage
– Maturity stage
 Each stage poses different managerial
challenges and requires different managerial
competencies.
8
Stages in the life cycle of an entrepreneurial
firm.
9
 Basic items that should be included in a business plan:
–
–
–
–
–
–
–
–
–
–
–
Executive summary
Industry analysis
Company description
Product and services description
Market description
Marketing strategy
Operations description
Staffing description
Financial projection
Capital needs
Milestones
10
 Forms of legal ownership
– Sole proprietorship
– Partnership
• General partnership
• Limited partnership
• Limited liability partnership
– Corporation
– Limited liability corporation (LLC)
11
 Financing the new venture
– Sources of outside financing
• Debt financing
• Equity financing
– Equity financing alternatives
• Venture capitalists
• Initial public offerings
• Angel investors
12
Copyright © 2013 by McGraw-Hill Education (India) Private Limited. All rights reserved.
Chapter 8
The Marketing Plan
Hisrich
Manimala
Peters
Shepherd
Industry Analysis
 It provides sufficient knowledge of the
environment that can affect marketing
strategy decision making.
 Information can be gathered through
secondary sources and market research.
 The entrepreneur can begin to understand
competitors’ strengths and weaknesses;
provides insight into how to position
products or services.
8-2
Industry Analysis
(cont.)
 Competitor Analysis
 Document current strategies of primary
competitors.
 Information can be utilized to formulate the
market positioning strategy.
 This analysis provides a solid basis for
marketing decision making.
8-3
Marketing Research for the New
Venture
 Step One: Defining the Purpose or
Objectives
 Make a list of the information that will be
needed to prepare the marketing plan.
 Step Two: Gathering Data from Secondary
Sources
 Secondary sources can include trade magazines,
newspaper articles, libraries, government
agencies, the Internet, and commercial data.
8-4
Marketing Research for the New
Venture (cont.)
 Step Three: Gathering Information from
Primary Sources
 Data collection procedures - Observation,
networking, interviewing, focus groups, and
experimentation.
 Data collection instrument - Questionnaire.
8-5
Understanding the Marketing Plan
 Marketing plan - A written statement of
marketing objectives, strategies, and
activities to be followed in business plan.
 It is designed to provide answers to three
basic questions:
 Where have we been?
 Where do we want to go (in the short term)?
 How do we get there?
8-6
Figure 8.1- The Marketing System
8-7
The Financial Plan
 It provides the entrepreneur with a
complete picture of:
 The amount funds and when they are coming
into the organization.
 Where funds are going and how much cash is
available.
 The projected financial position of the firm.
 The plan explains how the entrepreneur
intends to meet financial obligations and
maintain the venture’s liquidity.
10-1
Operating and Capital Budgets
 These are developed before developing the
pro forma income statement.
 Sales budget – An estimate of the expected
volume of sales by month.
 Cost of sales can be determined from the sales
forecasts.
 In manufacturing ventures, costs of internal
production and subcontracting are compared.
 Includes estimated ending inventory required as
a buffer.
10-2
Table 10.1 - A Sample Manufacturing
Budget for First Three Months
10-3
Operating and Capital Budgets
 Operating costs:
 Includes fixed expenses incurred regardless of
sales volume.
 Variable expenses must be linked to strategy in
the business plan.
 Capital budgets provide a basis for
evaluating expenditures that will impact the
business for more than one year.
10-4
Pro Forma Balance Sheet
 Summarizes the projected assets, liabilities,
and net worth of the new venture.
 It is a picture of the business at a certain
moment in time and does not cover a period of
time.
 Consists of:
 Assets - Items that are owned or available to be used
in the venture operations; can be current or fixed.
 Liabilities - Money that is owed to creditors; can be
current or long-term debt.
 Owner’s equity - Amount owners have invested and/or
retained from the venture operations.
10-5
Table 10.7 - MPP Plastics Inc., Pro Forma
Balance Sheet, End of First Year ($000s)
10-6
Break-Even Analysis
 Breakeven - Volume of sales where the
venture neither makes a profit nor incurs a
loss.
