Starting a New Venture

Learning Outcomes
Describe the new venture creation process Compare and contrast business life cycles with industry life cycles Explain how opportunity recognition occurs Discuss the critical components of a business concept Describe the feasibility analysis process Explain bootstrapping as an entrepreneurial strategy

THE NEW VENTURE CREATION PROCESS

The environment is the most comprehensive component in the venture creation process. It includes all the factors that affect the decision to start a business, for example, government regulation, competitiveness, and life cycle stage. Within specific industries and in specific geographic regions, environmental variables and the degree of their impact will differ. The new venture process begins with an idea for a product, service, or business.

Feasibility Analysis
The entrepreneur develops an idea into a business opportunity or business concept that is then tested in the market through a process of feasibility analysis. Feasibility analysis is used to inform the entrepreneur about the conditions required to move forward and develop the business. This may involve market research. Once the entrepreneur has determined that the concept is feasible, a business plan is developed to detail how the company will be structured and to describe its operation

Viability
Testing the business concept in the real world is what actually determines if the business has viability. Thus, the business must actually be launched and operated in the environment to determine viability. In a business, the term viability is the point when the company is able to generate sufficient cash flows to allow the business to survive on its own without cash infusions from outside sources such as the entrepreneur's own resources, investors, or a bank loan.

The Five Stages of a Businesss Life Cycle

Pre Start-up Start-up Growth Maturity Rebirth or Decline
Getty Images

The Life Cycle of the Company

LAUNCHING A NEW BUSINESS

Three key issues in the pre-start-up phase: 1) Testing concept feasibility 2) Developing a business plan 3) Acquiring resources ($$$ and personnel) Three key issues in the start-up phase: 1) Finding customers 2) Building a structure 3) Generating positive cash flows
Getty Images

Opportunity Creation
Developing a product, service, process, or niche that has not existed before. Opportunity recognition requires high levels of creativity.

Opportunity Creation
Typically, opportunity creation involves an invention process that is characterized by four activities: connection, discovery, invention, and application
Getty Images

Opportunity Creation
Connection occurs when two ideas are brought together that normally are not juxtaposed, such as nature and machines, which produced the field of nanotechnology or microscopic machines that copy nature in the way that they operate. Discovery happens once a connection has been made. It is actually the result of the connection in the form of an idea. Inventions are the product of turning an idea into a product or service. Application comes about when the inventor is able to apply the invention to a number of different uses or applications in a variety of industries and situations.

Opportunity Recognition
The process of using creative skills to identify a new innovation --- (a product, service, process, or marketing method) --which is often based on something already existing in the marketplace.
Getty Images

How to recognize a business opportunity

List all the ideas in no particular order. Eliminate those ideas that cant generate a profit and dont fit the business model very well. Review the remaining ideas and choose the one that inspires the most passion and enthusiasm

The Initial Business Concept:

There are four essential elements required to test whether or not a potential business idea is feasible: What is the product and/or service that is the basis for the business? Who is the customer likely to be? What is the benefit of your product/service to the customer? How will the benefit be delivered?

Feasibility Analysis
The business concept (which is essentially a specific product or service) is tested through a process of feasibility analysis that answers three fundamental questions:
1. Are there customers and a market of sufficient size to make the concept feasible? 2. Do the capital requirements to start, based on estimates of sales and expenses, make sense? 3. Can an appropriate start-up team be put together to make it happen?

Components of Feasibility Analysis

Thus, there are actually four areas which are tested in the feasibility analysis:
The product/service Industry/market/consumer Founding team Financials

Feasibility Analysis: Key Questions - Industry

1. What are the demographics, trends, and life cycle of the industry 2. Are there any barriers to entry ? If so, what are they ? 3. What is the status of technology and R&D expenditures ? 4. What are typical profit margins in the industry ? 5. What are distributors, manufacturers, and suppliers saying about the industry ? 6. Who are the major players in the industry ?

Feasibility Analysis: Key Questions Market / Customer

1. What potential markets are available to the business ? 2. What are the demographics and psychographics of the target market ? 3. What is the profile of the first customer ? What is the pain that is being cured with the businesss product or service ? 4. What is the customer demand for the product or service ? How will you triangulate that demand figure to arrive at the best estimate of demand ?

