STUDY GUIDEBMET5103 Entrepreneurship 1CENTRE FOR GRADUATE STUDIES STUDY GUIDE BMET5103 Entrepreneurship Writer: Professor Dr Moha Asri Abdullah nternational slamic University of Malaysia DeveIoped by:Centre for nstructional Design and Technology Open University Malaysia First Edition, December 2012 Copyright Open University MaIaysia (OUM), December 2012, BMET5103 Allrightsreserved.Nopartofthisworkmaybereproducedinanyformorbyanymeans without the written permission of the President, Open University Malaysia.STUDY GUIDEBMET5103 Entrepreneurship 2STUDY GUIDEBMET5103 Entrepreneurship 3INTRODUCTION TO STUDY GUIDE ThisStudyGuideisintendedforOpenUniversityMalaysia'sBMET5103 Entrepreneurship course. t comes in TWO parts, as described below:Part One comprises the Course Introduction, which gives you an overview ofthecourse.Morespecifically,itprovidesyouwiththecoursesynopsis, objectives, learning outcomes and study load. There is a brief description of the main textbook(s), which you must read to fulfil the course requirements. Thereisalsoalistofadditionalreadingreferences.Youareencouragedto gointomyVLEtocheckouttheassessment,assignmentandfinal examination formats.PartTwocomprisestheLearningGuide.Thisstartswithanoverview,a recommended weekly study schedule to guide your learning process, and a brief description of the various elements in the Learning Guide. There is also alistoftopicstobecovered.Foreachtopic,youaregiventhespecific learning outcomes, a topic overview and a listing of the focus areas, together with assigned readings and the pages where information on the focus areas isfound.Toconsolidateyourlearningandtestyourunderstanding,a summaryofthemaincontentcoveredandstudyquestionsareprovidedat the end of each topic. Finally,therearetwoappendices,LearningSupportandStudyTips,to help you walk through the course successfully.PleasereadthroughthisStudyGuidebeforeyoucommenceyourcourse. We wish you a pleasant study experience. STUDY GUIDEBMET5103 Entrepreneurship 4ContentsPart One: Course Introduction ................................................................. 05 Synopsis .......................................................................................... 05 Objectives ........................................................................................ 05 Learning Outcomes ......................................................................... 05 Study Load ....................................................................................... 06 Main Textbook(s)............................................................................ 06 Additional Recommended Readings................................................ 07 Assessment.................................................................................... 07 Part Two: Learning Guide........................................................................ 08 Overview .......................................................................................... 08 Topic 1............................................................................................ 11 Topic 2............................................................................................ 18 Topic 3............................................................................................ 24 Topic 4............................................................................................ 30 Topic 5............................................................................................ 38 Topic 6............................................................................................ 45 Topic 7............................................................................................ 53 Topic 8............................................................................................ 60 Topic 9............................................................................................ 67 Topic 10.......................................................................................... 74 Appendices ................................................................................................ 83 Appendix A: Learning Support ......................................................... 83 Appendix B: Study Tips ................................................................... 84 STUDY GUIDEBMET5103 Entrepreneurship 5PART ONE: COURSE INTRODUCTIONSynopsis This course provides insights into a wide range of entrepreneurial types and entrepreneurship. t therefore, starts off with an overview of entrepreneurship and its success in launching new ventures and small business. This course thengoesontocoveranumberofrelevantandimportantareasincluding entrepreneurialstrategies,opportunitiesforsmallbusiness,businessplans, smallbusinessmanagement,marketing,financingandagrowthprocessin smallbusiness.tconcludesthatsmallbusinesscanprotectandimprove qualityoflifebycreatingjobsandprovidingnewproductsandservices. Smallbusinesscanalsocreatetremendouspersonalvalueforboth entrepreneurs and investors.ObjectivesThe general aims of this course are to: 1.Equip you with knowledge of entrepreneurship; 2.Develop skills in building business plans and managerial capabilities in entrepreneurial small businesses; 3.Discussissuesinbecominganentrepreneurandsuccessfully managing a business; and 4.Enable you to apply various management theories and practices learnt in other courses. Learning Outcomes By the completion of this course, you should be able to: 1. Explain the types of entrepreneurs in the contemporary era; 2. Describethefeaturesandtraitsofsuccessfulentrepreneursandtheir businesses; 3. Describe principles of business and development for a small business;STUDY GUIDEBMET5103 Entrepreneurship 64. Explain the roles played by entrepreneurs in Malaysia; and5. Distinguish between small and large businesses. Study Load tisastandardOUMpracticethatlearnersaccumulate40studyhoursfor every credit hour. As such, for a three-credit hour course, you are expected to spend at least 120 hours of learning. Table 1 gives an estimation of how the 120 hours can be accumulated. TabIe 1: Allocation of Study Hours ActivitiesNo. of Hours Reading course materials and completing exercises60 Attending 5 seminar sessions (3 hours for each session) 15Engaging in online discussions15 Completing assignment(s)20 Revision10 TotaI120 Main Textbook(s) Kuratko,D.F.(2009).Introductiontoentrepreneurship.Australia:South-Western. AdditionaI Recommended Readings Barringer,B.R.&reland,R.D.(2010).Entrepreneurship:Successfully launching new ventures. Boston, MA: Pearson. Katz, J. A., & Green, R. P. (2009). Entrepreneurial small business (3rd ed.). US: McGraw-Hill. Scarborough, N. M. (2012). Effective small business management (10th ed.). Boston, MA: Pearson. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Entrepreneurship and small business. Australia: Wiley. STUDY GUIDEBMET5103 Entrepreneurship 7Thompson,A.A.,Strickland,A.J.,&Gamble,J.E.(2010).Craftingand executing strategy: Concepts and cases. Boston, MA: McGraw-Hill. Zimmerer,T.W.,&Scarborough,N.M.(2009).Essentialsof entrepreneurshipandsmallbusinessmanagement(6thed.).US: Pearson.AssessmentPleaserefertomyVLEforinformationontheassessmentformatand requirements.STUDY GUIDEBMET5103 Entrepreneurship 8STUDY GUIDEBMET5103 Entrepreneurship 9PART TWO: LEARNING GUIDEOverviewThisLearningGuideisarrangedbytopic.tcoversessentialcontentinthe main textbook and is organised to stretch over TEN study weeks, before the examinationperiodbegins.UsethisLearningGuidetoplanyour engagementwiththecoursecontent.Youmayfollowtherecommended weeklystudyscheduleinTable2tohelpyouprogressinalinearfashion, starting with Week 1.TabIe 2: Recommended Weekly Study Schedule TopicWeek/s Topic 1The Revolutionary mpact of Entrepreneurship1 Topic 2Entrepreneurial Mindset of ndividuals2 Topic 3Creativity and nnovation3Topic 4Legal Challenges in Entrepreneurial Ventures4 Topic 5The Search for Entrepreneurial Capital5 Topic 6The Assessment Functions with Opportunities6 Topic 7The Marketing Aspects of New Ventures7 Topic 8Financial Statements in New Ventures8 Topic 9Business Plan Preparation for New Ventures9 Topic 10Strategic Growth in Entrepreneurship10 Each topic in the Learning Guide comprises the following sections (refer to Figure 1): xLearning Outcomes: Outline the specific tasks to be accomplished; xTopicOverview:Brieflyexplainswhatthetopictouchesonsoasto provideageneralinterpretativeframeworkforunderstandingthetopic content; xFocus Areas: dentify the main and sub areas to be covered; xAssigned Readings: Help you to navigate the main textbook and reading materials; xContentSummary: Providesaninterpretativeframeworkfor understanding the core content; and xStudy Questions: Help you to focus on key subject areas. STUDY GUIDEBMET5103 Entrepreneurship 10Figure 1: Organisation of the Learning Guide STUDY GUIDEBMET5103 Entrepreneurship 11Topic 1: The RevoIutionary Impact of EntrepreneurshipLearning Outcomes By the end of this topic, you should be able to: 1. Examine the historical development of entrepreneurship; 2. Define the major schools of entrepreneurial thought; 3. Explain the process approaches to the study of entrepreneurship; 4. dentify a comprehensive definition of entrepreneurship; 5. Examine the entrepreneurial revolution taking place today; and 6. llustrate todays entrepreneurial environment. Topic Overview This opening topic attempts to provide a broad perspective of entrepreneurial evolutionincludingthehistoricaldevelopmentofentrepreneurship.The environment of entrepreneurship reflects a predominance of small firms and new ventures. Over the last few years, there has been tremendous increase innewventureactivity.Thistopicalsoprovidesdefinitionsof entrepreneurshipandstressestheimportanceofentrepreneurship.Tobea successfulentrepreneur,anindividualmustbeanindependentthinkerwho is willing to take risks and dares to be different. Personal initiative, ability to consolidateresources,managementskillsandrisktakingarejustafewof the important qualities needed to be a successful entrepreneur.Thistopicthendiscussestenspecificmythsassociatedwith entrepreneurship. The myths are presented to debunk misconceptions about entrepreneurship.Thediscussionisfollowedbyastudyofthetrendsin entrepreneurshipinthe21st century,keyfactorsofentrepreneurship, entrepreneur and entrepreneurial management. STUDY GUIDEBMET5103 Entrepreneurship 12Focus Areas and Assigned Readings Focus AreasAssigned Readings 1.1 Entrepreneurs Challenging the Unknown1.2 Entrepreneurs/Small Business Owners: A Distinction1.3 Entrepreneurship: A Mindset1.4 The Evolution of Entrepreneurship1.5 Avoiding Folklore: The Myths of Entrepreneurship1.6 Approaches to Entrepreneurship1.7 Our Entrepreneurial Economy1.8 21st Century Trends in Entrepreneurship ResearchKuratko,D.F.(2009).Introductionto entrepreneurship.Australia:South-Western. Chapter 1, p. 3. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010).Chapter 1, pp. 30-33. Scarborough, N. M. (2012). Chapter 1, p. 17.Chapter 1, p. 3. Chapter 1, p. 3. Chapter 1, p. 4. AdditionaI Recommended Readings Scarborough, N. M. (2012). Chapter 1, p. 25.Chapter 1, pp. 5-7. Chapter 1, p. 8. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 1, p. 42. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 1, p.16. Chapter 1, p. 18.Chapter1, p. 20. AdditionaI Recommended Readings The mpact of Entrepreneurship on Economic Growth http://people.few.eur.nl/thurik/Research/Books/Thurikf.pdfSTUDY GUIDEBMET5103 Entrepreneurship 13Mobilizing Diaspora Entrepreneurship for Development http://www.migrationpolicy.org/pubs/diasporas-entrepreneurship.pdfmpact of Entrepreneurship Education http://www.unm.edu/~asalazar/Kauffman/Entrep_research/e_ed_grow.pdfContent Summary 1.1 Entrepreneurs ChaIIenging the Unknownndividualsrecogniseopportunitieswhereothersseechaosor confusion.TheyarecomparedtoOlympicathletes,symphony conductors or top gun pilots.1.2 Entrepreneurs/SmaII Business Owners: A DistinctionThetermsentrepreneurandsmallbusinessownerareused interchangeably,buttherearedifferences.Smallbusinessownersare notdominantintheirfieldandarenotinnovative.Theobjectivesof entrepreneurial ventures are innovation, profitability and growth.1.3 Entrepreneurship: A MindsetThis is more than mere creation of business. t is a special perspective thatpermeatesindividuals.Thismindsethasrevolutionisedbusiness throughout the country.1.4 The EvoIution of EntrepreneurshipTakenfromtheFrenchwordentreprendre,itmeanstoundertake. Anentrepreneurisaninnovatorordeveloperwhorecognisesand seizesopportunities;convertsthoseopportunitiesintoworkable/ marketableideas;addsvaluethroughtime,effort,moneyorskills; assumestherisksofthecompetitivemarketplacetoimplementthese ideas;andrealisestherewardsfromtheseefforts.Thecharacteristics of an entrepreneur are as follows: (a) Personal initiative;(b) Ability to consolidate resources;(c) Management skills;(d) A tendency towards autonomy and risk taking;(e) Competitive;(f) Goal-oriented behaviour;STUDY GUIDEBMET5103 Entrepreneurship 14(g) Aggressiveness; and(h) Ability to employ human relations skills.nitshistoricaldevelopments,thereexistsnosingledefinitionof entrepreneur. Recognition of entrepreneurs dates back to 18th-century France.Until1950,themajorityofdefinitionsandreferencescame fromeconomists.Overthedecade,writershavecontinuedtomodify thedefinition.RobertCRonstadtsaid,Entrepreneurshipisthe dynamicprocessofcreatingincrementalwealth.npresentday,the word entrepreneur has become closely linked with free enterprise and capitalism. Entrepreneurs serve as agents for change, provide creative, innovative ideas for business enterprise, and help businesses grow and becomeprofitable.Entrepreneursareconsideredheroesoffree enterprise. Many people regard entrepreneurship as pioneership on the frontierofbusiness.Entrepreneurshipisadynamicprocessofvision, change and creation.1.5 Avoiding FoIkIore: The Myths of Entrepreneurship(a) Entrepreneurs are doers, not thinkers; (b) Entrepreneurs are born, not made;(c) Entrepreneurs are always inventors;(d) Entrepreneurs are academic and social misfits;(e) Entrepreneurs must fit the profile;(f) All you need is money to be an entrepreneur; (g) All you need is luck to be an entrepreneur;(h) gnorance is bliss for an entrepreneur; and (i) Most entrepreneurial initiatives fail.1.6 Approaches to EntrepreneurshipTheschoolsofentrepreneurialthoughtaredividedintotwomajor approaches; macro view and micro view.(a)The macro view approach has three sub-schools: (i)The environmental school of thought; (ii)The financial/capital school of thought; and (iii)The displacement school of thought. STUDY GUIDEBMET5103 Entrepreneurship 15(b)The micro view approach also has three sub-schools: (i)The entrepreneurial traits school of thought; (ii)The venture opportunity school of thought; and (iii)The strategic formulation school of thought.1.6.1 Process ApproachesThereistheintegrativeapproachwhereitfocusesonthreefactors. Thesefactorsareinputs,outputsandentrepreneurialintensity.The entrepreneurial assessment approach can be seen in Figure 1.1. Figure 1.1: Entrepreneurial assessment approach Source: Ronstadt, R. C. (1984). Entrepreneurship. Dover, MA: Lord Publishing1.7 OurEntrepreneuriaIEconomyTheEnvironmentfor EntrepreneurshipThereispredominanceofnewventuresintheeconomywhere entrepreneurs enable economic growth. 1.7.1 The Age of GazeIIesNewandsmallerfirmscreatethemostjobsintheUSeconomy.This ageisallaboutfastestgrowingfirmsinnovation,growth,survivaland entrepreneurialfirmsimpact.Entrepreneurialfirmsmaketwo indispensable contributions to the US economy. STUDY GUIDEBMET5103 Entrepreneurship 161.8 21st Century Trends in Entrepreneurship ResearchFigure 1.2: 21st century trends in entrepreneurship research Figure 1.2 shows the 21st century trends in entrepreneurship research. (a) Venturefinancingventurecapital,angelinvestorsand innovative financing techniques;(b) Corporate entrepreneurship entrepreneurial actions within large organisations;(c) Social entrepreneurship;(d) Entrepreneurialcognitionthepsychologicalaspectsofthe entrepreneurial process;(e) Women and minority entrepreneurs;(f) The global entrepreneurial movement;(g) Family businesses; and(h) Entrepreneurial education.Study Questions 1. Briefly describe the evolution of the term entrepreneurship.2. What are the three specific types of displacement?STUDY GUIDEBMET5103 Entrepreneurship 173. n the strategy formulation school of thought, what are the four types of strategies involved with unique elements? Give an example of each.4. Whatistheprocessapproachtoentrepreneurship?nyouranswer, describe the entrepreneurial assessment approach.5. Describe the predominance of new ventures in the economy.6. How have most net new jobs been created in the economy?CASE STUDY 1 Nur Amalina has a good job working in Kuala Lumpur, but is weary of the 2% annualincrement.Becauseshehasreadmagazinearticlesaboutyoung entrepreneursbecomingextremelywealthy,shedecidestostartherown firm.Questions1. Do you think Amalina is starting a firm for the right reason? 2. Do you think the money she is likely to earn will disappoint her? 3. DoyouthinkAmalinasreasonforstartingafirmwillcontributeina positiveornegativemannertothetenacitythatisrequiredto successfully launch and run an entrepreneurial firm?CASE STUDY 2 A friend of yours has just bought a Sony digital camera. While showing it to you,hesaid,Youthinkentrepreneurialfirmsaresosmart.Lookatwhat Sonyhasdone.thasproducedasophisticateddigitalcamerathatallows metotakepictures,downloadthemtomyPCande-mailthemtofamily members.Sonysabigcompany,notasmallentrepreneurialfirm.Whatdo you have to say to that? Questionfyouweretodefendtheroleofentrepreneurialfirmsindevelopingnew technologies, how would you respond?STUDY GUIDEBMET5103 Entrepreneurship 18Topic 2: EntrepreneuriaI Mindset of IndividuaIsLearning Outcomes By the end of this topic, you should be able to: 1.Describe the entrepreneurial mindset; 2.Presentthemajorsourcesofinformationusefulinprofilingthe entrepreneurial mindset; 3.dentifythemostcommonlycitedcharacteristicsinsuccessful entrepreneurs;4.Discuss the dark side of entrepreneurship;5.Describethedifferenttypesofriskentrepreneursfaceaswellasthe major causes of stress for these individuals; and 6.Examine entrepreneurial motivation.Topic Overview Thistopicdescribestheentrepreneurialperspectiveinindividuals.Thefirst partofthetopictalksaboutwhereinformationcanbeobtainedforthe potential entrepreneur. These sources can be used to identify characteristics that can offer help in becoming an entrepreneur.Thenextpartdiscussesthepossiblecharacteristicsofsuccessful entrepreneurs.Someofthesecharacteristicsarecommitment, determination, and perseverance, which are all goal oriented. Other traits are correctingproblemsandseekingassociateswithfeedback.Thefollowing sectiondescribesthedarksideofentrepreneurship.Thisencompassesthe risks confronted by entrepreneurs including financial, career, psychic, family andsocialrisks.Thesecanleadtomanytypesofstress.Thetopicthen discussestheentrepreneurialegoanditsnegativeeffects.Thisisbrought aboutbyafalsesenseofsecurityandinvincibilitybecausethebusinessis goingwell.Thistopicconcludeswithamodelofentrepreneurialmotivation, whichdepictstheimportantfactorsofexpectationandoutcome.tisthe entrepreneursexpectationsandhowwelltheoutcomesoftheventure satisfy those expectations that keep the entrepreneurial drive sustained.STUDY GUIDEBMET5103 Entrepreneurship 19Focus Areas and Assigned ReadingsFocus AreasAssigned Readings 2.1 The Entrepreneurial Mindset2.2The Entrepreneurial Journey2.3 The Dark Side of Entrepreneurship2.4 Entrepreneurial Motivation Kuratko,D.F.(2009).Introductionto entrepreneurship.Australia:South-Western. Chapter 2, pp. 29-35.AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010).Chapter 1, pp. 30-33. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 1, p. 5. Chapter 2, p. 36. Chapter 2, p. 38. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 1, pp. 49. Scarborough, N. M. (2012). Chapter 1, p. 25.Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 2, pp. 40-41. Chapter 2, p. 44. AdditionaI Recommended Readings The ndividuals Entrepreneurial Mindset http://www.leighbureau.com/speakers/rmcgrath/essays/mindset.pdfEntrepreneurial Mindset http://ciscoinstitute.net/mod/content/file.php/FRONT_FILE_New_PDF_EntreMindset_Brochure.en_utf8/Entrepreneurial_Mindset_Workshop_Brochure.pdf12EssentialCharacteristicsofan Entrepreneur http://www.actioncoach.com/_downloads/whitepaper-FranchiseRep5.pdfSTUDY GUIDEBMET5103 Entrepreneurship 20Content Summary 2.1 The EntrepreneuriaI MindsetWhoareentrepreneursandwhatarethesourcesofresearchon entrepreneurs? Common characteristics associated with entrepreneurs are as follows: (a) Commitment, determination and perseverance; (b) Drive to achieve; (c) Opportunity orientation;(d) nitiative and responsibility;(e) Persistent problem solving; (f) Seeking feedback; (g) nternal locus of control; (h) Tolerance for ambiguity; (i) Calculated risk taking; (j)ntegrity and reliability; (k) Tolerance for failure; (l) High energy level; (m) Creativity and innovativeness; (n) Vision; (o) Self-confidence and optimism; (p) ndependence; and (q)Team building. 2.2 The EntrepreneuriaI Journey2.3 The Dark Side of Entrepreneurship(a) The entrepreneurs confrontation with risk(i)Financial risk (ii)Career risk(iii)Family and social risk (iv)Psychic risk(b) Stress and the entrepreneur(i)What is entrepreneurial stress?STUDY GUIDEBMET5103 Entrepreneurship 21(ii)Sources of stressxLonelinessxmmersion in business xPeople problems xThe need for achievement(iii)Dealing with stressxNetworkingxGetting away from it allxCommunicating with employeesxFinding satisfaction outside the companyxDelegatingxExercising rigorously(c) The entrepreneurial ego(i)Overbearing need for control (ii)Sense of distrust(iii)Overriding desire for success(iv)Unrealistic optimism2.4 EntrepreneuriaI Motivation(a) What is entrepreneurial motivation? (A model of this can be seen in Figure 2.1) (b)What are the sources of entrepreneurial motivation? STUDY GUIDEBMET5103 Entrepreneurship 22Figure 2.1: A Model of Entrepreneurial Motivation Source: Naffziger, D. W., Hornsby, J. S., & Kuratko, D. F. (1994). A proposed research model of entrepreneurial motivation, 33. http://www.emeraldinsight.com/journals.htm?articleid=865263&show=html Study Questions 1. Describethethreemajorsourcesofinformationthatsupplydata related to the entrepreneurial mindset. 