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EntrepreneursChallenging the Unknown

Entre pr eneur s
Recognize opportunities where others see chaos
or confusion
Are aggressive catalysts for change within the
marketplace
Challenge the unknown and continuously create
the future

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Entrepreneurs versus
Small Business Owners: A Distinction
Small Busine sse s Owne rs
Manage their businesses by expecting stable sales,
profits, and growth
Entre pr eneur s
Focus their efforts on innovation, profitability and
sustainable growth

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Entrepreneurship: A Mindset
Entre pr eneur ship is mo re than the me re cre at ion of
busine ss:
Seeking opportunities
Taking risks beyond security
Having the tenacity to push an idea through to reality

Entre pr eneur ship is an inte grat e d conce pt that


pe rme at e s an individual
s b usine ss in an innovative
manne r.

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The Evolution of Entrepreneurship
Entre pr eneur is der ived fro m the Fr ench e nt re pre ndre,
me aning t o unde rtake .
The en tr ep r en eu r is one who undertakes to organize,
manage, and assume the risks of a business.
Although no single definition of entrepreneur exists
and no one profile can represent today s entrepreneur,
research is providing an increasingly sharper focus on
the subject.
1725 catilon,1803 jean ,1934 jeoseph ferensh
economist
From 1950 most are American since they love risk
and venture
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A Summary Description
of Entrepreneurship
Entre pr eneur ship (Robe rt C. Ronstadt)
The dynamic process of creating incremental wealth.
This wealth is created by individuals who assume
major risks in terms of equity, time, and/or career
commitment of providing value for a product or service.
The product or service itself may or may not be new
or unique but the entrepreneur must somehow infuse
value by securing and allocating the necessary skills
and resources.

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An Integrated Definition
Entre pr eneur ship
A dynamic process of vision, change, and creation.
Requires an application of energy and passion towards the
creation and implementation of new ideas and creative
solutions.
Essential ingredients include:
The willingness to take calculated risksin terms of time,
equity, or career.
The ability to formulate an effective venture team; the creative
skill to marshal needed resources.
The fundamental skills of building a solid business plan.
The vision to recognize opportunity where others see chaos,
contradiction, and confusion.

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Figure
1.1 Entrepreneurial Schools-of-Thought Approach

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Macro View: External Locus of Control
The Enviro nmental School of Thought
Considers the external factors that affect a potential
entrepreneurs lifestyle ,positive or negative example
:middle manager has freedom to work
The Financial/ Capit al Scho ol of Thought
Based on the capital-seeking processthe search for
seed and growth capital.
The Displace me nt Schoo l of Thought
Alienation drives entrepreneurial pursuits(negative site
Political displacement (laws, policies, and regulations)
Cultural displacement (preclusion of social groups)
Economic displacement (economic variations)
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Table
1.1 Financial Analysis Emphasis

Venture Stage Financial Consideration Decision


Start-up or acquisition Seed capital Proceed or abandon
Venture capital sources
Ongoing Cash management Maintain, increase, or
Investments reduce size
Financial analysis and
evaluation
Decline or succession Profit question Sell, retire, or dissolve
Corporate buyout operations
Succession question

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Micro View: Internal Locus of Control (cont
d)
The Ent re pre ne urial Trait School of Thought
Focuses on identifying traits common to successful
entrepreneurs.
Achievement, creativity, determination, and technical
knowledge
The Ve ntur e Opp ortunity School o f Thought
Focuses on the opportunity aspect of venture
developmentthe search for idea sources, the
development of concepts, and the implementation of
venture opportunities.
Corridor principle: New pathways or opportunities will arise
that lead entrepreneurs in different directions.

