Class Slides 1-6-Enterpenorship Class

Chapter 1
Introduction to
Entrepreneurship
Bruce R. Barringer and R. Duane Ireland
Delivered by Sohail Afzal

(MPhil, MS Engg, PhD) 1-1
Chapter Objectives
1 of 2
1. Explain entrepreneurship and discuss its

importance.
2. Describe corporate entrepreneurship and its use in
established firms.
3. Discuss three main reasons people decide to
become entrepreneurs.
4. Identify four main characteristics of successful
entrepreneurs.
5. Explain five common myths regarding
entrepreneurship.
CHEP-PU 2-2
Chapter Objectives
2 of 2
6. Explain how entrepreneurial firms differ from

salary-substitute and lifestyle firms.
7. Discuss the changing demographics of
entrepreneurs.
8. Discuss the impact of entrepreneurial firms on
economies and societies.
9. Identify ways in which large firms benefit from the
presence of smaller entrepreneurial firms.
10. Explain the entrepreneurial process.
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What is Entrepreneurship?
An individual who undertakes the risk associated with creating, organizing,
and owning a business.
Entrepreneurship is the process of creating or starting a new business venture

in order to make a profit. The concept of entrepreneurship encompasses a wide
range of ideas and actions, including the identification and development of
business opportunities, the creation of new products or services, and the ability
to organize and manage resources effectively.
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What are the Concept of Entrepreneurship
1. Opportunity recognition
2. Innovation
3. Resourcefulness
4. Leadership
5. Risk-taking
6. Networking
7. Salesmanship
8. Financial management
9. Strategic thinking
10. Adaptability
11. Persistence
1. Opportunity recognition
One key concept of entrepreneurship is the

identification and development of business
opportunities. This involves recognizing a need or
demand in the market and finding ways to meet that
need through the creation of new products or services.
Entrepreneurs are able to identify opportunities that
others may not see, and are willing to take risks to
pursue those opportunities.
2. Innovation
Another important concept of entrepreneurship is

innovation. This can refer to the creation of new
products or services, as well as new ways of doing
things. Entrepreneurs are constantly looking for ways
to improve and differentiate their offerings, whether
through new technology, unique business models, or
creative marketing strategies.
3. Resourcefulness
Entrepreneurship also involves the ability to organize

and manage resources effectively. This includes not
only financial resources, but also human resources, as
well as other assets such as equipment and technology.
Entrepreneurs must be able to assemble the necessary
resources to start and grow a business, and then manage
those resources effectively in order to achieve success.
4. Leadership
Another concept of entrepreneurship is leadership.

Entrepreneurs must be able to inspire and motivate
others, whether employees, investors, or customers.
They must be able to communicate a clear vision for
the business and then lead by example in order to
achieve that vision.
5. Risk-taking
Another aspect of entrepreneurship is risk-taking.

Starting a new business venture is inherently risky, and
entrepreneurs must be willing to take on that risk in
order to be successful. This includes not only financial
risk, but also the risk of failure and the risk of not being
able to predict what the future holds.
In addition to these specific concepts, there are also
certain personal characteristics and skills that are
commonly associated with entrepreneurship. These
include creativity, determination, self-motivation, and a
willingness to learn and adapt.
6. Networking
Networking is an essential part of entrepreneurship, as
it allows entrepreneurs to connect with other business
owners, investors, and potential customers. It can
provide entrepreneurs with valuable knowledge,
resources, and connections that can help them grow
their businesses. It’s important for entrepreneurs to
regularly attend industry events, join trade associations,
and participate in local business groups in order to
expand their networks. Building strong relationships
with key individuals in the industry can help
entrepreneurs identify new opportunities, solve
problems, and stay up-to-date with industry trends.
7. Salesman-ship
Salesmanship is the ability to sell a product or service

to potential customers and convince them of its value.
Entrepreneurs must be able to communicate the
benefits of their products or services effectively and
develop strong relationships with customers.
Salesmanship requires strong communication skills, the
ability to identify customer needs, and the ability to
close deals. Entrepreneurs who are skilled at
salesmanship are able to generate revenue for their
businesses and increase their customer base.
8. Financial Management
Financial management is a critical component of

