1.

1 Entrepreneurship: Evolutionary
Development-Revolutionary
Impact
Evolution of Entrepreneurship
Entrepreneurship is from the French “entreprendre,” meaning “to undertake.”
 An entrepreneur is an innovator or developer who recognizes and seizes opportunities;
converts those opportunities into workable/marketable ideas; adds value through time,
effort, money, or skills; assumes the risks of the competitive marketplace to implement
these ideas; and realizes the rewards from these efforts.
 Characteristics of entrepreneurs:

o
 Personal initiative
 The ability to consolidate resources
 Management skills
 A desire for autonomy
 Risk taking
 Aggressiveness
 Competitiveness
 Goal-oriented behavior
 Confidence
 Opportunistic behavior
 Intuitiveness
 Reality-based action
 The ability to learn from mistakes
 The ability to employ human relations skills

No single definition of entrepreneur exists. Historical developments in

entrepreneurship:

o
 Recognition of entrepreneurs dates back to eighteenth-century
France.
 Until 1950, the majority of definitions and references came from
economists.
  Over the decade, writers have continued to modify the definition.
 Robert C. Ronstadt said, “Entrepreneurship is the dynamic process
of creating incremental wealth.”
 In the twentieth century, the word entrepreneur became closely
linked with free enterprise and capitalism.
 Entrepreneurs serve as agents for change, provide creative,
innovative ideas for business enterprise and help businesses grow and
become profitable.
 In the twenty-first century, entrepreneurs are considered heroes of
free enterprise.
 Many people now regard entrepreneurship as “pioneership” on the
frontier of business.

 An integrated definition of entrepreneurship recognizes entrepreneurship as a dynamic

process of vision, change, and creation.

Approaches to Entrepreneurship
THE MACRO VIEW
Presents a broad array of factors that relate to success or failure in contemporary
entrepreneurial ventures. Exhibits a strong external locus of control point of view.
The Macro View Entrepreneurial Schools of thought:

1.
1.
1.
1.
1. The Environmental School of Thought
2. The Financial/Capital School of Thought
3. The Displacement School of Thought

Major types of displacement include:


o


 Political displacement: Deals with government’s
policies and regulations
 Cultural displacement: Deals with social groups
precluded from professional fields
 Economic displacement: Deals with economic
variations of recession and depression

THE MICRO VIEW

Exhibits an internal locus of control point of view.
 Micro View Entrepreneurial  schools of thought

1.
1.
1.
1.
1. The Entrepreneurial Trait School of Thought
2. The Venture Opportunity School of Thought
3. The Strategic Formulation School of Thought

Entrepreneurial Revolution
A Global Phenomenon
According to GEM (Global Entrepreneurship Monitor) data:

o
 110 million people between 18 and 64 years old were actively
engaged in starting a business.
 140 million were running new businesses they started less than 3½
years earlier.
 250 million people were involved in early stage entrepreneurial
activity.

The Impact of Gazelles

New and smaller firms create the most jobs in the U.S. economy.
Fastest growing firms with at least 20 percent sales growth (for five years), starting
sales of at least $100,000.
GAZELLES AND INNOVATION
New and smaller firms have been responsible for 55 percent of the innovations in 362
different industries and for 95 percent of all radical innovations.
Gazelles produce twice as many product innovations per employee as do larger firms.
New and smaller firms obtain more patents per sales dollar than do larger firms.
GAZELLES AND GROWTH
During the last 10 years business start-ups have approached nearly 600,000 per year.
 GAZELLES AND SURVIVAL
About half of all start-ups last between five and seven years, depending on economic
conditions.

1.2 The Entrepreneurial Mind-Set

in Individuals: Cognition and Ethics
Entrepreneurial Cognition
Cognition is used to refer to :

1.
1.
 Mental functions
 Mental processes (thoughts)
 Mental states of intelligent humans.           

Metacognitive Perspective
Metacognitive model of the entrepreneurial mind-set integrates the combined effects of
entrepreneurial motivation and context, toward the development of metacognitive
strategies applied to information processing within an entrepreneurial environment.
Who Are Entrepreneurs?
Starting a new business requires more than just an idea; it requires a special person, an
entrepreneur, who combines sound judgment and planning with risk taking to ensure
the success of his or her own business.

Characteristics Associated with Entrepreneurial M

Determination and Perseverance Calculated Risk Taking
Drive to Achieve  High Energy Level 

Opportunity Orientation Creativity and Innovati

Persistent Problem Solving Vision

Seeking Feedback Passion

Internal Locus of Control  Team Building
Tolerance for Ambiguity  

Dealing with Failures

How Entrepreneurs Deals with Failures

o
 Entrepreneurs use failure as a learning experience. They have a
tolerance for failure.
 The most effective entrepreneurs are realistic enough to expect
difficulties and failures.
 If entrepreneurs deal effectively with grief that emanates from
failure then they will not become disappointed, discouraged, or depressed. In
adverse and difficult times, they will continue to look for opportunity.

The Grief Recovery Process

- is a negative emotional response from loss of something important that triggers
behavioral, psychological, and physiological symptoms.
- The emotions generated by failure (i.e., grief) can interfere with the learning process.
- A “loss orientation” towards grief recovery, which focuses on the failure, can
sometimes exacerbate negative emotional reactions to failure.
- A “restoration orientation,” alternatively, enables entrepreneurs to distract themselves
from thinking about the failure. However, avoiding negative emotions is unlikely to be
successful in the long-run
- Research indicates that entrepreneurs may recover more quickly from a failure if they
oscillates between a loss and a restoration orientation.

Dark Side of Entrepreneurs

Certain NEGATIVE factors may envelop entrepreneurs and dominate their behavior.
Although each of these negative factors has a positive aspect, it is important for
entrepreneurs to understand their potential destructive side as well.
The Entrepreneur’s Confrontation with Risk
Starting or buying a new business involves risk. A typology of entrepreneurial styles
helps describe the risk-taking activity of entrepreneurs. In this model, financial risk is
measured against the level of desire to gain profit from the venture.
Risk Taking Activity of Entrepreneurs:

o
 FINANCIAL RISK
 Career risk
 Family and social risk
 Psychic risk
Stress and the Entrepreneur
To achieve their goals, entrepreneurs are willing to tolerate the effects of stress: back problems,
indigestion, insomnia, or headaches. In general, stress can be viewed as a function of
discrepancies between a person’s expectations and ability to meet demands.
Lacking the depth of resources, entrepreneurs must bear the cost of their mistakes
while playing a multitude of roles, such as salesperson, recruiter, spokesperson, and
negotiator. Simultaneous demands can lead to role overload.
Entrepreneurs often work alone or with a small number of employees and therefore lack
the support from colleagues.
A basic personality structure, common to entrepreneurs and referred to as type A
personality structure, describes people who are impatient, demanding, and overstrung.
SOURCES OF STRESS
Four causes of entrepreneurial stress (Boyd and Gumpert)

o
 Loneliness
 Immersion in Business
 People Problems
 Need to Achieve

DEALING WITH STRESS

If stress can be kept within constructive bounds, it can increase a person’s efficiency
and improve performance.
Entrepreneurs Stress Vents:

1.
1.
1. Networking—One way to relieve the loneliness of running a
business is to share experiences by networking with other business owners.
2. Getting Away from It All—The best antidote could be a well-
planned vacation.
3. Communicating with Employees—Entrepreneurs are in close
contact with employees and can readily assess the concerns of their staff.
4. Finding Satisfaction Outside the Company—Entrepreneurs
need to get away from the business occasionally and become more
passionate about life itself; they need to gain some new perspectives.
5. Delegating—Entrepreneurs find delegation difficult because they
think they have to be at the business all the time and be involved in all
aspects of the operation.
 6. Exercising Rigorously—Research demonstrates the value of
exercise regimens on relieving the stress associated with entrepreneurs.