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Table
1.2 Definitions And Criteria Of One Approach To The Micro View

Entrepreneurial
Model Definition Measures Questions

Great Person
Extraordinary Achievers Personal principles What principles do you have?
Personal histories What are your achievements?
Experiences
Psychological Founder Locus of control What are your values?
Characteristics Control over the means Tolerance of ambiguity
of production Need for achievement
Classical People who make innovations Decision making What are the opportunities?
bearing risk and uncertainty Ability to see opportunities What is your vision?
Creative destruction Creativity How do you respond?
Management Creating value through Expertise What are your plans?
the recognition of business Technical knowledge What are your capabilities?
opportunity, the management Technical plans What are your credentials?
of risk taking . . . through the
communicative and management
skills to mobilize . . .
Leadership Social architect Attitudes, styles How do you manage people?
Promotion and protection Management of people
of values
Intrapreneurship Those who pull together Decision making How do you change and adapt?
to promote innovation

Source: Adapted from J. Barton Cunningham and Joe Lischeron, Defining


Entrepreneurship,Journal of Small Business Management (January 1991): 56.
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Micro View(cont
d)
The Str at egic Fo rmulat ion School of Thought
Emphasizes the planning process in successful
venture development.
Ronstadt
s Vie w
Strategic formulation is a leveraging of unique
elements:
Unique Marketsmountain gap strategies
Unique Peoplegreat chef strategies
Unique Productsbetter widget strategies
Unique Resourceswater well strategies

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Ch a p t e r Ob j e c t ive s

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Ch a p t e r Ob j e c t ive s

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Ch a p t e r Ob j e c t ive s

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The Nature of Corporate Entrepreneurship
Defining The Conce pt
Corporate Entrepreneurship
Activities that receive organizational sanction and
resource commitments for the purpose of
innovative results.
- A process whereby an individual or a group of individuals,
in association with an existing organization, creates a
new organization or instigates renewal or innovation
within the organization.
- A process that can facilitate firmsefforts to innovate
constantly and cope effectively with the competitive
realities that companies encounter when competing in
international markets.

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Figure
3.1 Defining Corporate Entrepreneurship

Source: Michael H. Morris, Donald F. Kuratko, and Jeffrey G. Covin, Corporate Entrepreneurship & Innovation (Mason, OH, Thomson), 2008, p. 81.
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Sustaining Corporate Entrepreneurship
Sustaine d Corpo rat e Entre pr ene urship Mode l
Based on theoretical foundations from previous
strategy and entrepreneurship research.
Considers the comparisons made at the individual and
organizational level on organizational outcomes, both
perceived and real, that influence the continuation of
the entrepreneurial activity.
Transformational trigger
Something external or internal to the company that initiates
the need for strategic adaptation or change.

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Developing Innovative (I) Teams
Innovat ive (I) Team
A semi-autonomous self-directing, self-managing, high
-performing group of two or more people who formally
create and share the ownership of a new organization.
The leader is called a
product championor an
corporate entrepreneur.
Collect ive Entre p re ne urship
Individual skills are integrated into a group; this
collective capacity to innovate becomes something
greater than the sum of its parts.

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Figure
3.5 A Model of Sustained Corporate Entrepreneurship

Source: Donald F. Kuratko, Jeffrey S. Hornsby, and Michael G. Goldsby,


Sustaining Corporate Entrepreneurship: Modeling Perceived Implementation
and Outcome Comparisons at Organizational and Individual Levels,International Journal of Entrepreneurship and Innovation 5(2) (May 2004): 79.
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Ch a p t e r Ob j e c t ive s

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Ch a p t e r Ob j e c t ive s

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Et h ic a l Re sp on sib ilit y

Ethical consciousness:
Ethical Process and culture:
Institutionalization:

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Ch a p t e r Ob j e c t ive s

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Figure
3.5 A Model of Sustained Corporate Entrepreneurship

Source: Donald F. Kuratko, Jeffrey S. Hornsby, and Michael G. Goldsby,


Sustaining Corporate Entrepreneurship: Modeling Perceived Implementation
and Outcome Comparisons at Organizational and Individual Levels,International Journal of Entrepreneurship and Innovation 5(2) (May 2004): 79.
2009 South -Western, a part of Cengage Learning. All rights reserved. 325
Figure
3.5 A Model of Sustained Corporate Entrepreneurship

