Management

Fifteenth Edition, Global Edition

Chapter 10
Entrepreneurial Ventures

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Learning Objectives
10.1 Define entrepreneurship and explain why it’s important.
10.2 Explain what entrepreneurs do in the planning process
for new ventures.
10.3 Describe the six legal forms of organization and the
choice of appropriate organizational structure.
10.4 Describe how entrepreneurs lead organizations.
10.5 Explain how managers control organizations and exit
the venture.

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What is Entrepreneurship?
• Entrepreneurship: the process of starting new
businesses, generally in response to opportunities
• Entrepreneurial ventures: organizations that pursue
opportunities, are characterized by innovative practices,
and have growth and profitability as their main goals

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Small Business Versus Entrepreneurship
• A small business is an organization that is independently
owned, operated, and financed.
• Small business owners see risk where entrepreneurs see
opportunity.
• Entrepreneurs want to change the world and have a
passion that goes beyond profits.
• Small business owners want to make a living.

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Entrepreneurship Versus Self-Employment?
• Self-employment: individuals who work for profit or fees in
their own business, profession, trade, or farm.

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Why is Entrepreneurship Important?
• Innovation
• Economic growth
• Job creation
• Global entrepreneurship

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The Entrepreneurial Process
1. Explore the entrepreneurial context
2. Identify opportunities and possible competitive
advantages
3. Start the venture
4. Manage the venture

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What Do Entrepreneurs Do?
• No two entrepreneurs are exactly the same. Generally,
they:
– Create something new and different
– Search for, respond to, and exploit change
– Research feasibility
– Launch and manage new ventures

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A Hybrid Path to Entrepreneurship
• Over half of new-venture start-ups fail in the first four
years.
• One way to increase the odds of success is to keep your
day job and start the venture on the side.
– Lets you test ideas with less pressure to make a living.
– It’s a lower risk path with higher survival rates.

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Identifying Environmental Opportunities
and Competitive Advantage
• Sources of opportunity:
– The unexpected
– The incongruous
– The process need
– Industry and market structures
– Demographics
– Changes in perception
– New knowledge

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Researching the Venture’s Feasibility—Ideas
• When exploring idea sources, entrepreneurs should look
for:
– Limitations of what is currently available
– New and different approaches
– Advances and breakthroughs
– Unfilled niches
– Trends and changes

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Exhibit 10.1 Evaluating Potential Ideas
Personal Considerations Marketplace Considerations

Do you have the capabilities to do what you’ve Who are the potential customers for your
selected? idea: who, where, how many?
Are you ready to be an entrepreneur? What similar or unique product features does
your proposed idea have compared to what’s
currently on the market?

Are you prepared emotionally to deal with the How and where will potential customers
stresses and challenges of being an entrepreneur? purchase your product?
Are you prepared to deal with rejection and failure? Have you considered pricing issues and
whether the price you’ll be able to charge will
allow your venture to survive and prosper?

Are you ready to work hard? Have you considered how you will need to
promote and advertise your proposed
entrepreneurial venture?

Do you have a realistic picture of the venture’s

potential?
Have you educated yourself about financing issues?

Are you willing and prepared to do continual financial

and other types of analyses?

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Feasibility Study
• Feasibility study: an analysis of the various aspects of a
proposed entrepreneurial venture designed to determine
its feasibility

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Researching the Venture’s Feasibility—Competitors

• Potential questions include:

– What types of products or services are competitors
offering?
– What are their products’ strengths and weaknesses?
– How do they handle marketing, pricing, and
distribution?
– How do they attempt to do differently from other
competitors?