entrepreneurship, as entrepreneurs must be able to
manage their finances effectively in order to keep their
businesses afloat. It involves understanding basic
financial concepts, such as budgeting, cash flow
management, and financial analysis. Entrepreneurs
must also be able to make informed decisions about
investments and allocate resources effectively. A solid
understanding of financial management can help
entrepreneurs make informed decisions about the future
of their businesses and achieve long-term success.
9. Strategic thinking
Strategic thinking is simply an intentional and rational thought
process that focuses on the analysis of critical factors and
variables that will influence the long-term success of a business,
a team, or an individual.
Strategic thinking is the ability to think critically and

strategically about the business and make informed decisions.
Entrepreneurs must be able to identify both short-term and long-
term goals, develop a clear vision for their businesses, and
allocate resources effectively. Strategic thinking also involves
the ability to analyze the competition and identify potential
market opportunities. Entrepreneurs who are skilled at strategic
thinking are able to make informed decisions about the future of
their businesses and stay ahead of the competition.
10. Adaptability
Adaptability is the ability to change and evolve in
response to changing market conditions. Entrepreneurs
must be flexible and able to adapt to new technologies,
market trends, and changes in customer behavior.
Adaptability is important because it allows
entrepreneurs to stay ahead of the competition and
respond to new opportunities quickly. Entrepreneurs
who are adaptable are able to pivot their businesses
when necessary and stay ahead of the curve.
11. Persistence
Persistence is the ability to persevere and stay

committed to the business even in the face of setbacks
and challenges. Entrepreneurship is not always easy,
and entrepreneurs must be prepared to face challenges
along the way. Persistence involves the ability to stay
focused on the goal, even in the face of obstacles, and
to continuously work towards success. Entrepreneurs
who are persistent are able to overcome challenges,
learn from their mistakes, and grow their businesses
over time.
In conclusion, Entrepreneurship - is
a process of creating new business ventures, by
recognizing and developing business opportunities,
Innovation, organizing and managing resources
effectively, leadership, risk-taking, and personal
characteristics and skills. It is a challenging yet
rewarding field that requires dedication, hard work, and
the ability to adapt to changing circumstances. Those
who are willing to take on the risks and challenges of
entrepreneurship can reap the rewards of building
something new and shaping their own future.
Entrepreneurship vs. Entrepreneurs
ENTREPRENEURSHIP ENTREPRENEUR
The process of starting An entrepreneur is an
and running one’s own individual who
business undertakes the risk
This involves a associated with creating,
considerable amount of organizing, and owning a
risk. business.
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Corporate Entrepreneurship
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Entrepreneurial Firms Conservative Firms
• Proactive • Take a more “wait and see”

posture
• Innovative
• Less innovative
• Risk taking
• Risk adverse
1-19
Why Become an Entrepreneur?
The three 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
©2010 Prentice Hall 1-20

Characteristics of Successful Entrepreneurs
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Four Primary Characteristics
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• Passion for the Business

– The number one characteristic shared by successful
entrepreneurs is a passion for the business.
– This passion typically stems from the entrepreneur’s belief
that the business will positively influence people’s lives.
• Product/Customer Focus
– A second defining characteristic of successful
entrepreneurs is a product/customer focus.
– An entrepreneur’s keen focus on products and customers
typically stems from the fact that most entrepreneurs are, at
heart, craftspeople.
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3 of 3
• Tenacity Despite Failure

– Because entrepreneurs are typically trying something new,
the failure rate is naturally high.
– A defining characteristic for successful entrepreneurs’ is
their ability to persevere through setbacks and failures.
• Execution Intelligence
– The ability to fashion a solid business idea into a viable
business is a key characteristic of successful entrepreneurs.
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Common Myths About Entrepreneurs
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• Myth 1: Entrepreneurs Are Born Not Made

– This myth is based on the mistaken belief that some people
are genetically predisposed to be entrepreneurs.
– The consensus of many studies is that no one is “born” to
be an entrepreneur; everyone has the potential to become
one.
– Whether someone does or doesn’t become an entrepreneur,
is a function of the environment, life experiences, and
personal choices.
Myth - a widely held but false belief or idea.

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Although no one is “born” to be an entrepreneur, there are common traits and
characteristics of successful entrepreneurs
• Achievement motivated
• Alert to opportunities
• Creative (relating to or involving the use of the imagination or original ideas to create
something.)
• Decisive (producing a definite result.)