Source: Donald F. Kuratko, Jeffrey S. Hornsby, and Michael G. Goldsby,


Sustaining Corporate Entrepreneurship: Modeling Perceived Implementation
and Outcome Comparisons at Organizational and Individual Levels,International Journal of Entrepreneurship and Innovation 5(2) (May 2004): 79.
2009 South -Western, a part of Cengage Learning. All rights reserved. 326
Figure
3.5 A Model of Sustained Corporate Entrepreneurship

Source: Donald F. Kuratko, Jeffrey S. Hornsby, and Michael G. Goldsby,


Sustaining Corporate Entrepreneurship: Modeling Perceived Implementation
and Outcome Comparisons at Organizational and Individual Levels,International Journal of Entrepreneurship and Innovation 5(2) (May 2004): 79.
2009 South -Western, a part of Cengage Learning. All rights reserved. 327
Figure
3.5 A Model of Sustained Corporate Entrepreneurship

Source: Donald F. Kuratko, Jeffrey S. Hornsby, and Michael G. Goldsby,


Sustaining Corporate Entrepreneurship: Modeling Perceived Implementation
and Outcome Comparisons at Organizational and Individual Levels,International Journal of Entrepreneurship and Innovation 5(2) (May 2004): 79.
2009 South -Western, a part of Cengage Learning. All rights reserved. 328
The Pathways to New Ventures
for Entrepreneurs

Creating the Acquiring an


New Venture Existing Venture

Pathways to New
Ventures

Obtaining a
Franchise

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rights reserved. 629
Creating New Ventures

Approaches to
New-New New-Old
Approach Creating a New Approach
Venture

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Acquisition of a Business Venture

Personal
Preferences

Examination
of
Acquiring a Evaluation of
Opportunities Business Venture the Venture

Asking Key
Questions

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Advantages of Acquiring an Ongoing Venture

Less Fear about


Reduced Time Purchasing at a
Successful Future
and Effort Good Price
Operation

Buying an
Ongoing
Venture

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Evaluation of the Selected Venture

Factors
Affecting Sale of
the Venture

The Business Assets of the


Environment Venture

Profits, Sales, and


Operating Ratios

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Key Questions to Ask
Why is t his b usiness b eing sold?
What is t he p hysical condit ion of t he b usiness?
What is t he condit ion of t he inve nt o ry?
What is t he state of t he firm
s o t her asset s?
How many emp lo yees will remain?
What t ype of comp et it io n doe s t he business face?
What does t he fir m
s financial p icture loo k like?

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Negotiating the Deal

Information

Time
Factors Affecting Pressure
Negotiations

Alternatives

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Franchising: The Hybrid
Franchising
Any arrangement in which the owner of a trademark,
trade name, or copyright has licensed others to use it
in selling goods or services.
Franchise e
A purchaser of a franchise
Franchiso r
The seller of the franchise

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Franchising
Advant age s Disadvant age s
Training and guidance Franchise fees
Brand-name appeal Franchisor control
A proven track record Unfulfilled promises of
Financial assistance franchisor

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Evaluating the Franchise Opportunity

The Franchise
Opportunity Decision

Finding Reliable Investigating the Seeking


Information Franchisor Professional Help

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Identifying Legal Structures
A le gal st ruct ure that will be st suits t he de mands of t he
ve nt ure addr esse s:
Changing tax laws
Liability situations
The availability of capital
The complexity of business formation.
Thr ee primar y le gal forms of organizat io n
Sole proprietorship
Partnership
Corporation

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Sole Proprietorships
Sole Pr oprie to rship
A business that is owned and operated by one person.
The enterprise has no existence apart from its owner.
To establish a sole proprietorship, a person merely
needs to obtain whatever local and state licenses are
necessary to begin operations.

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Sole Proprietorships (cont
d)
Advant age s Disadvantage s
Ease of formation Unlimited liability
Sole ownership of Lack of continuity
profits Less available capital
Decision making and Relative difficulty
control vested in one obtaining long-term
owner financing
Flexibility Relatively limited
Relative freedom from viewpoint and
governmental control experience
Freedom from corporate
business taxes
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Partnerships
Part ne rship
An association of two or more persons acting as co-
owners of a business for profit.
The Revised Uniform Partnership Act (RUPA) acts the
guide for legal requirements in forming partnerships.
Art icle s of Part ne rship
Clearly outline the financial and managerial
contributions of the partners and carefully delineate
the roles in the partnership relationship.

