chapter 6 Flashcards
seven components of new-venture motivation
- The need for approval
- The need for independence
- The need for personal development
- Welfare considerations
- Perception of wealth
- Tax reduction and indirect benefits
- Following role models
Six 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
Five critical factors for new venture development
- Uniqueness
- Investment
- Growth of sales
- Product availability
- Customer availability
Why New Ventures Fail
- Product/market problems
- The financial difficulties
- Managerial problems
Product/market problems involved the following factors:
- Poor timing
- Product design problems
- Inappropriate distribution strategy
- Unclear business definition
- Overreliance on one customer
The financial difficulties category involved the following factors:
Initial undercapitalization
- Undercapitalization contributed to failure in 30% of
the case studies
Assuming debt too early
- Some of the firms attempted to obtain debt financing
too soon and in too large an amount. This led to debt
service problems
Venture capital relationship problems
- Differing goals, visions, and motivations of the
entrepreneur and the venture capitalist resulted in
problems for the enterprise
Managerial problems involved two important factors
- Concept of a team approach
2. Human resource problems
Types and classes of first-year problems
- obtaining external financing
- internal financial management
- sales/marketing
- product development
- product/operations management
- general management
- human resource management
- economic environment
- regulatory environment
The New-Venture Evaluation Process
entrepreneurs must put ideas through feasibility analyses to discover if their approach proposals contain any fatal flaws
Profile analysis approach
Is a tool that enables entrepreneurs to judge a business ventures potential by sizing up the ventures strengths and weaknesses along a number of key dimensions or variables
Feasibility criteria approach
A criteria selection list, based on the following questions, from which entrepreneurs can gain insights into the viability of their venture:
o Is it proprietary?
o Are initial production costs realistic?
o Are the initial marketing costs realistic?
o Does the product have potential for very high
margins?
o Is the time required to get to market and to reach the
break-even point realistic?
o Is the potential market large?
o Is the product the first of a growing family?
o Does an initial customer exist?
o Are the development costs and calendar times
realistic?
o Is this a growing industry?
Can the product – and the need for it – be
understood by the financial community?
Comprehensive feasibility approach
A more comprehensive and systematic feasibility analysis
Incorporate external factors in addition to those included in the criteria approach questions.
Technical feasibility
The evaluation of a new-venture idea should start with identifying the technical requirements for producing a product or service that will satisfy the expectations of potential customers
Marketability
Vital for judging a new ventures potential success
Three major areas in this type of analysis are:
1. Investigating the full market potential and identifying
customer (or users) for the goods or service
- Analyzing the extent to which the enterprise might
exploit this potential market - Using market analysis to determine the opportunities
and risks associated with the venture
