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Learning Objectives
Understand the importance of entrepreneurship and organizational entrepreneurship Be able to create a simple business plan Understand the steps in the creation of an entrepreneurial venture 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 an existing firm

Entrepreneurship
Entrepreneurship is the creation of new business
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 business plan) Managing activities that bring a new venture into existence

Some ventures are complete start-ups Other ventures occur within existing firms
Organizational entrepreneurship or intrapraneurship

Entrepreneurs
Opportunists
Recognize and take advantage of opportunities

Resourceful Creative Visionary Hardworking Optimistic Independent Thinkers Excellent Leaders Dreamers

Whats in a Business Plan?

Executive Summary Business Description Environmental Analysis (see next slide for details) Resource Analysis (with a focus on the entrepreneur) Functional Plans Financial Projections Implementation Schedule End-game Strategy Risk Analysis

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

Sources of Capital for Entrepreneurs In Hospitality

Commercial Banks Personal Contacts Venture Capitalists Corporate Partnerships Business Angels Initial Public Offerings

Initial Public (IPO) Offering Process

Select Underwriter Draft Letter of Intent Assemble the Syndicate Draft Prospectus Develop Business Plan Due Diligence Determine Offering Price Revise & Print the Prospectus Present to Potential Investors

Place the Offering

Board Approval

Determine Offering Size

Time

First Year Agenda for Entrepreneurial Startups

Financial Management
Obtain initial capital Establish systems to track revenues and expenses and control costs. A record-keeping system must be established that will satisfy the demands of investors, creditors and the internal 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.

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.

First Year Agenda for Entrepreneurial 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.

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 and relationships Limited partnership means that management responsibility and legal liability of partners are limited, except that one partner must be a general partner 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 tax advantages, but they must meet restrictions and have few shareholders

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%)

Most Common Sources of Entrepreneurial Failure

Poor Management Skills Lack of Adequate Capitalization Product/Service Problems External Market Conditions

Factors Encouraging or Discouraging 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 management hierarchy 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

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 or managers) are given attention Closed-door offices Inadequate resources devoted to entrepreneurial activities Harsh penalties for failure Exclusive emphasis on measurable outcomes

Major Concepts in Chapter 9

Entrepreneurships involves the creation of new business Entrepreneurship can involve a new start-up or organizational entrepreneurship, the creation of new business within an existing firm Entrepreneurial tasks include opportunity recognition or creation, assembling resources, and managing the activities that bring the venture into existence Entrepreneurial discovery is the intersection of a need and a solution

Major Concepts in Chapter 9

A business plan is at the center of an entrepreneurial venture. It forces the entrepreneur to think through the details of the venture and determine its feasibility A business plan includes an executive summary, a description of the proposed venture, an analysis of the environment, a resource analysis (with special emphasis on the entrepreneur), functional plans such as marketing and operations, financial projections, a schedule for major events, an endgame strategy and an analysis of risks

Major Concepts in Chapter 9

Obtaining start-up capital is one of the most difficult problems facing an entrepreneur Lack of management skills is a primary source of failure of entrepreneurial ventures Firms that foster organizational entrepreneurship tend to have a vision, culture and top management that support innovation, organizational champions, teamwork and collaboration, a flat management hierarchy, a decentralized approval process, respect for ideas, excellent communications, resources for entrepreneurial activities, rewards that encourage innovation and a focus on learning

Major Concepts in Chapter 9

The optimal design for an internal venture depends on the strategic importance of the venture and how closely related it is to current activities Business-format franchising is an approach to new venturing that may be low risk under certain conditions