entr quiz 2 (6 & 7)

internal problems

Involve adequate capital, cash flow, facilities/equipment, inventory control, human resources, leadership, organizational structure, and accounting systems.

•technical feasibility

Producing a product or service that will satisfy the expectations of potential customers

business broker

Professionals specializing in business opportunities often can provide leads and assistance in finding a venture for sale.

external problems

Related to customer contact, market knowledge, marketing planning, location, pricing, product considerations, competitors, and expansion.

institutional logic

Socially constructed, historical patterns of practices, assumptions, values, beliefs, and rules by which individuals provide meaning,

goodwill

The amount of value created by an owner of a business in terms of his or her time, effort, and public image with the business itself.

The Failure Process of a Newly Founded Firm

1.Extremely high indebtedness (poor static solidity) and small size 2.Too slow velocity of capital, too fast growth, too poor profitability (as compared to the budget), or some combination of these 3.Unexpected lack of revenue financing (poor dynamic liquidity) 4.Poor static liquidity and debt service ability (dynamic solidity)

•Franchisee Obligations:

1.Make a financial investment in the operation. 2.Obtain and maintain a standardized inventory and/or equipment package usually purchased from the franchisor. 3.Maintain a specified quality of performance. 4.Follow a franchise fee as well as a percentage of the gross revenues. 5.Engage in a continuing business relationship.

New-Venture Failure Prediction Model

1.Role of profitability and cash flows 2.Role of debt 3.Combination of both 4.Role of initial size 5.Role of velocity of capital 6.Role of control

The Cost of Franchising

1.The basic franchising fee 2.Insurance 3.Opening product inventory 4.Remodeling and leasehold improvements 5.Utility charges 6.Payroll 7.Debt service 8.Bookkeeping and accounting fees 9.Legal and professional fees 10.State and local licenses, permits, and certificates

•small profitable ventures

A venture in which the entrepreneur does not want venture sales to become so large that he or she must relinquish equity or ownership position and thus give up control over cash flows and profits, which it is hoped will be substantial.

profit trend

A venture's ability to generate a profit over a sustained period.

non-compete agreement

An agreement that the previous owner will refrain from conducting the same business within a reasonable distance for a period of at least five years.

unscrupulous practices

Business practices that are devoid of ethics and seek personal gain at any cost.

•microiterations

In design-centered entrepreneurship it is iterating within each action stage to improve the outcome.

macroiterations

In design-centered entrepreneurship it is moving from one particular action stage back to a previous stage for further development.

entrpeneur newness framework

pic on desktop

customer availability

•A critical consideration is how long it will take to determine who the customers are, as well as their buying habits.

the design methodology

•A process that shapes and converts ideas into form, whether that is a plan of action, an experience, or a physical thing. •An initial concept taken and developed into a proof of concept that elicits: •Proof of concept feasibility •Proof of concept desirability •Proof of concept viability

•Franchisee

•A purchaser of a franchise.

•Franchising

•Any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services.

product availability

•Availability of a salable good or service at the time the venture opens its doors. •Problems can occur because the product or service is still in development and needs further modification or testing. For example, "bugs" in a software firm.

•Prestart-Up Phase

•Begins with an idea for the venture, and ends when the doors are opened for business.

investment

•Capital investment to start a new venture can vary from less than $100,000 in some industries to millions of dollars in other industries.

•Start-Up Phase

•Commences with the initiation of sales activity and the delivery of products and services, and ends when the business is firmly established and beyond short-term threats to survival.

managerial problems

•Concept of a team approach •Human resource problems

•Methods for Getting a Business Started

•Creating a new venture •Acquiring an existing venture •Obtaining a franchise

market data

•Customers, customer demand patterns in seasonal variations in demand, and governmental regulations affecting demand

A Newness Framework for New Ventures

•Different Dimensions of Newness •Incremental market disruptionor •Radical market disruption •Leveraged by •Incremental technological advancesor •Radical technological advances

•Entrepreneurial Ecosystems

•Ecosystem: an agglomeration of interconnected individuals, entities, and regulatory bodies in an area. •Entrepreneurial Ecosystem: social and economic environment affecting local entrepreneurship.

•Design-Centered Entrepreneurship

•Entrepreneurs apply design methods in four action stages of developing an opportunity.

franchise law

•Franchise Rule governs franchise requirements. •Franchise Disclosure Document (FDD): •Divided into 23 categories that provide different segments of information for prospective franchisees. •Developed to provide guidance in complying with the Franchise Disclosure Rule that requires franchisors to make full presale disclosure about their franchises. •Prospective franchisee must receive FDD before signing a contract.