The Entrepreneurial Ego

Certain characteristics that usually propel entrepreneurs into success also, if exhibited
in the extreme have destructive implications for entrepreneurs.
Destructive Implications for Entrepreneurs:

1.
1.
1. Overbearing need for control—Entrepreneurs are driven by a
strong desire to control both their venture and their destiny.
2. SENSE OF DISTRUST Because entrepreneurs are continually
scanning the environment, it could cause them to lose sight of reality, distort
reasoning and logic, and take destructive action.
3. Overriding desire for success This can be dangerous because
there exists the chance that the individual will become more important than
the venture itself.
4. Unrealistic optimism—When external optimism is taken to its
extreme, it could lead to a fantasy approach to the business.

Ethical Dilemmas
Entrepreneurial Ethics
Today’s entrepreneurs are faced with many ethical decisions. As there is no simple
universal formula for solving ethical problems, entrepreneurs have to choose their own
codes of conduct; the outcome of their choices makes them who they are.
Ethics provides the basic rules or parameters for conducting any activity in an
“acceptable” manner.
Ethics represents a set of principles prescribing a behavioral code that explains what is
good and right or bad and wrong.
Ethical Rationalizations
Decision makers use one of four rationalizations to justify questionable conduct:

o


 That the activity is not “really” illegal or immoral
 That it is in the individual’s or the corporation’s best
interest
 That it will never be found out
  That, because it helps the company, the company will
condone it

            Morally questionable acts can be classified as: nonrole, role failure, role
distortion, and role assertion.
            The Matter of Morality

o


 Requirements of law may overlap at times but do not
duplicate the moral standards of society.
 Some laws have no moral content whatsoever.
 Some laws are morally unjust.
 Some moral standards have no legal basis.
 Legal requirements tend to be negative, morality
tends to be positive.
 Legal requirements usually lag behind the acceptable
moral standards of society

Complexity of Decisions
Business decisions, in the context of entrepreneurial ethics are complex. Why?

o
 Ethical decisions have extended consequences.
 Ethical questions have multiple alternatives—the choices are not
always “do” or “don’t do.”
 Ethical business decisions often have mixed outcomes.
 Most business decisions have uncertain ethical consequences.
 Most ethical business decisions have personal implications.

Online Ethical Dilemmas in E-Commerce


o
 Slow demise of face-to-face interactions cause entrepreneurs to
find ways to build trust.
 Entrepreneurs recognize that online consumer reviews are used to
inform purchasing decisions and are posted to reputation management
systems (Amazon and Yelp).
 Entrepreneurs find it far greater to exhibit strong ethical
responsibility in their actions.

MODULE 1 SUMMARY
Entrepreneurship: Theory, Process, Practice concentrates on entrepreneurs and
entrepreneurial ventures where the entrepreneur’s principal objectives are innovation,
profitability, and growth, not on small businesses, which, although they are
independently owned and operated, are not dominant in their fields and usually do not
engage in many new or innovative practices.
As Entrepreneurship defines it, entrepreneurship is a dynamic process of vision,
change, and creation. It requires an application of energy and passion toward the
creation and implementation of new ideas and creative solutions. Essential ingredients
include the willingness to take calculated risks—in terms of time, equity, or career; the
ability to formulate an effective venture team; the creative skill to marshal needed
resources; the fundamental skill of building a solid business plan; and, finally, the vision
to recognize opportunity where others see chaos, contradiction, and confusion.
Entrepreneurial Revolution that is occurring throughout the world, discussing important
statistics that support the entrepreneurial economy. For example, the U.S. Small
Business Administration has reported that, during the past ten years, new business
start-ups numbered nearly 600,000 per year. Approximately one new firm with
employees is established every year for every 300 adults in the United States. Because
the typical new firm has at least two owners/managers, 1 of every 150 adults
participates in the founding of a new firm each year. Substantially more—1 in 12—are
involved in trying to launch a new firm. And, during the “Great Recession” (as some
have called our lengthy recessionary period), more Americans have become
entrepreneurs than at any time in the past 20 years. The net result, then, is that the
United States has a very robust level of firm creation. Among the 6 million
establishments (single- and multisite firms) with employees, approximately 600,000 to
800,000 are added each year. That translates into an annual birthrate of 14 to 16 per
100 existing establishments.
Eight trends in entrepreneurship in the twenty-first century are also itemized and the
module ends with a review of three key concepts: entrepreneurship, entrepreneur, and
entrepreneurial management.   To be a successful entrepreneur, an individual must be
an independent thinker who is willing to take risks and to dare to be different. Personal
initiative, ability to consolidate resources, management skills, and risk taking are just a
few of the important qualities needed to be a successful entrepreneur.
The entrepreneurial perspective in individuals. deals with topics that can be useful in
becoming an entrepreneur. Most of the topics have to do with personal and
psychological traits that are hard to measure but are identifiable. It describes the most
common characteristics associated with successful entrepreneurs, the elements
associated with the “dark side” of entrepreneurship, as well as the ethical challenges
that entrepreneurs confront.
In attempting to explain the entrepreneurial mind-set within individuals, this module
presents the concepts of entrepreneurial cognition and metacognition in examining the
ways in which entrepreneurs view opportunities and make decisions. Concepts from
cognitive psychology are increasingly being found to be useful tools to help probe
entrepreneurial-related phenomena, and, increasingly, the applicability of the cognitive
sciences to the entrepreneurial experience are cited in the research literature. The
entrepreneurial cognitions view offers an understanding as to how entrepreneurs think
and “why” they do some of the things they do. For example, Cognitive adaptability,
which can be defined as the ability to be dynamic, flexible, and self-regulating in one’s
cognitions given dynamic and uncertain task environments, are important in achieving
desirable outcomes from entrepreneurial actions.
Characteristics of successful entrepreneurs. This list is long and ever expanding and the
characteristics are not exclusively the ones necessary to become a successful
entrepreneur. Some characteristics are commitment, determination, and perseverance,
which are all goal oriented. Also, the drive to achieve can be goal oriented. Other traits
are correcting problems and seeking associates with feedback. These are only a few of
the many that are there. Some of the traits involved in the risk area indicate that the
entrepreneur must be a calculated risk taker instead of a high risk taker. Also, the
entrepreneur must have a tolerance for failure; otherwise, there would be no risk. There
are other traits that are personal, such as vision, self-confidence, and optimism. These
traits can help with self-motivation and attitudes.
An examination of failure and the grief recovery process is introduced, because failure
is so often a learning experience for entrepreneurs.
Dark side of entrepreneurship, which encompasses the risks confronted by
entrepreneurs, including financial, career, psychic, family, and social risk. These risks
can lead to many types of stress caused by loneliness, immersion in business, people
problems, and the need to achieve. Possible solutions to ease stress are networking,
getting away from it all, communicating with subordinates, finding satisfaction outside
the company, and delegating. These, of course, are not sure bets for curing stress but
they can help.
Ethical side of entrepreneurship. Ethics is a set of principles prescribing a behavioral
code that explains right and wrong; it also may outline moral duty and obligations.
Because it is so difficult to define the term, it is helpful to look at ethics more as a
process than as a static code. Entrepreneurs face many ethical decisions, especially
during the early stages of their new ventures.
Decisions may be legal without being ethical, and vice versa. When making decisions
that border on the unethical, entrepreneurs commonly rationalize their choices. These
rationalizations may be based on morally questionable acts committed “against the firm”
or “on behalf of the firm” by the managers involved. Within this framework are four
distinct types of managerial roles: nonrole, role failure, role distortion, and role
assertion.
It is also important for entrepreneurs to realize that many decisions are complex and
that it can be difficult to deal with all of a decision’s ethical considerations. Some of
them may be overlooked, and some may be sidestepped because the economic cost is
too high. In the final analysis, ethics is sometimes a judgment call, and what is unethical
to one entrepreneur is viewed as ethical to another. Despite the ever-present lack of
clarity and direction in ethics, however, ethics will continue to be a major issue for
entrepreneurs during the new century.
To establish ethical strategies, some corporations create codes of conduct. A code of
conduct is a statement of ethical practices or guidelines to which an enterprise adheres.
Codes are becoming more prevalent in organizations today, and they are proving to be
more meaningful in their implementation.

