© 2007 Thomson/South- Western. All rights reserved. 7–1 Why New Ventures Fail Product/market problems Financial difficulties Managerial problems

© 2007 Thomson/South- Western. All rights reserved. 7–2 Causes for Failure Product/Market Problems – Poor timing. – Product design problems. – Inappropriate distribution strategy. – Unclear business definition. – Overreliance on one customer. Financial Difficulties – Initial undercapitalization. – Assuming debt too early. – Venture capital relationship problems. Managerial Problems – Concept of a team approach – Human resource problems

© 2007 Thomson/South- Western. All rights reserved. 7–3 Table 7.2 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.

© 2007 Thomson/South- Western. All rights reserved. 7–4 Figure 7.2Internal 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.

© 2007 Thomson/South- Western. All rights reserved. 7–5 Figure 7.2Internal and External Problems Experienced By Entrepreneurs (cont’d) 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.

© 2007 Thomson/South- Western. All rights reserved. 7–6 Table 7.3Determinants 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.

© 2007 Thomson/South- Western. All rights reserved. 7–7 Table 7.4The Failure Process of a Newly Founded Firm Source: Erkki K. Laitinen, “Prediction of Failure of a Newly Founded Firm,” Journal of Business Venturing (July 1992): 326–328. Reprinted with permission.

Indian failure “Academically, opting out of engineering in favour of economics was a big mistake. Computer science would have helped me immensely at MakeMyTrip. Career-wise, I think I laboured on for too long, an extra year or two, at AMF Bowling in the hope that the market would pick up. I should have read the writing on the wall. Way back in the 1995 to 1999 period, development of malls and the like was not taking take place in a big way. That was a limiting factor for large bowling centers to come up. These failures were courtesy of an inherent trait of stubbornness to prove to myself and to others, that a business/venture undertaken has to be successful. But then there's a fine line between stubbornness and perseverance.”

Indian failure “After selling brands such as Thums Up, Limca and Gold Spot to Coca-Cola in 1993, I made the mistake of retaining employees who were a part of the company. I ought to have offered voluntary retirement to these employees who were associated with the brands for a long time. And I should have recruited another set of people to work on the new product I had launched Bisleri bottled water. These employees were used to dealing with the earlier fast-moving brands and were clueless on how to move Bisleri. Those were really painful 4-5 years and I lost a lot of money during that time because I had employees who did not know how to market Bisleri. During those days we also launched Bisca cup noodles based on a board member's suggestion. Apparently he had the cup noodles when he travelled abroad and sold us the plan to launch it in India. Not only was the product ahead of its time for India, the distribution system required for noodles was completely different from what we were used to. Also, the fact that we had just no domain knowledge of the product made it a complete disaster.” Ramesh Chouhan

Indian failure It was Air Deccan had become a Rs 2,000-crore company with 3,500 employees and a market capitalization of $1.1 billion. With Air Deccan big and stable, I began incubating Deccan Express Logistics, a door-to-door multimodal air and ground logistics company. I decided to bring in a strategic investor and raise some capital. Investors and bankers lined up. I was on cloud nine. Two of my earlier investors gave me a few million dollars. I returned the money, partly out of arrogance, partly out of my optimism and stupidity. I thought they were not recognizing my contribution and being unfair to me. Then global markets crashed. The radiant cloud I was sailing on evaporated and I realized I had no parachute. Investors, credit lines dried up. With 150 staff and advance payments made for aircraft, cash was being burned. Call it hubris but we kept chasing more private equity players. joint-venture