Class 3 Feb 15 Starting a New Venture

8/3/2019 Class 3 Feb 15 Starting a New Venture

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Starting a New Venture


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Learning Outcomes

Describe the new venture creation process

Compare and contrast business life cycles withindustry life cycles

Explain how opportunity recognition occurs

Discuss the critical components of a businessconcept

Describe the feasibility analysis process

Explain bootstrapping as an entrepreneurial strategy


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THE NEW VENTURECREATION PROCESS

The environment is the most comprehensivecomponent in the venture creation process.

It includes all the factors that affect the decision to start

a business, for example, government regulation,competitiveness, and life cycle stage.

Within specific industries and in specific geographicregions, environmental variables and the degree of

their impact will differ.

The new venture process begins with an idea for aproduct, service, or business.


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Feasibility Analysis

The entrepreneur develops an idea into a businessopportunity orbusiness concept that is then tested inthe market through a process of feasibility analysis.

Feasibility analysis is used to inform the entrepreneurabout the conditions required to move forward anddevelop the business. This may involve market research.

Once the entrepreneur has determined that the concept isfeasible, a business plan is developed to detail how thecompany will be structured and to describe its operation


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Viability

Testing the business concept in the real world iswhat actually determines if the business hasviability. Thus, the business must actually belaunched and operated in the environment to

determine viability.

In a business, the term viability is the point whenthe company is able to generate sufficient cashflows to allow the business to survive on its own

without cash infusions from outside sources such asthe entrepreneur's own resources, investors, or abank loan.


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The Five Stages of a Businesss Life Cycle

Pre Start-up

Start-up

Growth Maturity

Rebirth or Decline

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The Life Cycle of the Company


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LAUNCHING A NEW BUSINESS

Three key issues in the pre-start-up phase:

1) Testing concept feasibility

2) Developing a business plan

3) Acquiring resources ($$$ and personnel)

Three key issues in the start-up phase:

1) Finding customers2) Building a structure

3) Generating positive cash flows

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Opportunity Creation

Developing a product, service, process, orniche that has not existed before. Opportunityrecognition requires high levels of creativity.


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Typically, opportunity creation involvesan invention process that ischaracterized by four activities:

connection,

discovery,

invention, and

applicationGetty Images


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Connection occurs when two ideas are brought together thatnormally are not juxtaposed, such as nature and machines,which produced the field of nanotechnology or microscopicmachines that copy nature in the way that they operate.

Discovery happens once a connection has been made. It isactually the result of the connection in the form of an idea.

Inventions are the product of turning an idea into a product orservice.

Application comes about when the inventor is able to apply theinvention to a number of different uses or applications in avariety of industries and situations.


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Opportunity Recognition

The process of using creativeskills to identify a newinnovation --- (a product, service,process, or marketing method) ---

which is often based onsomething already existing inthe marketplace.

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How to recognize a business opportunity

List all the ideas in no particular order.

Eliminate those ideas that cant generate aprofit and dont fit the business model verywell.

Review the remaining ideas and choose theone that inspires the most passion andenthusiasm


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The Initial Business Concept:

There are four essential elements required to testwhether or not a potential business idea is feasible:

What is the product and/or service that is the basis

for the business?

Who is the customer likely to be?

What is the benefit of your product/service to thecustomer?

How will the benefit be delivered?


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Feasibility Analysis

The business concept (which is essentially a specificproduct or service) is tested through a process offeasibility analysis that answers threefundamental questions:

1. Are there customers and a market of sufficientsize to make the concept feasible?

2. Do the capital requirements to start, based on

estimates of sales and expenses, make sense?

3. Can an appropriate start-up team be puttogether to make it happen?


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Components ofFeasibility Analysis

Thus, there are actually four areas whichare tested in the feasibility analysis:

The product/service

Industry/market/consumer

Founding team

Financials


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Feasibility Analysis: Key Questions - Industry

1. What are the demographics, trends, and life cycle of the

industry

2. Are there any barriers to entry ? If so, what are they ?

3. What is the status of technology and R&D expenditures ?

4. What are typical profit margins in the industry ?

5. What are distributors, manufacturers, and suppliers saying

about the industry ?

6. Who are the major players in the industry ?


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Feasibility Analysis: Key Questions Market / Customer

1. What potential markets are available to the business ?

2. What are the demographics and psychographics of the

target market ?