2.1 The Entrepreneurial Mind-Set

in Organizations: Corporate
Entrepreneurship
Corporate Entrepreneurship and Innovation
The major thrust of corporate innovation is to develop the entrepreneurial spirit within
the boundaries of the organization, thus allowing an atmosphere of innovation to
prosper.
Definitions of corporate entrepreneurship:

o
 Corporate entrepreneurship as centering on re-energizing and
enhancing the firm’s ability to acquire innovative skills and capabilities.
 Corporate entrepreneurship as formal or informal activities that
create new businesses in established companies through product and
process innovations and market developments.
 Corporate entrepreneurship as corporate venturing—adding new
business to the corporation 
 Internal Corporate Venturing
 Cooperative Corporate Venturing
 External Corporate Venturing
 Corporate entrepreneurship as strategic entrepreneurship—
transformation of organizations via large-scale or otherwise highly
consequential innovations adopted in the firm’s pursuit of competitive
advantage
 Strategic Renewal
 Sustained Regeneration
 Domain Redefinition
 Organizational Rejuvenation
 Business Model Reconstruction

The Need for Corporate Entrepreneurship and Innovation

A company must always be ready and willing to accept innovations or it will quickly
become obsolete. The modern corporation must develop in-house entrepreneurship or
face stagnation, loss of personnel, and decline.
This need for corporate entrepreneurship has arisen in response to a number of
pressing problems:

o
 Rapid growth in the number of new and sophisticated competitors
 A sense of distrust in the traditional methods of corporate
management
 An exodus of some of the best and brightest people from
corporations to become small-business entrepreneurs (being an entrepreneur
is becoming more of a status symbol; many companies are losing their best
people, who are going out on their own; venture capital is becoming more
widely available for those who wish to go out on their own, thus making
entrepreneurship more attractive)
 International competition
 Downsizing of major corporations
 An overall desire to improve efficiency and productivity.

Obstacles to Corporate Entrepreneurship and Innovation

The obstacles to corporate entrepreneurship are usually due to ineffective traditional
management techniques.
The adverse effects of traditional management principles applied to new venture
development must be considered and corrected.
The following factors exist in large corporations that have exhibited successful
innovations:

o

 Atmosphere and vision
 Orientation to the market
 Small, flat organizations
 Multiple approaches
 Interactive learning
 Skunk Works

Corporate Entrepreneurship and Strategy

A Corporate Entrepreneurship (CE) strategy is manifested through the presence of an
entrepreneurial strategic vision, a pro-entrepreneurship organizational architecture, and
entrepreneurial processes and behavior exhibited across the organizational hierarchy.
CE strategy is about creating self-renewing organizations through the unleashing and
focusing of entrepreneurial potential that exists throughout those organizations.
Five critical steps of a corporate entrepreneurship strategy are:

o
 Developing the vision
 Encouraging innovation
 Structuring for an entrepreneurial climate
 Preparing individual managers for corporate innovation
 Developing venture teams

1. Developing the Vision

The first step in planning a strategy of corporate entrepreneurship is sharing the vision
of innovation that corporate leaders wish to achieve.
The vision must be clearly articulated by the organization’s leaders; however, specific
objectives are developed by managers and employees.
2. Encouraging Innovation
Two distinct types of innovation exist:

o


 Radical innovation—This type of innovation takes
experimentation and determined vision, which are not necessarily
managed.
 Incremental innovation—This type of innovation refers
to the systematic evolution of a product or service into newer markets.

Both types of innovation require vision and support. There needs to be a champion who
has the ability to develop and share a vision as well as top management support of the
innovative activities.

3M follows a set of innovation rules that encourages employees to foster ideas, which
are as follows:

o


 Don’t kill a project.
 Tolerate failure.
 Keep divisions small.
  Motivate the champions.
 Stay close to the customer.
 Share the wealth.

3. Structuring the Work Environment

Employee perception of an innovative environment is critical for stressing
management’s commitment to innovative projects. Melding individual attitudes, values,
and behavioral orientations with the organizational factors of structure and reward is
important.
Control versus Autonomy
The encouragement of corporate entrepreneurship can and often does result in
counterproductive, rogue behavior.
Deliberate design and development of organizational systems reflecting the
organizational dimensions for an environment conducive to corporate innovation is
critical.
Preparation for Failure
“Learning from failure” is an axiom in the corporate entrepreneurial community. Failure
in a project may cause grief; the organization should have social support mechanisms in
place to help with coping with failure.
Better coping skills build self-efficacy in corporate entrepreneurs and promote continued
corporate entrepreneurial behavior in the future
4. Preparing Management
Key decision makers must find ways to explain the purpose of using a corporate
innovation process to those from whom entrepreneurial behaviors are expected.
CE training programs can induce the changes needed in the work atmosphere to
develop more entrepreneurial activity.
The Corporate Entrepreneurship Assessment Instrument (CEAI) provides an instrument
for measuring five key elements of an organization’s entrepreneurial climate:

1.
1.
1.
1.
1. MANAGEMENT SUPPORT—the extent to which the
management structure itself encourages employees to believe that
innovation is, in fact, part of the role set for all organization members
2. AUTONOMY/WORK DISCRETION—the extent to
which workers are able to make decisions about performing their own
work in the way they believe is most effective
 3. REWARDS/REINFORCEMENT—the extent to which
rewards are contingent on performance, providing challenges,
increasing responsibilities, and making the ideas of innovative people
known to others in the organizational hierarchy
4. TIME AVAILABILITY—the extent to which individuals
have time to incubate ideas
5. ORGANIZATIONAL BOUNDARIES—the extent to
which people are encouraged to look at the organization from a broad
perspective

5. Developing I-Teams
            Innovation teams and the potential they hold for producing innovative results are
recognized as a twenty-first century productivity breakthrough.
An I-Team is composed of two or more people who formally create and share the
ownership of a new organization. The unit has a budget plus a leader who has the
authority to make decisions within broad guidelines. If the unit proves successful, it is
later integrated into the larger organization.

