Managing Enterpreneurial Ventures

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall A–1

Managing Managing Entrepreneurial Entrepreneurial VenturesVentures

AppendixAppendix

AA

Management Stephen P. Robbins Mary Coulter

tenth edition


Learning OutcomesLearning OutcomesFollow this Learning Outline as you read and study Follow this Learning Outline as you read and study this chapter.this chapter.

A1. The Context of EntrepreneurshipA1. The Context of Entrepreneurship• Differentiate between entrepreneurial ventures and small Differentiate between entrepreneurial ventures and small

businesses.businesses.

• Explain why entrepreneurship is important in the United Explain why entrepreneurship is important in the United States and globally.States and globally.

• Describe the four key steps in the entrepreneurial process.Describe the four key steps in the entrepreneurial process.

• Explain what entrepreneurs do.Explain what entrepreneurs do.

• Discuss why social responsibility and ethics are important Discuss why social responsibility and ethics are important considerations for entrepreneurs.considerations for entrepreneurs.


Learning OutcomesLearning OutcomesA2. Start-Up and Planning IssuesA2. Start-Up and Planning Issues

• Discuss how opportunities are important to Discuss how opportunities are important to entrepreneurial ventures.entrepreneurial ventures.

• Describe each of the seven sources of potential Describe each of the seven sources of potential opportunity.opportunity.

• Explain why it’s important for entrepreneurs to Explain why it’s important for entrepreneurs to understand competitive advantage.understand competitive advantage.

• List possible financing options for entrepreneurs.List possible financing options for entrepreneurs.

• Describe the six major sections of a business Describe the six major sections of a business plan.plan.


Learning OutcomesLearning OutcomesA3. Organizing IssuesA3. Organizing Issues

• Contrast the six different forms of legal Contrast the six different forms of legal organization.organization.

• Describe the organizational design issues that Describe the organizational design issues that entrepreneurs face.entrepreneurs face.

• Discuss the unique human resource management Discuss the unique human resource management issues entrepreneurs face.issues entrepreneurs face.

• Describe what an innovation-supportive culture Describe what an innovation-supportive culture looks like.looks like.


Learning OutcomesLearning OutcomesA4. Leading IssuesA4. Leading Issues

• Explain what personality research shows about Explain what personality research shows about entrepreneurs.entrepreneurs.

• Discuss how entrepreneurs can empower employees.Discuss how entrepreneurs can empower employees.• Explain how entrepreneurs can be effective at leading Explain how entrepreneurs can be effective at leading

employee work teams.employee work teams.

A5. Controlling IssuesA5. Controlling Issues• Describe how entrepreneurs should plan, organize, and Describe how entrepreneurs should plan, organize, and

control growth.control growth.• Describe the boiled frog phenomenon and why it’s useful Describe the boiled frog phenomenon and why it’s useful

for entrepreneurs.for entrepreneurs.• Discuss the issues an entrepreneur needs to consider when Discuss the issues an entrepreneur needs to consider when

deciding whether to exit the entrepreneurial venture.deciding whether to exit the entrepreneurial venture.


The Context of The Context of EntrepreneurshipEntrepreneurship• What Is Entrepreneurship?What Is Entrepreneurship?

Entrepreneurship is the process of starting new businesses, Entrepreneurship is the process of starting new businesses, generally in response to opportunities.generally in response to opportunities.

• Entrepreneurial VenturesEntrepreneurial Ventures Organizations that pursue opportunities, are characterized by Organizations that pursue opportunities, are characterized by

innovative practices, and have growth and profitability as their innovative practices, and have growth and profitability as their main goals.main goals.

• Small Business Small Business A firm that is independently owned, operated, and financed; has A firm that is independently owned, operated, and financed; has

fewer than 100 employees; doesn’t necessarily engage in new fewer than 100 employees; doesn’t necessarily engage in new or innovative practices, and has relatively little impact on its or innovative practices, and has relatively little impact on its industry.industry.


