MGMT 3850 Exam #1

C. Overall Financial Attractiveness of the Proposed Venture

- A number of other factors are associated with evaluating the financial attractiveness of a proposed venture. Typically, these evaluations are based primarily on a new venture's projected financial rate of return. At the macro level, the following factors should be considered to determine whether the projected return is adequate to justify the launch of the business. a. The amount of capital invested b. The risks assumed in launching the business c. The existing alternatives for the money being invested d. The existing alternatives for the entrepreneur's time and efforts

becoming and entrepreneur - To Be Their Own Boss.

- T Many entrepreneurs want to be their own boss because either they have had a long-term ambition to own their own business or they have become frustrated working in traditional jobs

Why Do People Become Entrepreneurs?

- To Be Their Own Boss. traditional jobs. - To Pursue Their Own Ideas. realized.- To Pursue Financial Rewards.

The Difference Between Opportunities and Ideas

-An opportunity is a favorable set of circumstances that creates a need for a new product, service, or business. There are four essential qualities: it is (1) attractive, (2) durable, (3) timely, and (4) anchored in a product, service, or business that creates value for its buyer or end user -An idea is a thought, impression, or notion. It may or may not meet the criteria of an opportunity.

Common Myths About Entrepreneurs

-Myth 1: Entrepreneurs Are Born, Not Made -Myth 2: Entrepreneurs Are Gamblers -Myth 3: Entrepreneurs Are Motivated Primarily by Money -Myth 4: Entrepreneurs Should Be Young and Energetic -Myth 5: Entrepreneurs Love the Spotlight

feasibility analysis

-Part 1: product/service feasibility A. product/service desirability B. product/ service demand -Part 2: industry/ target market feasibility A. industry attractiveness B. target market attractiveness - Part 3: organizational feasibility A. management prowess B. resource sufficiency -Part 4: financial feasibility A. total start up cash needed B. financial performance of similar businesses C. overall financial attractiveness of the proposed venture -overall assessment

Techniques for Generating Ideas

-brainstorming, -focus groups, -library and internet research

characteristics of successful entrepreneurs

-passion for the business -product/customer focus -tenacity despite failure -execution intelligence

Types of Start-Up Firms

-salary substitute firms -lifestyle firms -entrepreneurial firms

1) Concept Test

A concept test entails showing a preliminary description of a product or service idea, called a concept statement, to industry experts and prospective customers to solicit their feedback. It is a one-page document that normally includes (1) a description of the product or service, (2) the intended target market, (3) the benefits of the product or service, (4) a description of how the product or service will be positioned relative to competitors, and (5) a brief description of the company's management team. After the concept statement is developed, it should be shown to at least 25 people who are familiar with the industry that the firm plans to enter and can provide informed feedback. i. A description of the product or service being offered ii. The intended target market iii. The benefits of the product or service iv. A description of how the product will be positioned relative to similar ones in the market v. A brief description of the company's management team

Millennial Entrepreneurs

A desire to pursue an entrepreneurial career is high among young people. According to a Bentley University survey, 66 percent of millennials have a desire to start their own businesses

Management Prowess

A firm should candidly evaluate the prowess, or ability, of its management team. Two of the most important factors in this area are the passion that the sole entrepreneur or management team has for the business idea and the extent to which the management team or sole entrepreneur understands the markets in which the firm will compete.

B. Target Market Attractiveness

A target market is a place within a larger market segment that represents a narrow group of customers with similar needs. The challenge in identifying an attractive target market is to find a market that's large enough to avoid attracting competitors at least until the entrepreneurial venture can get off to a successful start. The sources of information to mine and tap are not as obvious when investigating target market attractiveness opposed to industry attractiveness.

