New Venture Strategy

Being in Business Means ….

Delivering Value to Customers

who are willing to Pay an
amount which covers your Cost
including Capital Cost
 Core Concepts of Business
• Value -- Outside In Perspective
• Customers – Class of People
• Costs – Whole Array of Costs
• Capital – Comes in Various Shapes and Sizes

• Profit Margins
• Return on Investment
• Economic Value Creation
 Growth of new venture
-More than new 10 lakhs business start-ups are seen every
day
-Why
-Need for approval
-Need for independence
-Need for personnel development
-Welfare considerations
-Perception of wealth and benefits
-As a follow-up of role models
-Need of organizational development/growth
-Three factors
-Personal characteristics
-Environment
-Venture (Funding, Application and performance)
 Pitfalls in new venture

-Lack of objective evaluation

-Technical
-Market
-Financial
-Organizational
-Competitive
-Lack of critical factors
-DSCA
-PV>PP
-ROI>WACC
Causes of New Venture Failure

Market
– Small size of the potential market
– No clear product differentiation
– Misunderstood customer needs
– Lack of channel support
– Competitive response
Causes of New Venture Failure
Timing
– Too late in the market – me too
– Too early in the market – missionary
marketing

Finance
– Low Return On Investment (ROI)
Causes of New Venture Failure
Technology
– Right features
– Performance

Organizational
– Promoter conflicts -- different
aspirations
– Poor fit between products and
organization (DNA)
Entrepreneurship school of thoughts
• Great Person School
• Psychological characteristics-traits, needs, values and
drives
• Classical School-Innovator-recogniser or create
opportunities
• Management School
• Leadership School
• Intrapreneurship
 Foundation of Entrepreneurship

An Entrepreneur is one

-who creates a new business in the face of risk &

uncertainty for the purpose of achieving profit and
growth opportunities and assembles the necessary
resources to capitalize on these opportunities
 What is Entrepreneurship ?
 Wealth Creation

 New Venture Management

 Innovation

 Creativity

 Risk Taking
 Competence of Entrepreneurship
Proactive
Initiative: does thing before being asked to or by
events
Assertiveness: Confronts problems with others
directly.
Tell others what to do
Achievement Orientation
Sees and acts on opportunities
Planning and monitoring
Commitment to work
Relationship
 What is Entrepreneurship ?

Pursuit of Opportunities
Regardless of Resources
 What is EVR Congruence ?

-Successful organization (EVR)

Lost organization (-)
-The consciously incompetent organization (E-
V)
-The unconsciously competent organization
(E-R)
-Strategic drift organization (R-V)
What is effective strategic leadership?
-Strategy are owned
-Customers satisfied
-People enjoy work
-Things happen and change quickly

-Charismatic role
-vision and direction
-empowered people
-energised people
-Architectural role
-organization structure
-management control and reward system
 Entrepreneurship-Growth Spectrum
•New Concept

•New Venture

•Break-even

•Life-Style decision
•Growth Strategy (Entrepreneur)
•Status-Quo (Small-Business)
•Harvest Strategy (Sell out)
 A Major Shift . . .

. . . From financial capital to intellectual

capital.
– Human
– Structural
– Customer
 Strategic Management Process
Step 1: Develop a vision and translate it
into a mission statement.
Step 2: Assess strengths and weaknesses.
Step 3: Scan environment for opportunities
and threats.
Step 4: Identify key success factors.
 Strategic Management Process
... (continued)

Step 5: Analyze competition.

Step 6: Create goals & objectives.
Step 7: Formulate strategies.
Step 8: Translate plans into actions.
Step 9: Establish accurate controls.
 Broad Categories of Change
• Demographic – whole population (age distribution)
• Economic – Emerging markets
• Socio-Cultural -- Value systems, role models
• Technological -- Variety, performance, cost
• Political – democratic, authoritarian/totalitarian
regimes. Free market vs socialistic policies
• Legal and Regulatory -- liberalization (internal and
external), enforcement of IP protection laws
 Demographic Changes
• Median age
• Working population as the % of total
population
• Life expectancy
• Healthcare and Social Security Needs
• Urban-Rural Ratio
• Literacy
• Male-Female ratio
 Socio-Cultural Changes
• Value systems -- globalization and local assertions
• Accepted norms of behaviour
• Approach towards sexuality
• Role of religion and spirituality
• Pursuit of expertise, knowledge, wealth,
possessions
• Aspirations, fears, desires, anxieties
• Measure of “time” – attention span, priorities,
conveniences
 Technological Changes
• Availability and wide-spread assimilation of
technology
– Information Technology and it pervasiveness

• Costs and disposable incomes

• Performance, variety, ease of acquisition
• Cross applications – interdisciplinary
developments
• Comfort level of technology usage
• Examples: CD ROM drives and mobile phones
 Economic Changes