• Energetic
• Has a strong work ethic
• Is a moderate risk taker ( These types of investors would like to take reasonable risk, i.e.
they like to go on a balanced approach.)
• Is a networker
• Lengthy attention span 1-25
(Attention spans can range from 2 seconds to over 20 minutes)
• Optimistic disposition
(focused on positive versus negative expectations for the future without regard to the means by which such
outcomes occur )
• Persuasive
• Promoter (someone who encourages or incites a certain behavior.)
• Resource assembler/leverage (refers to systematically assessing the use of existing
resources, identifying the need for additional resources, or creating new resources in
community and State systems to address identified needs)
• Self-confident
• Self-starter
• Tenacious (Persistent)
• Tolerant of ambiguity (Willingly taking on new tasks without much prior experience.)
• Visionary (thinking about or planning the future with imagination or wisdom.)
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• Myth 2: Entrepreneurs Are Gamblers

– Most entrepreneurs are moderate risk takers.
– The idea that entrepreneurs are gamblers originates from
two sources:
• Entrepreneurs typically have jobs that are less structured, and so
they face a more uncertain set of possibilities than people in
traditional jobs.
• Many entrepreneurs have a strong need to achieve and set
challenging goals, a behavior that is often equated with risk taking.
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• Myth 3: Entrepreneurs Are Motivated Primarily by

Money.
– While it is naïve to think that entrepreneurs don’t seek
financial rewards, money is rarely the reason entrepreneurs
start new firms.
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• Myth 4: Entrepreneurs Should Be Young and

Energetic.
– The most active age for business ownership is 35 to 45
years old.
– While it is important to be energetic, investors often cite
the strength of the entrepreneur as their most important
criteria in making investment decisions.
• What makes an entrepreneur “strong” in the eyes of an investor is
experience, maturity, a solid reputation, and a track record of
success.
• These criteria favor older rather than younger entrepreneurs.

Types of Start-Up Firms
1-30
Changing Demographics of Entrepreneurs
Young Entrepreneurs
• Interest among young people in entrepreneurial careers is

growing.
• College courses
•Associations to support young entrepreneurs
•Governmental initiatives
•Almost 42% of the total active SMEs (Small and Medium
Enterprises (SMEs) are lead by women entrepreneurs in
USA.
1-31
Economic Impact of Entrepreneurial Firms
• Innovation
– Is the process of creating something new, which is central
to the entrepreneurial process.
– Small firms are twice as innovative per employee as large
firms.
• Job Creation
– In the past two decades, economic activity has moved in
the direction of smaller entrepreneurial firms, which may
be due to their unique ability to innovate and focus on
specialized tasks.
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Entrepreneurial Firms’ Impact on Society
and Larger Firms
• Impact on Society
– The innovations of entrepreneurial firms have a dramatic
impact on society.
– Think of all the new products and services that make our
lives easier, enhance our productivity at work, improve our
health, and entertain us in new ways.
• Impact on Larger Firms
– Many entrepreneurial firms have built their entire business
models around producing products and services that help
larger firms become more efficient and effective.
1-33
The Entrepreneurial Process
The Entrepreneurial Process Consists of Four Steps

Step 1: Deciding to become an entrepreneur.
Step 2: Developing successful business ideas.
Step 3: Moving from an idea to an entrepreneurial firm.

Step 4: Managing and growing the entrepreneurial firm.
1-34
5 Steps of the
Entrepreneurial Process
1. Discovery
The Entrepreneurial Discovery Process is about prioritising investments based on an
inclusive (including all the services or items normally expected or required) and
evidence-based process driven by stakeholders' engagement and attention to market
dynamics.
2. Concept Development
3. Resourcing
4. Actualization (Making Real)
5. Harvesting
35
Step 1: Discovery
The stage in which the entrepreneur

generates ideas, recognizes opportunities,
and studies the market.
Entrepreneurs consider the following:

Hobbies or Skills
Consumer Needs and Wants
Conduct Surveys and Questionnaires
Study Demographics
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Step 2: Concept Development
Entrepreneurs prepare the following in this

step:
Develop a Business Plan
A detailed proposal describing the business idea
Choose Location for the Business
Is the business online or does it have a physical location for customers
to visit to purchase products, services or combinations.
Decide if the idea will need a Patent or Trademark
Patent –
Trademark -
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Step 3: Resourcing

identifies and acquires the financial,
human, and capital resources needed for
the venture startup, etc.
Entrepreneurs contemplate the following:

