COMM 320 NOTES FOR FINAL
Chapter 1 – Introduction to Entrepreneurship
• Academic Definition (Stevenson & Jarillo)
o Entrepreneurship is the process by which individuals pursue
opportunities without regard to resources they currently control.
• Venture Capitalist (Fred Wilson)
o Entrepreneurship is the art of turning an idea into a business.
• Explanation of What Entrepreneurs Do
o Assemble and then integrate all the resources needed – the money,
the people, the business model, the strategy – to transform an
invention or an idea into a viable business.
• Corporate Entrepreneurship
o At the firm level
o All firms fall along a conceptual continuum that ranges from highly
conservative to highly entrepreneurial
o Entrepreneurial; proactive, innovative, risk taking
o Conservative; take a more “wait and see”, less innovation, risk averse
3 primary reasons that people become entrepreneurs and start their own firms:
• Desire to be their own boss
• Desire to pursue their own ideas
• Financial rewards
4 Characteristics of successful Entrepreneurs:
1. Passion for the business – stems from the entrepreneur’s belief that the
business will positively influence people’s lives.
2. Product/customer focus -
3. Tenacity despite failure – perseverance, determination through setbacks and
4. Execution intelligence – the ability to provide a solid business idea into a
Common MYTHS about Entrepreneurs:
1. Entrepreneurs are Born, not Made a. Mistaken belief that some people are genetically predisposed to be
b. No one is “born” to be an entrepreneur
c. Their environment, life experiences, and personal choices
2. Entrepreneurs are Gamblers
a. Moderate risk takers
b. Less structured so they face more uncertain set of possibilities than
people in traditional jobs
3. Entrepreneurs are motivated primarily by money
4. Entrepreneurs should be young and energetic
Types of Start-up firms:
1. Salary – substitute firms
2. Lifestyle firms
3. Entrepreneurial firms
• Women Entrepreneurs
• Minority Entrepreneurs
• Senior Entrepreneurs
• Young Entrepreneurs
Economic Impact of Entrepreneurial Firms
• Job creation
• Impact on society; enhances our productivity & improve health
• Impact on larger firms; help larger firms become more efficient and effective
The 4 Entrepreneurial Process
1. Deciding to become an entrepreneur
2. Developing successful business ideas
3. Moving from an idea to an entrepreneurial firm
4. Managing and growing the entrepreneurial firm Chapter 2 – Recognizing Opportunities and
Opportunity: a favorable set of circumstances that creates a need for a new
product, service, or business.
o 4 essential qualities of an opportunity:
4. Anchored in a product, service, or business that creates or adds
value for its buyer or end user
3 ways to identify an Opportunity:
1. Observing trends
• Economic forces: State of economy, level of disposable income,
consumer spending patterns. Ex. a weak economy favors start-ups that
help consumer save money (GasBuddy.com)
• Social forces: Social and cultural trends, demographic changes, what
people think is “in”. It alter how people/businesses behave;
accommodate the changes. Ex. increased diversity, social network,
focus on health, interest in “green”
• Technological advances: New technologies, emerging technologies,
new uses of old technologies. • Political action and regulatory change: New changes in political arena,
new laws and regulations.
1 Solving a problem
• Can be pinpointed through observing trends
• Ex. finding alternatives to fossil fuels
2. Gaps in the marketplace
• A gap in the marketplace is often created when a product or service is
needed by a specific group of people but doesn’t represent a large
enough market to be of interest to mainstream retailers or
Personal characteristics of Entrepreneur:
• Prior experience
• Cognitive factors; “sixth sense” – entrepreneurial alertness
• Social networks
o Strong ties vs Weak ties relationship
▪ It is more likely that an entrepreneur will get new ideas though
WEAK ties rather than strong ties. Strong; tend to reinforce
insights and ideas that people already have. Weak; may say
something that sparks a completely new idea
• Creativity; generating useful idea
o 5 steps:
▪ Insight – Eureka! – Problem solved
o Techniques for generating ideas: Brainstorming, focus groups, library
and internet research, Customer advisory boards, Day-in-the-life
o Encouraging new ideas: Establish a focal point for idea; an idea bank
(vault), Encouraging creativity at the firm level Protecting ideas:
• Step 1 – should be in tangible form
• Step 2 – should be secured
• Step 3 – avoid making voluntary disclosure of an idea
CHAPTER 3 – FEASIBILITY ANALYSIS
Feasibility analysis: process of determining whether a business idea is viable. The
preliminary evaluation. The proper timing is to conduct early.
Forms of feasibility analysis:
1. Product/service feasibility
a. Product/service desirability: does it take advantage of a gap? Is this a
i. Administer concept test (one page description of a business)
b. Product/service demand
i. Administer a buying intentions survey
ii. Conduct library, internet, Gumshoe research (detective that
scrounges around for information) 2. Industry/target market feasibility
a. Industry attractiveness: are you growing? Early life cycle? Old? “must
have”? high margin?
b. Target market attractiveness: find a large enough market but small
enough to avoid attracting large competitors.