Franchising Disadvantages

•Franchise fees •Franchisor control •Unfulfilled promises`

Technical Requirements for Product and Services

•Functional design of the product and attractiveness in appearance •Flexibility, permitting ready modification of the external features of the product to meet customer demands or technological and competitive changes •Durability of the materials from which the product is made •Reliability, ensuring performance as expected under normal operating conditions •Product safety, posing no potential dangers under normal operating conditions •Reasonable utility, an acceptable rate of obsolescence •Ease and low cost of maintenance •Standardization through elimination of unnecessary variety among potentially interchangeable parts •Ease of processing or manufacture •Ease of handling and use

•Profile Analysis Approach

•Identifying and investigating the financial, marketing, organizational, and human resource variables prior to start-up.

•Mechanisms to Establish Legitimacy

•Identity mechanisms •Associative mechanisms •Organizational mechanisms

•Comprehensive Feasibility Approach

•Incorporates external factors in addition to those included in the criteria questions.

•New-Old Approach

•Individuals "piggy-backing" on someone else's idea by improving a product or service in an area in which it is not currently available. •Offer a product/service that is difficult to copy.

Factors Affecting Negotiations

•Information --- Company performance, competition, market, etc. -- Gather info from numerous sources; not just seller. •Time-- Having more time than the other party can be beneficial. •Pressure from others ---Partners, negotiators, etc. •Alternatives --- Parties with no alternatives have an interest in concluding negotiations quickly.

financial difficulties

•Initial undercapitalization •Assuming debt too early •Venture capital relationship problems

•Assessing the viability of a venture:

•Is it proprietary? •Are initial production costs realistic? •Are the initial marketing costs realistic? •Does the product have potential for very high margins? •Is the time required to get to market and reach the break-even point realistic? •Is the potential market large? •Is the product the first of a growing family? •Does an initial customer exist? •Are the development costs and calendar times realistic? •Is this a growing industry? •Can the product—and the need for it—be understood by the financial community?

Pitfalls in Selecting New Ventures

•Lack of objective evaluation •No real insight into the market •Inadequate understanding of technical requirements •Poor financial understanding •Lack of venture uniqueness •Ignorance of legal issues

•Poststart-Up Phase

•Lasts until the venture is terminated or the surviving organizational entity is no longer controlled by an entrepreneur.

•The Franchise Opportunity Decision

•Learning of Franchising Opportunities -- Sources: newspapers, trade publications, Internet, franchisors. •Investigating the Franchisor -- Deal with a legitimate franchisor. // Franchisor should also investigate prospective investors. •Seeking Professional Help - Consult an attorney with the contract./ Consult a banker to review the prospectus./ Consult an accountant to project income statements.

The Challenge of New Venture Legitimacy

•Legitimacy enables new ventures to overcome newness and allows acquisition of resources such as financial capital, human resources, and strategic relationships. •Basic Strategies •Conformance •Selection •Manipulation •Creation

Advantages of Acquiring an Ongoing Venture

•Less fear about successful future operation - Existing business has customers, control costs, profit •Reduced time and effort -- Already has inventory, equipment, personnel, facilities// Already has suppliers, bankers, accountants, lawyers •A good price - Owner may want to sell quickly// Owner will, however, know the fair market value

growth of sales

•Lifestyle ventures •Small profitable ventures •High-growth ventures

competitive data

•Major competitors and their competitive strength

Lean Start-Up Key Terminology

•Minimum Viable Product (MVP): •Three A's of Metrics - Actionable, Accessible, Auditable •Pivot •Build-Measure-Learn Feedback Loop •Validated Learning

•Successful Start-Up Characteristics

•More aggressive in making their business real •Undertake more activities than others •Act with more intensity •Make use of professional advice •Developed more detailed business plans •Obtain legitimacy with early stakeholders

•Approaches to Creating a New Venture

•New-new Approach •New-Old Approach

•Business Accelerators

•Offer support services and funding opportunities. •Entrepreneurs offer equity in their company.

•New-new Approach

•People's awareness of their daily lives for developing new business ideas. •Notice annoying everyday experiences or problems of known products or services.

•Entrepreneurial Motivations

•Personal characteristics •The environment •The venture

•Acquiring an Established Entrepreneurial Venture

•Personal preferences •Examination of opportunities Sources include: • . Business brokers • . Newspaper ads • . Trade sources • . Professional sources • . Online sources •Advantages of acquiring an ongoing venture

•Risk versus Reward Analysis

•Points out the importance of getting an adequate return on the amount of money risked.

product/marketing problems

•Poor timing •Product design problems •Inappropriate distribution strategy •Unclear business definition •Overreliance on one customer

•Business Incubators

•Provide services such as management training and office space.