Identify Potential Investors
Apply for loans, grants and financial assistance
Hire employees
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Step 4: Actualization ( Making into Real)

operates the business and utilizes
resources to achieve its goals / objectives
Entrepreneurs prepare for the following:

Grand Opening of the Business
Day to Day Operations of the Business
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Step 5: Harvesting

decides on venture’s future growth,
development, or demise.
Entrepreneurs consider the following:

Future Plans for the Business:
Expansion to additional locations
Company to change structure
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Starting a Business
Understand the procedures and requirements

for starting a business.
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Starting a Business
1. Develop a Business Plan

2. Acquire Finances
3. Meet Legal Requirements
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Develop a Business Plan
A Business Plan is a detailed proposal that

describes a new business.
Business Plans are:

Presented to potential investors and lenders
Most business plans are 30+ pages
43
Purposes of a Business Plan
Business Plans are used to:

Obtain Financing
Banks and Potential Lenders require a business plan
Helps organize and analyze data critical to new business.
Provides a start-up proposal

Provides and outline to follow when starting the business.
44
Components of a Business Plan
Executive Summary:
Brief one to two page description of the key points of each
section of the business plan
Product/Service Plan:
Presents Product or Service being offered
Unique features of the Product or Service
Management Team Plan:
Qualifications of the Entrepreneur
Qualifications of any Partners who may be involved in the
business venture
45
Industry/Market Analysis:
Analyzes the: Customers / Competition / Industry /
Demographic / Geographic and Economic data
Operational Plan:
Includes all processes involved in producing and/or delivering
the product or service to the customer
Organizational Plan:
Management philosophy of the business
Key management personnel
Key employment policies
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Marketing Plan:
Describes how the business will make its customers aware of its products/
services.
The Market being served / Marketing Strategies / Promotional Plan /
Marketing Budget
Growth Plan:
Presents plan for future expansion of the business
Financial Plan:
Includes financial statements that will help forecast the future
financial health of the business.
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Finance the Business
Identify Potential Investors

Examples:
Family and Friends
Other Businesses
Employees
Contact Financial Agencies for loans, grants and financial
assistance:
Small Business Administration
Banks / Credit Unions
Insurance Companies
48
3 Common Mistakes Of Entrepreneurs
Going into business for the wrong reasons. Some

people are drawn to entrepreneurship because they like
the image that being an entrepreneur evokes – someone
who is rich, famous and smart. “That’s not exactly the
best motivation, and the image they have in mind isn’t
going to mean a lot when the reality of what it takes to
succeed sinks in,” Robertson says. Often, these people
are good at the technical work they do, he says, but ill-
equipped to create, run and grow a business.
Taking advice from the wrong people.
Anyone launching a new business or buying an
existing business or franchise definitely needs advice.
But that advice should come from people most
qualified to give it, and that’s not necessarily Uncle Hal
or your buddies from high school. “Entrepreneurs need
to make sure they have wise and learned people
weighing in on each component of their business,”
Robertson says. “But it needs to be the right people. A
lawyer shouldn’t give advice on the balance sheet, and
the accountant shouldn’t weigh in on growth strategy.”
Underestimating the time requirements.
Most would-be entrepreneurs probably assume they will work
long hours. “They are wrong,” Robertson says. “They won’t
work long hours. They will work long, long, long hours.
Outside of an act of God or just blind good fortune, business
owners work more hours than any other category of
employment.” That can take a toll. “I actually often
recommend that people get a physical exam before they buy a
business so they can evaluate whether they are physically ready
for the rigors ahead,” he says. The good news is that, as the
boss, you can come and go as you please, so he also
recommends setting aside time for exercise. That will help
keep you fit and perhaps relieve some of the stress that is
especially high in the early weeks and months of business
ownership.
Steps in the Entrepreneurial Process
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Step 1 Step 2
Developing Successful Business Ideas
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Steps in the Entrepreneurial Process
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Step 3 Step 4

THANK YOU
Chapter 2
Recognizing
Opportunities and
Generating Ideas
Bruce R. Barringer
R. Duane Ireland
2-27
Chapter Objectives
1 of 3
1. Explain why it’s important to start a new firm when

its “window of opportunity” is open.
2. Explain the difference between an opportunity and
an idea.
3. Describe the three general approaches entrepreneurs
use to identify opportunities.
4. Identify the four environmental trends that are most
instrumental in creating business opportunities.
5. List the personal characteristics that make some
people better at recognizing business opportunities
than others.
Chapter Objectives
2 of 2
6. Identify the five steps in the creative process.