3. Organizational feasibility
a. Management prowess: evaluate the prowess, or ability, of its
b. Resource sufficiency: nonfinancial resources
i. Ex. affordable office space, key management employees,
intellectual property protection, form favorable business
4. Financial feasibility
a. Total start-up cash needed
b. Financial performance of similar businesses
c. Overall financial attractiveness of the proposed venture
i. Financial factors associated with promising business
1. Steady & rapid growth in sales
2. Ability to forecast income and expenses with a reasonable
degree of certainty
3. Internally generated funds
4. Availability of an exit opportunity for investors to convert
equity to cash
First Screen: a tool that can be used in the initial pass at determining the
feasibility of a business idea. If the idea cuts muster at this stage, the next step is to
complete a business plan.
CHAPTER 5 – INDUSTRY AND COMPETITOR
ANALYSIS Industry: focuses on group of firms producing similar product or services.
• The analysis helps a firm determine if the target market it identified during
feasibility analysis is favorable for a new firm.
3 key questions:
1. Is the industry accessible – in other words, is it realistic place for a new
venture to enter?
2. Does the industry contain markets that are ripe for innovation or are
3. Are there positions in the industry that avoid some of the negative attributes
of the industry as a whole?
Firm-level factors: include a firm’s assets, products, culture, teamwork among its
employees, reputation, and other resources.
Industry-level factors: include threat of new entrants, rivalry among existing firms,
bargaining power of buyers, and related factors.
Techniques available to assess industry attractiveness:
1. Study environmental and business trends
a. Environmental trend; economic, social, technological, political. Ex. sell
to seniors are benefiting by the aging of the population.
b. Business trend; other trends that impact an industry
2. The 5 FORCE MODEL (LOW, MEDIUM OR HIGH?) – help determine industry
profitability and the avg rate of return for the firms in an industry. (apply
pressure on industry profitability)
a. Threat of substitutes – when close substitutes for a product exist,
industry profitability is suppressed. Firms often offer their customers
amenities to avoid the switch to a substitute.
b. Threat of new entrants – keep the number of new entrants low by
BARRIERS TO ENTRY:
i. Economies of scale: Industries that are characterized by large
economies of scale are difficult for new firms to enter
ii. Product differentiation
iv.Cost advantages independent of size
v. Access to distribution channels
vi.Government and legal barriers Non-traditional barriers to entry:
1. Strength of management team
2. First-mover advantage
3. Passion of management team and employees
4. Unique business model
5. Internet domain name
6. Inventing a new approach to an industry
c. Rivalry among existing firms
i. Number and balance of competitors
ii. Degree of difference between products
iii.Growth rate of an industry
iv.Level of fixed costs
c. Bargaining power of suppliers: they sell by raising prices or
reducing the quality of the components they provide.
i. Supplier concentration
ii. Switching costs
iii.Attractiveness of substitutes
iv.Thread of forward integration
d. Bargaining power of buyers: by demanding price concessions or
increases in quality.
i. Buyer group concentration
ii. Buyer’s costs
iii.Degree of standardization of supplier’s products
iv.Threat of backward integration
First application: low, medium, or high?
Second application: pose questions to determine the success
Types of industry:
1. Emerging industries 2. Fragmented industries 3.Mature industries 4.Declining
5.Global Competitor analysis: helps a firm understand the positions of its major competitors
and the opportunities that are available.
Types of competitors:
1. Direct competitors – offer identical or similar products
2. Indirect competitors – offer close substitutes products
3. Future competitors – not yet direct or indirect but could be at any time.
Sources of COMPETITIVE INTELLIGENCE:
• The information that is gathered by a firm to learn about its competitors is
referred to as competitive intelligence.
• Collects in a professional and ethical manner
• Ex. attend conferences, study product, read about them, talk to customers
• Analysis grid: help a firm see how it stacks up against its competitors and
identify its primary sources of competitive advent
CHAPTER 6 – DEVELOPING AN EFFECTIVE BUSINESS
• Include all the activities that define how a firm competes in the marketplace
• ‘Beyond its own boundaries’
Importance of Business Models
• Serves as an ongoing extension of feasibility analysis.
• Does this business make sense?
How Business models emerge
• Value chain: string of activities that moves a product from raw material
stage, through manufacturing and distribution and ultimately to the end user.
By studying its value chain, you can identify ways to create ADDITIONAL
VALUE. It also helpful in identifying opportunities.
a. Primary activities – inbound logistics -> operations -> outbound
logistics -> marketing and sales -> services
b. Support activities – Firm infrastructure -> Human resource
management -> technology development -> resource procurement
Fatal flaws: 2 fatal flaws can render a business model untenable from the beginning:
• A complete misread of the customer • Utterly unsound economics
COMPONENTS OF A BUSINESS MODEL
• Core strategy
a. Business mission: describes why it exists and what its suppose to
b. Product/market scope: defines the products and markets on which it
c. Basis for differentiation: differentiate from its competitors
• Strategic Resources
d. Core competencies: a resource or capability that serves as a source of
a firm’s competitive advantage. Ex. Sony; miniaturization, Dell; supply
e. Strategic assets: rare and valuable that the firm owns. Ex. patents,
customer data, location, equipment, etc.