2.2 Social Entrepreneurship and

the Global Environment for
Entrepreneurship
Social Entrepreneurship
Defining the Social Entrepreneur
Social entrepreneurs are sometimes referred to as: 

o

 Public Entrepreneurs
 Civic entrepreneurs
 Social innovators

Social entrepreneurs are change agents:


o

 They create large-scale change using pattern-breaking ideas
 They address the root causes of social problems
  They possess the ambition to create systemic change by
introducing a new idea and persuading others to adopt.

These types of transformative changes can be national or global. They also can be
highly localized—but no less powerful—in their impact.
Defining the Social Enterprise
There are challenges to the boundaries of what is and what isn’t a social enterprise.
It is generally agreed that social entrepreneurs and their ventures are driven by social
goals; that is, the desire to benefit society in some way.
But because the social mission of social entrepreneurs is the most important criterion,
not wealth creation, arguments are made any social enterprise should be in the world of
not-for-profit organizations.

Social Enterprise and Sustainability

The basic challenge of social enterprise—addressing the obligations of a business to
society—is the same for all types of businesses—but questions concerning the extent to
which corporations should be involved in social obligations to society is open to debate.

Sustainable Entrepreneurship
Sustainable entrepreneurship includes:

o
 Ecopreneurship, which refers to environmental entrepreneurship with
entrepreneurial actions contributing to preserving the natural environment including
the Earth, biodiversity, and ecosystem.
 Social entrepreneurship, which encompasses the activities and processes
undertaken to discover, define, and exploit opportunities in order to enhance social
wealth.
 Corporate social responsibility, which refers to actions that appear to
further some social good, beyond the interests of the firm.

Ecopreneurship
The environment stands out as one of the major challenges of social enterprise.
 Entrepreneurs have an enormous challenge to build socially responsible organizations
for the future. Ecovision—attention to employees, the organization, and the environment
—is a possible leadership style for accomplishing this.
 A plan to create a sustainable future through a practical, clearly stated strategy, as
defined by Hawken and McDonough:

1.
 1.
1. Eliminate the concept of waste.
2. Restore accountability.
3. Make prices reflect costs.
4. Promote diversity.
5. Make conservation profitable.
6. Insist on accountability of nations.

Shared Value and the Triple Bottom Line

The Triple Bottom Line (TBL) is an accounting framework that goes beyond the
traditional measures of profit, return on investment, and shareholder value to
include environmental and social dimensions.
"Shared value” is an approach to creating economic value that also creates value for
society by addressing its needs and challenges.
Bottom-Line Measures of Economic Performance

o

 Personal income
 Cost of underemployment
 Establishment sizes
 Job growth
 Employment distribution by sector
 Percentage of firms in each sector
 Revenue by sector contributing to gross state product

Bottom-Line Measures of Environmental Performance


o

 Hazardous chemical concentrations
 Selected priority pollutants
 Electricity consumption
 Fossil fuel consumption
 Solid waste management
 Hazardous waste management
 Change in land use/land cover

Bottom-Line Measures of Social Performance


o

 Unemployment rate
 Median household income
  Relative poverty
 Percentage of population with a post-secondary degree or
certificate
 Average commute time
 Violent crimes per capita
 Health-adjusted life expectancy

Global Marketplace
Global Entrepreneurs
Global entrepreneurs rely on global networks for resources, design, and distribution.
They rise above nationalistic differences to see the big picture of global competition
without abdicating their own nationalities.
They confront the learning difficulties of language barriers head-on, recognizing the
barriers such ignorance can generate.
Diaspora Networks
Diaspora networks are relationships among ethnic groups that share cultural and social
norms.
They represent powerful advantages to global entrepreneurs because they speed the
flow of information across borders; they create bonds of trust; and they create
connections that help entrepreneurs collaborate within a country and across ethnicities.
The easy utilization of communications technology (Internet and Skype) and social
media (Facebook, LinkedIn, Twitter, etc.), make the linking together of diaspora
networks stronger than ever.
Global Organizations and Agreements
They contribute to significant international vehicles that have developed.
THE WORLD TRADE ORGANIZATION
The WTO is the umbrella organization governing the international trading system. Its job
is to oversee international trade arrangements.
THE NORTH AMERICAN FREE TRADE AGREEMENT
The North American Free Trade Agreement (NAFTA) is an international agreement
among Canada, Mexico, and the United States that eliminates trade barriers among the
three nations. It created the world’s largest free trade area, with strong protection for
patents, copyrights, industrial design rights, trade secret rights, and other forms of
intellectual property
THE EUROPEAN UNION
The EU is an economic and political union of 27 member states which are located
primarily in Europe.
Methods of Going International
Methods of going international are importing, exporting, international alliances and joint
ventures, direct foreign investment, and licensing
IMPORTING
Importing is buying and shipping foreign-produced goods for domestic consumption.
EXPORTING
Exporting is the shipping of a domestically produced good to a foreign destination for
consumption.
INTERNATIONAL ALLIANCES AND JOINT VENTURES
Three main types of international alliances: informal international cooperative alliances;
formal international cooperative alliances (ICAs); and international joint ventures.

o




 Informal alliances are not legally binding
and are limited in scope and time.
 Formal alliances usually require a formal
contract with specifics about what each company contributes and
involve a greater commitment by each company and a transfer of
proprietary information.
 Joint ventures occur when firms analyze the
benefits of creating a relationship, pool their resources, and create a
new venture. Joint ventures imply the sharing of assets, profits, risks,
and venture ownership.

 Advantages of Joint Ventures


o




 Combine the strengths of the partners
involved and thereby increase competitive position.


o
 



 Intimate knowledge of the local conditions
and government where the facility is located.
 Use the resources of the other firms
involved in the venture.
 Strategic fit.

 Disadvantages of Joint Ventures


o




 Fragmented control.

