Professional Documents
Culture Documents
Developing the
Entrepreneurial Plan
CHAPTER 9
Assessment of
Entrepreneurial
Opportunities
Entrepreneurial
Motivations
Source: Arnold C. Cooper, Challenges in Predicting New Firm Performance, Journal of Business Venturing (May 1993): 243. Reprinted with permission.
2009 South-Western, a part of Cengage Learning. All rights reserved. 96
Pitfalls in Selecting New Ventures
Lack of objective evaluation
Source: Karl H. Vesper, New Venture Strategies, copyright 1990, 172. Adapted by permission of Prentice-Hall, Inc., Englewood Cliffs, New Jersey.
2009 South-Western, a part of Cengage Learning. All rights reserved. 910
Table
9.1 A New-Venture Idea Checklist (contd)
Production of the Goods and Services
1. Will the company make or buy what it sells? Or will it use a combination of these two strategies?
2. Are sources of supplies available at reasonable prices?
3. How long will delivery take?
4. Have adequate lease arrangements for premises been made?
5. Will the needed equipment be available on time?
6. Do any special problems with plant setup, clearances, or insurance exist? How will they be resolved?
7. How will quality be controlled?
8. How will returns and servicing be handled?
9. How will pilferage, waste, spoilage, and scrap be controlled?
Source: Karl H. Vesper, New Venture Strategies, copyright 1990, 172. Adapted by permission of Prentice-Hall, Inc., Englewood Cliffs, New Jersey.
2009 South-Western, a part of Cengage Learning. All rights reserved. 911
Table
9.1 A New-Venture Idea Checklist (contd)
Financing the Venture
1. How much will be needed for development of the product or service?
2. How much will be needed for setting up operations?
3. How much will be needed for working capital?
4. Where will the money come from? What if more is needed?
5. Which assumptions in the financial forecasts are most uncertain?
6. What will be the return on equity, or sales, and how does it compare with the rest of the industry?
7. When and how will investors get their money back?
8. What will be needed from the bank, and what is the banks response?
Source: Karl H. Vesper, New Venture Strategies, copyright 1990, 172. Adapted by permission of Prentice-Hall, Inc., Englewood Cliffs, New Jersey.
2009 South-Western, a part of Cengage Learning. All rights reserved. 912
Why New Ventures Fail
Product/Market Problems
Financial Difficulties
Managerial Problems
Source: David E. Terpstra and Philip D. Olson, Entrepreneurial Start-up and Growth:
A Classification of Problems, Entrepreneurship Theory and Practice (spring 1993): 19.
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Figure
9.2 Internal and External Problems Experienced by Entrepreneurs
Source: H. Robert Dodge, Sam Fullerton, and John E. Robbins, Stage of Organization Life Cycle and Competition as Mediators of Problem
Perception for Small Businesses, Strategic Management Journal 15 (1994): 129. Reprinted by permission of John Wiley & Sons, Ltd.
2009 South-Western, a part of Cengage Learning. All rights reserved. 916
Table
9.3 Determinants of New-Venture Failures
E = External factor
I = Internal factor
Source: Andrew L. Zacharakis, G. Dale Meyer, and Julio DeCastro, Differing Perceptions of New Venture Failure: A Matched
Exploratory Study of Venture Capitalists and Entrepreneurs, Journal of Small Business Management (July 1999): 8.
2009 South-Western, a part of Cengage Learning. All rights reserved. 917
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
Source: Erkki K. Laitinen, Prediction of Failure of a Newly Founded Firm, Journal of Business Venturing (July 1992): 326328. Reprinted with permission.
2009 South-Western, a part of Cengage Learning. All rights reserved. 919
The Evaluation Process
Profile Analysis
Involves identifying and investigating the financial,
marketing, organizational, and human resource
variables that influence the businesss potential before
the new idea is put into practice.
The Feasibility Criteria Approach
Involves the use of a criteria selection list from which
entrepreneurs can gain insights into the viability of
their venture.
Comprehensive Feasibility Approach
Incorporates external factors in addition to those
included in the criteria questions.
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Feasibility Criteria Approach
Assessing the viability of a venture:
Is it proprietary?
Are the 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 to 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?
2009 South-Western, a part of Cengage Learning. All rights reserved. 921
Figure
9.3 Key Areas for Assessing the Feasibility of a New Venture
Source: Hans Schollhammer and Arthur H. Kuriloff, Entrepreneurship and Small Business Management (New York: John
Wiley & Sons, 1979): 56. Copyright 1979 by John Wiley & Sons, Inc. Reprinted by permission of John Wiley & Sons, Inc.
2009 South-Western, a part of Cengage Learning. All rights reserved. 923
Key Terms and Concepts