2. Chapter 8 Types of Ventures

3. Principle 8 An important vigorous new business venture can emerge from a large firm when afforded the appropriate balance of independence, resources, and people to respond to the opportunity.

4. Chapter 8 Overview The goal of Chapter 8 is to explore the various organizational formats used to establish new ventures, ranging from small businesses to or consulting services to high-growth enterprises. “Innovation and corporate entrepreneurship are inextricably intertwined and fuel well- reasoned risk taking.” http://www.business-strategy-innovation.com/2010/03/inspiring-corporate- entrepreneurship-to.html

5. Presentation Outline  Independent vs. Corporate Ventures  Nonprofit and Social Ventures  Family Owned Businesses and Franchising  Corporate New Ventures  The Innovator’s Dilemma  Incentives for Corporate Venture Success  Building and Managing Corporate Ventures

6. Independent vs. Corporate Ventures Type of Business  Small Business  Niche Business  High-Growth Business  Radical-Innovation Business  Nonprofit Organization  Corporate New Venture Structural Characteristics  Sole proprietorship, family business  Exploits limited opportunity or market  Needs large initial investment; could seek disruptive innovation  Serves members or a social need  Independent unit of an existing corporation

7. Nonprofit and Social Ventures Wealth is often seen a financial, but many entrepreneurs seek to provide social wealth for their society. Nonprofit Organization: corporation, member association, or charitable organization that provides service but does not make a profit.  May generate a surplus, but must reinvest  Goal is social value rather than economic value  If IRS code 501 (c)(3)satisfied, then may be considered a charitable organization  Strive for transformative value for society at large

8. Nonprofit and Social Ventures Social Entrepreneur: a person or team that acts to form a new venture in response to an opportunity to deliver social benefits while satisfying environmental and economical value.  Goal is to harness innovation for social and public good

9. Family-Owned Business and Franchising Family-Owned Business: an organization that includes one or more members of a family who hold control of the firm.  Approx 80% of businesses in US and Canada are family owned  25% of fortune 1,000 businesses are family controlled  Offers Unique Advantages More trust between family members Long-term orientation Independence of action Resilience and commitment Family culture Natural succession

10. Family-Owned Business and Franchising  Offers Some Disadvantages Nepotism Family strife Financial strain Succession problems Limited access to capital markets Concentrated risk in case of business failure

11. Family-Owned Business and Franchising Franchise: A legal agreement in which the business owner has licensed aspects of that business to an individual or local firm  The Franchisor is the organization that owns the firm and controls the business format, trademarks and logos.  The franchisee is the business that had licensed use of these business assets There are three different franchise forms  Business-format franchise  Trade-name Franchise  Product-distribution franchise

12. Family-Owned Business and Fra nchising Advantages for Franchisee  Training  Continuing guidance  Proven business format  Brand appeal  Satisfaction and independence  National advertising  Site selection assistance Disadvantages for Franchisee  Franchise Fees  Control of the format by the franchisor  Unfulfilled promises  Rigidity of rules  High start-up costs  Restrictions on purchasing of supplies  Unfair restrictions of the contract resale  Financial failure of the franchisor

13. Family-Owned Business and Fra nchising Advantages for Franchisee  Training  Continuing guidance  Proven business format  Brand appeal  Satisfaction and independence  National advertising  Site selection assistance Disadvantages for Franchisee  Franchise Fees  Control of the format by the franchisor  Unfulfilled promises  Rigidity of rules  High start-up costs  Restrictions on purchasing of supplies  Unfair restrictions of the contract resale  Financial failure of the franchisor

14. Family-Owned Business and Fra nchising Advantages for Franchisor  Enhanced ability to expand  Expanded geographic reach  Use of the capital of the franchisee in expanding the business format  Attracts owner-managers for the franchise chain Disadvantages for Franchisor  Potential for uncooperative franchisees  Vary regulations from state to state  Unable to innovate quickly

15. Corporate New Ventures Corporate New Venture: a new venture started by an existing corporation for the purpose of initiating and building an important new business unit or organization.  Involves corporate entrepreneurship, also known as intrapreneurship  Focused on exploit previously unexplored areas  Characteristics of Corporate New Venture Newness and novelty of the product Independence and semi-autonomy High potential for innovation Unique entrepreneurial team leadership

16. Corporate New Ventures Large firms are generally weak at transforming opportunities into a new business. But, if managed autonomously and successfully, they provide access to resources and capabilities every start-up would be envious of. http://www2.marshall.usc.edu/media/pressroom/pdf_short/STRAT_CorpEntrep reneur.pdf

17. Corporate New Ventures Independent Venture  Team: best in industry  Culture: driven-team oriented  Contract: explicit – business plan  Incentives: equity  Oversight: board  External Feedback: customers/investors  Financial goals: IPO or M&A  Changes: quick ok from board Corporate New Venture  Team: best in firm  Culture: company’s culture  Contract: increasingly explicit  Incentives: varies: bonus, career growth  Oversight: upper management  External feedback: customers  Financial goals: break-even date, ROI  Changes to plan: multiple levels of approval

18. Corporate New Ventures Four general models of corporate entrepreneurship:  Opportunist  Enabler  Producer Usually employed when there is turbulence or high entry barriers in existing or targeted markets Expensive – prone to cutbacks (http://www.fastcompany.com/1656085/the-four-models-of- corporate-entrepreneurship-the-producer)  Advocate

19. Corporate New Ventures and The Innovator’s Dilemma Disruptive innovation can revolutionize industry structure and cause existing firms to decline and fail. Some potential problems include:  Knowing when to ignore and when to react to innovations  The creation of products that cannibalize existing sales  Developing new competencies, resources and value net relationships  Balancing autonomy with budgetary control

20. Corporate New Ventures Strengths  Ready access to capital  Access to capabilities or corporate employees  Suppliers willing to help in the design process  Emphasis on the marketing plan  Gain from brand equity of the parent firm  Access to technologies and processes of parent Weaknesses  May be subjected to a corporate budget process  Multiple control and review levels  Limited autonomy  Limited access to strong entrepreneurial talent  Risk-reward may be less attractive than for an independent entrepreneur  Limited to parent firm technologies and processes

21. Incentives for Corporate Venture Success “The problem is never how to get new, innovative thoughts into your mind, but how to get old ones out”  Dee Hock, founder of Visa Over time, large firms become structurally rigid and sluggish. The following are some ways to assist in CNV success:  Support for and recognition of employees who create and champion new ideas  A culture that favors individual or team initiative to create new ideas  Slack time for exploring not-yet-approved projects  Significant degree of autonomy  Effective rewards such as promotion, stock ownership, or bonuses

22. Building and Managing New Corporate Ventures Types of Corporate New Ventures:  New independent venture Requires executive champion  A spin-off or new company  A transfer of opportunity to product development department  Authorization of a small project

23. Building and Managing New Corporate Ventures Five-step process for establishing a CNV: 1.Identify and screen opportunities. 2.Refine the concept and determine feasibility. 3.Prepare a complete business plan. 4.Determine the best form of the Corporate New Venture. 5.Establish the CNV with talent, resources and capabilities transferred from the parent company.