 DIRECT FOREIGN INVESTMENT

A direct foreign investment is a domestically controlled foreign production facility. Does
not imply that the firm owns a majority of the operation; can be achieved by acquiring an
interest in an ongoing foreign operation, by obtaining a majority interest in a foreign
company, by purchasing part of the assets of a foreign firm, or by building a facility in a
foreign country.
LICENSING
Licensing is a business arrangement in which the manufacturer of a product (or a firm
with proprietary rights over a certain trademark or technology) grants permission to
some other group or individual to manufacture that product in return for specified
royalties or other payments.
Three basic types of licensing arrangements revolve around patents, trademarks, and
technical know-how.
Researching Foreign Markets
Important parameters to identify and research include:

o inn





 Government regulations
 Political climate
  Infrastructure
 Distribution channels
 Competition
 Market size
 Local customs and culture

INTERNATIONAL THREATS AND RISKS

Dangers of foreign markets include political, economic, and financial risks, including:

o





 Ignorance
 Uncertainty
 Lack of information
 Restrictions imposed by the host
country
 Unstable governments
 Changes in tax laws
 Rapid rises in costs and raw
materials
 Fluctuating exchange rates
 Repatriation of profits and capital

3.1 - Innovation: The Creative

Pursuit of Ideas
Opportunity Identification
Opportunity identification is the central domain of entrepreneurship.
The first step for any entrepreneur is the identification of a “good idea.”
Sources of Innovative Ideas
Entrepreneurs, ever alert to opportunities that inhabit the external and internal
environments around them, often spot potential opportunities in all the following areas:

o

 Trends
  Unexpected Occurrences
 Incongruities
 Process Needs
 Industry and Market Changes
 Demographic Changes
 Perceptual Changes
 Knowledge-Based Concepts

click HERE for more details about "Opportunity Identification: The Search for New

Ideas"

Entrepreneurial Imagination and Creativity

The key to innovation is blending imaginative and creative thinking with a systematic,
logical process ability.
The Role of Creative Thinking
Creativity is the generation of ideas that results in the improved efficiency or
effectiveness of system.
Two approaches to creative problem solving:  adapting or innovating.
The Nature of the Creative Process
Creativity is a process that can be developed and improved.
It is a distinct way of looking at the world that is often illogical, involving seeing
relationships among things that others have not seen.
click HERE for more details about "Entrepreneurial Imagination and Creativity"

Innovation and the Entrepreneur

Innovation is a key function of the entrepreneurship process. It is the process by which
entrepreneurs convert opportunities into marketable ideas.
The Innovation Process
The innovation process is more than just a good idea. Innovation combines the vision to
create a good idea with the perseverance to implement the concept.
Types of Innovation

o
 Invention: Creation of new product service, or process.
 Extension: Expansion of a product, service, or process.
 Duplication: Replication of an already existing product, service, or
process adding own creative touch.
  Synthesis: The combination of existing concepts and factors into
new formulation

3.1.1 Opportunity Identification:

The Search for New Ideas
Opportunity identification is the central domain of entrepreneurship. The first step for
any entrepreneur is the identification of a “good idea.”
Sources of Innovative Ideas
Entrepreneurs, ever alert to opportunities that inhabit the external and internal
environments around them, often spot potential opportunities in all the following areas:
TRENDS
Trends signal shifts in the current paradigms (or thinking) of the major population.
Potential entrepreneurial ideas: social trends, technology trends, economic trends,
government trends
UNEXPECTED OCCURRENCES
Unexpected occurrences are the unexpected successes or failures that prove to be a
major surprise.
INCONGRUITIES
Incongruities exist when there is a gap or difference between expectations and reality.
PROCESS NEEDS
Process needs exist whenever there is demand for the entrepreneur to innovate and
answer a particular need.
INDUSTRY AND MARKET CHANGES
There are continual shifts in the marketplace caused by advances in technology,
industry growth, etc. The entrepreneur needs to be able to take advantage of any
resulting opportunity.
DEMOGRAPHIC CHANGES
Demographic changes arise from changes in population, age, education, occupation,
geographic locations, etc.
PERCEPTUAL CHANGES
Perceptual changes occur in people’s interpretation of facts and concepts.
KNOWLEDGE-BASED CONCEPTS
Knowledge-based concepts lead to the creation or development of something new.
The Knowledge and Learning Process
Entrepreneurs must be able to learn from their experiences, acquiring and transforming
information, knowledge, and experience into recognizable opportunities through the
exercise of their cognitive abilities.

3.1.2 Entrepreneurial Imagination

and Creativity
The key to innovation is blending imaginative and creative thinking with a systematic,
logical process ability.
The Role of Creative Thinking
Creativity is the generation of ideas that results in the improved efficiency or
effectiveness of system.
Two approaches to creative problem solving:  adapting or innovating.
The Nature of the Creative Process
Creativity is a process that can be developed and improved.
It is a distinct way of looking at the world that is often illogical, involving seeing
relationships among things that others have not seen.
The creative process has four commonly agreed-on phases or steps, as itemized below.
PHASE 1: BACKGROUND OR KNOWLEDGE ACCUMULATION
Background or knowledge accumulation provides the individual with a variety of
perspectives on the situation. This helps the entrepreneur develop a basic
understanding of the product or venture to be undertaken.
PHASE 2: THE INCUBATION PROCESS
The incubation process allows the individual to subconsciously mull over the information
gathered during the preparation stage. The individual “sleeps on it.”
PHASE 3: THE IDEA EXPERIENCE
The idea experience is the time when the idea or solution the individual is seeking is
discovered.
PHASE 4: EVALUATION AND IMPLEMENTATION
Successful entrepreneurs must be able to identify workable ideas, which they have the
skills to implement.
Developing Your Creativity
To improve one’s creative talents, be aware of some of the habits and mental blocks
that stifle creativity and practice exercises designed to increase creative abilities

3.1.3 Innovation and the

Entrepreneur
Innovation is a key function of the entrepreneurship process. It is the process by which
entrepreneurs convert opportunities into marketable ideas.
The Innovation Process
The innovation process is more than just a good idea. Innovation combines the vision to
create a good idea with the perseverance to implement the concept.
Types of Innovation

o Invention: Creation of new product service, or process.
o Extension: Expansion of a product, service, or process.
o Duplication: Replication of an already existing product, service, or process
adding own creative touch.
o Synthesis: The combination of existing concepts and factors into new
formulation

The Major Misconceptions of Innovation


o Misconception 1: Innovation is planned and predictable.
 Truth: Innovation is unpredictable and may be introduced by anyone.


o Misconception 2: Technical specification should be thoroughly prepared.
 Truth: Quite often it is more important to use a try-test-revise approach.


o Misconception 3: Innovation relies on dreams and blue-sky ideas.
 Truth: Innovators create from opportunities not daydreams.
o Misconception 4: Big projects will develop better innovations than smaller
ones.
 Truth: Smaller groups foster creative ideas better.
o Misconception 5: Technology is the driving force of innovation success.
 Truth: Not the only source.
  Truth: Market-driven innovations have the highest probability of
success

Principles of Innovation

o Be action-oriented; search for new ideas.
o Make the product, process, or service simple and understandable.
o Make the product, process, or service customer-based.
o Start small; begin small, plan for proper expansion.
o Aim high; seek a niche in the marketplace.
o Try-test-revise; help work out flaws.
o Learn from failures.
o Follow a milestone schedule; have schedule in order to plan and evaluate
the project.
o Reward heroic activity and give it respect.
o Work, work, work!

3.2 - Assessment of
Entrepreneurial Opportunities
The Challenge of New Venture Start-ups and
Pitfalls in Selecting New Ventures
400,000 new firms have emerged every year since 2010; that works out to
approximately 1,100 business start-ups per day. The reasons that entrepreneurs start
new ventures are similar to the characteristics (as discussed in previews modules) on
the entrepreneurial mind-set:
(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

Pitfalls in Selecting New Ventures

Six of the most important pitfalls commonly encountered in the process of selecting a
new venture are listed below.
1. Lack of Objective Evaluation
2. No Real Insight into the Market
3. Inadequate Understanding of Technical Requirements
4. Poor Financial Understanding
5. Lack of Venture Uniqueness
6. Ignorance of Legal Issues
click HERE for more details about "The Challenge of New Venture Start-Ups and Pitfalls
in Selecting New Ventures"

Critical Factors for New Venture Development

Critical Factors for New-Venture Development
Five factors are critical during the prestart-up and start-up phases of a new venture:

1.
1.
1. The relative uniqueness of the venture,
2. The relative investment size at start-up,
3. The expected growth of sales and/or profits as the venture moves through
its start-up phase,
4. The availability of products during the prestart-up and start-up phases,
5. The availability of customers during the prestart-up and start-up phases.