2. How do the following traits relate to the entrepreneur: desire to achieve, opportunity orientation, initiative and responsibility?3. What are the four causes of stress among entrepreneurs? How can an entrepreneur deal with each of them?4. Describe the factors associated with the entrepreneurial ego.5. What is the concept of entrepreneurial motivation?6. How does the model depicted in Figure 2.1 illustrate an entrepreneurs motivation? Be specific in your answer.STUDY GUIDEBMET5103 Entrepreneurship 23CASE STUDY 1 Peoplearesometimespuzzledbythefactthatentrepreneurswhohave mademillionsofdollarsstillputin60-to80-houraweekhelpingtheir companies innovate and grow.Questions1. Whydoyouthinkmillionaireandmultimillionaireentrepreneursstill carry out their work responsibilities every day? 2. fyouwereoneoftheseentrepreneurs,doyouthinkyouwouldtake the same hands-on approach? Why or why not?CASE STUDY 2 Nik Aslam, a friend of yours, has always had a nagging desire to be his own boss. He has a great job with Kami Sdn Bhd but has several ideas for new products that he cannot get Kami Sdn Bhd to be interested in. Nik Aslam has doneagoodjobsavingmoneyovertheyearsandhasoverRM100,000in thebank.Heasksyou,AmcrazyforwantingtoleaveKamiSdnBhdto startmyownbusiness?Howdoknowthathavewhatittakestobea successful entrepreneur? QuestionWhat would you tell him? Justify your answer.STUDY GUIDEBMET5103 Entrepreneurship 24Topic 3: Creativity and Innovation Learning Outcomes By the end of this topic, you should be able to: 1.Explain the opportunity identification process; 2.Describe the sources of innovative ideas for entrepreneurs; 3.Explaintheroleofcreativityinthemajorcomponentsofthecreativeprocess:knowledgeaccumulation,incubationprocess,idea experience, evaluation and implementation; 4.Present ways of developing personal creativity; 5.Discuss the four major types of innovation; 6.Discuss some of the major myths associated with innovation; and 7.Define the ten principles of innovation.Topic Overview This topic examines the importance of creative thinking and innovation to the entrepreneur.Opportunityidentificationisdiscussedinrelationtothe knowledgeandlearningneededtorecognisegoodideas.Thesourcesof innovativeideasareoutlinedandexamined.Thecreativityprocessisthen described,andwaysofdevelopingcreativityarepresented.Exercisesand suggestionsareincludedtohelpinthedevelopmentofyourcreativity.The nature of the creative climate is also presented.The four basic types of innovation, namely, invention, extension, duplication, andsynthesisareexplained.Thelastpartofthetopicreviewsthe misconceptions commonly associated with innovation, and then presents the major innovation principles. STUDY GUIDEBMET5103 Entrepreneurship 25Focus Areas and Assigned Readings Focus AreasAssigned Readings 3.1 Opportunity dentification3.2 Entrepreneurs: magination and Creativity3.3 The Role of Creativity3.4 Arenas in which People are Creative 3.5 nnovation and the Entrepreneur3.6 The nnovation ProcessKuratko,D.F.(2009).Introductionto entrepreneurship.Australia:South-Western. Chapter 5, pp. 111-113.AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 3, pp. 54-56. Chapter 5, p. 114. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 3, p. 66. Chapter 5, pp. 114-123. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 3, pp. 66-71 Chapter 5, p.124. Chapter 5, p. 124. Chapter 5, p. 125. AdditionaI Recommended Readings The Value of Creativity and nnovation in Entrepreneurship http://www.asiaentrepreneurshipjournal.com/AJESIII2Okpara.pdfEnhancing Creativity and nnovation, ncluding Entrepreneurship at All Levels of Education and Training http://ec.europa.eu/education/lifelong-learning-policy/doc/report10/chapter4_en.pdfSTUDY GUIDEBMET5103 Entrepreneurship 26Entrepreneurial Creativity and nnovation http://www.strategicfutures.eu/__data/assets/pdf_file/0011/87599/leonie_baldacchino_paper_entrepreneurial_creativity_innovation.pdfContent Summary 3.1 Opportunity Identification Opportunityidentificationisthecentraldomainofentrepreneurship. Thefirststepforanyentrepreneuristheidentificationofagoodidea. The following are sources of good ideas.(a) Sources of innovative ideas(i)Trends;(ii)Unexpected occurrences; (iii)ncongruities; (iv)Process needs; (v)ndustry and market changes; (vi)Demographic changes; (vii)Perceptual changes; and (viii)Knowledge-based concepts. 3.2 Entrepreneurs: Imagination and Creativity The key to innovation is blending imaginative and creative thinking with a systematic, logical process ability.3.3 The RoIe of Creativity(a) The nature of the creative process(i)Background or knowledge accumulation; (ii)The incubation process; (iii)The idea experience; and (iv)Evaluation and implementation. (b) Developing your creativity(i)Recognising relationships;(ii)Developing a functional perspective; (iii)Using your brains; and STUDY GUIDEBMET5103 Entrepreneurship 27(iv)Eliminating muddling mindsets: Mental habits which block or impede creative thinking. They include:xEither/or thinkingxSecurity huntingxStereotypingxProbability thinking3.4 Arenas in which PeopIe are CreativePeopleareinherentlycreative.Creativityismostlikelytooccurwhen thebusinessclimateisright.Someimportantcharacteristicsofthis climate include:(a)A trustful management;(b)Open channels of communication;(c)Considerable contact and communication with outsiders;(d)A large variety of personality types; (e)A willingness to accept change;(f)An enjoyment in experimenting with new ideas;(g)Little fear of negative consequences for making a mistake;(h)Selection and promotion based on merit;(i)Encouraging ideas; and (j)Sufficient resources for accomplishing goals.3.5 Innovation and the Entrepreneurnnovationisakeyfunctionoftheentrepreneurshipprocess.tisthe processbywhichentrepreneursconvertopportunitiesintomarketable ideas.3.6 The Innovation ProcessTheinnovationprocessismorethanjustagoodidea.nnovation combinesthevisiontocreateagoodideawiththeperseveranceto implement the concept.(a) Types of innovation(i)nvention: Creation of a new product, service or process;(ii)Extension: Expansion of a product, service or process;(iii)Duplication:Replicationofanalreadyexistingproduct, service,orprocesswhileaddingone'sowncreativetouch; andSTUDY GUIDEBMET5103 Entrepreneurship 28(iv)Synthesis: The combination of existing concepts and factors to form new ideas.(b) The major misconceptions of innovation(i)nnovation is planned and predictable;(ii)Technical specification should be thoroughly prepared; (iii)nnovation relies on dreams and blue-sky ideas;(iv)Bigprojectswilldevelopbetterinnovationsthansmaller ones; and(v)Technology is the driving force of innovation success.(c) Principles of innovation(i)Be action-oriented; search for new ideas; (ii)Maketheproduct,process,orservicesimpleand understandable; (iii)Make the product, process, or service customer-based; (iv)Start small; begin small, plan for proper expansion; (v)Aim high; seek a niche in the marketplace; (vi)Try-test-revise; help work out flaws; (vii)Learn from failures; (viii)Follow a milestone schedule; have schedule in order to plan and evaluate the project;(ix)Reward heroic activity and give it respect; and(x)Work, work, work! Study Questions 1. Describe opportunity identification for the entrepreneur. 2. What are the major sources of innovative ideas? Explain and give an example of each. 3. What are the four major components in the creative process? 4. What are the four steps involved in developing personal creativity? 5. What are the four major types of innovation? 6. Describe five of the innovation principles. STUDY GUIDEBMET5103 Entrepreneurship 29CASE STUDY 1 Zakiisveryperceptiveandbelieveshehasidentifiedanopportunityfora newbusinessinthebeverageindustry.Hewantstomakesure,however, that he is not just following a hunch that the opportunity is sound. QuestionWhatcriteriacanZakiusetodeterminewhetherhehasidentifiedan attractive opportunity? Justify the choice of the criteria.CASE STUDY 2 FreedomElectronicsisastart-upwithabout20salesrepresentatives.The companyhasasolidproductlinebutknowsthattoremaincompetitive,it must continue recognising opportunities for new products and services. The firmhasnotdevelopedasystematicwayforitssalesstafftoreportnew ideas.QuestionSuggestsomewaysthatFreedomElectronicscanrecordandprotectthe ideas of its sales representatives.STUDY GUIDEBMET5103 Entrepreneurship 30Topic 4: LegaI ChaIIenges in EntrepreneuriaI Ventures Learning Outcomes By the end of this topic, you should be able to: 1.Explain the importance of legal issues to entrepreneurs; 2.Describe patent protection, including definitions and preparation; 3.dentify copyrights and their relevance to entrepreneurs; 4.Study trademarks and their impact on new ventures; 5.Explainthelegalformsoforganisationsoleproprietorship, partnership and corporation; 6.Describetheadvantagesanddisadvantagesofeachofthesethree legal forms; and 7.Discussthemajorsegmentsofthebankruptcylawthatapplyto entrepreneurs.Topic Overview Thistopicdealswithlegalchallenges.tstartsoutwithadiscussionon patents,whichareintellectualpropertyrights.Anotherformofintellectual propertyiscopyright.Copyrightsgivetheauthorexclusiverightsto reproducetheworkandpreparederivativeworks.Thetopicalsocovers trademarks,anydistinctname,mark,symbolormottoidentifiedwitha companys product.Entrepreneursmustfirstidentifylegalstructures.Thefirstformissole proprietorship,abusinessthatisownedandoperatedbyonepersonwho hasunlimitedliabilityandtherighttoallprofits.Thesecondformis partnership,whichisanassociationoftwoormorepersonsactingasco-ownersofabusiness.Thethirdformiscorporation,anartificialbeing, invisible, intangible, and existing only in contemplation of the law. There are numerous specific forms of partnerships and corporations. The first is called limitedpartnership.AsecondformisLimitedLiabilityPartnership(LLP).A third form is the S corporation, which is known as a tax option corporation andistaxedlikeapartnership.AfourthistheLimitedLiabilityCompany (LLC), which allows members to participate fully in management activities of the firm, yet maintain the tax status of a partnership with the limited liability of STUDY GUIDEBMET5103 Entrepreneurship 31a corporation. There are three different types of bankruptcy. The first type is called straight bankruptcy, and the next type is reorganisation. The final type of bankruptcy discussed is adjustment of debts. However, this topic provides averycomprehensivelookatsomeofthebenefitsanddifficultiesof copyrights, patents and trademarks. t also gives an in-depth understanding of bankruptcy and some of its various forms. Focus Areas and Assigned Readings Focus AreasAssigned Readings 4.1 Legal Challenges for the Entrepreneurial Venture4.2 ntellectual Property Protection: Patents4.3 ntellectual Property Protection: Copyrights4.4 ntellectual Property Protection: Trademarks4.5 dentifying Legal Structures for Entrepreneurial Ventures4.6 Sole ProprietorshipsKuratko,D.F.