7. Describe the purpose of brainstorming and its use
as an idea generator.
8. Describe how to use library and Internet research to
generate new business ideas.
9. Explain the purpose of maintaining an idea bank.
10. Describe three steps for protecting ideas from being
lost or stolen.

What is An Opportunity?
1 of 2
An opportunity is a favorable
Opportunity Defined set of circumstances that
creates a need for a new
product, service or business.

What is an Opportunity?
2 of 2
An opportunity has four essential qualities

Three Ways to Identify an Opportunity

First Approach: Observing Trends
1 of 2
• Observing Trends
– Trends create opportunities for entrepreneurs to pursue.
– The most important trends are:
• Economic forces.
• Social forces.
• Technological advances.
• Political action and regulatory change.
– It’s important to be aware of changes in these areas.

First Approach: Observing Trends
2 of 2
Environmental Trends Suggesting Business

or Product Opportunity Gaps

Trend 1: Economic Forces
Economic trends help

• Individual sectors of the
determine areas that are
economy have a direct impact
ripe for new startups and
on consumer buying patterns
areas that startups should (Ex. Banking industry-interests
avoid. loans)
• A week economy favors those
business that help people or
businesses save money (Ex.
Nistevo).
Trend 2: Social Forces
Examples of Social Trends

Social trends alter how
people and businesses • Family and work patterns
behave and set their • The increasing diversity of
priorities. These trends the workplace.
• Increasing interest in health,
provide opportunities for fitness, and wellness.
new businesses to • Emphasis on alternative forms
accommodate the of energy.
changes. • New forms of music and other
types of entertainment.

Trend 3: Technological Advances
1 of 2
Examples of Entire Industries

Advances in technology that Have Been Created as the
frequently create business Results of Technological
Advances
opportunities.
• Computer industry
They are usually • Internet
correlated with economic • Biotechnology
and social changes. • Digital photography
Ex: Walkman, iPod, cell

phones
Trend 3: Technological Advances
2 of 2
Example: H20Audio
Once a technology is
An example is H20Audio, a
created, products often company started by four
emerge to advance it former San Diego State
University students, that
Or help users better use makes waterproof housings
it. for the Apple iPod.

Trend 4: Political Action and Regulatory
Changes
1 of 2
General Example
Political action and Laws to protect the environment
regulatory changes also have created opportunities for
provide the basis for entrepreneurs to start firms that
opportunities. help other firms comply with
environmental laws and
regulations.

Trend 4: Political Action and Regulatory
Changes
2 of 2
Specific Example
Company created to help Consultancy companies

providing help to other
other companies comply
companies in order to
with a specific law. implement specific quality
management regulations (ISO,
HACCP etc.)
Or accessing European funds.

Second Approach: Solving a Problem
1 of 2
• Solving a Problem
– Sometimes identifying opportunities simply involves
noticing a problem and finding a way to solve it.
– These problems can be pinpointed through observing trends
and through more simple means, such as intuition,
serendipity, or chance.

Second Approach: Solving a Problem
2 of 2
• A problem facing the U.S. and

other countries is finding
alternatives to fossil fuels.
• A large number of
entrepreneurial firms, like
this wind farm, are being
launched to solve this problem.

Solving a Problem
©2010 Prentice Hall

Third Approach: Finding Gaps in the
Marketplace
1 of 2
• Gaps in the Marketplace

– A third approach to identifying opportunities is to find a
gap 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 manufacturers.

