Managing New Venture

Formation and
Entrepreneurship
Chapter 10

City University of Science and Information

Technology

Faisal Ghani

The Nature of Entrepreneurship

Entrepreneurship
The process of planning, organizing,
operating, and assuming the risk of a business.
Entrepreneur
Someone who engages in entrepreneurship.
Small Business
A business that is privately owned by one
individual or a small group of individuals; it
has sales and assets that are not large enough
to influence its environment.
Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

The Role of Entrepreneurship in the

Society

Job Creation
Small business creates majority of the
new jobs in the society.
Industry sectors dominated by small
business have added the most jobs.
Small business accounts for 38% of all
jobs in high-technology sectors and for
96% of all U.S. exporters.

Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

The Role of Entrepreneurship in the

Society

Innovation
Historically, major innovations are as
likely to come from small businesses as
from large firms.
Much of what is created in the hightechnology sectors comes from start-up
companies.
PC, Transistor Radio, Photocopying
Machine, Jet Engine, Instant
Photograph.

Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

The Role of Entrepreneurship in the

Society

Importance to Large Businesses

Most products made by large
manufacturers are sold to customers by
small businesses.
Small businesses as suppliers provide large
firms with essential services, supplies, and
raw materials.
Large businesses outsource many routine
business operations such as packaging,
delivery, and distribution to small
businesses.

Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

Strategy for Entrepreneurial

Organizations
Three basic strategic challenges:
1. Choosing an Industry
2. Emphasizing Distinctive Competencies
3. Writing a Business Plan

Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

Strategy for Entrepreneurial

Organizations
1. Choosing an Industry

Industries in which small business are

strong
Industries in which small business are weak
Services
Retailing
Construction
Finance and Insurance
Wholesaling
Transportation
Manufacturing
Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

Strategy for Entrepreneurial

Organizations
2. Emphasizing Distinctive Competencies
Identifying Niches in Established Markets
Niche: A segment of a market not currently being

exploited.

Identifying New Markets

New market is explored using the transfer of an
existing product/service to a new market.
Entrepreneurs can create new industries/ products/
services.
First-Mover Advantage
Any advantage that comes to a firm because it

exploits an opportunity before any other firm does.

Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

Strategy for Entrepreneurial

Organizations
3. Writing a Business Plan

A document that summarizes the business

strategy and structure. It should include:
Business goals and objectives.
Strategies used to achieve these goals
and objectives.
A plan of how the entrepreneur will
implement these strategies.

Chapter 10

Managing New Venture

City University of Science and Information

Technology

Faisal Ghani

Structure of Entrepreneurial
Organizations

Starting a New Business

Buying an Existing Business
Business has a proven ability to draw customers and

make a profit (the business is a going concern).

Networks (e.g., customers and suppliers) are already
established.
Negative: New owners inherit any existing problems.

Starting from Scratch

Avoids problems associated with previous owners.
Freedom to choose suppliers, equipment, location, and
workers.
Negative: More business risk and uncertainty .
Chapter 10

Managing New Venture

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City University of Science and Information

Technology

Faisal Ghani

Structure of Entrepreneurial Organization

Where are
they?

Who are my
customers?

At what price
will they buy
my product?

In what
quantities
will they
buy?

How will my
product vary
from those of
my
competitors?

Who are my
competitors
?
Chapter 10

Managing New Venture

11

City University of Science and Information

Technology

Faisal Ghani

Structure of Entrepreneurial
Organizations

Financing the New Business

Personal Resources
Using your own money and money borrowed from
friends and relatives to finance the business.
Strategic Alliances
Partnering with established firms such as suppliers
in a mutually beneficial relationship.
Lenders
Obtaining funding from traditional lenders (e.g.,
banks, independent investors, and government
loans).
Chapter 10

Managing New Venture

12

City University of Science and Information

Technology

Faisal Ghani

Structure of Entrepreneurial
Organizations
Franchising
Franchising Agreement
A contract between an entrepreneur (the
franchisee) and a parent company (the
franchiser); the entrepreneur pays the
parent company for the use of the
trademark, products, formula, and business
plans.

Chapter 10

Managing New Venture

13

City University of Science and Information

Technology

Faisal Ghani

Structure of Entrepreneurial
Organizations
Franchising
Advantages
Reduced financial
risk of new business
success through
experience provided
by franchiser.
Training, financial,
and management
support by franchiser.

Chapter 10

Disadvantages
Start-up fees to
purchase franchise.
Limitations of
franchise (market
area, product,
customers).
Imposed
operational controls
of franchiser.

Managing New Venture

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City University of Science and Information

Technology

Faisal Ghani

The Performance of Entrepreneurial

Organizations

Reasons of Failure
Managerial incompetence/ inexperience of
the entrepreneur.
Neglect in not devoting sufficient time and
effort to the business.
Weak control systems that do not warn of
impending problems.
Insufficient capital to sustain the business
until it starts to turn a profit.

Chapter 10

Managing New Venture

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City University of Science and Information

Technology

Faisal Ghani

The Performance of Entrepreneurial

Organizations

Reasons of Success
Hard Work, Drive and Dedication
Market Demand for Products or Services
Provided
Managerial Competence
Luck?
Strong Control Systems
Sufficient Capitalization

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Managing New Venture

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