(2009).Introductionto entrepreneurship. Australia: South-Western. Chapter 7, p. 162.AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 12, p. 413. Chapter 7, p. 163.AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 12, pp. 417-420. Chapter 7, pp. 166-168.AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 12, pp. 428-431. Chapter 7, pp. 168-171. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 12, pp. 423-426, p. 433. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 8, p.206 Chapter 7, p. 174. AdditionaI Recommended Readings Chapter 8, p. 311. Chapter 7, p. 174.STUDY GUIDEBMET5103 Entrepreneurship 324.7 Partnerships4.8 Corporations4.9 Specific Forms of Partnerships and Corporations4.10 Final Thoughts on Legal Forms4.11 Understanding Bankruptcy4.12 Keeping Legal Expenses Down AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 8, p. 196. Chapter 7, pp. 176-177. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 8, p. 198. Chapter 7, p. 177. Chapter 7, p. 181. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 8, p. 201. Chapter 7, p. 183.Chapter 7, p.183. AdditionaI Recommended Readings Scarborough, N. M. (2012). Chapter 22, p. 782. Chapter 7, p. 186. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 12, pp. 435-436. AdditionaI Recommended Readings Legal Aspects of Entrepreneurship http://cbey.research.yale.edu/uploads/Environmental%20Venture%20Prize/MGT896.pdfEntrepreneurial Decisions and Legal ssues in Early Venture Stages: Advice that Shouldn't be gnored http://hbr.org/product/entrepreneurial-decisions-and-legal-issues-in-earl/an/BH425-PDF-ENGSTUDY GUIDEBMET5103 Entrepreneurship 33Content Summary 4.1 LegaI ChaIIenges for the EntrepreneuriaI VentureEntrepreneursareusuallynotattorneys,buttheyneedtohave sufficient knowledge of legal concepts related to their business venture. Figure 4.1 shows the legal challenges in this venture. Figure 4.1: Legal challenges for the entrepreneurial venture4.2 InteIIectuaI Property Protection: PatentsA patent provides the owner with exclusive rights to hold, transfer, and license the production and sale of a product or process. Design patents lastfor14years;allotherslastfor20years.Thepatentprovidesthe owner with a temporary monopoly on the innovation.4.3 InteIIectuaI Property Protection: CopyrightsAcopyrightprovidesexclusiverightstocreativeindividualsforthe protection of their literary or artistic productions.(a)Understanding copyright protection(b)Protected ideas tisnotpossibletocopyrightanidea,buttheparticularmodeof expression of that idea can be copyrighted. 4.4 InteIIectuaI Property Protection: TrademarksA trademark is a distinctive name, mark, symbol or motto identified with acompanysproduct(s)andservices.TradeMarkAct1976(Act175) andTradeMarkAct(Regulation1997)governtrademarkprotectionin Malaysia.(a)Trademarkshelptodifferentiatebetweenonecompanyandits competitors; and STUDY GUIDEBMET5103 Entrepreneurship 34(b)Trademarkshelpcustomersclearlyidentifytheproductsor services of one company. 4.5 Identifying LegaI Structures for EntrepreneuriaI Ventures Whenconsideringwhichlegalformtouse,entrepreneursshould consider:(a)How easily the form can be implemented (b)The amount of capital required to implement it (c)Legal considerations that may limit the entrepreneur (d)Taxes (e)Liability 4.6 SoIe Proprietorships (a)Advantages of sole proprietorships(i)Ease of formation(ii)Sole ownership of profits (iii)Decision making and control vested in one owner (iv)Flexibility (v)Relative freedom from corporate business taxes (vi)Freedom from corporate business taxes(b)Disadvantages of sole proprietorships(i)Unlimited liability (ii)Lack of continuity (iii)Less available capital (iv)Relative difficulty in obtaining long-term financing (v)Relatively limited viewpoint and experience 4.7 Partnerships Apartnershipisanassociationoftwoormorepersonsactingasco-owners of a business for profit.(a)Advantages of partnerships(i)Ease of formation (ii)Direct rewards STUDY GUIDEBMET5103 Entrepreneurship 35(iii)Growth and performance facilitated (iv)Flexibility (v)Relative freedom from governmental control and regulation (vi)Possible tax advantage (b)Disadvantages of partnerships(i)Unlimited liability of at least one partner (ii)Lack of continuity (iii)Relative difficulty in obtaining large sums of capital (iv)Being bound by the acts of just one partner (v)Difficulty of disposing partnership interest 4.8 Corporations Acorporationisaseparatelegalentityapartfromtheindividualswho own it.(a)Advantages of corporations(i)Limited liability (ii)Transfer of ownership (iii)Unlimited life (iv)Relative ease of securing capital in large amounts (v)ncreased ability and expertise (b)Disadvantages of the corporation(i)Activity restriction (ii)Lack of representation (iii)Regulation (iv)Organising expenses (v)Double taxation 4.9 Specific Forms of Partnerships and Corporations(a)Limitedpartnershipsareusedwhenaformoforganisationis neededtopermitcapitalinvestmentwithoutresponsibilityfor managementandwithoutliabilityforlossesbeyondinitial investment.STUDY GUIDEBMET5103 Entrepreneurship 36(b)Limitedliabilitypartnershipsallowprofessionalsthebenefitsofa partnership while avoiding personal liability for the malpractice of other partners.(c)S Corporations are taxed similar to partnerships.(i)Benefits from electing S Corporations:(d)Limited liability companies(i)LLCisahybridformofbusinessenterprisethatoffersthe limitedliabilityofacorporationbutthetaxadvantagesofa partnership.4.10FinaI Thoughts on LegaI FormsAn entrepreneur must always seek professional legal advice in order to avoid misunderstandings, mistakes and additional expenses.4.11Understanding BankruptcyBankruptcyoccurswhenaventuresfinancialobligationsaregreater than its assets.(a)The Bankruptcy Act(i)Specific procedures for handling insolvent debtors(ii)Purpose of the Act:4.12Keeping LegaI Expenses Downnlegalproceedings,theentrepreneurcanrunuplargelegalfees. Some tips for keeping legal fees down include: establishing a clear fee structurewithanattorney,negotiatelegalfees,settlebeforelitigating, workwithyourattorneyduringregularbusinesshours,andinvolve attorneys early on when it is feasible. Study Questions 1. Whatarethefourbasicrulesentrepreneursshouldrememberabout securing a patent?2. Howmuchprotectiondoesacopyrightaffordtheowner?Cananyof the individuals work be copied without paying a fee? Explain in detail. faninfringementofcopyrightoccurs,whatlegalrecoursedoesthe owner have?3. nyourownwords,whatisatrademark?Whyaregenericor descriptive names or words not given in trademarks?STUDY GUIDEBMET5103 Entrepreneurship 374. Explain what limited liability partnership is.5. Howcananentrepreneurfindoutifabusinessisgoingbankrupt? What are the three early warning signs?CASE STUDY 1 Twoyearsago,MikeCariniopenedarestaurantcalledMikestalian. Recently,tohishorror,Mikefoundoutthatseveraldisgruntledcustomers havelaunchedawebsitewithwww.avoidmikesitalian.comastheURL address. The site contains testimonials of people who had dine at Mikes and were not satisfied. Questions there anything Mike can do to shut down the website? Explain your answer with logical justifications. CASE STUDY 2 JasonScottistheCEOofasmallgraphicdesigncompanyinOrlando, Florida. Several months ago, he spent an entire day exploring the website of DolphinGraphics,alargergraphicsdesignfirminMiami.Fromitswebsite, Jasonwas abletoputtogetheralistofDolphinsmajorcustomersandhas startedusingthelisttocourtnewcustomersforhisfirm.Afterdiscovering what Jason is doing, Dolphin has threatened to sue Jason if he does not stop using its customer list, which it claims is a trade secret. s Jason infringing on Dolphins trade secrets?QuestionDoyouthinkJasonisinfringingonDolphinstradesecrets?Provide justifications for your stance.STUDY GUIDEBMET5103 Entrepreneurship 38Topic 5: The Search for EntrepreneuriaI CapitaI Learning Outcomes By the end of this topic, you should be able to: 1.Differentiate between debt and equity as methods of financing; 2.Explaincommercialloansandpublicstockofferingsassourcesof capital; 3.Discuss private placements as an opportunity for equity capital; 4.Describe the market for venture capital, 5.Analyse venture capitalists evaluation criteria for new ventures; 6.Discusstheimportanceofevaluatingventurecapitalistsforaproper selection; and 7.Discuss the existing informal risk capital market. Topic Overview Thistopicexplainsthevariousformsofcapitalformationforentrepreneurs. n its illustration, debt and equity financing can be in the form of commercial banks,tradecredit,accountsreceivablefinancing,factoringandfinance companies,andotherequityinstruments.nitialpublicoffering(PO)is anotherformoffinance.Publicstockofferingshaveadvantagesand disadvantagesasasourceofequitycapital.Althoughlargeamountsof money can be raised in short periods of time, the entrepreneur must sacrifice a degree of control and ownership. The other sources of capital are venture capitalistandbusinessangel.Venturecapitalistsuseanumberofdifferent criteriawhenevaluatingnewventureproposals.Mainly,thesecriteriafocus ontwoareas:theentrepreneurandtheinvestmentpotentialoftheventure. Theevaluationprocesstypicallyinvolvesfourstages:initialscreening, businessplanevaluation,oralpresentationandfinalevaluation.Angel capitalcomprisesindividualinvestmentswhowanttoseethegrowthofthe capital invested in a faster way.STUDY GUIDEBMET5103 Entrepreneurship 39Focus Areas and Assigned Readings Focus AreasAssigned Readings 5.1 The Entrepreneurs Search for Capital5.2 Debt versus Equity5.3 The Venture Capital Market5.4 nformal Risk Capital Angel FinancingKuratko,D.F.(2009).Introductionto entrepreneurship. Australia: South-Western. Chapter 8, p. 194.AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 9, pp. 220-224. Chapter 8, p. 194.AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 9, pp. 224-226.Chapter 8, pp. 202-211. Chapter 8, pp. 212-214.AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 9, pp. 234-237. AdditionaI Recommended Readings Entrepreneurial Capital: A Resource-Based Conceptualisation of the Entrepreneurial Processhttp://lmd.massey.ac.nz/publications/working%20paper%20no.%207.pdfSocial Capital and Entrepreneurship: An Exploratory Analysis http://www.academicjournals.org/ajbm/pdf/pdf2011/18June/Doh%20and%20Zolnik.pdfOutside Entrepreneurial Capital http://www.cbr.cam.ac.uk/pdf/WP301.pdfSTUDY GUIDEBMET5103 Entrepreneurship 40Content Summary 5.1 The Entrepreneurs Search for CapitaIEvery entrepreneur faces the challenge of finding start-up capital.5.2Debt Versus Equity(a) Debt financing(i) Commercial banksx AdvantagesNo relinquishment of ownership.Moreborrowingallowsforpotentiallygreaterreturn on investment.During periods of low interest rates, opportunity cost is justified.xDisadvantagesRegular interest payments.ntensified continual cash flow problems.Heavyuseofdebtcaninhibitgrowthand development.