1. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 1 Bateman Snell Management 5th Edition Competing in the New Era

2. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 2 Part Two Chapter 7 - New Ventures Chapter Outline Independent Entrepreneurs Spin-Offs Intrapreneurship

3. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 3 Learning Objectives After studying Chapter 7, you will know: the activities of entrepreneurship how to find and evaluate ideas for new business ventures what it takes to be a successful entrepreneur how to write a great business plan the important management skills, resources, and strategies needed to avoid failure and achieve success key criteria for deciding whether your start-up should be global from the outset

4. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 4 Learning Objectives (cont.) After studying Chapter 7, you will know: the process of spinning off new ventures how to foster intrapreneurship and entrepreneurial orientation in large companies

5. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 5 Introduction Entrepreneurship occurs when an enterprising individual pursues a lucrative opportunity entrepreneurs generate new ideas and turn them into business ventures A small business has fewer than 100 employees is independently owned and operated is not dominant in its field is not characterized by many innovative practices

6. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 6 Introduction (cont.) Entrepreneurial venture has growth and high profitability as its primary objectives is managed aggressively develops innovative strategies, practices, and products Sources of new venture creation independent entrepreneurship - individual establishes a new organization without the benefit of corporate support spin-offs - corporate managers become entrepreneurs by splitting from the parent firm and creating a new business intrapreneurs - corporate entrepreneurs who create a new venture working in big organizations

7. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 7 Independent Entrepreneurs Why become an independent entrepreneur? enjoy the challenge and profit potential, seek independence experience the satisfaction in building something from nothing may have limited opportunities elsewhere new immigrants may be blocked from conventional means of advancement

8. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 8 Independent Entrepreneurs (cont.) The role of the business environment entrepreneurs find success in favorable business environments success depends upon the foresight and talent to survive hostile environments business incubators - protected environments for new, small businesses offer low rents and shared costs often universities provide technical and business services have been successful throughout the U.S. and other regions of the world

9. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7- 9 Independent Entrepreneurs (cont.) What business should you start? The idea - a great product, an untapped market, and good timing are essential ingredients for success personal inspiration is a great source of ideas idea may be the founder’s desire to build a great organization sees the product as a vehicle for the company The opportunity - entrepreneurs spot, create, and exploit opportunities in a variety of ways The next frontier - outer space entrepreneurs face huge obstacles Side streets - heading down a road reveals unknown places and unexpected opportunities begin to appear

10. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-10 To spot opportunities, be aware of: Technological discoveries Calamities Economic dislocations Demographic changes Government rules changes Spotting Opportunities Lifestyle and taste changes

11. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-11 Successful entrepreneurs typically have: Commitment and determination Creativity, self-reliance, adaptability Tolerance of risk and uncertainty Leadership Motivation to excel Opportunity obsession What Does It Take To Be A Successful Entrepreneur?

12. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-12 Independent Entrepreneurs (cont.) What does it take to be successful? Making good choices new ventures differ along two dimensions innovation - creation of something new and different risk - probability of major financial loss psychological risk to reputation and ego entrepreneurial strategy matrix matrix helpful in determining whether a particular venture meets entrepreneur’s particular objectives matrix helps identify effective strategies new ventures do not always require cutting-edge technology or a new product

13. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-13 LowHigh Risk (probability of a major loss) High innovation High risk Low innovation Low risk Low innovation High risk High innovation Low risk Low High Innovation (creating a unique and Different product/service) The Entrepreneurial Strategy Matrix

14. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-14 Independent Entrepreneurs (cont.) Planning business plan - formal planning step in starting a new business that focuses on the entire venture and describes all the elements involved in starting it focuses on the venture’s market, strategies, and future direction opportunity analysis - description of the product or service assessment of the opportunity and the entrepreneur specification of required activities and resources sources of capital

15. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-15 Independent Entrepreneurs (cont.) Planning cont.) key planning elements people - should be energetic, and have skills and relevant expertise opportunity - should allow a competitive advantage that can be defended competition - identify competitors and their strengths and weaknesses predict competition’s responses to a new venture consider how to collaborate with competitors contexts - economic and regulatory environments should be favorable risk - must be understood and fully addressed

16. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-16 Independent Entrepreneurs (cont.) Planning (cont.) selling the plan - important is whom you try to convince to back the plan passive versus sophisticated investors today plans need to be developed and enacted quickly nonfinancial resources - crucial to success of new venture networks - create social capital top management teams - affect company image, develop long- term plans, support daily activities, and create information networks advisory boards - provide expertise about a variety of specific business matters and pass judgment on new ideas

17. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-17 Independent Entrepreneurs (cont.) Planning (cont.) nonfinancial resources (cont.) partners - help one another access capital, spread the workload, share the risk, and furnish expertise must: acknowledge one another’s talents communicate honestly listen to one another learn to trust each other

18. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-18 Independent Entrepreneurs (cont.) Entrepreneurial hazards hazards of striking out on your own are many may find out after starting a company that you don’t enjoy it survival is difficult failure can be devastating mortality - fate of the venture after the founder’s death venture can outlive founder if: company has gone public founder has planned an orderly family succession entrepreneurs seldom do either

19. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-19 Independent Entrepreneurs (cont.) Entrepreneurial hazards (cont.) inadequate delegation - entrepreneur’s desire to personally control every aspect of the business managers and workers depend too heavily on entrepreneur’s decisions results in lost opportunities and failure to develop employees misuse of funds - two types of mistakes apply financial resources to the wrong uses maintain inadequate control over financial resources poor planning and controls - failure to anticipate problems aversion to record keeping failure to be vigilant over other aspects of the business

20. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-20 Independent Entrepreneurs (cont.) Global start-ups a new venture that is international from the very beginning costs of doing business internationally have decreased reduced the competitive advantage of large organizations presented opportunities for new ventures

21. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-21 Where are the best people? Domestic or global outlook? Where is financing easiest and most suitable? Will domestic inertia cripple international operations? Will global operators compete? Where are the Targeted customers? Should Business Begin Domestically Or Globally?

22. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-22 Spin-Offs Spin-off division that splits from its parent company to become an independent company make products similar to those of owners’ former employers Why spin-offs occur occur frequently approved spin-off established company senses an opportunity it cannot pursue with internal resources can profit by selling its patents or investing in the new enterprise employer approval of spin-off is not necessary

23. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-23 Success/ failure Attract management team Attract capital Product life cycle Type of industry Established business Spin off to new ventures Stages Of The Spin-Off Process

24. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-24 Spin-Offs (cont.) The spin-off process early stage - spin-offs occur most often at the early stages of the product life cycle industry types - offer different opportunities for spin-offs fragmented industry - few entry barriers permit many competitors mature industry undergoing change - new competitors may have advantage over established competitors declining industry - established companies often seek opportunity in newer industries regardless of the situation, spin-off entrepreneur faces important challenges

25. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-25 Spin-Offs (cont.) The spin-off process (cont.) attracting management teams and capital entrepreneur’s time usually spent pursuing her/his specialty must build a strong management team search for capital is the greatest challenge for spin-off owners Change in industry structure may be the most critical hazard for entrepreneurial firms is a common hazard

26. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-26 Intrapreneurship Building support for your idea clear the investment with your immediate boss or bosses make cheerleaders - people who support the manager before formal approval from higher levels horse trading- offer promises of payoffs from the project in return for sponsor support get the blessing of relevant higher officials guarantee the project’s technical and political feasibility

27. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-27 Intrapreneurship (cont.) Building intrapreneurship skunkworks - project team designated to produce a new, innovative product have specific goals and time frame headed by respected manager bootlegging - informal (secretive) efforts by managers and employees to create new products or new processes Organizing new corporate ventures strategic alliances may be required for large scale innovation large companies outsource for innovation, providing entrepreneurial opportunities for small firms

28. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-28 Intrapreneurship (cont.) Hazards in intrapreneurship obvious risk: the effort can fail subtler, but possibly greater, risk is failing to foster intrapreneurship greatest risk is overreliance on a single project it is also risky to spread intrapreneurial efforts over too many projects hazards are related to scale one large project is a threat as are too many underfunded projects

29. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 7-7-29 Entrepreneurial orientation tendency of an organization to engage in activities designed to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods and services five tendencies allow independent action innovativeness risk taking be proactive competitive aggressiveness Intrapreneurship (cont.)