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Researching the Venture’s Feasibility—Financing

• Venture capitalists: external equity financing provided by

professionally managed pools of investor money
• Angel investors: a private investor (or group of private
investors) who offers financial backing to an
entrepreneurial venture in return for equity in the venture
• Initial public offering (I P O): the first public registration
and sale of a company’s stock

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Developing a Business Plan
• Business plan: a written document that summarizes a
business opportunity and defines and articulates how the
identified opportunity is to be seized and exploited

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Business Plan—Major Areas
• Executive summary
• Analysis of opportunity
• Analysis of the context
• Description of the business
• Financial data and projections
• Supporting documentation

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Legal Forms of Organization (1 of 3)
• Sole proprietorship: a form of legal organization in which
the owner maintains sole and complete control over the
business and is personally liable for business debts
• General partnership: a form of legal organization in which
two or more business owners share the management and
risk of the business

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Legal Forms of Organization (2 of 3)
• Limited liability partnership (LL P): a form of legal
organization consisting of general partner(s) and limited
liability partner(s)
• Corporation: a legal business entity that is separate from
its owners and managers
• Closely held corporation: a corporation owned by a
limited number of people who do not trade the stock
publicly

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Legal Forms of Organization (3 of 3)
• S corporation: a specialized type of corporation that has
the regular characteristics of a C corporation but is unique
in that the owners are taxed as a partnership as long as
certain criteria are met
• Limited liability company (LL C): a form of legal
organization that’s a hybrid between a partnership and a
corporation
• Operating agreement: the document that outlines the
provisions governing the way an LL C will conduct business

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Exhibit 10.2 Legal Forms of Business
Ownership (1 of 3)
Structure Ownership Tax treatment Liability Advantages Drawbacks
requireme
nts
Sole One Income and Unlimited Low start-up Unlimited personal
proprietorship owner losses “pass personal costs, freedom liability, personal
through” to liability from most finances at risk,
owner and are regulations, miss out on many
taxed at owner has direct business tax
personal rate control, all deductions, total
profits go to responsibility, may
owner, easy to be more difficult to
exit business raise financing
General Two or Income and Unlimited Ease of Unlimited personal
partnership more losses “pass personal formation, liability, divided
owners through” to liability pooled talent, authority and
partners and are pooled decisions, potential
taxed at resources, for conflict,
personal rate; somewhat continuity of transfer
flexibility in easier access to of ownership
profit-loss financing, some
allocations to tax benefits
partners

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Exhibit 10.2 Legal Forms of Business
Ownership (2 of 3)
Structure Ownershp Tax Liability Advantages Drawbacks
requirements treatment
Limited Two or more Income and Limited, Good way to Cost and complexity
liability owners losses “pass although acquire capital of forming can be
partnership through” to one from limited high, limited partners
(LLP) partners and partner partners can’t manage w/o
are taxed at must losing liability
personal rate; retain protection
flexibility in unlimited
profit-loss liability
allocations to
partners
C Unlimited Dividend Limited Limited liability, Expensive to set up,
Corporation number of income taxed transferable closely regulated,
shareholders, at corporate ownership, double taxation,
no limits on and personal continuous extensive record
types of stock shareholder existence, easier keeping, charter
or voting levels, losses access to restrictions
arrangement and resources
deductions
are corporate

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Exhibit 10.2 Legal Forms of Business
Ownership (3 of 3)
Structure Ownership Tax Liability Advantages Drawbacks
requirements treatment
S corporation Up to 75 Income and Limited Easy to set up, Must meet certain
shareholders, losses “pass limited liability and requirements,
no limits on through” to tax benefits of may limit future
types of stock partners and partnership, can financing options
or voting are taxed at have tax-exempt
arrangement personal entity as
rate; flexibility shareholder
in profit-loss
allocations to
partners
Limited Unlimited Income and Limited Greater flexibility, Cost of switching
liability number of losses “pass not constrained by from one form to
company “members,” through” to regulations on C this can be high,
(LLC) flexible partners and and S corporations, need legal and
membership are taxed at taxed as financial advice in
arrangements personal partnership not forming operation
for voting rate; flexibility corporation agreement
rights and in profit-loss
income allocations to
partners

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Organizational Design and Structure
• Organizational design decisions in entrepreneurial
decisions revolve around six key elements:
– work specialization
– departmentalization
– chain of command
– span of control
– amount of centralization/decentralization
– amount of formalization

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Human Resource Management
• Employee recruitment
• Employee retention

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Personality Characteristics of Entrepreneurs
• Proactive personality: a personality trait that describes
individuals who are more prone to take actions to influence
their environments

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Motivating Employees Through Empowerment
• Employee empowerment—giving employees the power to
make decisions and take actions on their own to solve
problems—is an important motivational approach.