Three Ways to Identify Opportunities

A. Observing Trends B. Solving a Problem C. Finding Gaps in the Marketplace

Personal Characteristics of the Entrepreneur

A. Prior Industry Experience B. Cognitive Factors C. Social Networks D. Creativity

Job creation

According to the SBA, small businesses create a substantial number of net new jobs in the United States. Firms with 500 or fewer employees created more than 7 million out of the 11 million new jobs created during the recent economic recovery

Myth 4: Entrepreneurs Should Be Young and Energetic

Although it is important to be energetic, investors often site the strength of the entrepreneurs (in terms of business experience, skill, and talent) as their most important criterion in the decision to fund a new venture -What makes an entrepreneur "strong" in the eyes of an investor is experience, maturity, a solid reputation, and a track record of success

Women Entrepreneurs

Although men are still more likely to start businesses than women, the number of women-owned businesses is increasing. According to a study commissioned by American Express and OPEN, there were 11.3 million women-owned businesses in the United States in 2016.

Product/Customer Focus

An entrepreneur's keen focus on products and customers typically stems from the fact that most entrepreneurs are, at heart, craftspeople.

2.)Utilizing Online Tools, Such As Google AdWords and Landing Pages, to Assess Demand

Another common approach to assessing product demand is to use online tools, such as Google AdWords and landing pages. A landing page is a single Web page that typically provides direct sales copy, such as "click here to buy a Hawaiian vacation." The methodology for using Google AdWords and landing pages to assess the demand for a new product or service is explained in the chapter.

Salary-Substitute Firms

Are small firms that afford their owner or owners a similar level of income to what they would earn in a conventional job. Examples of salary-substitute firms are: - Dry cleaners, - Convenience stores, - Restaurants, - Accounting firms, and - Hairstyling salons.

Tenacity Despite Failure

Because entrepreneurs are typically trying something new, the failure rate associated with their efforts is naturally high. Developing a new business may require a certain degree of experimentation before a success is attained. Setbacks and failures inevitably occur during the process. The litmus test of entrepreneurs is their ability to persevere through setbacks and failures.

Entrepreneurial Firms

Bring new products and services to market by creating and seizing opportunities. Examples of entrepreneurial firms are Dropbox, Facebook, and Uber

Myth 2: Entrepreneurs are gamblers

Entrepreneurs are usually moderate risk takers, as are most people

What is entrepreneurship?

Entrepreneurship is defined as the process by which individuals pursue opportunities without regard to resources they currently control for the purpose of exploiting future goods and services.

Feasibility Analysis

Feasibility analysis is the process of determining if a business idea is viable. As a preliminary evaluation of a business idea, a feasibility analysis is completed to determine if an idea is worth pursuing and to screen ideas before spending resources on them. It follows the opportunity recognition stage but comes before the development of a business plan. Although the sequence makes perfect sense, statistics show that the majority of entrepreneurs do not follow this pattern before launching their ventures. Several studies have investigated why this is the case. The consensus of the research is that entrepreneurs tend to underestimate the amount of competition there will be in the marketplace and tend to overestimate their personal chances for success.

opportunities

For an entrepreneur to capitalize on an opportunity, its window of opportunity must be open. The term "window of opportunity" is a metaphor describing the time period in which a firm can realistically enter a new market.

A. Industry Attractiveness

Industries vary in terms of their overall attractiveness. In general, the most attractive industries have the following characteristics: 1. Are young rather than old 2. Are early rather than late in their life cycle 3. Are fragmented rather than concentrated 4. Are growing rather than shrinking 5. Are selling products or services that customers "must have" rather than "want to have" 6. Are not crowded 7. Have high rather than low operating margins 8. Are not highly dependent on the historically low price of a key raw material, such as gasoline or flour, to remain profitable

Industry/Target Market Feasibility Analysis

Industry/target market feasibility is an assessment of the overall appeal of the industry and the target market for the product or service being proposed. An industry is a group of firms producing a similar product or service, such as airplanes, fitness drinks, or children's toys. A target market is the limited portion of the industry that a particular business goes after. Most firms do not try to service an entire industry.