Uniqueness
Range of uniqueness in a new venture can be considerable. Uniqueness is further
characterized by the length of time a nonroutine venture will remain nonroutine.           
Investment
Required capital investment can vary considerably.  Extent and timing of funds needed
is critical.
Key questions to ask to determine the amount of funding needed during the start-up
phase:

o

 Will industry growth be sufficient to maintain break-even sales to
cover a high fixed cost structure during the start-up period?
 Do the principal entrepreneurs have access to substantial financial
reserves to protect a large initial investment?
 Do the entrepreneurs have the appropriate contacts to take
advantage of various environmental opportunities?
 Do the entrepreneurs have both industry and entrepreneurial track
records which justify the financial risk of a large-scale start-up?
click HERE to continue reading more details about Critical Factors for New Venture
Development

Why New Ventures Fail

Every year millions of dollars are spent on starting new enterprises, but only a small
percentage of new businesses is successful.
Most studies have found that the factors underlying the failure of new ventures are
within the control of the entrepreneur.  
Three major categories of causes for failure:
1. Product/Market Problems
2. Financial Difficulties
3. Managerial Problems

The Traditional Venture Evaluation Processes

A critical task of starting a new business is conducting solid analysis of the feasibility of
the product/service in getting off the ground.
Profile Analysis Approach
Different variables, which enable the entrepreneur to judge the potential of the business,
need to be investigated before the new idea is put into practice. An internal profile
analysis (provided as an experiential exercise at the end of the chapter) takes a
checklist approach, allowing entrepreneurs to identify major strengths and weaknesses
of a new venture, and can be used to assess the financial, marketing, organizational,
and human resources aspects of the new venture.
 Feasibility Criteria Approach
 Key questions to ask:

o


 Is it proprietary?


o


 Are the initial production costs realistic?


o

 
 Are the initial marketing costs realistic?


o


 Does the product have potential for very high margins?


o


 Is the time required to get to market and to reach break-
even realistic?


o


 Is the potential market large?


o


 Is the product the first of a growing family?
 Does an initial customer exist?
 Are the development costs and calendar times realistic?


o


 Is this a growing industry?
 Can the product—and the need for it—be understood by
the financial community?

 Comprehensive Feasibility Approach

Incorporates external factors in addition to those included in the criteria questions cited
above and looks at technical, market, financial, organizational, and competitive factors. .
Technical feasibility and marketability merit special attention.
click HERE for more details about "The Traditional Venture Evaluation Processes"

The Contemporary Methodologies for Venture

Evaluation
With newer movements taking shape in the everchanging entrepreneurial world such as
design methods to lean start-up procedures, the fast paced entrepreneurial environment
is demonstrating newer methods to enhance venture concepts through development.
The Design Methodology
Demand for design is becoming so great that universities are now building programs to
approach design rather than concentrating it in just technical schools.
DESIGN DEVELOPMENT
Utilizes skills we all possess but are generally ignored due to more conventional
problem solving practices. Takes the initial concept idea and develops a proof of
concept that elicits feedback from relevant stakeholders.

o


 Proof of Concept Feasibility
 Proof of Concept Desirability
 Proof of Concept Viability

Design-Centered Entrepreneurship
The entrepreneur applies design methods in four action stages of developing an
opportunity.

o


 Ideation
 Prototyping
 Market engagement
 Business model

The Lean Start-up Methodology

Provides a scientific approach to creating early venture concepts and delivers a desired
product to customer’s hands faster. This methodology is hypothesis-driven, and
entrepreneurs must work to gather and incorporate customer feedback early and often.
KEY LEAN START-UP KEY TERMINOLOGY
The Three A’s of Matrics:

o
 Actionable
 Accessible
 Auditable
3.2.1 The Challenge of New
Venture Start-Ups and Pitfalls in
Selecting New Ventures
400,000 new firms have emerged every year since 2010; that works out to
approximately 1,100 business start-ups per day. The reasons that entrepreneurs start
new ventures are similar to the characteristics (as discussed in previews modules) on
the entrepreneurial mind-set:
(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

Pitfalls in Selecting New Ventures

Six of the most important pitfalls commonly encountered in the process of selecting a
new venture are listed below.
1. Lack of Objective Evaluation

o
 Many entrepreneurs lack objectivity.
 All ideas should be subject to rigorous study and investigation.

2. No Real Insight into the Market


o
 Entrepreneurs must project the life cycle of the new product.
 Timing of product is critical.

3. Inadequate Understanding of Technical Requirements


o
 Entrepreneurs need to be thorough in studying a new product.
 Unexpected technical difficulties frequently pose time-consuming and
costly problems.
4. Poor Financial Understanding

o
 Entrepreneurs are sometimes ignorant of costs.
 Entrepreneurs are sometimes victims of inadequate research and
planning.
 Entrepreneurs quite often underestimate development costs by wide
margins.

5. Lack of Venture Uniqueness


o
 A new venture should be unique.
 Product differentiation is needed to separate product from those of
competitors.

6. Ignorance of Legal Issues

Business is subject to many legal requirements:

o

 A safe workplace
 Reliable and safe products and services
 Necessity for trademarks, patents, and copyrights

3.2.2 Critical Factors for New

Venture Development
Five factors are critical during the prestart-up and start-up phases of a new venture:
(1) the relative uniqueness of the venture,
(2) the relative investment size at start-up,
(3) the expected growth of sales and/or profits as the venture moves through its start-up
phase,
(4) the availability of products during the prestart-up and start-up phases, and
(5) the availability of customers during the prestart-up and start-up phases.

Uniqueness
Range of uniqueness in a new venture can be considerable.
Uniqueness is further characterized by the length of time a non-routine venture will
remain non-routine.
Investment
Required capital investment can vary considerably.
Extent and timing of funds needed is critical.
Key questions to ask to determine the amount of funding needed during the start-up
phase:

o
 Will industry growth be sufficient to maintain break-even sales to cover a
high fixed cost structure during the start-up period?
 Do the principal entrepreneurs have access to substantial financial
reserves to protect a large initial investment?
 Do the entrepreneurs have the appropriate contacts to take advantage of
various environmental opportunities?
 Do the entrepreneurs have both industry and entrepreneurial track
records which justify the financial risk of a large-scale start-up?

 Growth of Sales
 Key questions to ask about growth of sales during the start-up phase:

o
 What is the growth pattern anticipated for new-venture sales and profits?
 Are sales and profits expected to grow slowly or level off shortly after
start-up?
 Are large profits expected at some point with only small or moderate
sales growth?
 Are both high sales growth and high profit growth likely?
 Will there be limited initial profits with eventual high-profit growth over a
multiyear period?