Why Is Entrepreneurship Why Is Entrepreneurship Important?Important?• InnovationInnovation

Engage in the creative destruction processEngage in the creative destruction process Act as agents of changeAct as agents of change

• Number of New StartupsNumber of New Startups Increasing numbers of new firmsIncreasing numbers of new firms

• Job CreationJob Creation New ventures create 60-80% of net new jobsNew ventures create 60-80% of net new jobs


The Entrepreneurial ProcessThe Entrepreneurial Process

Exploring the Entrepreneurial ContextExploring the Entrepreneurial ContextExploring the Entrepreneurial ContextExploring the Entrepreneurial Context

Identifying Opportunities and Identifying Opportunities and Possible Competitive AdvantagesPossible Competitive Advantages

Identifying Opportunities and Identifying Opportunities and Possible Competitive AdvantagesPossible Competitive Advantages

Starting the VentureStarting the VentureStarting the VentureStarting the Venture

Managing the VentureManaging the VentureManaging the VentureManaging the Venture


Potential Sources of Potential Sources of OpportunityOpportunity

Environmental Environmental ContextContext

Environmental Environmental ContextContext

The IncongruousThe IncongruousThe IncongruousThe Incongruous

The Process NeedThe Process NeedThe Process NeedThe Process Need

Industry and Industry and Market StructuresMarket Structures

Industry and Industry and Market StructuresMarket StructuresDemographicsDemographicsDemographicsDemographics

Changes in Changes in PerceptionPerception

Changes in Changes in PerceptionPerception

New KnowledgeNew KnowledgeNew KnowledgeNew Knowledge

The UnexpectedThe UnexpectedThe UnexpectedThe Unexpected


Exhibit A–1Exhibit A–1 Evaluating Potential Ideas Evaluating Potential Ideas

Personal Considerations: Marketplace Considerations:

•Do you have the capabilities to do what you’ve selected?•Are you ready to be an entrepreneur?•Are you prepared emotionally to deal with the stresses and challenges of being an entrepreneur?•Are you prepared to deal with rejection and failure?•Are you ready to work hard?•Do you have a realistic picture of the venture’s potential?•Have you educated yourself about financing issues?•Are you willing and prepared to do continual financial and other types of analyses?

• Who are the potential customers for your idea: who, where, how many?

• What similar or unique product features does your proposed idea have compared to what’s currently on the market?

• How and where will potential customers purchase your product?

• Have you considered pricing issues and whether the price you’ll be able to charge will allow your venture to survive and prosper?

• Have you considered how you will need to promote and advertise your proposed entrepreneurial venture?


Exhibit A–2Exhibit A–2 Feasibility StudyFeasibility StudyA. Introduction, historical background, description of product or

service:

1. Brief description of proposed entrepreneurial venture

2. Brief history of the industry

3. Information about the economy and important trends

4. Current status of the product or service

5. How you intend to produce the product or service

6. Complete list of goods or services to be provided

7. Strengths and weaknesses of the business

8. Ease of entry into the industry, including competitor analysis

B. Accounting considerations:

1. Proforma balance sheet

2. Proforma profit and loss statement

3. Projected cash flow analysis


Exhibit A–3Exhibit A–3 Feasibility Study (cont’d)Feasibility Study (cont’d)C. Management considerations:

1. Personal expertise—strengths and weaknesses

2. Proposed organizational design

3. Potential staffing requirements

4. Inventory management methods

5. Production and operations management issues

6. Equipment needs.

D. Marketing considerations:

1. Detailed product description

2. Identify target market (who, where, how many)

3. Describe place product will be distributed (location, traffic, size, channels, etc.)

4. Price determination (competition, price lists, etc.)

5. Promotion plans (personal selling, advertising, sales promotion, etc.)


Exhibit A–3Exhibit A–3 Feasibility Study (cont’d)Feasibility Study (cont’d)E. Financial considerations:

1. Start-up costs

2. Working capital requirements

3. Equity requirements

4. Loans—amounts, type, conditions

5. Breakeven analysis

6. Collateral

7. Credit references

8. Equipment and building financing—costs and methods

F. Legal considerations:

1. Proposed business structure (type; conditions, terms, liability, responsibility; insurance needs; buyout and succession issues)

2. Contracts, licenses, and other legal documents

G. Tax considerations: (sales/property/employee; federal, state, and local)

H. Appendix: charts/graphs, diagrams, layouts, resumes, etc.


Researching CompetitorsResearching Competitors• Competitor Intelligence:Competitor Intelligence:

What types of products or services are competitors offering?What types of products or services are competitors offering?