Third Approach: Finding Gaps in the
Marketplace
2 of 2
Specific Example
Product gaps in the • Opening case
marketplace represent • Gabriela Man
potentially viable • Gary Cavin – Curves
business opportunities. International

Personal Characteristics of the Entrepreneur
Characteristics that tend to make some people better at

recognizing opportunities than others
Prior Experience Cognitive Factors
Social Networks Creativity

Prior Experience
• Prior Industry Experience

– Several studies have shown that prior experience in an
industry helps an entrepreneur recognize business
opportunities.
• By working in an industry, an individual may spot a market niche
that is underserved.
• It is also possible that by working in an industry, an individual
builds a network of social contacts who provide insights that lead to
recognizing new opportunities.
• Corridor principle

Cognitive Factors
• Cognitive Factors
– Studies have shown that opportunity recognition may be an
innate skill or cognitive process.
– Some people believe that entrepreneurs have a “sixth
sense” that allows them to see opportunities that others
miss.
– This “sixth sense” is called entrepreneurial alertness, which
is formally defined as the ability to notice things without
engaging in deliberate search.

Social Networks
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• Social Networks
– The extent and depth of an individual’s social network
affects opportunity recognition.
– People who build a substantial network of social and
professional contacts will be exposed to more opportunities
and ideas than people with sparse networks.
– In one survey of 65 start-ups, half the founders reported
that they got their business idea through social contacts.
• Strong Tie Vs. Weak Tie Relationships
– All of us have relationships with other people that are
called “ties.” (See next slide.)

Social Networks
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• Nature of Strong-Tie Vs. Weak Tie Relationships

– Strong-tie relationship are characterized by frequent
interaction and form between coworkers, friends, and
spouses.
– Weak-tie relationships are characterized by infrequent
interaction and form between casual acquaintances.
• Result
– It is more likely that an entrepreneur will get new business
ideas through weak-tie rather than strong-tie relationships.
(See next slide.)

Social Networks
3 of 3
Why weak-tie relationships lead to more new business ideas

than strong-tie relationships
Strong-Tie Relationships Weak-Tie Relationships
These relationships, which These relationships, which

typically form between like form between casual
minded individuals, tend to acquaintances, are not as
reinforce insights and ideas apt to be between like-
that people already have. minded individuals, so one
person may say something
to another that sparks a
completely new idea.
Creativity
1 of 2
• Creativity
– Creativity is the process of generating a novel or useful
idea.
– Opportunity recognition may be, at least in part, a creative
process.

Full View of the Opportunity Recognition
Process
Depicts the connection between an awareness of emerging trends
and the personal characteristics of the entrepreneur

Techniques For Generating Ideas
Brainstorming Focus Groups
Library and
Internet Research

Brainstorming
• Brainstorming
– Is a technique used to generate a large number of ideas and
solutions to problems quickly.
– A brainstorming “session” typically involves a group of
people, and should be targeted to a specific topic.
– Rules for a brainstorming session:
• No criticism.
• Freewheeling is encouraged.
• The session should move quickly.
• Leap-frogging is encouraged.

Focus Groups
• Focus Group
– A focus group is a gathering of five to ten people, who
have been selected based on their common characteristics
relative to the issues being discussed.
– These groups are led by a trained moderator, who uses the
internal dynamics of the group environment to gain insight
into why people feel they way they do about a particular
issue.
– Although focus groups are used for a variety of purposes,
they can be used to help generate new business ideas.

Library and Internet Research
1 of 3
• Library Research
– Libraries are an often underutilized source of information
for generating new business ideas.
– The best approach is to talk to a reference librarian, who
can point out useful resources, such as industry-specific
magazines, trade journals, and industry reports.
– Simply browsing through several issues of a trade journal
or an industry report on a topic can spark new ideas.

Libraries and Internet Research
2 of 3
Examples of Useful Search

Large public and Engines and Industry Reports
university libraries • Lexis-Nexis Academic
typically have access to • ProQuest
search engines and • IBISWorld
industry reports that would • Mintel
cost thousands of dollars • Standard & Poor’s Net
Advantage
to access on your own.

Library and Internet Research
3 of 3
• Internet Research
– If you are starting from scratch, simply typing “new
business ideas” into a search engine will produce links to
newspapers and magazine articles about the “hottest” new
business ideas.
– If you have a specific topic in mind, setting up Google or
Yahoo! e-mail alerts will provide you to links to a constant
stream of newspaper articles, blog posts, and news releases
about the topic.
– Targeted searches are also useful.

Other Techniques
• Customer Advisory Boards

– Some companies set up customer advisory boards that meet
regularly to discuss needs, wants, and problems that may
lead to new ideas.
• Day-In-The-Life Research
– A type of anthropological research, where the employees of
a company spend a day with a customer.