Feasibility Analysis: Key Questions Product / Service

1. What are the features and benefits of the product or service? 2. What product development tasks must be undertaken and what is the timeline for completion ? 3. Which intellectual property rights can be acquired ? 4. How are these products or services differentiated from others in the market ? 5. Who are your competitors, and how are you differentiated from them ? 6. What are your competitors core competencies ? Do they have the ability to move into your competitive space ? 7. Which distribution channel alternatives are available to your business, and which customers will they serve ?

Feasibility Analysis: Key Questions Founding Team

1. What experience and expertise does the founding team bring to the business ? 2. What gaps do you have in experience or expertise ? 3. How will you fill those gaps ?

Feasibility Analysis: Key Questions Financials

1. What are your start-up capital requirements ? 2. What are your working capital requirements ? 3. What are your fixed cost requirements ? 4. How long will it take to achieve a positive cash flow ? 5. What is the break even point for the business ? 6. What are the detailed assumptions or explanation for the numbers you are projecting ? 7. What are the major milestones in the business for the next two years, and how will those milestones trigger changes in your business ? 8. What is the timeline for completion of all the tasks to start the business ?

Five Forces Analysis

Goals of Market Research

To find out: Who is most likely to purchase the product or service at market introduction? What do these customers typically buy, how do they buy it, and how do they hear about it? What is their buying pattern? How often do they buy? What are the customers needs and how can the new venture meet those needs?

Bootstrappers
Bootstrappers are start-up entrepreneurs who have no financial resources beyond their own savings. They realize that to get what they need to start their businesses location, equipment, money, and perhaps employeesthey must possess a double dose of ingenuity and supreme selfassuredness.

Successful Bootstrappers
John Schnatter founded Papa Johns International, the $164+ million pizza restaurant franchise, with $1,600 in personal savings. Bill Gates and Paul Allen started Microsoft in a cheap apartment in Albuquerque with virtually no overhead, a borrowed computer, and very little capital.

The Bootstrap Business Location

Businesses that dont require a storefront location can begin their development in a spare room or a garage. Negotiate free rent and lower lease rates in buildings where a lessor is having difficulty releasing the space. Lease a portion of a larger companys space and take advantage of its reception area and conference room.

Why are So Many Ventures Self-Funded?

Many new ventures are initially funded by the entrepreneur, because: Many lack a significant track record of success Many ventures have not fully defined themselves in the marketplace, which makes investment risky. Investors see new ventures as too risky

The Business Plan : Creating and Starting The Venture

Learning Objectives
To define what the business plan is, who prepares it, who reads it, and how it is evaluated. To understand the scope and value of the business plan to investors, lenders, employees, suppliers, and customers To identify information needs and sources for each critical section of the business plan. To enhance awareness of the ability of the internet as an information resource and marketing tool. To present examples and a step by step explanation of the business plan. To present helpful questions for the entrepreneur at each stage of the planning process. To understand how to monitor the business plan.

Planning as Part of The Business Operation

Planning is a process than never ends for a business. It is extremely important in the early stages of any new venture when the entrepreneur will need to prepare a preliminary business plan. As the venture grow up to mature business, planning will continue Plan may be short term or long term, strategic or operational.

What is Business Plan?

The business plan is a written document prepared by the entrepreneur that describes all the relevant internal and external elements and strategies for starting a new venture. It is a integration of functional plans such as marketing, finance, manufacturing, sales and human resources.

Who should write the plan?

The business plan should be prepared by the entrepreneur. The entrepreneur may consult with many other sources in its preparation, such as lawyers, accountants, marketing consultants, and engineers.

Scope and Value of the Business Plan Who Reads The Plans?
The business plan may be read by employees, investors, bankers, venture capitalists, suppliers, customers, advisors, and consultants There are three perspectives should be considered in preparing the plan :
Perspective of the entrepreneur Marketing perspective Investors perspective

Scope and Value

The business plan is valuable to the entrepreneur, potential investors, or even new personnel, who are trying to familiarize themselves with the venture, it goals, and objectives.
It helps determine the viability of the venture in a designated market It provides guidance to the entrepreneur in organizing his or her planning activities It serves as an important tool in helping to obtain financing.

