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Welcome Back –Creating

new ventures
Pathways to new venture creation
• Every prospective entrepreneur wants to know the best methods for
launching a new venture.
• we will examine: bootstrapping, creating a new venture, acquiring an
existing venture, buying a franchise and establishing a social venture.
Bootstrapping
• Bootstrapping is a means of starting a new venture through highly
creative acquisition and use of (sometimes other people’s) resources.
• Some people say that bootstrapping means starting a new business
without financing.
• Bootstrapping relies greatly on networks, trust, cooperation and wise
use of existing resources, rather than going into debt or giving away
equity.
Look for the ‘low-hanging fruit’. Use a
copycat idea.
Find quick, break-even, cash-
generating products.
Focus on cash (not on profits, market
share, or anything else).
CREATING NEW VENTURES
• Theory Proposed Joseph Schumpeter
• Schumpeter’s theory of creative destruction is that entrepreneurs distort the
market equilibrium by introducing new products and innovations. In so doing
entrepreneurs drive less innovative products out of the market and advance
the product frontier
• Actually there are two ways to split this. The most effective way to
approach a new business venture is to create a unique product or
service –
• one that is not being offered today but would be in great demand if it
were.
• The next-best way is to adapt something that is currently on the
market or extend the offering into an area in which it is not presently
available.
• The first approach is often referred to as new-new, the second as
new-old.
How does one discover or invent new
products?
• make a list of annoying experiences or hazards encountered with
various products or services during a given period of time.
• new-new approach indicates the importance of people’s awareness
of their daily lives (work and free time) for developing new business
ideas.
• Most small ventures do not start with a totally
unique idea. Instead, an individual piggybacks on
someone else’s idea by either improving a product
or offering a service in an area in which it is not
currently available – hence the term new-old
approach.
• setting up restaurants, clothing stores, or similar
outlets in sprawling suburban areas that do not
have an abundance of these stores.
• Potential owners considering this kind of enterprise
should try to offer a product or service that is
difficult to copy.
Examination of the financial picture
• Prospective entrepreneur decides that a new venture is a wise one, it
is imperative to remember that the plan may not work perfectly.
Some modification may be necessary.
• Thus, the entrepreneur has to be flexible. If something does not work
out, a contingency or backup plan.
Examination of the financial picture
• The prospective entrepreneur of a new venture must evaluate the
enterprise’s financial picture.
• How much will it cost to stay in business for the first year?
• How much revenue will the firm generate during this time period?
• If the outflow of cash is greater than the inflow.
• How long will it take before the business turns the corner?

• Answering these questions requires consideration of two kinds of


expenses: start-up and monthly cost.
• It is necessary to examine overall gains and losses. This kind of
analysis is referred to as risk v. reward analysis and points out the
importance of getting an adequate return on the amount of money
risked.
Checklist for estimating startup expenses
Acquiring an established entrepreneurial venture

• A prospective entrepreneur may seek to purchase a business venture


rather than start up an enterprise.
• Purchasing a business venture is a complex transaction and the advice
of professionals should always be sought.
• Entrepreneur’s personal preferences, examination of opportunities,
evaluation of the selected venture and key questions to ask.
Acquiring an established entrepreneurial
venture
• Personal preferences
• Entrepreneurs need to recognize certain personal factors and to limit
their choices of ventures accordingly.
• An entrepreneur’s background, skills, interests and experience are all
important factors in selecting the type of business to buy. In addition,
personal preferences for location and size of a business should guide
the selection process.
Acquiring an established entrepreneurial
venture
• A new business faces two great dangers: the possibility that it will not find a
market for its goods or services, and the chance that it will not be able to
control its costs. If either event occurs, the new business will go bankrupt.
• successful future operation is likely.
• The time and effort associated with starting a new enterprise are eliminated.
• It sometimes is possible to buy an ongoing business at a bargain price.
Questions to be asked while buying a
business
• Why is the business being sold?
• check around and gather business-related information
• what is the owner going to do after selling the business (non-compete clause).
• What is the current physical condition of the business?
• What is the condition of the inventory?
• state of the company’s other assets?
• How many of the employees will remain?
• type of competition does the business face?
• What does the firm’s financial picture look like?
Negotiating the deal
• Checklist while negotiating ( rate between 1-10)
•  Management Team
• Targeted Industry Segment
• Technology and Products
• Marketing Plan
• Financials
Franchising
• One form of business that incorporates some of the independence of an
entrepreneur with the larger umbrella of a corporation is the franchise.
• A franchise is any arrangement in which the owner of a trademark, trade name,
or copyright has licensed others to use it in selling goods or services.
• A franchisee (a purchaser of a franchise) generally is legally
independent, but economically dependent on the integrated business
system of the franchisor (the seller of the franchise).
• https://www.indiafilings.com/learn/dominos-pizza-franchise/
• https://franchise.7-eleven.com/franchise/faq
How a franchise works
• Make a financial investment in the operation.
• Obtain and maintain a standardized inventory and/or
equipment package usually purchased from the franchisor.
• Maintain a specified quality of performance.
• Follow a franchise fee as well as a percentage of the gross
revenues.
• Engage in a continuing business relationship.
Franchisor provides the following types of
benefits and assistance
• The company name. For example, if someone bought a Burger King franchise, this would
provide the business with drawing power. A well-known name, such as Burger King, ensures
higher sales than an unknown name, such as Ralph’s Big Burgers.
• Identifying symbols, logos, designs and facilities. For example, all McDonald’s units have the
same identifying golden arches on the premises. Likewise, the facilities are similar inside.
• Professional management training for each independent unit’s staff .
• Sale of specific merchandise necessary for the unit’s operation at wholesale prices. All of
the equipment to run the operation and the food or materials needed for the final product
usually is provided.
• Financial assistance, if needed, to help the unit in any way possible.
• Continuing aid and guidance to ensure that everything is done in accordance with the
contract
Advantages / Disadvantages of franchising

• Advantages • Disadvantages

• Training and guidance • Franchise fees


• Brand-name appeal • Franchisor control
• A proven track record • Unfulfilled promises
• Financial assistance