(ii) Other debt-financing sourcesxTrade creditGiven by suppliers who sell goods on accountMust be paid in 30 to 90 daysxAccounts receivable financingShort-term financingRequires collateralxFactoringSale of accounts receivablexFinance companiesAsset-based lenders(b) Equity financingRequires sharing ownership and profit with the funding source STUDY GUIDEBMET5103 Entrepreneurship 41(i) Public offeringsxAdvantagesSize of capital amountLiquidityValuemagexDisadvantages CostDisclosureRequirementsShareholder pressure(ii) Private placements5.3 The Venture CapitaI MarketThese experienced professionals provide the following services:(a) Capital for start-up(b) Market research for marketing department(c) Management consulting(d) Contact with prospective people(e) Assistance in negotiating(f) Counselling and guidance(i) Recent developments in venture capital (refer to Figure 5.1)(ii) Dispelling venture capital myths(iii) Venture capitalists objectivesxConcerned with return on investmentxMeasuretheproduct,serviceandmanagementofa businessSTUDY GUIDEBMET5103 Entrepreneurship 42Figure 5.1: Recent developments in venture capital (iv) Criteria for evaluating new venture proposalsxStage 1: nitial screening xStage 2: Evaluation of the business planxStage 3: Oral presentationxStage 4: Final evaluation(v) Evaluating the venture capitalistxDoes the venture capitalist understand the proposal?xs the individual familiar with the business?xs the person someone with whom the entrepreneur can work?5.4 InformaI Risk CapitaI - AngeI FinancingSTUDY GUIDEBMET5103 Entrepreneurship 43Figure 5.2: The Pros and Cons of Business Angel nvestments Many wealthy people are looking for investment opportunities. They are referredtoasbusinessangelsorinformalriskcapitalists(referto Figure 5.2).(a) Types of angel investors(i)Corporate angels(ii)Entrepreneurial angels (iii)Enthusiast angels (iv)Micromanagement angels (v)Professional angels Study Questions 1. Describe three objectives of venture capitalists.2. Whatarethebenefitsanddrawbacksofequityanddebtfinancing? Briefly discuss both.3.Describe four types of debt financing.4. Anentrepreneurofanewventurehashadnosuccessingetting financing from formal venture capitalists. He has now decided to turn to STUDY GUIDEBMET5103 Entrepreneurship 44the informal risk capital market. Who is in this market? How would you recommend the entrepreneur to contact these individuals?5. Some entrepreneurs do not like to seek new venture financing because theyfeelthatventurecapitalistsaregreedy.nyouropinion,isthis true? Do these capitalists want too much?CASE STUDYNeil Frasier, a friend of your family, is a very proficient accountant. He is 61 andhasspenthisentirecareerworkingatSearsHoldingheadquartersin Chicago. He has just received a call from a high school friend who still lives in the small town in Wisconsin where they both grew up in. Neils friend told himthatthesoleaccountantintownisretiringandhashisbusinessfor sale. Neil has always wanted to return to his home town. He thought about it for a few minutes and then told his friend, As much as d absolutely love to come back home, dont have any business experience and m 61 years old.Thosearetwostrikesagainstme;havetopassonbuyingthe business.Questions1. Does Neils thinking justify his decision? 2. What would you tell Neil if he had asked you for your advice?STUDY GUIDEBMET5103 Entrepreneurship 45Topic 6: The Assessment Functions with Opportunities Learning Outcomes By the end of this topic, you should be able to: 1.Explain the challenges of new venture start-ups;2.Analyse common pitfalls in the selection of new venture ideas;3.dentify critical factors involved in new venture development;4.Discuss why new ventures fail;5.Explain certain factors that underlie venture success;6.Analyse the evaluation process methods; and 7.Outlinethespecificactivitiesinvolvedinacomprehensivefeasibility evaluation.Topic Overview This topic covers the complexity of factors involved in new venture start-ups. This topic also relates a number of pitfalls that may occur in the selection of a new venture: lack of an objective evaluation of the venture, lack of insight intothemarket,inadequateunderstandingoftechnicalrequirements,poor financialunderstanding,lackofventureuniquenessandfailuretobeaware of legal issues. n order to access a new venture, an entrepreneur needs to consider several critical factors: the uniqueness of the goods or service, the amountofcapitalinvestmentrequiredtostarttheventure,thegrowthof sales and the availability of the product.naddition,thistopicprovidessomemajorreasonsnewventuresfail includinginadequateknowledgeofthemarket,faultyproductperformance, ineffectivemarketingandsaleseffort,inadequateawarenessofcompetitive pressures, rapid product obsolescence, poor timing and undercapitalisation. ndrawingtogethertheseandotherreasons,recentresearchrevealsthree majorcategoriesofcausesforfailure:product/marketproblems,financial difficulties,andmanagerialproblems.Entrepreneursalsofaceinternaland externalproblems.Thetopicendsbynotingthatthefeasibilityofthe entrepreneursproductorservicecanbeassessedbyaskingtheright questions,makingaprofileanalysisoftheventureandcarryingouta comprehensive feasibility study. STUDY GUIDEBMET5103 Entrepreneurship 46Focus Areas and Assigned Readings Focus AreasAssigned Readings 6.1 The Challenge of New Venture Start-ups6.2 Pitfalls in Selecting New Ventures 6.3 Critical Factors for New Venture Development6.4 Why New Ventures Fail6.5 The Evaluation Process(a)Profile analysis(b)Feasibility Criteria Approach (c)Comprehensive Feasibility Approach(i) Technical feasibility(ii) Marketability Kuratko,D.F.(2009).Introductionto entrepreneurship. Australia: South-Western. Chapter, p. 226. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 13, pp. 449-451. Chapter 9, pp. 226-229. Chapter 9, pp. 229-233. Chapter 9, p. 233. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 13, p. 464. Chapter 9, pp. 237-238. AdditionaI Recommended Readings Entrepreneur Assessment http://www.gcedc.us/Business/AreYouAnEntrepreneurhttp://webhome.idirect.com/~kehamilt/biz3.htmlContent Summary 6.1The ChaIIenge of New Venture Start-ups (refer to Figure 6.1) Reasons for start-ups are similar to the entrepreneurial mindset.STUDY GUIDEBMET5103 Entrepreneurship 47Figure 6.1: The elements affecting new venture performance 6.2PitfaIIs in SeIecting New Ventures (refer to Figure 6.2) (a)Lack of objective evaluationxManyentrepreneurslackobjectivity.Allideasshouldbe subject to rigorous study and investigation.(b)No real insight into the marketxEntrepreneurs must project the life cycle of the new product.xTiming of product is critical.(c)nadequate understanding of technical requirementsxEntrepreneurs need to be thorough in studying a new product.xUnexpectedtechnicaldifficultiesfrequentlyposetime-consuming and costly problems.(d)Poor financial understandingxEntrepreneurs are sometimes ignorant of costs.xEntrepreneursaresometimesvictimsofinadequateresearch and planning.xEntrepreneursquiteoftenunderestimatedevelopmentcosts by wide margins.(e)Lack of venture uniquenessxA new venture should be unique.xProductdifferentiationisneededtoseparateproductfrom competitors.(f)gnorance of Legal ssuesxBusiness is subject to many legal requirements xA safe workplace STUDY GUIDEBMET5103 Entrepreneurship 48xReliable and safe products and services xNecessity for trademarks, patents and copyrights 6.3CriticaI Factors for New Venture DeveIopment(a)UniquenessxRange in a new venture can be considerablexFurthercharacterisedbythelengthoftime;anon-routine venture will remain non-routine (b)nvestmentxCan vary considerablyxExtent and timing of funds neededxKey questions to ask(c)Growth of salesxKey questions to askGrowth pattern Expected sales profitExpected sales growth Potential sale growth vis--vis profit for the year xVenture classification of entrepreneur ndependence Provide a sufficient livingSmall profitable venturesFinancial considerations play a major role Autonomy and ownership control are important factors High-growth venturesProduct availabilityCustomer availability6.4Why New Ventures FaiI(a)Entrepreneurial task (b)Product STUDY GUIDEBMET5103 Entrepreneurship 49(c)Market (d)Finance (e)Management (f)External forces Figure 6.2: External and internal problems experienced by entrepreneurs 6.5The EvaIuation Process(a)Profile analysis(b)Feasibility Criteria ApproachxKey questions to asks it proprietary?Are the initial production costs realistic?Are the initial marketing costs realistic?Does the product have potential for very high margins?sthetimerequiredtogettothemarketandtoreach break-even realistic?s the potential market large?s the product the first of a growing family?s there an initial customer?Are the development costs and calendar times realistic?s this a growing industry?Can the product and the need for it be understood by the financial community?STUDY GUIDEBMET5103 Entrepreneurship 50(c)Comprehensive Feasibility ApproachxTechnical feasibilityFunctionaldesignoftheproductandattractivenessin appearance Flexibility for ready modificationDurability of the materials from which the product is madeReliabilityProduct safetyReasonable utilityEase and low cost of maintenanceStandardisationEase of processing or manufactureEase in handling and useFigure 6.3: Key areas for assessing the feasibility of a new venture (d)Marketability xThree major areas involvednvestigatingthefullmarketpotentialandidentifying customersAnalysingtheextentto whichtheenterprisemightexploit this potential marketUsingmarketanalysistodeterminetheopportunitiesand risksSTUDY GUIDEBMET5103 Entrepreneurship 51xGeneral information sources (please refer to Figure 6.3) General economic trendsMarket dataPricing dataCompetitive data Study Questions 1. Explain the challenges involved in new venture development.2. Describe some of the key factors involved in new venture performance. 