How do Potential Lenders and Investors Evaluate The Plan?

Four Cs of Credit:
Characters Cash flow Collateral Equity of Contribution

Another
Marketable Payback period Risk Feasibility, etc

Presenting The Plan

It is often necessary for an entrepreneur to orally present the business plan before an audience of potential investors. In this typical forum the entrepreneur would be expected to provide a short (perhaps 20minutes or half-hour) presentation of the business plan.

Information Needs
Before committing time and energy to preparing a business plan, the entrepreneur should do a quick feasibility study of the business concept to see whether there a any possible barriers to success. The information, obtainable from many sources should focus on marketing (segmenting, targeting, and positioning), finance (list of all possible expenditures, demand forecast, revenue), and production (location, manufacturing operations, raw materials, equipment, labor skills, space, overhead) . Internet can be a valuable resource.

Outline of a Business Plan

Introductory Page
Name and address of business Name(s) and address(es) of principal(s) Nature of business Statement of financing needed Statement of confidentially of report

Outline
Executive Summary Three to four pages summarizing the complete business plan
What is the business concept or model? How is this business concept or model unique? Who are the individuals starting this business? How will they make money and how much?

Outline
Environmental and Industry Analysis
Future outlook and trends Analysis of competitors Market segmentation Industry and market forecasts

Description of Venture
Product(s) Service(s) Size of business Office equipment and personnel Background of entrepreneurs

Outline
Production Plan
Manufacturing process (amount subcontracted) Physical plant Machinery and equipment Names of suppliers of raw materials

Operational Plan
Description of companys operations Flow of orders for goods and/or services Technology utilization

Outline
Marketing Plan
Pricing Distribution Promotion Product forecasts Controls

Organizational Plan
Form of ownership Identification of partners or principal shareholders Authority of principals Management-team background Roles and responsibilities of members of organization

Outline
Assessment of Risk
Evaluate weakness of business New technologies Contingency Plans

Financial Plan
Pro forma income statement Cash flow projections Pro forma balance sheet Break-even analysis Sources and applications of funds

Outline
Appendix (contains backup material)
Letters Market research data Leases or contracts Price lists from suppliers.

Using and Implementing The Business Plan

The business plan is designed to guide the entrepreneur through the first year of operations. Implementation of the strategy contain control point to ascertain progress and to initiate contingency plan if necessary. Business plan not end up in a drawer somewhere once the financing has been attained and the business launched.

Measuring Plan Progress

Entrepreneur should check the profit and loss statement, cash flow projections, and information on inventory, production, quality, sales, collection of accounts receivable, and disbursements for the previous month
Inventory control Production control Quality control Sales control Disbursements

Updating the Plan

The most effective business plan can become outof-date if conditions change If the change are likely to affect the business plan, the entrepreneur should determine what revisions are needed In this manner, the entrepreneur can maintain reasonable targets and goals and keep the new venture on a course that will increase probability of success

Why Some Business Plans Fails?

Goals set by the entrepreneur are unreasonable. Goals are not measurable The entrepreneur has not made a total commitment to the business or to the family. The entrepreneur has no experience in the planned business. The entrepreneur has no sense of potential threats or weaknesses to the business. No customer need was established for the proposed product or service.

How does one start a new venture?

 Questions that keep a new venture focused on its customers
Who is your customer? How will you reach key customer market segments? What determines customer choices to buy or not buy your product/service? Why is your product/service a compelling choice for the customer? How will you price your product/service for the customer? How much does it cost to make and deliver your product/service? How much does it cost to attract a customer? How much does it cost to support and retain a customer?

How does one start a new venture?

 Basic items that should be included in a business plan:
Executive summary Industry analysis Company description Product and services description Market description Marketing strategy Operations description Staffing description Financial projection Capital needs Milestones

Presentations
Business Plan Analysis

Thank You