Chapter 3
Feasibility Analysis
Bruce R. Barringer
R. Duane Ireland

Chapter Objectives
1 of 3
1. Explain what a feasibility analysis is and why it’s

important.
2. Discuss the proper time to complete a feasibility
analysis when developing an entrepreneurial venture.
3. Describe the purpose of a product/service feasibility
analysis and the two primary issues that a proposed
business should consider in this area.
4. Explain a concept statement and its components.
5. Describe the purpose of a buying intentions survey
and how it’s administered.
Chapter Objectives
2 of 3
6. Explain the importance of library, Internet, and

gumshoe research.
7. Describe the purpose of industry/market feasibility
analysis and the two primary issues to consider in
this area.
8. Discuss the characteristics of an attractive industry.
9. Describe the purpose of organizational feasibility
analysis and list the two primary issues to consider
in this area.

Chapter Objectives
3 of 3
10. Explain the importance of financial feasibility

analysis and list the most critical issues to consider
in this area.

What Is Feasibility Analysis?
• Feasibility analysis is the

process of determining whether
a business idea is viable.
• It is the preliminary evaluation
Feasibility Analysis of a business idea, conducted
for the purpose of determining
whether the idea is worth
pursuing.

When To Conduct a Feasibility Analysis
• Timing of Feasibility Analysis

– The proper time to conduct a feasibility analysis is early in
thinking through the prospects for a new business.
– The thought is to screen ideas before a lot of resources are
spent on them
– Primary research and secondary research
– Ex: Jim Clark (Silicon Graphics and Netscape).

• The reason so few companies are a success in that most people do
not have a lot of common sense about what will sell and what won’t.
You need to be very pragmatic about whether people will pay for a
product based on your great idea. “This should be great and I am
sure the world will beat a path to my door. “ Once you have an idea
for a product or service, you need to test the market. Talk to
potential customers about what they want. And don’t try to make the
product do everything for everyone. Engineers often make mistakes.
It’s the Swiss Army knife mentality. They want to put everything in.
Don’t. Go out and talk to customers as quickly as you can and put a
copy of the product in front of them to get their feedback. When we
went out to sell our first product at Silicon Graphics people came
back and said. “We don’t want to do this”. We (after making
adjustments) sold them what they wanted.
» JIM CLARK

Feasibility Analysis
Role of feasibility analysis in developing business ideas.

Forms of Feasibility Analysis
Industry/Target Market
Product/Service Feasibility
Feasibility
Organizational Feasibility Financial Feasibility

Outline for a Comprehensive Feasibility
Analysis

Product/Service Feasibility Analysis
1 of 2
Purpose
• Is an assessment of the overall
Product/Service appeal of the product or service
Feasibility Analysis being proposed.
• Before a prospective firm rushes
a new product or service into
development, it should be sure
that the product or service is what
prospective customers want.

Product/Service Feasibility Analysis
2 of 2
Components of product/service
feasibility analysis
Product/Service Product/Service
Desirability Demand
©2010 Prentice Hall 3-

100
Product/Service Desirability
1 of 3
First, ask the following questions to determine the basic

appeal of the product or service.
• Does it make sense? Is it reasonable? Is it something consumers

will get excited about?
• Does it take advantage of an environmental trend, solve a
problem, or take advantage of a gap in the marketplace?
• Is this a good time to introduce the product or service to the
market?
• Are there any fatal flaws in the product or service’s basic design
or concept?

101
2 of 3
• Second, Administer a Concept Test

– A concept statement should be developed.
– A concept statement is a one page description of a business,
that is distributed to people who are asked to provide
feedback on the potential of the business idea.
– The feedback will hopefully provide the entrepreneur
• A sense of the viability or the product or service idea.
• Suggestions for how the idea can be strengthened or “tweaked”
before proceeding further.

102
3 of 3
New Venture
Fitness Drink’s
Concept Statement

103
Product/Service Demand
1 of 6
• Product/Service Demand
– Their are two steps to assessing product/service demand.
– Step 1: Administer a Buying Intentions Survey
– Step 2: Conduct library, Internet, and Gumshoe research

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2 of 6
• Buying Intentions Survey

– Is an instrument that is used to gauge customer interest in a
product or service.
– It consists of a concept statement or a similar description of
a product or survey with a short survey attached to gauge
customer interest.
– Internet sites like SurveyMonkey make administering a
buying intentions survey easy and affordable.