3. Many entrepreneurs lack objectivity and have no real insight into the market. Why are these characteristics considered pitfalls of selecting new ventures?4. Describe each of the five critical factors involved in the pre start-up and start-up phases of a new venture.5. Discuss two examples of managerial problems that can cause a venture to fail.6. List four major types of problems faced by new ventures.CASE STUDY 1 Twelvemonthsago,BrittanyNelsonlaunchedachainofstoresthatsell accessoriesforwirelesscommunicationsdevices.Herfirststorewasin Memphis, and she is now expanding into northern Mississippi and western Tennessee.Brittanyscompanyhasgrownquicklyfromonestoretofive, andshehopestoadd10to20storesperyearduringthenextfiveyears. Recently,afriendtoldBrittanythatmaybesheshouldslowdownabit because a company cannot grow too fast. Brittany brushed the suggestion aside,simplynotingthatthingsweregoingfineandthatgrowthwasno problem.Questions1.Do you think Brittany should think again about her friends advice?2.What are the pitfalls of growing too quickly? STUDY GUIDEBMET5103 Entrepreneurship 52CASE STUDY 2 MeredithColellaisafoodproductsengineerwhohasdevelopedan innovativeapproachforthepackagingofmeat.Herapproachwillextend the shelf life of most meat products by about 30 percent. Meredith is getting ready to try to sell the idea to investors. QuestionWhat could Meredith tell the investors that would give them confidence that she is prepared to cope with the challenges of rapid growth? Elaborate your stance.STUDY GUIDEBMET5103 Entrepreneurship 53Topic 7: The Marketing Aspects of New VenturesLearning Outcomes By the end of this topic, you should be able to: 1.Explain the importance of marketing research to new ventures;2.Describe factors that inhibit the use of marketing;3.Discusstheemerginguseofnternetmarketingforentrepreneurial firms;4.Discuss the marketing concept;5.Discuss the areas vital to a marketing plan; and6.Discuss the key features of a pricing strategy.Topic Overview Thistopicfocusesonthemarketingaspectsofnewventures.Amarketing planistheprocessofdeterminingaclear,comprehensiveapproachtothe creationofcustomerswhilemarketingresearchinvolvesthegatheringof informationaboutaparticularmarket,followedbyanalysisofthat information.Entrepreneursdonotcarryoutmarketingactivitiesforafew majorreasons.However,developingamarketingconcepthassome important areas. One area is the formulation of a marketing philosophy. The entrepreneursvaluesandthemarketconditionswillhelpdeterminethis philosophy.Besides,anotherareaismarketsegmentation,whichisthe processofidentifyingaspecificsetofcharacteristicsthatdifferentiateone groupofconsumersfromtherest.naddition,understandingconsumer behaviourisanothervitalissueofthemarketingaspect.Sincemanytypes andpatternsofconsumerbehaviourexist,entrepreneursneedtofocuson the personal and psychological characteristics of their customers.This customer analysis focuses on such important factors as general buying trends in the marketplace, specific buying trends of targeted consumers, and the types of goods and services being sold.STUDY GUIDEBMET5103 Entrepreneurship 54Focus Areas and Assigned Readings Focus AreasAssigned Readings 7.1 The Marketing Concept for Entrepreneurs7.2 Marketing Research7.3 nhibitors to Marketing Research7.4 nternet Marketing7.5 Developing the Marketing Concept7.6 Developing a Marketing Plan7.7 Pricing Strategies Kuratko, D. F. (2009). Introduction to entrepreneurship. Australia: South-Western. Chapter 10, p. 254. Chapter 10, pp. 255-258. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 12, pp. 382-383. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 6, pp. 128-130. Chapter 10, p. 259. Chapter 10, p.260. Chapter 10, pp. 262-264. Chapter 10, pp. 266-270. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 6, pp. 146-148. Chapter 10, p. 270. AdditionaI Recommended Readings Entrepreneurial Marketing: Moving beyond Marketing in New Ventures http://www.unternehmbar.net/fileadmin/UnternehmBAR_und_SG/SQ/sqlit_kraus.pdfMarketing in New Ventures: Theory and Empirical Evidence http://business.dirkjanswagerman.nl/static/files/MBI/Module%206/READINGS_Gruber_SBR_2004.pdfSTUDY GUIDEBMET5103 Entrepreneurship 55Content Summary 7.1The Marketing Concept for Entrepreneurs (refer to Figure 7.1) Figure 7.1: The marketing concept for entrepreneurs 7.2Marketing ResearchMarketingresearchinvolvesthegatheringofinformationabouta particular market followed by analysis of that information.(a)Defining the research purpose and objectivesxdentify potential customers xThe size of the marketxThe business compared with competitorsxThe impact of promotionxTypes of products or services(b)Gathering secondary dataxSecondary data consists of information that has already been compiledxLess expensive to gather than primary data xSecondary data may be internal or external xSeveral problems occur due to the use of secondary data (c)Gathering primary dataxPrimarydataconsistsofnewinformationaccumulated through observational methods and questioning methods STUDY GUIDEBMET5103 Entrepreneurship 56(d)nterpreting and reporting the information.xAfterdataareaccumulated,theymustbeorganisedinto meaningful information xMethodsofsummarisingandsimplifyingdataincludetables, charts and graphs xDescriptivestatisticssuchasmean,modeandmedianare also helpful(e)Marketing research questionsxSalesxDistributionxMarketsxAdvertisingxProducts7.3Inhibitors to Marketing Research(a)CostxMarketing research can be expensive xAffordable marketing techniques exist for smaller companies (b)Complexity xQuantitative aspects frighten many entrepreneurs xKey concern is interpretation of data xEntrepreneurs can obtain help from specialists (c)Strategic decisions xSomeentrepreneursfeelthatonlymajorstrategicdecisions need marketing research support xSales efforts can be enhanced through research results (d)rrelevancy xSomeentrepreneursbelievethatmarketingresearchdata either tell them what they already know or are irrelevant xDatathatconfirmwhatisalreadyknowncanbeactedupon with more confidence STUDY GUIDEBMET5103 Entrepreneurship 577.4Internet Marketing(a)Advantages of the nternet for marketing xncreases a companys presence and brand equity xNew customers are easily cultivated xCustomer service is improved xnformation transfer is accomplished in a cost-efficient manner (b)Limitations of nternet marketing xLimited target audience xCustomer resistance to purchasing over the nternet 7.5DeveIoping the Marketing Concept(a)Marketing philosophyxA production-driven philosophy xA sales-driven philosophy xA consumer-driven philosophy(b)Marketing segmentation (c)Consumer behaviour xConvenience goods xShopping goods xSpecialty goods xUnsought goods xNew products 7.6DeveIoping a Marketing PIanA marketing plan is the process of determining a clear, comprehensive approach to the creation of customers.(a)Current marketing research determining who the customers are, what they want and how they buy(b)Currentsalesanalysispromotinganddistributingproducts according to marketing research findings(c)Marketinginformationsystemcollecting,screening,analysing, storing,retrieving,anddisseminatingmarketinginformationon which to base plans, decisions and actionsSTUDY GUIDEBMET5103 Entrepreneurship 58(d)Sales forecasting coordinating personal judgement with reliable market information(e)Evaluation identifying and assessing deviations from marketing plans(f)Final considerations for entrepreneurs marketing plans must be based on the ventures specific goals7.7 Pricing Strategies(a)Thefollowingfactorsaffectentrepreneursinthepricingoftheir products or services:xThe degree of competitive pressurexAvailability of sufficient supply xSeasonal or cyclical changes in demandxThe costs of distribution xEconomic conditions (b)Pricing procedures differ depending on the nature of the venture. Study Questions 1.Fromyourownunderstanding,whatisamarket?Howcanmarketing research help an entrepreneur identify a market? 2. Whatarethefivestepsinthemarketingresearchprocess?Briefly describe each of these steps. 3. Describethebenefitsandconcernsofmarketingonthenternet.Be specific in your answer. 4. nyourownwords,whatismarketsegmentation?Whatroledo demographic and benefit variables play in the segmentation process? 5. Howdoesthewayconsumersviewaventuresproductorservice affectstrategy?Forexample,whywoulditmakeadifferencetothe entrepreneursstrategyiftheconsumersviewedthecompanyas selling a convenience good as opposed to a shopping good? 6. Whataresomeofthemajorenvironmentalandpsychologicalfactors that affect pricing strategies? Discuss three of each. STUDY GUIDEBMET5103 Entrepreneurship 59CASE STUDY 1 SahulisintheprocessofopeningarestaurantinKualaLumpur.After touringafewrestaurants,afriendaskedhim.Whoisyourtarget market? Sahul shrugged and said, People who come to KLCC guess, but have not given it much thought. Questions1.WhatcouldSahulgainbythinkingmorecarefullyabouthistarget market?2.How important would those insights be?CASE STUDY 2 YourfriendAididisopeninganewpizza,subandsandwichrestaurant neartheuniversityyouareattending.Heneedsyouradviceonhowto comeupwithsixnewwaystomarkethisrestaurantthatdonotinclude newspaper, radio or television advertising. Questions1.List down the six suggestions on how you can help Aidid market his restaurant.2.Justify your suggestions. STUDY GUIDEBMET5103 Entrepreneurship 60Topic 8: FinanciaI Statements in New Ventures Learning Outcomes By the end of this topic, you should be able to: 1.Explaintheprincipalfinancialstatementsneededforany entrepreneurial venture; 2.Outline the process of preparing an operating budget;3.Discuss the nature of cash flow;4.Describe how pro forma statements are prepared;5.Explainhowcapitalbudgetingcanbeusedinthedecision-making process;6.Explain how to use break-even analysis; and 7.llustratetheuseofsomeoftheimportantmeasuresandtheir meanings in ratio analysis.Topic Overview Thistopicfocusesontheimportanttaskofassessinganewventures financialstrengthandviability.Entrepreneursmustunderstandthe importanceofdevelopingforecaststoprojectfutureincomeandexpenses. Therefore,thistopicemphasisesonfinancialstatementsinnewventures. Basically, three principal financial statements are important to entrepreneurs. Theseincludethebalancesheet,theincomestatementandthecash-flow statement.Thebudgetingprocessfacilitatesthefinancialstatement preparation.Anothercommonlyuseddecision-makingtoolisbreak-even analysis, which tells how many units must be sold in order to break even at a particular selling price. t is possible to use this analysis even when fixed or variablecostscanonlybeestimated.Thelastpartofthistopicexamines ratioanalysis,whichcanbeahelpfulanalyticaltoolforentrepreneurs. STUDY GUIDEBMET5103 Entrepreneurship 61Focus Areas and Assigned Readings Focus Areas Assigned Readings8.1 The mportance of Financial nformation to Entrepreneurs8.2 Understanding the Key Financial Statements8.3 Preparing Financial Budgets8.4 Pro Forma Statements8.5 Capital Budgeting8.6 Break-Even Analysis8.7 Ratio Analysis Kuratko, D. F. (2009). Introduction to entrepreneurship. Australia: South-Western. Chapter 11, p. 280. Chapter 11, pp. 281-290. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 8, pp. 275-278. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 14, pp. 342-345. Chapter 11, pp. 291-296. Chapter 11, p. 298. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 8, p. 291. Chapter 11, pp. 300-303. Chapter 11, pp. 304-305. Chapter 11, p. 308. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 8, p. 297. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 14, pp. 354-357. AdditionaI Recommended Readings http://www.wri.org/publication/voices-of-entrepreneurshttp://performingarts.uiowa.edu/paec/courses.htmlSTUDY GUIDEBMET5103 Entrepreneurship 62How Much Money Does Your New Venture Need? http://hbr.org/1986/05/how-much-money-does-your-new-venture-need/ar/1Content Summary 8.1The Importance of FinanciaI Information to EntrepreneursEntrepreneurs make assumptions to explain how numbers are derived and correlate them with information.8.2 Understanding the Key FinanciaI Statements(a)Balance sheetxReports a businesss financial position at a specific time.xThe balance sheet is divided into two parts.xThe financial resources owned by the firm are called assets.xTheclaimscreditorshaveagainstthecompanyarecalled liabilities.xThe residual interest of the firms owners is known as owners equity.