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The Entrepreneur as Leader
• Leading the venture
• Leading employee work teams

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Exhibit 10.3 Strengths of Entrepreneurs
Risk: Can manage high-risk situations; mitigating risk rather than
seeking it
Knowledge: Strives to acquire in-depth information about the
industry
Independence: Can manage every aspect of his/her organization
Confidence: Believes in oneself and his/her ability to succeed
Delegation: Unafraid to assign tasks to others
Determination: Strong work ethic; undeterred by failure
Relationships: Able to build mutually beneficial relationships
Selling: Speaks boldly on behalf of the organization; can influence
others
Profitability: Sets clear goals; measures progress; good judge of
opportunities
Disruption: Constantly has new ideas for products and services
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Venture Stages and Leadership Needs
• Start-up stage: The entrepreneur is the heart and soul of
the business. The firm is informal, flexible, and ambiguous.
• Transition stage: The venture moves from an informal
organization to one that is more structured. The
entrepreneur must learn to delegate in this stage.
• Scaling stage: The uniqueness of entrepreneurship is
gone, and the concepts of management become
generalizable.

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Potential Control Problems and Actions
• Entrepreneurs need to develop controls in these areas:
– Keep a close eye on the numbers: Monitor
expenses, cash flow, inventory, etc.
– Monitor the competition: Competitive intelligence is
key to long-term success.
– Maintain regular contact with customers: Make sure
your customers are still satisfied with your product.
– Monitor employee performance: Are employees
continuing to work as expected. Do they need training?
– Monitor employee workloads: Are key people trying
to do too much?

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Exiting the Venture
• Harvesting: exiting a venture when an entrepreneur hopes
to capitalize financially on the investment in the venture

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Five Exit Options
1. Merger or acquisition
2. Selling to a friendly buyer
3. Initiate an I P O
4. Treat it as a cash cow
5. Liquidation

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Business Valuation Methods
• Asset valuations
• Earnings valuations
• Cash-flow valuations

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Review Learning Objective 10.1
• Define entrepreneurship and explain why it’s
important.
– Entrepreneurial ventures are characterized by
innovative practices and have growth and profitability
as their main goals
– Entrepreneurship is important because it brings
forward innovative ideas, creates new start-up firms,
and creates jobs.

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Review Learning Objective 10.2
• Explain what entrepreneurs do in the planning process
for new ventures.
– Entrepreneurs must identify environmental
opportunities and competitive advantage
– They must research a venture’s feasibility, first
generating and then evaluating ideas
– Feasibility study
– Business plan

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Review Learning Objective 10.3
• Describe the six legal forms of organization and the
choice of appropriate organizational structure.
– Two primary factors that affect the decision about how
to organize a business are taxes and legal liability:
 Sole proprietorship
 General partnership
 Limited liability partnership (LL P)
 Corporation
 S corporation
 Limited liability corporation (LL C)

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Review Learning Objective 10.4
• Describe how entrepreneurs lead organizations.
– Personality traits:
 High level of motivation
 Abundance of self-confidence
 Ability to be involved for the long term
 High energy level
– Proactive personality trait

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Review Learning Objective 10.5
• Explain how managers control organizations and exit
the venture.
– Managing growth:
 Planning for growth
 Organizing for growth
 Controlling growth
– Managing downturns
– Exiting the venture:
 Harvesting
 Valuation methods

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