 In answering these questions, it is important to remember that most ventures fit into
one of the three following venture classifications:

o
 Lifestyle ventures
 Independence, autonomy, and control are the primary driving forces.
 Sales and profits are deemed to provide a sufficient and comfortable
living for the entrepreneur.
 Small profitable ventures
 Financial considerations play a major role.
 Autonomy and ownership control are important factors.
 High-growth ventures
 Significant sales and profit growth are expected.
 May be possible to attract venture capital money.
  May be possible to attract funds raised through public or private
placements.

 Product Availability

o  Goods or services must be available.
o  Lack of product availability can affect the company’s image and its bottom line.

 Customer availability

o Risk continuum (two extremes):
o Customers willing to pay cash before delivery.
o Venture begun not knowing exactly who will buy the product.
o Two critical considerations:
o How long will it take to determine who the customers are?
o What are the customers’ buying habits?

3.2.3 Why New Ventures Fail

Every year millions of dollars are spent on starting new enterprises, but only a small
percentage of new businesses is successful.
Most studies have found that the factors underlying the failure of new ventures are
within the control of the entrepreneur.  
Three major categories of causes for failure:

 product/market problems
 financial difficulties
 managerial problems

3.2.4 The Traditional Venture

Evaluation Processes
A critical task of starting a new business is conducting solid analysis of the feasibility of
the product/service in getting off the ground.
Profile Analysis Approach
Different variables, which enable the entrepreneur to judge the potential of the business,
need to be investigated before the new idea is put into practice.
An internal profile analysis (provided as an experiential exercise at the end of the
chapter) takes a checklist approach, allowing entrepreneurs to identify major strengths
and weaknesses of a new venture, and can be used to assess the financial, marketing,
organizational, and human resources aspects of the new venture.
Feasibility Criteria Approach
Key questions to ask:

o Is it proprietary?
 Should permit a long head start against competitors.
 Should permit a period of extraordinary profits early to offset start-up
costs.


o Are the initial production costs realistic?
 Most estimates are too low.
 Careful detailed analysis should be made.


o Are the initial marketing costs realistic?
 Identify target markets.
 Identify market channels.
 Identify promotion strategy.


o Does the product have potential for very high margins?
 A necessity for a fledgling company
 Gross margins are important.


o Is the time required to get to market and to reach break-even realistic?
 The faster, the better.
 An error here can spell trouble later on.


o Is the potential market large?
 Must look three to five years into the future
 Market needs time to emerge.


o Is the product the first of a growing family?
o Does an initial customer exist?
o Are the development costs and calendar times realistic?
 Preferably, they are zero.
  A ready-to-go product gives the venture a big advantage over competitors.


o Is this a growing industry?
o Can the product—and the need for it—be understood by the financial
community?

Comprehensive Feasibility Approach

Incorporates external factors in addition to those included in the criteria questions cited
above and looks at technical, market, financial, organizational, and competitive factors. .
Technical feasibility and marketability merit special attention.
TECHNICAL FEASIBILITY

 Functional design of the product and attractiveness in appearance

 Flexibility for ready modification
 Durability of the materials from which the product is made
 Reliability
 Product safety
 Reasonable utility
 Ease and low cost of maintenance
 Standardization
 Ease of processing or manufacture
 Ease in handling and use

MARKETABILITY
Three major areas involved:

1. Investigating the full market potential and identifying customers (or users) for the
goods or service,
2. Analyzing the extent to which the enterprise might exploit this potential market,
and
3. Using market analysis to determine the opportunities and risk.

General information sources to consider:

 General economic trends

 Market data
 Pricing data
 Competitive data
3.2.5 The Contemporary
Methodologies for Venture
Evaluation
With newer movements taking shape in the everchanging entrepreneurial world such as
design methods to lean start-up procedures, the fast paced entrepreneurial environment
is demonstrating newer methods to enhance venture concepts through development.
The Design Methodology
Demand for design is becoming so great that universities are now building programs to
approach design rather than concentrating it in just technical schools.
DESIGN DEVELOPMENT
Utilizes skills we all possess but are generally ignored due to more conventional
problem solving practices.
Takes the initial concept idea and develops a proof of concept that elicits feedback from
relevant stakeholders.

o Proof of Concept Feasibility
o Proof of Concept Desirability
o Proof of Concept Viability

 Design-Centered Entrepreneurship
The entrepreneur applies design methods in four action stages of developing an
opportunity.

o Ideation
o Prototyping
o Market engagement
o Business model

The Lean Start-up Methodology

Provides a scientific approach to creating early venture concepts and delivers a desired
product to customer’s hands faster.
This methodology is hypothesis-driven, and entrepreneurs must work to gather
and incorporate customer feedback early and often.
KEY LEAN START-UP KEY TERMINOLOGY
The Three A’s of Matrics:

 Actionable
 Accessible
 Auditable

4.1 Pathways To Entrepreneurial

Pivot

Ventures
Creating New Ventures
Every prospective entrepreneur wants to know the best method for getting a new
business started.
New-New Approach to Creating New Ventures
The most effective way to start a new business is via the introduction of new products or
services into a market. Most business ideas for new ventures come from one’s
experience, such as prior jobs, hobbies or interests, and personally identified problems.
New-Old Approach to Creating New Ventures
Most small ventures do not start with a totally unique idea. Instead, they often
“piggyback” on someone else’s idea by either improving a product or offering a service
in an area where it is not currently available.
 
Examining the Financial Picture When Creating New Ventures
The worst thing an entrepreneur can do is adopt an “all or nothing” strategy to creating a
new venture. The entrepreneur must consider the enterprise’s financial picture.
Consideration of start-up and monthly expenses is a must. The entrepreneur must be
concerned with upside gain and downside loss (the profits the business can make and
the losses it can suffer). The entrepreneur must gain an adequate return on the amount
of money risked.

Acquiring an Established Entrepreneurial

Venture
Prospective entrepreneurs may elect to purchase an existing business rather than start
one, but purchasing a business venture is a complex process.
Personal Preferences - Entrepreneurs need to limit their choices of ventures to buy by
recognizing certain personal factors: background, skills, interests, and experience all
factors that should be weighed in selecting the type of business to buy.
Examination of Opportunities - Business brokers, newspaper ads, trade sources, and
professional sources can all be sources of information for possible businesses to buy.
Advantages of Acquiring an Ongoing Venture
Three of the most important advantages of acquiring an ongoing venture are discussed
below.
LESS FEAR ABOUT SUCCESSFUL FUTURE OPERATION - A successful business
has already proved that it has the ability to attract customers and control costs.
 REDUCED TIME AND EFFORT - An ongoing enterprise has already assembled the
inventory, equipment, personnel and facilities to run it. An ongoing enterprise has
already established relationships with suppliers, bankers, and other business people.
A GOOD PRICE - It may be possible to purchase on ongoing venture at a very good
price.
Evaluation of the Selected Venture
Specific factors can be useful in evaluating the venture being offered, such as the local
environment of the business, its location, profit potential, and tangible and intangible
business assets.
            Key Questions to Ask
            Asking the right questions is critical.
Why is the business being sold?
What is the current physical condition of the business?
What is the condition of the inventory?
What is the state of the company’s other assets?
How many of the employees will remain?
What type of competition does the business face?
What does the firm’s financial picture look like?
Negotiating the Deal, the potential buyer must negotiate the final deal. Information,
time, pressure, and alternatives are all factors that should be considered in the
negotiations. Without reliable information, the buyer is at a disadvantage; having more
time to make the deal is an advantage to that party; pressure from other owners can
influence the deal; and a lack of alternatives in whether to make the deal can conclude
negotiations quickly.

