Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 1 Bateman Snell Management 5th Edition Competing in the New Era

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Bateman Snell

Management

5thEdition

Competingin theNew Era


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Part TwoChapter 7 - New Ventures

Chapter OutlineIndependent EntrepreneursSpin-OffsIntrapreneurship


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Learning ObjectivesLearning 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


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Learning Objectives (cont.)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


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IntroductionIntroduction

Entrepreneurship occurs when an enterprising individual pursues a lucrative

opportunity entrepreneurs generate new ideas and turn them into business

venturesA 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


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Introduction (cont.)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


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Independent EntrepreneursIndependent 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


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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

businessesoffer low rents and shared costsoften universities provide technical and business serviceshave been successful throughout the U.S. and other regions of the world


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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 ideasidea 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 spaceentrepreneurs face huge obstacles

Side streets - heading down a road reveals unknown places and unexpected opportunities begin to appear


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To spotopportunities,be aware of:

Technologicaldiscoveries

CalamitiesEconomic

dislocations

Demographicchanges

Governmentrules changes

Spotting OpportunitiesSpotting Opportunities

Lifestyle andtaste changes


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Successfulentrepreneurstypically have:

Commitmentand determination

Creativity,self-reliance,adaptability

Tolerance ofrisk and

uncertainty

Leadership

Motivationto excel

Opportunityobsession

What Does It Take To Be A Successful Entrepreneur?What Does It Take To Be A Successful Entrepreneur?


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(cont.)Independent Entrepreneurs

(cont.)What does it take to be successful?

Making good choicesnew ventures differ along two dimensions

innovation - creation of something new and different risk - probability of major financial loss

psychological risk to reputation and egoentrepreneurial strategy matrix

matrix helpful in determining whether a particular venture meets entrepreneur’s particular objectives

matrix helps identify effective strategiesnew ventures do not always require cutting-edge technology or a new product


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Low HighRisk

(probability of a major loss)

High innovation

High risk

Low innovationLow risk

Low innovation

High risk

High innovation

Low risk

Low

High

Inno

vati

on(c

reat

ing

a un

ique

and

Dif

fere

nt p

rodu

ct/s

ervi

ce)

The Entrepreneurial Strategy Matrix

The Entrepreneurial Strategy Matrix


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(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 directionopportunity analysis - description of the product or service

assessment of the opportunity and the entrepreneur specification of required activities and resources sources of capital


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(cont.)Planning cont.)

key planning elementspeople - should be energetic, and have skills and relevant expertiseopportunity - 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


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(cont.)Planning (cont.)

selling the plan - important is whom you try to convince to back the plan

passive versus sophisticated investorstoday plans need to be developed and enacted quickly

nonfinancial resources - crucial to success of new venturenetworks - create social capitaltop management teams - affect company image, develop long-term 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


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(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


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(cont.)Entrepreneurial hazards

hazards of striking out on your own are manymay find out after starting a company that you don’t enjoy itsurvival is difficultfailure can be devastating

mortality - fate of the venture after the founder’s deathventure can outlive founder if:

company has gone public founder has planned an orderly family succession

entrepreneurs seldom do either


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(cont.)Entrepreneurial hazards (cont.)

inadequate delegation - entrepreneur’s desire to personally control every aspect of the business

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 usesmaintain inadequate control over financial resources

poor planning and controls - failure to anticipate problemsaversion to record keepingfailure to be vigilant over other aspects of the business


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(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 organizationspresented opportunities for new ventures


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Where are thebest people?

Domesticor globaloutlook?

Where is financingeasiest and

most suitable?

Will domestic inertiacripple international

operations?

Will global operatorscompete?

Where are theTargeted customers?

Should Business Begin Domestically Or Globally?

Should Business Begin Domestically Or Globally?


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Spin-OffsSpin-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


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Success/failure

Attractmanagement

team

Attractcapital

Productlife cycle

Type ofindustry

Establishedbusiness

Spin offto new

ventures

Stages Of The Spin-Off ProcessStages Of The Spin-Off Process


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Spin-Offs (cont.)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


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Spin-Offs (cont.)Spin-Offs (cont.)

The spin-off process (cont.) attracting management teams and capital

entrepreneur’s time usually spent pursuing her/his specialty must build a strong management team

search for capital is the greatest challenge for spin-off owners

Change in industry structure may be the most critical hazard for entrepreneurial firms is a common hazard


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IntrapreneurshipIntrapreneurship

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


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Intrapreneurship (cont.)Intrapreneurship (cont.)

Building intrapreneurship skunkworks - project team designated to produce a new,

innovative producthave specific goals and time frameheaded 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


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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


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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 tendenciesallow independent actioninnovativenessrisk takingbe proactivecompetitive aggressiveness


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Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 1 Bateman Snell Management 5th Edition Competing in the New Era