• Gross Domestic Product and Per Capita Income

• Level of exports and imports
• Inflation and interest rates
• Availability of credit at all levels
• Size of the middle class
• Various growth rates – industrial growth,
productivity growth, exports growth
• Level of unemployment
 Political and Regulatory Changes
• Transition from centrally planned to market
economy (India, 1991)
• Transition from communism to “market
socialism” (China, 1978-1980)
• Regulated, protected, closed economy
• No IPRs (copyrights, patent laws)
• Contract Enforcement and right to property
• Labour and land reforms
 India in the New Millennium
• “Young” country with rising literacy and
prosperity
• GDP growth rate of 9 % per annum
• Growing middle class
• Liberal, business like values, tolerant to
sexuality, pursuit of wealth
• Role of Religion ??
• High unemployment, imbalance in the
development
 India in the New Millennium
• Passages of IP laws (new patent regime)
• Respect in the global community (functional
democracy)
• Atmosphere conducive to business -- no
xenophobia, no insularity, no misplaced importance
to “self-reliance”
• Well developed “Institutions” – judiciary, capital
markets, stock exchanges, media (free and
independent), educational institutions, regulatory
bodies (SEBI, FDA, ISI)
• Great place to be for entrepreneurs
Three elements of starting SUCCESSFUL
company?
•Business Idea

•Management Team

•Capital

Key Foundation of Business Plan

Imagine +Creative thinking+ systematic,
logical process =
Good Start up
 Creative Process
Knowledge Accumulation

Ideas

Evaluation &
Incubation
Implementation
 Knowledge Accumulation

•Read on variety of subject.

•Attend Professional Groups & associations

•Professional meetings and seminars

•Travel new places

•Talk to any one and every one on your subject of interest

•Scan related literature/subject library

•Devote time to satisfy natural curiosity

 Incubation Process

•Engage in routine, “mindless” activities (cutting grass,

painting the house, cleaning

•Exercise regularly

•Play (games, board games and puzzle)

•Think on project or problem before falling asleep

•Mediate

•Sit back and relax on regular basis

 Idea experience

•Day dreaming and fantasize about your project

•Practice your hobbies

•Work in a leisurely environment

•Put the problem on the back burner

•Keep a note book by the bed side to note late night or early
bed ideas

•Take breaks while working

 Evaluation & Implementation

•Energy level with proper exercise, diet and rest

•Learn business planning process and other facets

•Test with knowledgeable people

•Take note of your hunches, intuitions and feelings

•Seek advise from friends

•Problems/challenges in implementation
 Creativity-ability we all possess?

Convergent Thinking:

Elements of The Correct

the problem, answer
alternatives or possible answer

Divergent Thinking:

I think there is These are all

a problem interesting and
here possible answers to
explore
 Creativity-ability we all possess?
Left Brain Thinking:
•Linear/sequential
•Rational/analytic
•Language bound
•quantitative
•deductive

Right Brain Thinking:

•Non-linear
•intuition
•visual
•inductive [experiential]
•qualitative
 Creativity-ability we all possess?
Use of both brains:
Idea generation, idea-evaluation, idea protection
and improvement

Lateral Thinking [preparation, incubation,

inspiration, verification]

Outside people:
•Pneumatic tire-John Dunlop
•Safety razor-Gillette

Habit:
Break routine
 Creativity-ability we all possess?

Prejudice
Suspend decision
Socialization??
Ambiguity??
Metaphor-bridging the gap
•Lion
•Lamb
•Butterfly
Recording
 Creativity-obstacles?

•Tiredness

•Anxiety

•Negativity

•Fear of failure

•Blocks [perceptual, emotional, process skill,

communication, environmental, cultural]
 Innovation myths

•Planned & Predictable

•Technical specification thorough prepared

•Dreams and blue-sky ideas (Practical

people, creating opportunities left by reality)

•Big projects

•Technology driven
 The Business Plan:
Two Essential Functions
• Business plan – a written summary of:
– an entrepreneur’s proposed business venture
– its operational and financial details
– its marketing opportunities and strategy
– its managers’ skills and abilities
• It serves two essential functions:
– Guiding the company by charting its future course and
defining its strategy for following it
– Attracting lenders and investors who will provide needed
capital
 A Business Plan
• A plan is a reflection of its creator.
• Sometimes the primary benefit of preparing
a plan is the realization that a business idea
just won’t work!
• The real value in preparing a plan is not as
much in the plan itself as it is in the process
of creating it.
 Business Plan:
“If you do not know where are you going, any path will get
you there”

Who should write:

• New Business owners
• New Business owners seeking outside financing for
start-up
• Existing business owners seeking outside financing
• Any business owner who wants to increase success
of their business
 Business Plan
Executive Summary:
• Depiction of business and target market
• USP of product/services
• What are prospects?
• Management team
• Key financial projection
• Funding requirement
• Projected profits and balance-sheets
•Introduction
•History
•Form of ownership
•Product/services
•Market Opportunity
•Competition
•Marketing
•Management
•Financials
•Milestones
The "5 Cs" of Credit
• Capital
 Capacity