3. What is the profile of the first customer ? What is the pain

that is being cured with the businesss product or service ?

4. What is the customer demand for the product or service ?

How will you triangulate that demand figure to arrive at the

best estimate of demand ?


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Feasibility Analysis: Key Questions Product / Service

1. What are the features and benefits of the product or service?

2. What product development tasks must be undertaken and what is

the timeline for completion ?

3. Which intellectual property rights can be acquired ?

4. How are these products or services differentiated from others in

the market ?

5. Who are your competitors, and how are you differentiated from

them ?

6. What are your competitors core competencies ? Do they have theability to move into your competitive space ?

7. Which distribution channel alternatives are available to your

business, and which customers will they serve ?


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Feasibility Analysis: Key Questions Founding Team

1. What experience and expertise does the founding team

bring to the business ?

2. What gaps do you have in experience or expertise ?

3. How will you fill those gaps ?


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Feasibility Analysis: Key Questions -Financials

1. What are your start-up capital requirements ?

2. What are your working capital requirements ?

3. What are your fixed cost requirements ?

4. How long will it take to achieve a positive cash flow ?

5. What is the break even point for the business ?

6. What are the detailed assumptions or explanation for the

numbers you are projecting ?

7. What are the major milestones in the business for the next

two years, and how will those milestones trigger changes inyour business ?

8. What is the timeline for completion of all the tasks to start

the business ?


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Five Forces Analysis


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Goals of Market Research

To find out:

Who is most likely to purchase the product or service at marketintroduction?

What do these customers typically buy, how do they buy it, andhow do they hear about it?

What is their buying pattern? How often do they buy?

What are the customers needs and how can the new venturemeet those needs?


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Successful Bootstrappers

John Schnatter founded Papa JohnsInternational, the $164+ million pizzarestaurant franchise, with $1,600 in personal

savings.

Bill Gates and Paul Allen started Microsoft in

a cheap apartment in Albuquerque withvirtually no overhead, a borrowed computer,and very little capital.


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The Bootstrap Business Location

Businesses that dont requirea storefront location canbegin their development in aspare room or a garage.

Negotiate free rent and lowerlease rates in buildings wherea lessor is having difficultyreleasing the space.

Lease a portion of a largercompanys space and takeadvantage of its receptionarea and conference room.


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Why are So Many Ventures Self-Funded?

Many new ventures are initially funded by theentrepreneur, because:

Many lack a significant track record of success

Many ventures have not fully defined themselves inthe marketplace, which makes investment risky.

Investors see new ventures as too risky


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The Business Plan :Creating and Starting The Venture


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Learning Objectives

To define what the business plan is, who prepares it, whoreads it, and how it is evaluated.

To understand the scope and value of the business plan toinvestors, lenders, employees, suppliers, and customers

To identify information needs and sources for each criticalsection of the business plan.

To enhance awareness of the ability of the internet as aninformation resource and marketing tool.

T

o present examples and a step by step explanation of thebusiness plan.

To present helpful questions for the entrepreneur at each stageof the planning process.

To understand how to monitor the business plan.


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Planning as Part ofThe Business Operation

Planning is a process than never ends for abusiness.

It is extremely important in the early stages of anynew venture when the entrepreneur will need toprepare a preliminary business plan.

As the venture grow up to mature business, planning

will continue

Plan may be short term or long term, strategic oroperational.


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What is Business Plan?

The business plan is a written document preparedby the entrepreneur that describes all the relevantinternal and external elements and strategies for

starting a new venture.

It is a integration of functional plans such asmarketing, finance, manufacturing, sales and humanresources.


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Who should write the plan?

The business plan should be prepared bythe entrepreneur.

The entrepreneur may consult with manyother sources in its preparation, such aslawyers, accountants, marketing consultants,and engineers.


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Scope and Value of the Business Plan WhoReads The Plans?

The business plan may be read byemployees, investors, bankers, venturecapitalists, suppliers, customers, advisors,and consultants

There are three perspectives should beconsidered in preparing the plan : Perspective of the entrepreneur

Marketing perspective Investors perspective


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Scope and Value

The business plan is valuable to the entrepreneur,potential investors, or even new personnel, who aretrying to familiarize themselves with the venture, itgoals, and objectives.