This factor is one that inventors pay close attention to when evaluating a business.
• Partnership Network
h. Other key relationships
Most common types of partnerships
• Joint Venture
• Strategic alliance
• Trade associations
• Customer interface
i. Target customer
j. Fulfillment and support: describes the way a firm’s product or service
reaches its customers. It also refers to the channels a company uses
and what level of customer support it provides. k. Pricing structure: varies on target market
CHAPTER 9 – BUILDING A NEW-VENTURE TEAM
• Is the group of founders, key employees and advisors that move a new
venture from an idea to a fully functioning firm.
• The team is built when the firm can afford to hire additional personnel.
• Also includes Board of directors, boards of advisors, professionals.
Liabilities of Newness
• High failure rate due in part to liabilities of newness; people involved can’t
adjust fast enough to their roles and lacks a track record of success.
• Assembling a talented and experienced management team can overcome
Separate elements of a new-venture team • Board of directors: are elected by a corporation’s shareholders to oversee the
management of the firm. Inside and outside directors; inside->officer
l. Formal responsibility – appoint, declare dividends, oversee affairs
m. Frequency of meetings and compensation – meet 3-4 times/yr, pay in
company stock or ask to serve on a voluntary basis.
n. They can help by: provide guidance, lend legitimacy,
• Role of professional advisors
o. Board of advisors – provide counsel and advice, possesses no legal
responsibility, give nonbinding advice, no potential legal liability
p. Lenders and investors – providing financial oversight
i. Ways they add value:
1. Help identify and recruit key management personnel
2. Help the venture fine-tune its business model
3. Provide introductions to additional sources of capital
4. Provide insight into the markets that the new venture
plans to enter
5. Serve as a sounding board for new ideas
6. Serve on the new venture’s board of directors or board of
7. Recruit customers
8. Help to arrange business partnership
9. Provide a sense of stability and calm q. Other professionals – attorneys, accountants, and business consultants
(paid or free service)
Advantages and Disadvantages of starting a venture as a team
a. Teams bring more talent, resources, and idea
b. Bring a broader and deeper network of social and professional contacts
c. Psychological support that the cofounders can offer one another.
a. May not get along
b. Conflicts can arise when firm is “equal”; needs a formal structure
c. Similar areas of expertise; they may duplicate rather complement
d. Can easily disagree in terms of work habits, level of passion, risk, and
how it should be run.
Key element of a successful founding team
• Heterogeneous rather homogeneous
• Different backgrounds
Preferred attributes of sole entrepreneurs and members of a new-venture team
• Higher education
• Prior entrepreneurial experience
• Relevant industry experience
• Broad social and professional network
Recruiting and selecting employees
• Recruiting: a skills profile
CHAPTER 10 – GETTING FUNDING OR FINANCING • Importance of getting financing or funding
o the nature of the funding and financing process
o Why most new ventures need funding, the reasons are:
▪ Cash flow challenges – inventory must be purchased, pay
employees, advertising before cash is generated from sales.
▪ Capital investments – cost of buying building, equipment, etc.
▪ Lengthy product development cycles – the up-front costs often
exceeds firm’s ability.
Alternatives for raising money for a new venture
• Personal funds; sweat equity (2 source: ex. friends and family) (3 source:
bootstrapping – finding ways to avoid the need for external financing through
creativity, cost cutting, etc.
o Examples of Bootstrapping methods
▪ Buying used instead of new
▪ Obtain payments in advance from customers
▪ Sharing office space
▪ Hiring interns
▪ Avoid unnecessary expenses
Preparing to raise debt or Equity financing
1. Determine precisely how much money is needed
2. Determine the type of financing or funding that is the most appropriate
3. Develop a strategy for engaging potential investors or bankers
2 most common alternatives
1. Equity funding – means exchanging partial ownership in a firm, usually in
the form of stock, for funding.
o Sources of equity funding
▪ Venture capital: invested by venture capital firms; looks for the
“home run” They also invest in “stages”
▪ Business angels: individuals who invest their personal capital
directly in start-ups. Business angel are about 50 year old, has
high income and wealth. Invest between 10k and 500k in a
single company. Are looking for the potential to grow between
30% to 40% per year. ▪ Initial public offerings: company’s first sale of stock to the public.
When a company goes public, its stock is traded on one of the
major stock exchanges.
• Reasons that motivate firms to go public
o Is a way to raise equity capital to fund current and
o Raises a firm’s public profile, making it easier to
attract high-quality customers and business
o Is a liquidity event that provides a means for a
means for a company’s investors to recoup their
o Creates a form of currency that can be used to
grow the company via acquisitions.
2. Debt Financing
o Sources of debt financing
▪ Commercial banks: have not been viewed as a practical source
of financing for start-ups. Banks are interested in strong cash
flow, low leverage, and healthy balance sheet.
▪ SBA Guaranteed loans: Approx. 50% of the 9,000 banks in the
US participate in the SBA Guaranteed loan program.
• The 7(A) Loan Guaranteed program – available to small
• Size and types of loans – can guarantee as much as 85%
on loans up to 150k and 75% over 150k.
▪ Vendor credit: trade credit, is when a vendor extends credit to a