Chapter 11 – Assessment andChapter 11 – Assessment and Evaluation of Evaluation of Entrepreneurial Entrepreneurial Opportunities Opportunities

The Elements Affecting New-The Elements Affecting New-Venture PerformanceVenture Performance

Entrepreneur’sEntrepreneur’sCharacteristicsCharacteristics

EnvironmentEnvironment

FoundingFoundingProcessesProcesses

Initial FirmInitial FirmCharacteristicsCharacteristics PerformancePerformance

Pitfalls in Selecting New VenturesPitfalls in Selecting New Ventures

• Lack of Objective EvaluationLack of Objective Evaluation

• No Real Insight into the MarketNo Real Insight into the Market

• Inadequate Understanding of Technical Inadequate Understanding of Technical RequirementsRequirements

• Poor Financial UnderstandingPoor Financial Understanding

• Lack of Venture UniquenessLack of Venture Uniqueness

• Ignorance of Legal IssuesIgnorance of Legal Issues

Critical Factors for New-Venture Critical Factors for New-Venture DevelopmentDevelopment

• UniquenessUniqueness

• InvestmentInvestment

• Sales GrowthSales Growth– Lifestyle venturesLifestyle ventures– Small profitable venturesSmall profitable ventures– High-growth venturesHigh-growth ventures

• Product AvailabilityProduct Availability

• Customer AvailabilityCustomer Availability

Why New Ventures FailWhy New Ventures Fail

• Product/Market ProblemsProduct/Market Problems

• Financial DifficultiesFinancial Difficulties

• Managerial ProblemsManagerial Problems

Types and Classes of First-Year ProblemsTypes and Classes of First-Year Problems

1. Obtaining external financing1. Obtaining external financing2. Internal financial management2. Internal financial management3. Sales/marketing3. Sales/marketing4. Product development4. Product development5. Production/operations management5. Production/operations management6. General management6. General management7. Human resource management7. Human resource management8. Economic environment8. Economic environment9. Regulatory environment9. Regulatory environment

External Problems Experienced by External Problems Experienced by EntrepreneursEntrepreneurs

Expansion5.5%

Market Knowledge19.3%

Customer Contact27.3%Competitors

6.3%

Market Planning14.4%

Product Issues7.6%

Location11.1%

Pricing8.4%

Internal Problems Experienced by Internal Problems Experienced by EntrepreneursEntrepreneurs

Facilities/Equipment12.6%

Cash Flow14.9%

Adequate Capital15.9%

Accounting Systems10.4%

Organizational Structure10.8%

Leadership11.1%

Human Resources12.0%

Inventory Control12.3%

Determinants of New-Venture FailuresDeterminants of New-Venture Failures

Lack of mgt. skillLack of mgt. skill

Poor mgt. strategyPoor mgt. strategy

Lack of capitalizationLack of capitalization

Lack of visionLack of vision

Poor product designPoor product design

Key personnelKey personnelincompetentincompetent

Lack of mgt. skillLack of mgt. skill

Poor mgt. strategyPoor mgt. strategy

Lack of capitalizationLack of capitalization

Poor external marketPoor external market conditions conditions

Poor product designPoor product design

Poor product timingPoor product timing

EntrepreneurEntrepreneur RankRank EntrepreneurEntrepreneur RankRank

11

22

33

44

55

66

11

22

33

44

55

66

The Evaluation The Evaluation ProcessProcess

Asking the Right Asking the Right QuestionsQuestions

Comprehensive Comprehensive Feasibility ApproachFeasibility Approach

Key Areas for Assessing the Key Areas for Assessing the Feasibility of a New VentureFeasibility of a New Venture

Technical – Feasibility analysis ofTechnical – Feasibility analysis of product or service product or service

Market – Determination of marketMarket – Determination of market opportunities and risks opportunities and risks

Financial – Analysis of financialFinancial – Analysis of financial feasibility & resources feasibility & resources

Organizational – Analysis of financialOrganizational – Analysis of financial organizational and organizational and personnel requirements personnel requirements

Competitive – Analysis of theCompetitive – Analysis of the competition competition

New-New-VentureVenture

IdeaIdea

DeterminationDeterminationof Feasibilityof Feasibilityof Plannedof Planned

New VentureNew Venture