What are the major characteristics of these products or What are the major characteristics of these products or services?services?

What are their products’ strengths and weaknesses?What are their products’ strengths and weaknesses?

How do they handle marketing, pricing, and distributing?How do they handle marketing, pricing, and distributing?

What do they attempt to do differently from other competitors?What do they attempt to do differently from other competitors?

Do they appear to be successful at it? Why or why not?Do they appear to be successful at it? Why or why not?

What are they good at?What are they good at?

What competitive advantage(s) do they appear to have?What competitive advantage(s) do they appear to have?

What are they not so good at?What are they not so good at?

What competitive disadvantage(s) do they appear to have?What competitive disadvantage(s) do they appear to have?

How large and profitable are these competitors?How large and profitable are these competitors?


Exhibit A–3Exhibit A–3 Possible Financing OptionsPossible Financing Options

• Entrepreneur’s personal resources (personal savings, home equity, personal loans, credit cards, etc.)

• Financial institutions (banks, savings and loan institutions, government-guaranteed loan, credit unions, etc.)

• Venture capitalists—external equity financing provided by professionally-managed pools of investor money

• Angel investors—a private investor (or group of private investors) who offers financial backing to an entrepreneurial venture in return for equity in the venture

• Initial public offering (IPO)—the first public registration and sale of a company’s stock

• National, state, and local governmental business development programs

• Unusual sources (television shows, judged competitions, etc.)


Investing in Entrepreneurial Investing in Entrepreneurial Ventures Ventures • Venture CapitalistsVenture Capitalists

External equity financing provided by professionally-External equity financing provided by professionally-managed pools of investor money.managed pools of investor money.

• Angel InvestorsAngel Investors A private investor (or group of private investors) who A private investor (or group of private investors) who

offers financial backing to an entrepreneurial venture offers financial backing to an entrepreneurial venture in return for equity in the venture.in return for equity in the venture.

• Initial public offering (IPO)Initial public offering (IPO) The first public registration and sale of a company’s The first public registration and sale of a company’s

stock.stock.


Developing a Business PlanDeveloping a Business Plan• Business PlanBusiness Plan

A written document that summarizes a business A written document that summarizes a business opportunity and defines and articulates how the opportunity and defines and articulates how the identified opportunity is to be seized and exploited.identified opportunity is to be seized and exploited.

• Elements of a Business PlanElements of a Business Plan Executive summaryExecutive summary Analysis of opportunityAnalysis of opportunity Analysis of contextAnalysis of context Description of the businessDescription of the business Financial data and projectionsFinancial data and projections Supporting documentationSupporting documentation


Exhibit A–4Exhibit A–4 Legal Forms of Business Legal Forms of Business OrganizationOrganization

StructureOwnership

Requirements Tax Treatment Liability Advantages Drawbacks

Sole

proprietorship

One owner Income and losses “pass through” to owner and are taxed at personal rate

Unlimited personal liability

Low start-up costs

Freedom from most regulations

Owner has direct control

All profits go to owner

Easy to exit business


Personal finances at risk

Miss out on many business tax deductions

Total responsibility

May be more difficult to raise financing

General partnership

Two or more owners

Income and losses “pass through” to partners and are taxed at personal rate

flexibility in profit-loss allocations to partners


Ease of formation

Pooled talent

Pooled resources

Somewhat easier access to financing

Some tax benefits


Divided authority and decisions

Potential for conflict

Continuity of transfer of ownership


Exhibit A–4Exhibit A–4 Legal Forms of Business Legal Forms of Business Organization Organization (cont’d) (cont’d)