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Articles of Partnership Items
Name, purp ose , domicile Sep arate deb ts
Durat ion of agre ement Author ity (individual p ar tner
s aut ho rity
Characte r o f p ar tner s ( gener al o r on busine ss conduct )
limit ed, act ive or sile nt ) Books, re cor ds, and met ho d o f
Co nt ributio ns by p ar tner s (at incep tion, acco unting
at later date ) Sale of p ar tner ship inter est
Division of pr ofit s and losses Ar bitration
Dr aws or salar ie s Set tle me nt of disp ut es
Right s of co nt inuing p artner (s) Additions, alt er at ions, or mo difications
De ath of a p ar tner (dissolution and of par tnership
windup ) Requir ed and p ro hibited acts
Release o f deb ts Ab sence and disability
Business expense s ( me thod of handling) Emp loye e management

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Partnerships (cont
d)
Advant age s Disadvant age s
Ease of formation Unlimited liability of at
Direct rewards least one partner
Growth and Lack of continuity
performance facilitated Relative difficulty
Flexibility obtaining large sums of
capital
Relative freedom from
governmental control Bound by the acts of
and regulation just one partner
Possible tax advantage Difficulty of disposing
of partnership interest

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Corporations
Corpo rat ion
An artificial being, invisible, intangible, and existing
only in contemplation of the law .
Supreme Court Justice John Marshall
As such, a corporation is a separate legal entity apart
from the individuals who own it.
Forming a Corpo rat ion
Subscriptions for capital stock must be taken and a
tentative organization created.
Approval (a charter) must be obtained from the
secretary of state in the state in which the corporation
is to be formed.

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Corporations (cont
d)
Advant age s Disadvant age s
Limited liability Activity restrictions
Transfer of ownership Lack of representation
Unlimited life Regulation
Relative ease of Organizing expenses
securing capital in Double taxation
large amounts
Increased ability and
expertise

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Table
7.3 General Characteristics of Forms of Business

Sole Limited Liability Limited Liability Limited Liability


Proprietorship Partnership Partnership Limited Partnership Limited Partnership Corporation S Corporation Company
For mation When one By agreement of By agreement of By agreement of By agreement of By agreement of By agreement of By agreement of
person owns a owners or by default owners; must owners; must owners; must owners; must owners; must owners; must
business without when two or mor e comply with limited comply with limited comply with limited comply with comply with comply with limited
forming a owners conduct liability partnership partnership statute liability limited corporation statute corporation state; liability company
corporation or business together statute partnership statute must elect S statute
LLC without forming a Corporation status
limited partnership, under Subchapter S
an LLC or a of Internal Revenue
corporation Code

Duration Terminates on Usually unaffected Unaffected by death Unaffected by death Unaffected by death Unaffected by death Unaffected by death Usually unaffected
death or by death or or withdrawal of or withdrawal of or withdrawal of or withdrawal of or withdrawal of by death or
withdrawal of withdrawal of partner partner, unless sole partner, unless sole shareholder shareholder withdrawal of
sole proprietor partner general partner general partner member
dissociates dissociates

Management By sole By partners By partners By general partners By general partners By board of By board of By managers or
proprietor directors directors members

Owner Liability Unlimited Unlimited Mostly limited to Unlimited for Limited to capital Limited to capital Limited to capital Limited to capital
capital contribution general partners; contribution contribution contribution contribution
limited to capital
contribution for
limited partners

Transferability of None None None None, unless agreed None, unless agreed Freely transferable, Freely transferable, None, unless agreed
OwnersInterest otherwise otherwise although although otherwise
shareholders may shareholders
agree otherwise usually agree
otherwise

Source: Jane P. Mallor, A. James Barnes, Thomas Bowers, and Arlen W. Langvardt, Business Law:
The Ethical, Global, and E-Commerce Environment, 13 ed., McGraw Hill Irwin, 2007, p. 897.
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Table
7.3 General Characteristics of Forms of Business