 The break-even formula:
B/E(Q) = __________TFC______________
SP-VC/unit (marginal contribution)
 Major weakness in calculating the
breakeven lies in determining if a cost is a
fixed or variable.
10-7
Software Packages
 A spreadsheet program (Microsoft Excel) is
most suitable for completing pro forma
statements.
 Helps present different scenarios and assess
their impact on the pro forma statements.
 A simple and easy to use software is useful
in the start-up stage.
 Software packages vary in price and
complexity.
10-8
Copyright © 2013 by McGraw-Hill Education (India) Private Limited. All rights reserved.
Chapter 4
Creativity and the
Business Idea
Hisrich
Manimala
Peters
Shepherd
Trends
 The start of a trend that lasts for a
considerable period of time provides one of
the greatest opportunities for starting a
new venture.
 Trends that will provide opportunities
include: green trend, clean-energy trend,
organic-orientation trend, economic trend,
social trend, health trend, and Web trend.
4-2
Sources of New Ideas
 Consumers
 Informally monitor potential ideas and needs.
 Formally arrange for consumers to express their
opinions.
 Existing Products and Services
 Analysis uncovers ways to improve offerings
that may result in a new product or service.
 Distribution Channels
 Channel members can help suggest and market
new products.
4-3
Sources of New Ideas
(cont.)
 Federal Government
 Files of the Patent Office can suggest new
product possibilities.
 New product ideas can come in response to
government regulations.
 Research and Development
 A formal endeavor connected with one’s current
employment.
 An informal lab in a basement or garage.
4-4
Methods of Generating New Ideas
 Focus Groups
 A moderator leads a group of 8 to 14
participants through an open, in-depth
discussion in a directive or nondirective manner.
 An excellent method for generating and
screening ideas and concepts.
4-5
Methods of Generating New Ideas
(cont.)
 Brainstorming
 Allows people to be stimulated to greater
creativity.
 Good ideas emerge when the brainstorming
effort focuses on a specific product or market
area.
 Rules of brainstorming:




No criticism.
Freewheeling is encouraged.
Quantity of ideas is desired.
Combinations and improvements of ideas are
encouraged.
4-6
Product Planning and Development
Process (cont.)
 Idea Stage
 Promising ideas should be identified and
impractical ones eliminated.
 Evaluation method – Systematic market
evaluation checklist.
 Determine the need for the new idea as well as
its value to the company.
 Concept Stage
 Refined idea is tested to determine consumer
acceptance which can be measured through the
conversational interview method.
4-7
Product Planning and Development
Process (cont.)
 Product Development Stage
 Consumer reaction to the product/service is
determined.
 A consumer panel is given a product sample and
preference is determined through methods such
as multiple brand comparisons, risk analysis,
etc.
 Test Marketing Stage
 Increases certainty of successful
commercialization.
 Actual sales reflect consumer acceptance.
4-8
E-commerce and Business Start-up
 E-commerce offers entrepreneurs an
opportunity to be creative and innovative.
 Factors that facilitate high-growth in
electronic commerce:
 Widespread use of personal computers.
 Adoption of intranets in companies.
 Acceptance of the Internet as a business
communications platform.
 Faster and more secure systems.
4-9
E-commerce and Business Start-up
(cont.)
 Using E-Commerce Creatively
 Entrepreneurs have to decide whether to:
 Run Internet operations within the company.
 Outsource these operations to Internet specialists.
 Use e-commerce packages provided by software
companies.
 The integration of front-end and back-end
operations represents the greatest challenge for
doing Internet business.
4-10
E-commerce and Business Start-up
(cont.)
 Web Sites






Ease of use.
Structure and organization of information.
Search capability.
E-mail response system.
Speed.
Compatibility with different browsers and
platforms.
4-11
E-commerce and Business Start-up
(cont.)
 Doing E-Commerce as an Entrepreneurial
Company
 Products should be delivered economically and
conveniently.
 Products need to interest a wide market;
company must be ready to ship the product
outside its own geographical location.
 Online operations should bring significant cost
reductions.
 Company must be able to economically draw
customers to its Web site.
4-12