Innovation

Innovation is the process of creating something new, which is central to the entrepreneurial process. Small innovative firms are 16 times more productive than larger innovative firms in terms of patents per employee

a. Preparation

Is the background, experience, and knowledge that an entrepreneur brings to the opportunity recognition process.

c. Insight

Is the flash of recognition, when the solution to a problem is seen or an idea is born

Creativity

Is the process of generating novel or useful ideas. Opportunity recognition may be, at least in part, a creative process. It is easy to see the creativity involved in forming many products, services, and businesses. For an individual, the creative process can be broken down into five stages, as shown in the textbook. You will notice that we have emphasized the nature of continuous improvement in the diagram below

b. Incubation

Is the stage during which a person considers an idea or thinks about a problem; it is the "mulling things over" phase

e. Elaboration

Is the stage during which the creative idea is put into a final form. The details are worked out, and the idea is transformed into something of value

d. Evaluation

Is the stage of the creative process during which an idea is subjected to scrutiny and analyzed for its viability.

Myth 3: Entrepreneurs Are Motivated Primarily by Money

It is naïve to think that entrepreneurs don't seek financial rewards. As discussed previously, however, money is rarely the primary reason entrepreneurs start new firms. Also, what about Social ventures?

Cognitive Factors

Opportunity recognition may be an innate skill or a cognitive process. There are some who think that entrepreneurs have a "sixth sense" that allows them to see opportunities that others miss. This sixth sense is called entrepreneurial alertness. Entrepreneurial alertness is formally defined as the ability to notice things without engaging in deliberate search

becoming and entrepreneur- To Pursue Financial Rewards.

People start their own firms to pursue financial rewards. This motivation, however, is typically secondary to the first two and often fails to live up to its hype.

Product/Service Feasibility Analysis

Product/service feasibility analysis is an assessment of the overall appeal of the product or service being proposed. There are two components to product/service feasibility analysis: product/service desirability and product/service demand.

Lifestyle Firms

Provide their owner or owners the opportunity to pursue a particular lifestyle and earn a living while doing so. -Examples of lifestyle firms include ski instructors, golf pros, and tour guides. When I first arrived at UNT, people called me about starting Emu farms. They wanted a free of charge business plan to get started. Then we went to Alpacas and Vicunas. Obviously, these mostly failed. However, raising miniature cows, goats, sheep, and full sized Buffalo can make money if you develop a market.

2. Online Tools Available for Completing Feasibility Analysis

Rather than developing a formal concept statement, some entrepreneurs conduct their initial product/service feasibility analysis by simply talking through their ideas with prospective customers. The ideal combination is to do both—distribute a concept statement and engage in verbal give-and-take with as many industry experts and prospective customers as possible. There are also a growing number of online tools that help entrepreneurs quickly and inexpensively make contact with prospective customers and complete other steps in the feasibility analysis process. A sample of the online tools that are available are provided in chapter two.

Prior Industry Experience

Several studies show that prior experience in an industry helps entrepreneurs recognize business opportunities. By working in an industry, an individual may spot a market niche that is underserved. It is also possible that while working in a particular area, an individual builds a network of social contacts in that industry that may provide insights that lead to opportunities.

becoming and entrepreneur- To Pursue Their Own Ideas.

Some people are naturally alert, and when they recognize ideas for new products or services, they have a desire to see those ideas realized.

Solving a Problem

Sometimes identifying opportunities simply involves noticing a problem and finding a way to solve it. These problems can be pinpointed through observing trends and through more simple means, such as intuition, serendipity, or chance.Some business ideas are clearly gleaned from the recognition of problems in emerging trends. For example, some older people find traditional cell phones hard to use—the buttons are small, the text is hard to read, and it's often difficult to hear someone on a cell phone in a noisy room. To solve these problems, GreatCall, a recent start-up, is producing a cell phone called the Jitterbug, which is designed specifically for older users. A serendipitous discovery is a chance discovery made by someone with a prepared mind

The Entrepreneurial Process

Step 1: Deciding to become an entrepreneur. Step 2: Developing successful business ideas. Step 3: Moving from an idea to an entrepreneurial firm. Step 4: Managing and growing the entrepreneurial firm.