It helps determine the viability of the venture in adesignated market

It provides guidance to the entrepreneur in organizing hisor her planning activities

It serves as an important tool in helping to obtain financing.


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How do Potential Lenders and InvestorsEvaluate The Plan?

Four Cs of Credit: Characters

Cash flow

Collateral

Equity of Contribution

Another Marketable

Payback period

Risk

Feasibility, etc


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Presenting The Plan

It is often necessary for an entrepreneur toorally present the business plan before anaudience of potential investors.

In this typical forum the entrepreneur wouldbe expected to provide a short (perhaps 20-

minutes or half-hour) presentation of thebusiness plan.


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Information Needs

Before committing time and energy to preparing abusiness plan, the entrepreneur should do a quickfeasibility study of the business concept to seewhether there a any possible barriers to success.

The information, obtainable from many sourcesshould focus on marketing (segmenting, targeting,and positioning), finance (list of all possibleexpenditures, demand forecast, revenue), andproduction (location, manufacturing operations, rawmaterials, equipment, labor skills, space, overhead) .

Internet can be a valuable resource.


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Outline of a Business Plan

Introductory Page

Name and address of business

Name(s) and address(es) of principal(s) Nature of business

Statement of financing needed

Statement of confidentially of report


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Outline

Executive Summary Three to four pagessummarizing the complete business plan

What is the business concept or model?

How is this business concept or model unique?

Who are the individuals starting this business?

How will they make money and how much?


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Outline

Environmental and Industry Analysis Future outlook and trends Analysis of competitors Market segmentation

Industry and market forecasts

Description of Venture Product(s) Service(s) Size of business Office equipment and personnel Background of entrepreneurs


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Outline

Production Plan Manufacturing process (amount subcontracted) Physical plant Machinery and equipment Names of suppliers of raw materials

Operational Plan Description of companys operations

Flow of orders for goods and/or services Technology utilization


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Outline

Marketing Plan Pricing Distribution Promotion Product forecasts

Controls

Organizational Plan Form of ownership Identification of partners or principal shareholders Authority of principals

Management-team background Roles and responsibilities of members of organization


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Outline

Assessment ofRisk Evaluate weakness of business

New technologies

Contingency Plans

Financial Plan Pro forma income statement

Cash flow projections

Pro forma balance sheet

Break-even analysis

Sources and applications of funds


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Outline

Appendix (contains backup material)

Letters

Market research data Leases or contracts

Price lists from suppliers.


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Using and Implementing The Business Plan

The business plan is designed to guide theentrepreneur through the first year of operations.

Implementation of the strategy contain control point

to ascertain progress and to initiate contingency planif necessary.

Business plan not end up in a drawer somewhereonce the financing has been attained and the

business launched.


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Measuring Plan Progress

Entrepreneur should check the profit and lossstatement, cash flow projections, and information oninventory, production, quality, sales, collection ofaccounts receivable, and disbursements for the

previous month

Inventory control

Production control

Quality control

Sales control Disbursements


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Updating the Plan

The most effective business plan can become out-of-date if conditions change

If the change are likely to affect the business plan,

the entrepreneur should determine what revisionsare needed

In this manner, the entrepreneur can maintainreasonable targets and goals and keep the new

venture on a course that will increase probability ofsuccess


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Why Some Business Plans Fails?

Goals set by the entrepreneur are unreasonable.

Goals are not measurable

The entrepreneur has not made a total commitment

to the business or to the family. The entrepreneur has no experience in the planned

business.

The entrepreneur has no sense of potential threats

or weaknesses to the business. No customer need was established for the proposed

product or service.


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How does one start a new venture?

Questions that keep a new venture focused on itscustomers

Who is your customer?

How will you reach key customer market segments?

What determines customer choices to buy or not buy yourproduct/service?

Why is your product/service a compelling choice for thecustomer?

H

ow will you price your product/service for the customer? How much does it cost to make and deliver your

product/service?

How much does it cost to attract a customer?

How much does it cost to support and retain a customer?


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How does one start a new venture?

Basic items that should be included in a businessplan:

Executive summary

Industry analysis

Company description Product and services description

Market description

Marketing strategy

Operations description

Staffing description Financial projection

Capital needs

Milestones


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Presentations

Business Plan

Analysis


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Thank You

Class 3 Feb 15 Starting a New Venture

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Transcript of Class 3 Feb 15 Starting a New Venture