(b)Understanding the Balance SheetxCurrent assets: cash and other assets expected to be turned into cash, sold, or used up during a normal operating cycle cash, accounts receivable, inventory and prepaid expensesxFixedassets:land,building,equipmentandotherassets expected to remain with the firm for an extended periodxCurrent liabilities: obligations due and payable during the next yearorwithintheoperatingcycleaccountspayable,notes payable, taxes payable and loans payablexLong-term liabilities: obligations not due or payable for at least oneyearornotwithinthecurrentoperatingcyclebank loansxContributed capital: stock in the businessxRetainedearnings:theaccumulatednetincomeoverthelife of the corporation to dateSTUDY GUIDEBMET5103 Entrepreneurship 63(c)Whythebalancesheet alwaysbalancesifsomethinghappens on one side of the balance sheet, it is offset by something on the other side: xA credit transactionxA bank loanxA stock sale(d)The income statementshows the change that has occurred in a firms position as a result of its operations over a specific purposexRevenue:obtainedeverytimeabusinesssellsaproductor performs a servicexCostofgoodssold:costofmerchandisesoldduringthe accounting periodxOperatingexpenses:majorexpenses,exclusiveofcostsof goods sold xFinancial expense: interest expense on long-term loansxEstimated income taxes: payment of estimated income taxes(e)Thecash-flowstatementshowstheeffectsofacompanys operating,investing and financing activities on its cash balance xThe key items:Cash generated from operations The firm's finance fixed capital expenditures New debtxOperatingcashflows:cashgeneratedfromorusedinthe course of business operations of the firmxnvesting activities: cash flow effects from long-term investing activities, such as purchase or sale of plant and equipmentxFinancingactivities:cashfloweffectoffinancingdecisionsof the firmsale of stocks and bonds, repurchase of securities, and payment of dividends8.3 Preparing FinanciaI Budgets(a)Operatingbudget:astatementofestimatedincomeand expenses over a specified period of timexThe first step in an operating budget is the preparation of the sales forecast STUDY GUIDEBMET5103 Entrepreneurship 64xSimple linear regression: a statistical forecasting techniquexAfterforecastingsalesforthebudgetperiod,expensesmust be estimated xProductionbudget:estimateofthenumberofunitstobe produced to meet the sales forecastxThe last step in preparing the operating budget is to estimate the operating expenses for the period.(b)Cash-flowbudget:astatementofestimatedcashreceiptsand expenditures over a specified period of timexCash salesxCash payments received on accountxLoan proceeds8.4 Pro Forma Statements(a) Two types of pro forma statements xncome statementsxBalance sheet8.5 CapitaI Budgetingdentify cash flows and timing and obtain reliable estimates of savings and expenses(a) Payback methodxEasiestxgnores cash flows beyond payback period (b) Net present valuexMinimises shortcomings of payback method xDollar today worth more than future dollar(c) nternal rate of returnxCash flows discountedxMustbeginwithNPVofzeroandworkbackwardsthrough tablesSTUDY GUIDEBMET5103 Entrepreneurship 658.6 Break-Even AnaIysis Assessesexpectedproductprofitability,anddetermineshowmany units must be sold at a particular selling price(a) Contribution marginxDifference between selling price and variable cost per unitxFC = (SP - VC) S(b) Graphic approachxDeals with total revenue and total costsxEnables visualisation of cost structure(c) Handling questionable costsxUsed with difficult-to-assign costs8.7Ratio AnaIysis (a)Verticalanalysisistheapplicationofratioanalysistoonesetof financial statements,lookingupanddownthestatementstofind weaknesses and strengths (b)Horizontalanalysislooksatfinancialstatementsandratiosover timeStudy Questions 1. Whatistheimportanceoffinancialinformationtoentrepreneurs? Briefly describe the key components. 2. Whatareproformastatements?Howaretheyconstructed?Be complete in your answer. 3. Describethenetpresentvaluemethod.Whenwouldanentrepreneur use this method? Why? 4. Whenwouldanentrepreneurbeinterestedincarryingoutabreak-even analysis? 5. What is ratio analysis? How is horizontal analysis different from vertical analysis? STUDY GUIDEBMET5103 Entrepreneurship 66CASE STUDY SitiZainab,afriendofyours,planstoopenafashionboutiquethatsells womens clothing and accessories. She told you that she had leafed through severalbooksonhowtoprepareforecastsandproformafinancial statementsbutthebooksweregearedtowardsexistingfirmsthathave severalyearsofhistoricalfinancialstatementsonwhichtobasetheir projections.QuestionfSitiZainabaskedyouforyouradviceonhowtoprepareforecastsfora completelynewwomensfashionboutique,whatwouldyoutellher? Justify your suggestion.STUDY GUIDEBMET5103 Entrepreneurship 67Topic 9: Business PIan Preparation for New Ventures Learning Outcomes By the end of this topic, you should be able to:1.Define business plan;2.Discuss the planning pitfalls that affect many new ventures; 3.Describe the benefits of a business plan;4.Discuss the importance of coordinating business plan segments;5.Construct a complete outline of an effective business plan; and6.dentify points to remember in the presentation of a business plan.Topic Overview Thistopicintroducestheimportanceofwritingabusinessplan,whichisa step that all start-up firms and new ventures should go through. An emphasis is placed on the proper time to write a business plan as it should follow the completionofafeasibilityanalysis.Additionally,thistopicprovidesa thoroughdefinitionandexaminationofaneffectivebusinessplan.The criticalfactorsinplanningandthepitfallstobeavoidedarediscussed.The topicthenpresentssomehelpfulhintsforpreparingabusinessplan,along with a self-analysis checklist for doing a careful critique of the plan before it ispresentedtoinvestors.Finally,thetopiccloseswithareviewofhowto presentabusinessplantoanaudienceofventurecapitalsources.An emphasisisalsoplacedonthereasonsforwritingabusinessplan,who readstheplanandwhatentrepreneursarelookingfor,andguidelinesfor writing a business plan.STUDY GUIDEBMET5103 Entrepreneurship 68Focus Areas and Assigned Readings Focus AreasAssigned Readings 9.1 What is a Business Plan? 9.2 Pitfalls to Avoid in Planning9.3 Benefits of a Business Plan9.4 Developing a Well-Conceived Business Plan9.5 Elements of a Plan9.6 Updating the Business Plan9.7 Presentation of the Business Plan: The PitchKuratko, D. F. (2009). Introduction to entrepreneurship. Australia: South-Western. Chapter 12, p. 316. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 4, pp. 137-140. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 7, p. 156. Chapter 12, pp. 316-317. Chapter 12, p. 317. Chapter 12, pp. 320-323. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 8, p. 140. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 7, pp. 167-168. Chapter 12, pp. 324-338. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 8, p. 144. Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 7, pp. 158-164. Chapter 12, p. 339. Chapter 12, pp.340-341;AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 8, pp. 154-155. AdditionaI Recommended Readings Business Plan Guidelines http://www.occ.gov/static/licensing/form-business-plan-v2.pdfSTUDY GUIDEBMET5103 Entrepreneurship 69How to Prepare Your Business Plan http://unctad.org/en/Docs/iteiia5_en.pdfContent Summary 9.1What is a business pIan?t must describe current status, expected needs and projected results of the new business.Every aspect of the business needs to be covered.9.2PitfaIIs to Avoid in PIanning(a)No realistic goalsxLack of attainable goalsxLack of time frame to accomplish thingsxLack of prioritiesxLack of action steps(b)Failure to anticipate roadblocksxNo recognition of future problemsxNo admission of possible flaws or weaknesses in the planxNo contingency or alternative plans(c)No commitment or dedicationxExcessive procrastinationxMissed appointmentsxNo desire to invest personal moneyxAppearance to make a fast buck from a hobby or a whim(d) Lack of demonstrated experience (business or technical)xNo experience in businessxNo experience in the specific area of the businessxLackofunderstandingoftheindustryinwhichtheventure fitsxFailure to convey a clear picture of how and why the venture will work and who will accept itSTUDY GUIDEBMET5103 Entrepreneurship 70(e)No market niche (segment)xUncertaintyaboutwhowillbuythebasicidea(s)behindthe venturexNoproofofneedordesireforthegoodorproductbeing proposedxAssumptionthattherewillbecustomersorclientsjust because the entrepreneur thinks so 9.3Benefits of a Business PIan(a)Benefits for the entrepreneurxForcestheentrepreneurtoviewventurecriticallyand objectivelyxSubjectstheentrepreneurtoclosescrutinyofhisorher assumptions about the success of the venturexCauses the entrepreneur to develop and examine operating strategies and expected results for outside evaluatorsxQuantifiesgoalsandobjectivesbyprovidingmeasurable benchmarks for comparing forecasts with actual resultsxProvidestheentrepreneurwithacommunicationtoolfor outsidefinancialsourcesaswellasanoperationaltoolfor guiding the venture towards success (b)Benefits for financial sourcesxProvidesdetailsofthemarketpotentialandplansfor securing a share of that marketxllustratestheventuresabilitytoservicedebtorprovidean adequate return on investmentxdentifies critical risks and crucial events with a discussion of contingency plansxGivesfinancialsourcesaclear,concisedocumentthat containsthenecessaryinformationforathoroughbusiness and financial evaluation9.4DeveIoping a WeII-Conceived Business PIan(a)Who reads the plan?