PowerPoint Presentation by Charlie Cook C h a p t e r 6 Introduction to Entrepreneurship, Ninth Edition Part II Launching Entrepreneurial Ventures The Assessment Function with Opportunities © 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

6–2 The Challenge of New-Venture Start-Ups New Venture Formation New Venture Formation  600,000 new firms have emerged in the United States every year since the mid-1990s. Ideas for Potential New Businesses Ideas for Potential New Businesses  The U.S. Patent Office currently receives more than 500,000 patent applications per year.

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–3 Components of New-Venture Motivation 1. The need for approval 2. The need for independence 3. The need for personal development 4. Welfare (philanthropic) considerations 5. Perception of wealth 6. Tax reduction and indirect benefits 7. Following role models

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–4 Reasons for Starting a Venture Entrepreneurial Motivations The Venture The Environment Personal Characteristics

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–5 Pitfalls in Selecting New Ventures Lack of objective evaluation Lack of objective evaluation No real insight into the market No real insight into the market Inadequate understanding of technical requirements Inadequate understanding of technical requirements Poor financial understanding Poor financial understanding Lack of venture uniqueness Lack of venture uniqueness Ignorance of legal issues Ignorance of legal issues

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–6 Phases in New-Venture Start-ups Prestart-up Phase Prestart-up Phase  Begins with an idea for the venture and ends when the doors are opened for business. Start-up Phase Start-up Phase  Commences with the initiation of sales activity and the delivery of products and services and ends when the business is firmly established and beyond short-term threats to survival. Poststart-up Phase Poststart-up Phase  Lasts until the venture is terminated or the surviving organizational entity is no longer controlled by an entrepreneur.

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–7 Critical Factors for New-Venture Development 1. Uniqueness of venture 2. Investment size 3. Sales growth expectations  Lifestyle ventures  Small profitable ventures  High-growth ventures 4. Product availability 5. Customer availability

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–8 Why New Ventures Fail Product/Market Problems Product/Market Problems Financial Difficulties Financial Difficulties Managerial Problems Managerial Problems

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–9 Feasibility Criteria Approach Assessing the viability of a venture: Assessing the viability of a venture:  Is it proprietary?  Are the initial production costs realistic?  Are the initial marketing costs realistic?  Does the product have potential for very high margins?  Is the time required to get to market and to reach the break-even point realistic?  Is the potential market large?  Is the product the first of a growing family?  Does an initial customer exist?  Are the development costs and calendar times realistic?  Is this a growing industry?  Can the product and the need for it be understood by the financial community?

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–10 The New-Venture Evaluation Process Profile Analysis Profile Analysis  Involves identifying and investigating the financial, marketing, organizational, and human resource variables that influence the business’s potential before the new idea is put into practice. The Feasibility Criteria Approach The Feasibility Criteria Approach  Involves the use of a criteria selection list from which entrepreneurs can gain insights into the viability of their venture. Comprehensive Feasibility Approach Comprehensive Feasibility Approach  Incorporates external factors in addition to those included in the criteria questions.

Technical Feasibility Technical Requirements for Products and Services: Technical Requirements for Products and Services:  Functional design and attractiveness in appearance  Flexibility, permitting ready modification of the external features of the product to meet customer demands or technological and competitive changes  Durability of the materials from which the product is made  Reliability, ensuring performance as expected under normal operating conditions  Product safety, posing no potential dangers under normal operating conditions  Reasonable utility, an acceptable rate of obsolescence  Ease and low cost of maintenance © 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–11

Various economic indicators such as new orders, housing starts, inventories, and consumer spending Range of prices for the same, complementary, and substitute products; base prices; and discount structures Customers, customer demand patterns in seasonal variations in demand, and governmental regulations affecting demand Market Feasibility (Marketability) General economic trends Market data Pricing data © 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 6–12