•The Lean Start-Up Methodology

•Provides a scientific approach to creating early venture concepts and delivers a desired product to customers faster. •Reduces waste by maximizing the time and effort that goes into an incorrect hypothesis by putting a lean-focused process on the development of a product or service. •Entrepreneurs must work to gather and incorporate customer feedback early and often.

uniqueness

•Range can be considerable, extending from fairly routine to highly nonroutine.

pricing data

•Range of prices for the same, complementary, and substitute products; base prices; and discount structures

Why New Ventures Fail

1. product/marketing problems 2. financial difficulties 3. managerial problem

Critical Factors for New-Venture Development

1. uniqueness 2. investment 3. growth of sales 4. product availability 5. customer availability

•Franchisor Provides:

1.The company name 2.Identifying symbols, logos, designs, and facilities 3.Professional management training for each independent unit's staff 4.Sale of merchandise necessary for the unit's operation, equipment to run the operation, and the food or materials needed for the final product 5.Financial assistance, if needed 6.Continuing aid and guidance to ensure that everything is done in accordance with the contract

Components of New-Venture Motivation

1.The need for approval 2.The need for independence 3.The need for personal development 4.Welfare (philanthropic) considerations 5.Perception of wealth 6.Tax reduction and indirect benefits 7.Following role models

legal restraint of trade

A legal document signed by the seller of a business that restricts him or her from operating in the same business for a reasonable amount of time and within a reasonable geographic jurisdiction

conformance

A new venture does not question, change, or violate the social structure but rather "follows the rules."

•start-up problems

A perceived problem area in the start-up phase of a new venture, such as lack of business training, difficulty obtaining lines of credit, and inexperience in financial planning.

•prototyping

A physical representation of the venture that captures the essence of an idea in a form that can be shared with others for communication and feedback that closes the gap between concept and reality.

•validated learning

A process in which one learns by trying out an initial idea and then measuring it to substantiate the effect.

lifestyle ventures

A small venture in which the primary driving forces include independence, autonomy, and control.

•pivot

A structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.

Franchiser control

The franchisor generally exercises a fair amount of control over the operation in order to achieve a degree of uniformity.

growth stage

The third stage of a new venture life cycle, typically involving activities related to reformulating strategy in the light of competition

•minimum viable product (MVP)

This is the early version of the product that enables a full turn on the feedback loop with a minimum of effort.

high growth venture

When sales and profit growth are expected to be significant enough to attract venture capital money and funds raised through public or private placements.

Considerations When Buying a Business

•Request that the seller retain a minority interest in the business or establish the final purchase price dependent on the performance of the business over a three-to-five-year span. •Buyers should be wary of any promises made without written corroboration. •Spending time with the seller's books, reconstructing financial statements to determine how much cash is actually available, is an absolute. •Interview the owner, vendors, competitors, customers, and employees.

•Logics and Audiences Judging Legitimacy

•State logic (government agencies) •Professional logic (venture capitalists) •Corporate logic (corporate venture capitalists) •Community logic (crowdfunding platforms) •Market logic (angel investors)

Design-Centered Entrepreneurship

•Taking action and learning that culminates in a venture concept for further development. •Applying a prototyping stage that addresses the technical issues of the concept, and ensures that a feasible product or service can be made and delivered. •Incorporating microiterations (within each action stage to improve the outcome) and macroiterations (moving from one particular action stage back to a previous stage for further development).

Evaluation of the Selected Venture

•The Business Environment •Profits, Sales, and Operating Ratios •The Business Assets • . Inventory • . Furniture, equipment, fixtures • . Accounts receivable • . Trademarks, patents, copyrights, business name • . Goodwill

•Ideas for Potential New Businesses

•The U.S. Patent Office currently receives more than 500,000 patent applications per year.

•New-Venture Formation

•The number of new-venture start-ups has been consistently high at reports of more than 400,000 new firms in the United States every year since 2010.

•Upside Gain and Downside Loss Expectations

•The profits the business can make and the losses it can suffer. •How much money will the enterprise take in if all goes well? •How much will it gross if operations run as expected? •How much will it lose if operations do not work out well?

•Franchisor

•The seller of the franchise.

•Feasibility Criteria Approach

•The use of a criteria selection list to gain insights.

Franchising Advantages

•Training and guidance •Brand-name appeal •A proven track record •Financial assistance

•The Design Methodology

•Universities are now building programs that take a general approach to design rather than concentrating it in just technical schools like architecture and engineering. •Takes an initial concept idea and develops a proof of concept that elicits feedback from relevant stakeholders.

•General Economic Trends

•Various economic indicators such as new orders, housing starts, inventories, and consumer spending