Execution Intelligence

The ability to effectively execute a business idea means developing a business model, putting together a new-venture team, raising money, managing finances, leading employees, and so on

Social Networks

The extent and depth of an individual's social network affects opportunity recognition. In one study, the differences between solo entrepreneurs (those who identified their business ideas on their own) and network entrepreneurs (those who identified their business ideas through social contacts) were examined. The researchers found that network entrepreneurs identified significantly more opportunities than solo entrepreneurs, but were less likely to describe themselves as being particularly alert or creative. An important concept that sheds light on the importance of social networks to opportunity recognition is the differential impact of strong-tie versus weak-tie relationships. Relationships with other people are called ties. Strong-tie relationships are characterized by frequent interactions, such as ties between coworkers, friends, and spouses. Weak-tie relationships are characterized by infrequent interaction, such as ties between casual acquaintances. It is more likely that entrepreneurs will get business ideas via weak-tie versus strong-tie relationships

observing trends

The first approach to identifying opportunities is to "observe trends" and study how they create opportunities for entrepreneurs to pursue. Economic forces affect consumers' level of disposable income. And, individual sectors of the economy have a direct impact on consumer buying patterns. 1) When the economy is strong, people have more money to spend and are willing to buy discretionary products and services that enhance their lives. In contrast, when the economy is weak, not only do people have less money to spend, but they are typically more reluctant to spend the money they have, fearing the economy may become even worse—and that in turn, they might lose their jobs because of a weakening economy. 2) An understanding of the impact of "social forces" on trends and how they affect new product, service, and business ideas is a fundamental piece of the opportunity recognition puzzle. For example, the persistent proliferation of fast-food restaurants isn't due primarily to people's love for fast food but rather to the fact that people are busy—the number of households with both parents working remains high. Some of the social trends that allow for new opportunities are: • Aging of the population • The increasing diversity of the population • Increased participation in social networks • Growth in the use of mobile devices • The increasing focus on health and wellness • Emphasis on clean forms of energy including wind, solar, biofuels, and others • Continual migration of people from small towns and rural areas to cities • Desire for personalization (which creates a need for products and services that people can tailor to their own tastes and needs) 3) Given the rapid pace of technological change, it is vital for entrepreneurs to remain on top of how new technologies affect current and future opportunities. Once a technology is created, products emerge to advance it. For example, the creation of the Apple iPhone, iPad, and similar devices has in turn spawned entire industries that produce compatible devices. 4.) Political action and regulatory changes also provide the basis for opportunities. For example, new laws create opportunities for entrepreneurs to start firms to help companies comply with these laws. This is currently happening as a result of the passage of the Affordable Care Act in that middle men have created businesses to help others obtain insurance (or be taxed). Political change also engenders new businesses and product opportunities. For example, global political instability and the threat of terrorism have resulted in many firms becoming more security conscious. These companies need new products and services to protect their physical assets and intellectual property, as well as to protect their customers and employees.

A. Product/Service Desirabilit

The first component of product/service feasibility analysis is to affirm that the proposed product or service is desirable and serves a need in the marketplace

A. Total Start-Up Cash Needed

The first issue refers to the total cash needed to prepare the business to make its first sale. An actual budget should be prepared that lists all the anticipated capital purchases and operating expenses needed to generate the first $1 in revenues. The financial feasibility analysis should state specifically where the money will come from to fund the venture's start-up costs.

Senior Entrepreneurs

The number of seniors (those 50 years of age and older) starting businesses is substantial and growing. In 2015, 5.4 percent of new businesses were started by people 62 years and olde

Passion for the Business

The number one characteristic shared by successful entrepreneurs is passion for the business. This passion typically stems from the entrepreneur's belief that the business will positively influence people's lives.