(b)Putting the package together(c)Guidelines to rememberSTUDY GUIDEBMET5103 Entrepreneurship 71xKeep the plan respectably shortxOrganise and package the plan appropriatelyxOrient the plan towards the futurexAvoid exaggerationxHighlight critical risksxGive evidence of an effective entrepreneurial teamxDo not over-diversifyxdentify the target marketxKeep the plan written in the third personxCapture the readers interest9.5 EIements of a PIan(a) Executive summary(b) Business description(c) Marketing segment(d) Market niche and market sharexCompetitive analysisxMarketing strategyxAdvertising plan(e)Research, design, and development segment (applicable only if research and development is involved)(f) Operations segment(g) Management support(h) Financial segmentxThe pro forma balance sheetxThe income statementxThe cash-flow statement(i) Critical risks segment(j) Harvest strategy segment(k) Milestone schedule segment(l) Appendix and/or bibliography segmentSTUDY GUIDEBMET5103 Entrepreneurship 729.6 Updating the Business PIanA practical example of a business plan (refer to Figure 9.1)Figure 9.1: Updating the business plan 9.7Presentation of the Business PIan: The Pitch(a)Suggestions for preparation(b)Suggestions for presentation(c)What to expect Study Questions 1. What is a business plan?2. Describeeachofthefiveplanningpitfallsentrepreneursoften encounter.3. dentify the benefits of a business plan for:(a) An entrepreneur; and(b) Financial sources.4. Describe the six-step process venture capitalists follow when reading a business plan.5. dentifyfiveofthetenguidelinestobeusedinpreparingabusiness plan.6. Describe each of the three financial statements that are mandatory for the financial segment of a business plan.STUDY GUIDEBMET5103 Entrepreneurship 73CASE STUDY 1 Christina Smith, who lives near Seattle, has just left her job with Microsoft to startabusinessthatsellsanewtypeoffaxmachine.Sheknowsshewill need a feasibility analysis, a well-articulated business model, and a business plan to get funding, but she is not sure which project to tackle first. Questionf Christina asked you for your advice, what would you tell her? Provide the rationale for your decision.CASE STUDY 2 A good friend of yours, Nor Yasmin, has decided to leave her teaching job to launchaprivatetutoringcompanyforprimaryandsecondaryschoolgoing children.Sheneedstoputtogetherherbusinessplanandturnstoyoufor advice, asking, have a lot of books and articles that tell me how to write a business plan, but m wondering if there is anything in particular should be careful to avoid when putting my plan together? QuestionHow would you respond to Nor Yasmins question?STUDY GUIDEBMET5103 Entrepreneurship 74Topic 10: Strategic Growth in Entrepreneurship Learning Outcomes By the end of this topic, you should be able to:1.Explaintheimportanceofstrategicplanningtoanentrepreneurial venture;2.Discusssomeofthereasonsentrepreneursdonotcarryoutstrategic planning;3.Describe the five stages of a typical venture life cycle;4.Examinethetransitionthatoccursinthemovementfroman entrepreneurial style to a managerial approach;5.dentify the key factors that play a major role during the growth stage; and6.Review the unique managerial concerns with growth businesses.Topic Overview Thistopictouchesonthegrowthstrategiesthatareavailableto entrepreneurialfirms.Anumberofbenefitstostrategicplanningexist. Basically,thestrategiesaredividedintointernalgrowthstrategiesand externalgrowthstrategies.Theinternalgrowthstrategiesincludenew productdevelopment,otherproductrelatedstrategiesandinternational expansion. The external growth strategies include mergers and acquisitions, licensing,strategicalliancesandjointventures,franchising,etc.Thetopic alsoexaminestheimportanceofaventuresgrowthstage.Theunique managerialconcernsofgrowingventuresareoutlinedaswell.Doing businessgloballyhasrapidlydevelopedasoneofthemostprofitableand popular strategies for many entrepreneurial ventures. Finally, the concept of entrepreneurialleadershipisintroducedasawayforentrepreneursto anticipate,envision,maintainflexibility,thinkstrategically,andworkwith otherstoinitiatechangesthatwillcreateaviablefutureforgrowth-oriented venture.STUDY GUIDEBMET5103 Entrepreneurship 75Focus Areas and Assigned Readings Focus AreasAssigned Readings 10.1 The Nature of Strategic Planning in Emerging Firms10.2 The Lack of Strategic Planning10.3 The Value of Strategic Planning10.4 Venture Development Stages10.5 The Entrepreneurial Company in the Twenty-First Century10.6 Building the Adaptive FirmKuratko, D. F. (2009). Introduction to entrepreneurship. Australia: South-Western. Chapter 13, p. 365. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 14, pp. 380-383. Chapter 13, p. 367.Chapter 13, pp. 367-371. AdditionaI Recommended Readings Barringer, B. R., & reland, R. D. (2010). Chapter 14, p. 484. Chapter 13, pp. 373-374. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 16, pp. 405-409. Chapter 13, pp. 374-375. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 16, p. 410. Chapter 13, p. 376. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 2, pp. 36-39. Chapter 13, p. 378. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 16, pp. 413-414. STUDY GUIDEBMET5103 Entrepreneurship 7610.7 The Transition from an Entrepreneurial Style to a Managerial Approach10.8 Understanding the Growth Stage 10.9 Unique Managerial Concerns of Growing VenturesChapter 13, pp. 380-381. AdditionaI Recommended Readings Schaper, M., Volery, L., Weber, P., & Lewis, K. (2011). Chapter 16, pp. 398-400. Chapter 13, pp. 385-387. AdditionaI Recommended Readings http://energytourcafe.com/GrowthStrategiesExcerpt.pdf Linking Entrepreneurial Strategy and Firm Growth http://www.csi.ensmp.fr/WebCSI/PICO/D5-3_Scientific_paper_RQ2-2.pdf Entrepreneurship as Growth; Growth as Entrepreneurship http://eprints.qut.edu.au/5826/ The Seven Growth Strategies of Social Entrepreneurship http://www.socialedge.org/blogs/the-new-pioneers/the-seven-growth-strategies-of-social-entrepreneurship Content Summary 10.1The Nature of Strategic PIanning in Emerging FirmsThe need for formal planning is based on:(a)The degree of uncertainty(b)The strength of competition(c)The experience of the entrepreneurFigure 10.1 illustrates the strategic management process. STUDY GUIDEBMET5103 Entrepreneurship 77Figure 10.1: The strategic management process 10.2The Lack of Strategic PIanningResearchhasshownadistinctlackofplanningonthepartofnew ventures. There are four basic reasons for the lack of planning:(a)TimescarcityManagershaveahardtimesettingasidetime forplanning.Theyarecaughtupinday-to-dayoperating problems.(b)Lack of knowledge Not many managers have the experience ofplanning.Manyentrepreneursarealsounfamiliarwithany planning information sources and how they can be used.(c)LackofexpertiseMostmanagersaregeneralists.Theylack specialised expertise necessary in the planning process.(d)Lack of trust and openness Small business owners are afraid of,andsensitiveabout,decisionsconcerningtheirbusiness. Becauseofthis,theyarehesitanttoformulateastrategicplan that requires employee input or outside consultants.STUDY GUIDEBMET5103 Entrepreneurship 78(e)PerceptionofhighcostFearofexpensiveplanningcauses many business owners to avoid or ignore planning.10.3The VaIue of Strategic PIanning(a)Fatal visions in strategic planningxMisunderstanding industry attractivenessxNo real competitive advantagexPursuing an unattainable competitive positionxCompromising strategy for growthxFailure to communicate the ventures strategy to employees(b)Entrepreneurial and strategic actionsxStrategic actions exploit competitive advantagesxEntrepreneurial actions search for competitive advantages(c)Strategic positioning: The entrepreneurial edgexTheprocessofperceivingnewpositionsthatattract customers from established positionsxRequires creativity and insight(d)An entrepreneurial strategy matrix model10.4Venture DeveIopment Stages Iife cycIe stages of an enterprise(a)Newventuredevelopmentconsistsofactivitiesassociated with the initial formulation of the venture(b)Start-upactivitiesencompassesthefoundationworkneeded for creating a formal business plan.(c)Growth this stage is a transition from the entrepreneurial one-person leadership to managerial team-oriented leadership(d)Businessstabilisationsalesbegintostabiliseandthe entrepreneurmustbeginthinkingabouthowtheenterprisewill develop over the next three to five years(e)nnovation or decline firms that fail to innovate die10.5The EntrepreneuriaI Company in the Twenty-First Century(a)Theentrepreneurialmindsetitisimportantfortheventures manager to maintain an entrepreneurial frame of mindSTUDY GUIDEBMET5103 Entrepreneurship 7910.6BuiIding the Adaptive FirmEntrepreneurs can build an adaptive firm by:(a)Sharing the entrepreneurs vision(b)ncreasing the perception of opportunity(c)nstitutionalising the perception of the opportunity(d)nstitutionalising change as the ventures goal(e)nstilling the desire to be innovative through:xA reward systemxAn environment that allows for failurexFlexible operationsxThe development of venture teams10.7 TheTransitionfromanEntrepreneuriaIStyIetoaManageriaI ApproachThisisakeytransitionwheretheentrepreneurshiftsintoa managerial style.(a)Balancing the focus entrepreneurial versus managerialxThe entrepreneurs point of viewWhere is the opportunity?How do capitalise on it?What resources do need?How do gain control over them?What structure is best?xThe administrative point of viewWhat resources do control?Whatstructuredeterminesourorganisations relationship to its market?How can minimise the impact of others on my ability to perform?What opportunity is appropriate?10.8 Understanding the Growth Stage(a)Key factors during the growth stageSTUDY GUIDEBMET5103 Entrepreneurship 80xControl xResponsibilityxTolerance of failurexChange(b)Managing paradox and contradictionxBureaucratisation versus decentralisation increased hiring stimulates bureaucracyxEnvironment versus strategy High environment turbulence andcompetitiveconditionsfavourcompanyculturesthat support risk taking, autonomy and employee participation in decision makingxStrategic emphases: Quality versus cost versus innovation rapidlygrowingfirmsstrivetosimultaneouslycontrolcosts, enhance product quality and improve product offerings10.9 Unique ManageriaI Concerns of Growing Ventures(a)Thedistinctivenessofsizesmallnessgivesemerging businesses certain disadvantages, such as a limited market and a smaller staff to do the work (b) Theone-person-bandsyndromewhenanentrepreneur refuses to delegate responsibility to employees(c) Time management entrepreneurs should learn to use time as a resource and not allow time to use themCommunitypressuresthecommunityexertspressureonthe entrepreneurwithregardtoparticipation,leadershipand donationsContinuouslearningStayingabreastofindustrychangesis another way for entrepreneurs to maintain a competitive edge Study Questions 1. nwhatwaydoesanentrepreneursvisionaffectthecompanys strategic plan?2. How is the strategic plan of an engineer/scientist entrepreneur likely to bedifferentfromthatofanentrepreneurwhoseprimarystrengthisin the manufacturing area?STUDY GUIDEBMET5103 Entrepreneurship 813. Givethreereasonswhymanyentrepreneursdonotliketoformulate strategic plans.4. Briefly describe the stages of development for a new venture.5. Describethefourkeyfactorsthatneedtobeconsideredduringthe growth stage.6. Discuss five unique managerial concerns of growing businesses.CASE STUDY NoorNabilahasdevelopedanewpieceofcomputerhardwarethatsheis convinced will be a sure hit. She cannot imagine that the product could fail. She knows that you are taking a course in entrepreneurship, gives you a call, so she asking, s there a common set of reasons that cause products to fail? fthereis,dliketoknowthemsocanmakesureavoidthembefore pitch my new product to anyone. QuestionWhat would you tell her? Justify your suggestion.STUDY GUIDEBMET5103 Entrepreneurship 82STUDY GUIDEBMET5103 Entrepreneurship 83Appendices Appendix A: Learning Support SeminarsThere are 15 hours of face-to-face facilitation, in the form of FVE seminars ofthreehourseach.Youwillbenotifiedofthedate,timeandlocationof thesesemina