6 Summary Risk and Return Our greatest glory is not in never falling but in rising every time we fall. Confucius Summary What determines the success of entrepreneurial efforts and how can they be managed? A new venture that creates a novel solution to a problem will be subject to uncertainty of outcome. An action in an uncertain market is sure to experience a risk of delay or loss. It is the entrepreneur’s task to reduce and manage all risks as much as possible. ` Chapter 6: Summary Technology Ventures: From Idea to Enterprise

6 Risk and Return Risk is the chance or possibility of loss. Regret is the amount of loss a person can tolerate. Chapter 6: concept Technology Ventures: From Idea to Enterprise

6 Risk and Return Risk = Hazard x Uncertainty Decision Chapter 6: Figure 6.1 Technology Ventures: From Idea to Enterprise

Risk and Return 6 Economies of scale are expected based on the concept that larger quantities of units sold will result in reduced per-unit costs. Scalability refers to how big a firm can grow in various dimensions to provide more service. Question: A new firm plans to develop and sell a database offering information on college admissions and selectivity. If successful, will this firm expect economies of scale and scalability? Chapter 6: concept Technology Ventures: From Idea to Enterprise

Risk and Return 6 Network economies arise in industries where a network of complementary products is a determinant of demand (also called network effects). + Re-enforcing Loop Utility (Value) of the network Wide visibility and recognition of the value of the network Number of users on the network The reinforcing characteristic of a positive loop exhibiting network effects. Chapter 6: Figure 6.7 Technology Ventures: From Idea to Enterprise

6 Risk and Return Risk and Return Chapter 6: Figure 6.9 – return vs. risk Technology Ventures: From Idea to Enterprise

Risk and Return 6 The entrepreneur seeks to manage risks and attain economies of scale, scope, and networks while achieving scalability of the business. Chapter 6: Principle Technology Ventures: From Idea to Enterprise

Risk and Return 6 VENTURE CHALLENGE Describe the major risks for your venture. How can you reduce these risks? What is the potential for economies of scale and scope? Is this business scalable? Describe the venture’s potential for creating network effects. Chapter 6: Venture Challenge Technology Ventures: From Idea to Enterprise

6 DVD Video “Types of Risks” Jerry Kaplan (Winster) Risk and Return Chapter 6: DVD Video Technology Ventures: From Idea to Enterprise