1) Talking Face-to-Face with Potential Customers

The only way to know if your product or service is what people want is by talking to them. The idea is to gauge customer reaction to the general concept of what you want to sell. Entrepreneurs are often surprised to find out that a product idea that they think solves a compelling problem gets a lukewarm reception when they talk to actual customer

Resource Sufficiency

The second area of organizational feasibility analysis is to determine whether the potential new venture has sufficient resources to move forward in order to successfully develop a product or service. The focus in organizational feasibility analysis should be on nonfinancial resources that are critical to many start-ups' success (Table 3.5). Types of nonfinancial resources that are critical to many start-ups' success: a. Affordable office space b. Lab space, manufacturing space, or space to launch a service business c. Contract manufacturers or service providers d. Key management employees (now and in the future) e. Key support personnel (now and in the future) f. Key equipment needed to operate the business (computers, machinery, delivery vehicles) g. Ability to obtain intellectual property protection h. Support of local governments and state government if applicable for business launch i. Ability to form favorable business partnerships

B. Financial Performance of Similar Businesses

The second component of financial feasibility analysis is estimating a proposed start-up's potential financial performance by comparing it to similar, already established, businesses. Obviously, this number will result in approximate rather than exact numbers. There are several ways of doing this, all of which involve a little ethical detective work.

B. Product/Service Demand

The second component of product/service feasibility analysis is to determine if there is demand for the product or service. The commonly used methods for doing this are shown below.

Finding Gaps in the Marketplace

The third approach to identifying opportunities is to recognize a need that consumers have that is not being satisfied—by either large, established firms or entrepreneurial ventures. Large retailers compete primarily on price by serving large groups of customers with similar needs. They do this by offering the most popular items targeted toward mainstream consumers. Although this approach allows the large retailers to achieve economies of scale, it leaves gaps in the marketplace. This is the reason that small clothing boutiques and specialty shops exist. The small boutiques, which often sell designer clothes or clothes for hard-to-fit people, are willing to carry merchandise that doesn't sell in large enough quantities for Wal-Mart or Costco to carry. A common way that gaps in the marketplace are recognized is when people become frustrated because they can't find a product or service that they need and recognize that other people feel the same way.

3) Library, Internet, and Gumshoe Research

The third way to assess demand for a product or service idea is by conducting library, Internet, and gumshoe research. Although talking to prospective customers is critical, collecting secondary data on an industry or business idea is also helpful. For your particular product or service you need archival as well as primary forms of research to assess likely demand. Your college or university library is a good place to start.

Minority Entrepreneurs

There has been a substantial increase in minority entrepreneurs in the United States. In 2012 (the most recent stats available), there were 8 million minority-owned firms. The average gross receipts for minority-owned firms was $58,119

ideas

This is a critical point because, as we noted in Chapter 1, many businesses fail not because the entrepreneurs that started them didn't work hard, but because there was no real opportunity to begin with

Myth 1: Entrepreneurs Are Born, Not Made

This myth is based on the mistaken belief that some people are genetically predisposed to be an entrepreneur.

Why Is entrepreneurship Important?

We want to note here that established firms with an orientation toward acting entrepreneurially practice corporate entrepreneurship. All firms fall on a conceptual continuum that ranges from highly conservative to highly entrepreneurial.

Developing Skills for your Career

Whether you want to be an entrepreneur or not, the contents of this book address a number of "employability" skills that are critical to have a successful career in organizations. Key among these skills are ethics and social responsibility, critical thinking, collaboration, and data literacy

Myth 5: Entrepreneurs Love the Spotlight

While some entrepreneurs are flamboyant, the vast majority of them do not seek or attract public attention. Typically those that are working on proprietary products or services avoid public notice

five steps

a. Preparation b. Incubation c. Insight d. Evaluation e. Elaboration

organizational Feasibility Analysis

conducted to determine whether a proposed venture has sufficient management expertise, organizational competence, and resources to successfully launch. There are two primary issues to consider in this area: management prowess and resource sufficiency.

Financial Feasibility Analysis

is the final component of a comprehensive feasibility analysis. For feasibility analysis, a preliminary financial assessment is usually sufficient. The most important issues to consider at this state are total start-up cash needed, financial performance of similar businesses, and the overall financial attractiveness of the proposed venture

Corporate Entrepreneurship

‒ Is the conceptualization of entrepreneurship at the firm level. ‒ All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial. ‒ The position of a firm on this continuum is referred to as its entrepreneurial intensity.

Entrepreneurial Firms

• Proactive • Innovative • Risk taking

Conservative Firms

• Take a more "wait and see" posture • Less innovative • Risk averse