StructureOwnership


Limited liability partnership (LLP)

Two or more owners

Income and losses “pass through” to partner and are taxed at personal rate; flexibility in profit-loss allocations to partners

Limited, although one partners must retain unlimited liability

Good way to acquire capital from limited partners

Cost and complexity of forming can be high

Limited partners cannot participate in management of business without losing liability protection

C corporation Unlimited number of shareholders; no limits on types of stock or voting arrangements

Dividend income is taxed at corporate and personal shareholder levels; losses and deductions are corporate

Limited Limited liability Transferable ownership Continuous existence

Easier access to resources

Expensive to set up

Closely regulated

Double taxation

Extensive record keeping

Charter restrictions


Exhibit A–5Exhibit A–5 Legal Forms of Business Legal Forms of Business Organization Organization (cont’d) (cont’d)

StructureOwnership


S corporation Up to 75 share-holders; no limits on types of stock or voting arrangements

Income and losses “pass through” to partners and are taxed at personal rate; flexibility in profit-loss allocation to partners

Limited Easy to set up

Enjoy limited liability protection and tax benefits of partnership

Can have a tax-exempt entity as a shareholder

Must meet certain requirements

May limit future financing options

Limited liability company (LLC)

Unlimited number of “members”; flexible membership arrangements for voting rights and income

Income and losses “pass through” to partners and are taxed at personal rate; flexibility in profit-loss allocations to partners

Limited Greater flexibility

Not constrained by regulations on C and S corporations

Taxed as partner-ship, not as corporation

Cost of switching from one form to this can be high

Need legal and financial advice in forming operating agreement


Human Resource Management Human Resource Management Issues In Entrepreneurial VenturesIssues In Entrepreneurial Ventures

• Employee Recruitment ConcernsEmployee Recruitment Concerns Locating high potential employees who:Locating high potential employees who:

can perform multiple rolescan perform multiple roles are willing to “buy-in” (commitment)are willing to “buy-in” (commitment)

Filling critical skill gapsFilling critical skill gaps

• Employee Retention IssuesEmployee Retention Issues Potential for damage to client/customer relationships Potential for damage to client/customer relationships

due to loss of employeesdue to loss of employees Need to offer desirable benefitsNeed to offer desirable benefits Compensation: base pay and incentivesCompensation: base pay and incentives


Exhibit A–5Exhibit A–5 Suggestions for Achieving a Suggestions for Achieving a Supportive Supportive Growth-Oriented Culture Growth-Oriented Culture

• Keep the lines of communication open—inform employees about major issues.

• Establish trust by being honest, open, and forthright about the challenges and rewards of being a growing organization.

• Be a good listener—find out what employees are thinking and facing.

• Be willing to delegate duties.

• Be flexible—be willing to change your plans if necessary.

• Provide consistent and regular feedback by letting employees know the outcomes—good and bad.

• Reinforce the contributions of each person by recognizing employees’ efforts.

• Continually train employees to enhance their capabilities and skills.

• Maintain the focus on the venture’s mission even as it grows.

• Establish and reinforce a “we” spirit since a successful growing venture takes the coordinated efforts of all the employees.


Leading IssuesLeading Issues• Personality Characteristics of EntrepreneursPersonality Characteristics of Entrepreneurs

High level of motivation, abundance of self-High level of motivation, abundance of self-confidence, ability to be involved for the long term, confidence, ability to be involved for the long term, high energy level, persistent problem solver, high high energy level, persistent problem solver, high degree of initiative, ability to set goals, and moderate degree of initiative, ability to set goals, and moderate risk-taker.risk-taker.

• Proactive personalityProactive personality Individuals who are more prone to take actions to Individuals who are more prone to take actions to

influence their environment—that is, they’re more influence their environment—that is, they’re more proactive.proactive.


