1. Recognizing Opportunities and Creating New Ventures13
Recognizing Opportunities and Creating New Ventures

2. After studying this chapter, you should have a good understanding of:
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Learning Objectives
After studying this chapter, you should have a good understanding of:
The role of new ventures and small businesses in the U.S. economy.
The importance of opportunity recognition, as well as the role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures.
The role of vision, dedication, and commitment to excellence in determining the quality of entrepreneurial leadership.
The different types of financing that are available to new ventures depending on their stage of development.
The importance of human capital and social capital as well as government resources in supporting new ventures and small businesses.
The three types of entry strategies—pioneering, imitative, and adaptive—that are commonly used to launch a new venture.
How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses.
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

3. All Small Companies by Industry
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Exhibit 13.1
All Small Companies by Industry
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

4. Types of Entrepreneurial Ventures
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Types of Entrepreneurial Ventures
Exhibit 13.2
Type
Characteristics
Family businesses
Definition: A family business, broadly defined, is a privately held firm in which family members have some degree of effective control over the strategic direction of the firm and intend for the business to remain within the family
Scope: According to the Family Firm Institute (FFI), family-owned businesses that meet the broad definition above comprise 80 to 90% of all business enterprises in North America, 30 to 35% of the Fortune 500 companies, and the majority of enterprises internationally. Further, 50 percent of the U.S. Gross Domestic Product (GDP), over $3.3 trillion, is generated by family-owned businesses.
Franchises
Definition: A franchise exists when a firm that already has a successful product or service (franchisor) contracts with another business to be a dealer (franchisee) by using the franchisor’s name, trademark, and business system in exchange for a fee. There are several types, but the most common is the business format franchise, in which the franchisor provides a complete plan, or format, for managing the business.
Scope: According to the International Franchise Association (IFA), franchising accounted for $1 trillion in annual retail sales in the United States in There are about 320,000 franchise businesses, employing more than 8 million people in 75 different industries.
Home-based businesses
Definition: A home-based business, also commonly referred to as SOHO (Small Office/Home Office), consists of a company with 20 or fewer employees, including the self-employed, free agents, e-lancers, telecommuters, or other independent professionals working from a home-based setting.
Scope: According to the National Association of Home-Based Businesses (NAHBB), approximately 20 million businesses are home-based. The U.S. Commerce Department estimates that more than half of all small businesses are home-based.
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

5. Opportunity Analysis Framework
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Exhibit 13.3
Opportunity Analysis Framework
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

6. Alternatives to Traditional Financing
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Alternatives to Traditional Financing
Exhibit 13.4
Method
Description
Leasing
Allows a start-up to hold on to its cash and minimize commitments to equipment or real estate that might need updating as the company grows (or shrinks). Leasing costs are deductible as a business expense.
Barter
A traditional noncash means of exchanging products or services. Bartering has enjoyed a resurgence in popularity because exchange services now available on the Internet are facilitating more barter transactions.
Credit cards
One of the fastest growing techniques for financing start-ups and number one among female entrepreneurs. It’s like a bank loan without the lengthy approval process. But the high interest rates that some cards charge could make it risky.
Supplier financing
Suppliers that let you pay for goods or services in 60 or 90 days rather than after only 10 to 30 days are, in effect, financing your purchase. Some suppliers will agree to this because they need your business as badly as you need their credit.
Factoring
Factoring is a method of raising cash by selling accounts receivables to a third party or financing against the value of receivables. It’s generally used only for short-term cash needs and often comes with a hefty interest charge.
Source: J. A. Fraser, “Plans for Growth,” Inc. Magazine, March 2001, pp ; J. A. Fraser, “A Hitchhiker’s Guide to Capital Resources,: Inc. Magazine, February 1998, pp ; and T. Owens, “Getting Financing in 1990, “ Small Business Reports, June 1990, pp