Sole Limited Liability Limited Liability Limited Liability


Proprietorship Partnership Partnership Limited Partnership Limited Partnership Corporation S Corporation Company
Federal Income Only sole Only partners taxed Usually only Usually only Usually only Corporation taxed; Only shareholders Usually only
Taxation proprietor taxed partners taxed; may partners taxed; may partners taxed; may shareholders taxed taxed members taxed; may
elect to be taxed like elect to be taxed like elect to be taxed like on dividends elect to be taxed like
a corporation a corporation a corporation (double tax) a corporation

Source: Jane P. Mallor, A. James Barnes, Thomas Bowers, and Arlen W. Langvardt, Business Law:
The Ethical, Global, and E-Commerce Environment, 13 ed., McGraw Hill Irwin, 2007, p. 897.
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Specific Forms of Partnerships and
Corporations
Limit e d Part ne rships
Have two or more partners without responsibility for
management and without liability for losses beyond
their investment with the right to share in the profits.
Formed under The Uniform Limited Partnership Act (ULPA).
Limit e d Liability Par tne rship ( LLP)
Allows professionals the tax benefits of a partnership
while avoiding personal liability for the malpractice of
other partners.

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Figure
8.1 Who Is Funding Entrepreneurial Start-Up Companies?

Source: Successful Angel Investing,Indiana Venture Center, March 2008.


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Debt Versus Equity
Deb t Financing
Secured financing of a new venture that involves a
payback of the funds plus a fee (interest for the use of
the money).
Equit y Financing
Involves the sale (exchange) of some of the
ownership interest in the venture in return for an
unsecured investment in the firm.

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Debt Financing
Commer cial Banks
Make 1-5 year intermediate-term loans secured by
collateral (receivables, inventories, or other assets).
Questions in securing a loan:
What do you plan to do with the money?
How much do you need?
When do you need it?
How long will you need it?
How will you repay the loan?

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Debt Financing (cont
d)
Advant age s Disadvant age s
No relinquishment of Regular (monthly)
ownership is required. interest payments are
More borrowing allows required.
for potentially greater Continual cash-flow
return on equity. problems can be
During periods of low intensified because of
interest rates, the payback responsibility.
opportunity cost is Heavy use of debt can
justified since the cost inhibit growth and
of borrowing is low. development.

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Table
8.1 Common Debt Sources

Business Type Financed Financing Term

Debt Start-Up Existing Short Long


Source Firm Firm Term Intermediate Term Term
Trade credit Yes Yes Yes No No

Commercial banks Sometimes, but Yes Frequently Sometimes Seldom


only if strong
capital or collateral
exists
Finance companies Seldom Yes Most frequent Yes Seldom

Factors Seldom Yes Most frequent Seldom No


Leasing companies Seldom Yes No Most frequent Occasionally

Mutual savings Seldom Real estate No No Real estate


banks and savings- ventures only ventures only
and-loan
associations
Insurance Rarely Yes No No Yes
companies

Source: PricewaterhouseCoopers/National Venture Capital Association, MoneyTreeReport, 2007.


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Other Debt Financing Sources
Trade Cre dit
Credit given by suppliers who sell goods on account.
Accounts Re ce ivable Financing
Short-term financing that involves either the pledge of
receivables as collateral for a loan or the sale of
receivables at a discounted value (factoring).
Finance Companie s
Asset-based lenders that lend money against assets
such as receivables, inventory, and equipment.

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Other Debt Financing Sources (cont
d)
Equit y Instrume nt s
Give investors a share of the ownership.
L o an w i th w ar r an ts provide the investor with the right to buy
stock at a fixed price at some future date.
Co n v er ti b l e d eb en tu r es are unsecured loans that can be
converted into stock.
Pr ef er r ed sto c k is equity that gives investors a preferred
place among the creditors in the event the venture is
dissolved.
Co mm o n sto c k is the most basic form of ownership and is
often are sold through public or private offerings.