Franchising: The Hybrid

A franchise is any arrangement in which the owner of a trademark, trade name, or
copyright has licensed others to use it in selling goods or services. A franchisee is the
purchaser of a franchise, and a franchisor is the seller of the franchise.
How Franchising Works
            The franchisee usually contracts for the following business package:

o


 Make a financial investment in the operation
 Obtain and maintain a standardized inventory and/or
equipment package
 Maintain a specified quality of performance
 A franchise fee
 Engage in a continuing business relationship

The franchisor usually provides:


o


 The company name
 Symbols, logos, designs, and facilities
 Professional management training
 Sale of specific merchandise necessary for the unit’s
operations at wholesale prices
 Financial assistance
 Continuing aid and guidance

Advantages of Franchising
TRAINING AND GUIDANCE
BRAND-NAME APPEAL
A PROVEN TRACK RECORD
FINANCIAL ASSISTANCE
Disadvantages of Franchising
FRANCHISE FEES—It is not uncommon to be faced with fees of $50,000 to
$1,000,000.
FRANCHISOR CONTROL—The franchisor generally exercises a fair amount of control
over the operation in order to maintain a degree of uniformity.
UNFULFILLED PROMISES—In some cases, especially among less-known franchisors,
the franchisees have not received all they were promised.
Franchise Law
The courts tend to apply general common-law principles and appropriate federal or
state statutory definitions and rules, due to the absence of case law on franchises.
Termination provisions of franchise contracts normally favor the franchisors.
Evaluating Franchising Opportunities
            Activities that potential franchisees perform:
Learning of Franchising opportunities
Investigating the franchisor
Seeking professional help
Marking The decision: It’s up to the entrepreneur

4.2 Sources of Capital for

Entrepreneurs
The Search for Capital
Every entrepreneur faces the challenge of finding start-up capital. There are numerous
possibilities and combinations of financial packages that may be appropriate for a
business.
This module will examine the various forms of capital formation for entrepreneurs. Initial
consideration will be given to debt and equity financing in the form of commercial banks,
trade credit, accounts receivable financing, factoring and finance companies, and
various forms of equity instruments.

Debt versus Equity Financing

The use of debt to finance a new venture requires a payback of funds plus a fee,
whereas equity financing involves the sale of some of the ownership in the venture.
Debt Financing - a popular for short term borrowing (one year or less) for working
capital and for long term borrowing (one to five years or more) for the purchase of
property or equipment.
COMMERCIAL BANKS
Advantages of Debt Financing

o
 No relinquishment of ownership.
 More borrowing allows for potentially greater return on investment.
 During periods of low interest rates opportunity cost is justified.
Disadvantages of Debt Financing

o
 Regular (monthly) interest payments are required.
 Cash-flow problems can intensify because of payback responsibilities.
 Heavy use of debt can inhibit growth and development.

PEER-TO-PEER LENDING (P2P) - is the practice of lending money to unrelated

individuals, or “peers,” without going through a bank or other traditional financial
institution. Social lenders, often Internet-based sites, pool money from investors willing
to lend capital at agreed-upon rates. Once thought of as an alternative funding option
only for entrepreneurs unable to qualify for commercial loans, P2P lending is beginning
to attract borrowers among established entrepreneurs seeking quick capital without the
administrative overhead of traditional lenders.
OTHER DEBT-FINANCING SOURCES
Trade credit—Given by suppliers who sell goods on account; must be paid in 30 to 90
days.
Accounts receivable financing—Short-term financing; requires collateral.
Factoring—Sale of accounts receivable.
Finance companies—Asset-based lenders that lend money against assets such as
inventories, accounts receivable, and equipment
Equity Financing
Requires sharing ownership and profit with the funding source.                       
PUBLIC OFFERINGS
Advantages of public offerings:

o



 Size of capital amount
 Liquidity
 Value
 Image

Disadvantages of public offerings


o



  Costs
 Disclosure
 Requirements
 Shareholder pressure

PRIVATE PLACEMENT
Regulation D - is a federal regulation that limits the number and type of withdrawals
from savings, additional savings or money market accounts to six per month (per
account)
Regulation D eased reports required for selling stock 

o


 Rule 504-placements up to $1 million
 Rule 505-placements of up to $5 million
 Rule 506-placements in excess of $5 million

Crowdfunding - a practice that seeks funding for a venture by raising monetary

contributions from a large number of people, typically the internet.

The Venture Capital Market

Venture capitalists, experienced professionals, provide the following services:

o
 Capital for start-ups and expansion
 Market research for marketing department
 Management consulting
 Contact with prospective people
 Assistance in negotiating
 Help in establishing management and accounting controls
 Help in employee recruitment and development
 Help in risk management and establishing insurance
 Counseling and guidance

Recent Developments in Venture Capital

Following a five-year upward trend from 2004 to 2008, the global economic downturn in
2008 caused a major constriction in activity. VCs are far more inclined to investments in
later-stage companies, not start-ups or early-stage venture.
Other trends: Pension institutions are now dominant investor class; innovation has
become more global and is no longer the exclusive domain of Silicon Valley and Route
128 in Boston; funds are more specialized; syndicated deals are emerging and feeder
funds are emerging; small start-up investments are drying up; industry has become
more efficient and more responsive to the needs of the entrepreneur because of greater
professionalism and greater competition; legal and contractual environment is more
sophisticated.
Dispelling Venture Capital Myths
People have mistaken ideas about the role and function of venture capitalists.
Myth 1: Venture capital firms want to own control of your company and tell you
how to run the business
VCs want the entrepreneur and management team to run businesses profitably.
Myth 2: Venture capitalists are satisfied with a reasonable return on investments
If there is a high degree of risk, there must be a high return on investment.
Myth 3: Venture capitalists are quick to invest
It takes a long time to raise a venture capital.
Myth 4: Venture capitalists are interested in backing new ideas or high-
technology inventions—Management is a secondary consideration
Venture capitalists back only good management.
Myth 5: Venture capitalists need only basic summary information before they
make an investment
A detailed organized business plan is a must.
Venture Capitalists’ Objectives

o
 Concerned with return on investment
 Measure the product/service and management of a business 

Criteria for Evaluating New-Venture Proposals

    Stage 1: Initial screening
    Stage 2: Evaluation of the business plan
    Stage 3: Oral presentation
    Stage 4: Final evaluation
Evaluating the Venture Capitalist

o
 Does the venture capitalist understand the proposal?
 Is the individual familiar with the business?
  Is the person someone with whom the entrepreneur can work?

Informal Risk Capital: Angel Financing

Many wealthy people are looking for investment opportunities. They are referred to as
business angels or informal risk capitalists.
  Types of Angel Investors

o Corporate angels
o Entrepreneurial angels
o Enthusiast angels
o Micromanagement angels
o Professional angels

Build-Measure-Learn Feedback Loop

Validated Lear