Leading Issues (cont’d)Leading Issues (cont’d)• Motivating Employees Through EmpowermentMotivating Employees Through Empowerment

EmpowermentEmpowerment Giving employees the power to make decisions and take Giving employees the power to make decisions and take

actions on their own to solve problemsactions on their own to solve problems

Benefits of EmpowermentBenefits of Empowerment Improved flexibility and speedImproved flexibility and speed Stronger work motivationStronger work motivation Higher moraleHigher morale Better work qualityBetter work quality Higher job satisfaction Higher job satisfaction Lower turnoverLower turnover Higher productivityHigher productivity Improved qualityImproved quality


Leading Issues (cont’d)Leading Issues (cont’d)• Empowering EmployeesEmpowering Employees

Participative decision makingParticipative decision making DelegationDelegation Redesigning jobsRedesigning jobs


The Entrepreneur as LeaderThe Entrepreneur as Leader• Leading Employee Work TeamsLeading Employee Work Teams

Empowered teamsEmpowered teams Have the authority to plan and implement process Have the authority to plan and implement process

improvementsimprovements

Self-directed teamsSelf-directed teams Are nearly autonomous and responsible for many managerial Are nearly autonomous and responsible for many managerial

activitiesactivities

Cross-functional teamsCross-functional teams Are composed of individuals from various specialties who Are composed of individuals from various specialties who

work together on various taskswork together on various tasks


Controlling IssuesControlling Issues

Managing GrowthManaging GrowthManaging GrowthManaging Growth

Managing DownturnsManaging DownturnsManaging DownturnsManaging Downturns

Exiting the VentureExiting the VentureExiting the VentureExiting the Venture

Managing personal life Managing personal life choices and challengeschoices and challenges

Managing personal life Managing personal life choices and challengeschoices and challenges


Controlling Issues (cont’d)Controlling Issues (cont’d)• Managing GrowthManaging Growth

Planning for growthPlanning for growth Organizing for growthOrganizing for growth Financing growthFinancing growth Finding peopleFinding people Creating a growth-oriented Creating a growth-oriented

cultureculture Controlling for growthControlling for growth

• Managing DownturnsManaging Downturns Recognizing crisis Recognizing crisis

situationssituations—avoiding the —avoiding the boiled frog phenomenonboiled frog phenomenon

Dealing with downturns, Dealing with downturns, declines, and crisesdeclines, and crises


Exiting the VentureExiting the Venture• Why Leave?Why Leave?

Desiring to harvest the value of the ventureDesiring to harvest the value of the venture Facing serious organizational performance problemsFacing serious organizational performance problems Desiring to pursue other interests/opportunitiesDesiring to pursue other interests/opportunities

• Business Valuation MethodsBusiness Valuation Methods Asset valuationsAsset valuations Earnings valuationsEarnings valuations Cash flow valuationsCash flow valuations


Managing Personal Life Choices Managing Personal Life Choices and Challengesand Challenges• Balancing Work and Personal LifeBalancing Work and Personal Life

Become a good time managerBecome a good time manager

Seek professional business advice when neededSeek professional business advice when needed

Deal with conflicts as they ariseDeal with conflicts as they arise

Developing a network of trusted friends and peersDeveloping a network of trusted friends and peers

Recognize when personal stress levels are too highRecognize when personal stress levels are too high


Terms to KnowTerms to Know• entrepreneurshipentrepreneurship • entrepreneurial venturesentrepreneurial ventures • small businesssmall business • feasibility studyfeasibility study • venture capitalistsventure capitalists • angel investorsangel investors • initial public offering (IPO)initial public offering (IPO) • business planbusiness plan • sole proprietorshipsole proprietorship • general partnershipgeneral partnership


Terms to Know, cont.Terms to Know, cont.• limited liability partnership (LLP)limited liability partnership (LLP) • corporationcorporation • closely held corporationclosely held corporation • S corporationS corporation • limited liability company (LLC)limited liability company (LLC) • operating agreementoperating agreement • proactive personalityproactive personality • ““boiled frog” phenomenonboiled frog” phenomenon

• harvestingharvesting


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Managing Enterpreneurial Ventures