 Collateral
 Character
 Conditions
 What is bankable Business Plan?
Character-
resumes & references to see if management has necessary
experience and/or determination to run business successfully
Credit-
Personal and business credit reports to see willingness to pay
Capital-
Your own money
Capacity-
Ability of business and management to operate at a level sufficient
to make debt payment
Collateral-
Assets pledged to secure loan [personal as well as business]
Conditions-
Outside influences that will affect the business such as local
economy and competition
 Why Take the Time to
Build a Business Plan?
• Although building a plan does not
guarantee success, it does increase
your chances of succeeding in
business.
• A plan is like a road map that serves
as a guide on a journey through
unfamiliar, harsh, and dangerous
territory. Don’t attempt the trip
without a map!
 Key Elements of a Business
Plan
• Executive summary
• Mission statement
• Company history
• Business and industry profile
• Business strategy
• Description of products/services
 Features vs. Benefits

• Feature – a descriptive fact about a product

or service (“an ergonomically designed,
more comfortable handle”).
• Benefit – what a customer gains from the
product or service feature (“fewer problems
with carpal tunnel syndrome and increased
productivity”).
Key Elements of a Business Plan
(continued)

• Marketing strategy
 Marketing Strategy
• Prove that a market exists
– Show customer interest
– Document market claims with research
• Rapid prototyping
• Describe target customers
• Advertising and promotion
• Market size and trends
• Location analysis
• Pricing
• Distribution
Key Elements of a Business Plan
• Marketing strategy
 Competitor analysis
 Owners’ and managers’
résumés
 Plan of operation
 Financial forecasts
 Request for funding
 Tips on Preparing
a Business Plan
• Rid your plan of all spelling and grammatical errors.
• Make your plan visually appealing.
• Leave ample “white space” in margins.
• Make sure your plan has an attractive cover. (First
impressions are crucial.)
• Include a table of contents to allow readers to
navigate your plan easily.
• Write in a conversational style and use “bullets.”
 Tips on Preparing
a Business Plan
• Support claims with facts and avoid generalizations.
• Avoid overusing industry jargon.
• Make it interesting!
• Use spreadsheets to generate financial forecasts.
• Always include cash flow projections.
• Keep your plan “crisp” – between 25 and 50 pages
long.
• Tell the truth – always.
 A Plan Must Pass Three Tests
• The Reality Test - proving that :
– a market really does exist for your product or service.
– you can actually build or provide it for the cost estimates in
the plan.
• The Competitive Test - evaluates:
– a company’s position relative to its customers.
– management’s ability to create a company that will gain an
edge over its rivals.
• The Value Test – proving that:
– a venture offers investors or lenders an attractive rate of
return or a high probability of repayment.
 Benefits of a Business Plan
• Greatest Benefit
• The biggest benefit of writing a thorough business plan
is the planning process itself.
• Second Greatest Benefit
• The primary document for attracting capital.
• Other Benefits
• Systematic, realistic evaluation of the company’s chances
for success in the market.
• Determination of the primary risks confronting the business.
• Plan for successful management.
• A device for measuring performance against forecasts.
• May prevent entrepreneur from undertaking a venture sure
to fail.
• Quantified goals and objectives.
 Some Do’s of Business Plans
• Give a sense of what the entrepreneur and the company expect to
accomplish within, say, five to seven years.
• Explain in quantitative and qualitative terms the benefit to the user of
the company’s product or service.
• Present hard evidence of the marketability of the product or services.
• Justify financially the means chosen to sell the products or services.
• Portray the entrepreneur and team as experienced, knowledgeable
managers with complementary business skills.
• Contain believable financial projections, with explanations and
documentation.
• Show how investors can cash out in three-to-seven years, with
appropriate capital appreciation.
• Present the plan to the most appropriate financial sources to avoid
wasting entrepreneur’s time and money.
• Be easily and concisely explainable in an oral presentation, if asked.
 Some Don’ts of Business Plans
• Use outdated financial data or industry comparisons.
• Use unsubstantiated assumptions by not explaining the
whys of every point in the plan.
• Fail to consider prospective pitfalls.
• Fail to understand the financial data presented.
• Give no indication that the entrepreneur has anything at
stake in the venture.
• Be unwilling to personally guarantee any loans.
• Demand unrealistic loan terms.
• Provide unrealistic goals.
• Project a lack of commitment or dedication to the venture.
• Evidence a lack of demonstrated experience (business or
technical).
• Fail to show a logical market niche for the product or
service.
 Some Don’ts of Business Plans
• Business plan should be no more than 40 pages, exclusive of
appendix. The plan should be physically appealing but not
ostentatious.

• Orient the business plan toward an exciting future.

• Avoid exaggeration.

• Keep the business plan written in the third person.

• Capture the reader’s interest.

• Understand everything in your business plan, even if you didn’t

generate all the parts.

• On the rider and not the horse.

 Other Ideas in Business Plans
• Be able to answer the following questions from the reader:

– If this is such a good idea, why hasn’t someone else already done
it?
– Why are you in the venture?
– Have you talked to others in the same or similar business?
– Have you tried the product out in the market?
– Has your plan been critiqued by an accountant, lawyer, banker,
management consultant and/or other professionals?
• Make sure your business plan meets the M.O.R.E. test:

– Motive: Are you fired up?

– Opportunity: Is there really a profitable opportunity for your
product or service
– Resources: Will you have the resources needed and the skills
needed to manage those resources?
– Experience: Do you really know what you’re doing?