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Copyright 2005 John Wiley & Sons, Inc. All rightsreserved. Reproduction or translation of this workbeyond that permitted in Section 117 of the 1976 UnitedStates Copyright Act without the express writtenpermission of the copyright owner is unlawful. Request

for further information should be addressed to thePermissions Department, John Wiley & Sons, Inc. Thepurchaser may make back-up copies for his/her own useonly and not for distribution or resale. The Publisherassumes no responsibility for errors, omissions, ordamages, caused by the use of these programs or fromthe use of the information contained herein.

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Learning Objectives

Understand the importance of entrepreneurship andorganizational entrepreneurship

Be able to create a simple business plan

Understand the steps in the creation of an entrepreneurialventure

Know the pitfalls associated with new venture failures Consider the various options for new venture funding

Select an appropriate structure for an internal venture

Be able to create a plan for fostering innovation in anexisting firm

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Entrepreneurship

Entrepreneurship is the creation of newbusiness Opportunity recognition or creation (entrepreneurial

discovery is the intersection of a need and a solution)

Assembling resources to pursue the opportunity,including capital (typically associated with a businessplan)

Managing activities that bring a new venture intoexistence

Some ventures are complete start-ups Other ventures occur within existing firms

Organizational entrepreneurship or intrapraneurship

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Entrepreneurs

Opportunists Recognize and take advantage of

opportunities

Resourceful

Creative

Visionary

Hardworking

Optimistic Independent Thinkers

Excellent Leaders

Dreamers

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Whats in a Business Plan?

Executive Summary

Business Description

Environmental Analysis (see next slide fordetails)

Resource Analysis (with a focus on theentrepreneur)

Functional Plans

Financial Projections Implementation Schedule

End-game Strategy

Risk Analysis

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Whats in the Environmental

Analysis for a Business Plan? Environmental Analysis

Market analysis

Existing competitor analysis

Supplier analysis

Evaluation of potential substitutes

Discussion of entry and exit barriers

Relevant government regulations and regulators

Financial condition of the industry Availability of funding

Overall economic factors for the host country

Availability of technology

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Sources of Capital for

Entrepreneurs In Hospitality

Commercial Banks

Personal Contacts Venture Capitalists

Corporate Partnerships

Business Angels

Initial Public Offerings

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Initial Public (IPO) Offering Process

Time

Develop Business Plan

BoardApproval

Select UnderwriterDraft Letter of Intent

Due Diligence

Draft Prospectus Revise & Print the Prospectus

Assemble theSyndicate

Present to Potential Investors

DetermineOffering Size

DetermineOffering Price

Placethe

Offering

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First Year Agenda forEntrepreneurial Startups

Financial Management Obtain initial capital

Establish systems to track revenues and expenses andcontrol costs.

A record-keeping system must be established that willsatisfy the demands of investors, creditors and theinternal revenue service.

Marketing Selection of initial product/service offering.

Selection of initial market. Targeted advertising.

Product / service Development Establishment of a system for collecting feedback from

early customers. Continuous improvement is essential.

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First Year Agenda for

Entrepreneurial Startups Resource Acquisition

Site selection and construction.

Acquisition of machinery, furnishings, information

systems, utilities and supplies. Contracts with suppliers.

Process Development Focus is on production and operations management to

ensure efficiency, quality and continuous improvement.

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First Year Agenda forEntrepreneurial Startups

Management and Staffing Recruitment of motivated, well-trained employees

Selection of managers.

Assignment of responsibilities

Establishment of personnel policies

Training

Compensation system, which may include benefits.

Supportive culture.

Legal Requirements Legal form (sole proprietorship, partnership,

corporation).

Other legal requirements and filing of forms.

Patents and trademarks if necessary.

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Legal Forms of Business

Sole proprietorship The entrepreneur is the owner and legally liable for the

venture in its entirety

Partnership Each of the partners contribute resources such as

money, physical goods, services, knowledge andrelationships

Limited partnership means that managementresponsibility and legal liability of partners arelimited, except that one partner must be a generalpartner with unlimited liability

Corporation Risk of a shareholder is limited to investment in stock

However, the tax advantages of a partnership are lost

S Corporations allow some partnership-type taxadvantages, but they must meet restrictions and

have few shareholders

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Internal and External Problems

Faced by Entrepreneurs

External Problems

Customer Contact (27.3%)

Market Knowledge (19.3%)

Market Planning (14.4%)

Location (11.1%)

Pricing (8.4%)

Product Issues (7.6%)

Competitors (6.3%)

Expansion (5.5%)

Internal Problems

Adequate Capital (15.9%)

Cash Flow (14.9%)

Facilities / Equipment(12.6%)

Inventory Control (12.3%)

Human Resources (12.0%)

Leadership (11.1%)

Organizational Structure

(10.8%) Accounting Systems

(10.4%)

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Most Common Sources ofEntrepreneurial Failure

Poor Management Skills

Lack of Adequate Capitalization

Product/Service Problems

External Market Conditions

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Factors Encouraging orDiscouraging Innovation

Factors Encouraging Innovation Vision and culture that support innovation, personal

growth and risk taking

Top management support and organizational champions

Teamwork and collaboration; a flat managementhierarchy

Decentralized approval process

The ideas of every employee are considered valuable

Excellent communications

Innovation grants and time off to pursue projects

Large rewards for successful entrepreneurs

Focus on learning

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Factors Encouraging or

Discouraging Innovation Factors Discouraging Innovation

Rigid bureaucracy and conservatism in decision making

Absence of management support or champions

Authoritarian leadership and traditional hierarchy Difficult approval process

Only the ideas of certain people (researchers ormanagers) are given attention

Closed-door offices

Inadequate resources devoted to entrepreneurialactivities

Harsh penalties for failure

Exclusive emphasis on measurable outcomes

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Entrepreneurships involves the creation ofnew business

Entrepreneurship can involve a new start-up

or organizational entrepreneurship, thecreation of new business within an existingfirm

Entrepreneurial tasks include opportunity

recognition or creation, assemblingresources, and managing the activities thatbring the venture into existence

Entrepreneurial discovery is the intersectionof a need and a solution

Major Concepts in Chapter 9

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A business plan is at the center of anentrepreneurial venture. It forces theentrepreneur to think through the details of

the venture and determine its feasibility A business plan includes an executive

summary, a description of the proposedventure, an analysis of the environment, aresource analysis (with special emphasis on

the entrepreneur), functional plans such asmarketing and operations, financialprojections, a schedule for major events, anendgame strategy and an analysis of risks

Major Concepts in Chapter 9

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Obtaining start-up capital is one of the mostdifficult problems facing an entrepreneur

Lack of management skills is a primarysource of failure of entrepreneurial ventures

Firms that foster organizationalentrepreneurship tend to have a vision,culture and top management that supportinnovation, organizational champions,teamwork and collaboration, a flatmanagement hierarchy, a decentralizedapproval process, respect for ideas, excellentcommunications, resources forentrepreneurial activities, rewards that

encourage innovation and a focus on learning

Major Concepts in Chapter 9

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The optimal design for an internal venturedepends on the strategic importance of the

venture and how closely related it is tocurrent activities

Business-format franchising is an approachto new venturing that may be low risk undercertain conditions

Major Concepts in Chapter 9