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Equity Financing
Equit y Financing
Money invested in the venture with no legal obligation
for entrepreneurs to repay the principal amount or pay
interest on it.
Funding sources: public offering and private
placement
Pub lic Offe ring
Going publicrefers to a corporation s raising capital
through the sale of securities on the stock markets.
Initial Public Offerings (IPOs): new issues of common stock

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Public Offerings
Advant age s
Size (selling securities fast way to large capital in
short time)
Liquidity (provided for owner then can sell the stock)
Value (market added put value to company s stock)
Image is stronger in supplier eyes
Disadvant age s
Costs (accounting fees , legal fees
Disclosure must be public
Requirements (regulation , performance information ,
time, energy and many)
Shareholder pressure for short term performance
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Private Placements
Re gulat ion D
Securities and Exchange Commission (SEC)
regulations for reports and statements required when
selling stock to private partiesfriends, employees,
customers, relatives, and professionals.
Defines four separate exemptions, which are based on
the amount of money being raised:
Rule 504a: placements of less than $500,000
Rule 504: placements up to $1,000,000
Rule 505: placements of up to $5 million
Rule 506: placements in excess of $5 million

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Private Placements (cont
d)
Accre dit e d Purchase r
Regulation D uses the term accredited purchaser.
Included in this category are the following:
Institutional investors such as banks, insurance companies,
venture capital firms.
Any person who buys at least $150,000 of the offered security
and whose net worth, including that of his or her spouse, is at
least 5 times the purchase price.
Any person who, together with his or her spouse, has a net
worth in excess of $1 million at the time of purchase.

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Elements of a Business Plan
Sect ion I: Exe cut ive Summar y
Sect ion II: Business De scrip tio n
A. General description of business
B. Industry background
C. Goals and potential of the business and milestones (if any)
D. Uniqueness of product or service
Sect ion III: Mar ket ing
E. Research and analysis
1. Target market (customers) identified
2. Market size and trends
3. Competition
4. Estimated market share

Source: Donald F. Kuratko and Robert C. McDonald, The Entrepreneurial Planning


Guide (Bloomington: Kelley School of Business, Indiana University, 2007).
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Elements of a Business Plan (cont
d)
Sect ion III: Mar ket ing (cont
d)
B. Marketing plan
1. Market strategysales and distribution
2. Pricing policy
3. Advertising and promotions plans

Sect ion IV: Oper at ions


A. Identify location
1. Advantages
2. Zoning
3. Taxes
B. Proximity to suppliers
C. Access to transportation
Source: Donald F. Kuratko and Robert C. McDonald, The Entrepreneurial Planning
Guide (Bloomington: Kelley School of Business, Indiana University, 2007).
2009 South -Western, a part of Cengage Learning. All rights reserved. 1262
Elements of a Business Plan (cont
d)
Sect ion V: Manag ement
A. Management teamkey personnel
B. Legal structurestock and employment agreements, and
ownership
C. Board of directors, advisors, and consultants
Sect ion VI: Financial
D. Financial forecast (pro forma financial statements)
1. Profit and loss
2. Cash flow
3. Break-even analysis
4. Cost controls
5. Budgeting plans

Source: Donald F. Kuratko and Robert C. McDonald, The Entrepreneurial Planning


Guide (Bloomington: Kelley School of Business, Indiana University, 2007).
2009 South -Western, a part of Cengage Learning. All rights reserved. 1263
Elements of a Business Plan (cont
d)
Sect ion VII: Crit ical Risks
A. Potential problems
B. Obstacles and risks
C. Alternative courses of action
Sect ion VIII: Harvest St rat eg y
D. Transfer of asset
E. Continuity of business strategy
F. Identity of successor
Sect ion IX: Milest one Schedule
G. Timing and objectives
H. Deadlines and milestones
I. Relationship of events
Sect ion X: App endix or Bibliography
Source: Donald F. Kuratko and Robert C. McDonald, The Entrepreneurial Planning
Guide (Bloomington: Kelley School of Business, Indiana University, 2007).
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Marketing Planning (cont
d)
Curre nt Marke t ing Re se ar ch
The purpose of marketing research is to identify
customerstarget marketsand to fulfill their desires.
Are as of Marke t Rese ar ch
The company s major strengths and weaknesses
Market profile
Current and best customers
Potential customers
Competition
Outside factors
Legal changes

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