105
3 of 6

106
4 of 6
• Library, Internet, and Gumshoe Research

– The second way to assess the demand for a product or
service is by conducting library, Internet, and gumshoe
research.
– Reference librarians can often point you towards resources
to help you investigate a business idea, such as industry-
specific trade journal and industry reports.
– Internet searches can often yield important information
about the potentially viability of a product or service idea.

107
5 of 6
Explanation
• A gumshoe is a detective or an
investigator that scrounges around
Gumshoe Research for information or clues wherever
they can be found.
• Be a gumshoe. Ask people
what they think about your product
or service idea. If your idea is to
sell educational toys, spend a week
volunteering at a day care center
and watch how children interact
with toys.
108
6 of 6
• One of the most effective

things an entrepreneur
can do to conduct a
thorough product/service
feasibility analysis is to
hit the streets and talk to
potential customers.
• This potential entrepreneur
is administering a survey
about a new product idea.

109
Industry/Target Market Feasibility Analysis
1 of 2
Purpose
• Is an assessment of the overall
appeal of the industry and the
Industry/Target Market target market for the proposed
Feasibility Analysis business.
• An industry is a group of firms
producing a similar product or
service.
• A firm’s target market is the
limited portion of the industry it
plans to go after.

110
Industry/Target Market Feasibility Analysis
2 of 2
Components of industry/target market

Target Market
Industry Attractiveness
Attractiveness

111
1 of 2
• Industry Attractiveness
– Industries vary in terms of their overall attractiveness.
– In general, the most attractive industries have the
characteristics depicted on the next slide.
– Particularly important—the degree to which environmental
and business trends are moving in favor rather than against
the industry .

112
2 of 2

113
Target Market Attractiveness
• Target Market Attractiveness

– The challenge in identifying an attractive target market is to
find a market that’s large enough for the proposed business
but is yet small enough to avoid attracting larger
competitors.
– Assessing the attractiveness of a target market is tougher
than an entire industry.
– Often, considerably ingenuity must be employed to finding
information to assess the attractiveness of a specific target
market.

114
Organizational Feasibility Analysis
1 of 2
Purpose
• Is conducted to determine
Organizational Feasibility whether a proposed business has
Analysis sufficient management expertise,
organizational competence, and
resources to successfully launch
a business.
• Focuses on non-financial resources.

115
Organizational Feasibility Analysis
2 of 2
Components of organizational
Management Prowess Resource Sufficiency

116
Management Prowess
1 of 2
• Management Prowess
– A firm should candidly evaluate the prowess, or ability, of
its management team to satisfy itself that management has
the requisite passion and expertise to launch the venture.
– Two of the most important factors in this area are:
• The passion that the solo entrepreneur or the founding team has for
the business idea.
• The extent to which sole entrepreneur or the founding team
understands the markets in which the firm will participate.

117
Management Prowess
2 of 2
• An indication of passion
is the willingness of a
new venture team to
complete a comprehensive
feasibility analysis.

118
Resource Sufficiency
1 of 2
• Resource Sufficiency
– This topic pertains to an assessment of whether an
entrepreneur has sufficient resources to launch the
proposed venture.
– To test resource sufficiency, a firm should list the 6 to 12
most critical nonfinancial resources that will be needed to
move the business idea forward successfully.
• If critical resources are not available in certain areas, it may be
impractical to proceed with the business idea.

119
Resource Sufficiency
2 of 2
Examples of nonfinancial resources that may be critical

to the successful launch of a new business
• Availability of affordable office or lab space.
• Likelihood of local and state government support of the business.

• Quality of the labor pool available.
• Proximity to key suppliers and customers.
• Willingness of high quality employees to join the firm.
• Likelihood of establishing favorable strategic partnerships.
• Proximity to similar firms for the purpose of sharing knowledge.
• Possibility of obtaining intellectual property protection in key areas.

120
Financial Feasibility Analysis
1 of 2
Purpose
• Is the final component of a
Financial Feasibility comprehensive feasibility analysis.
Analysis • A preliminary financial assessment
is sufficient.

121
Financial Feasibility Analysis
2 of 2
Components of financial
Total Start-Up Cash Financial Performance of

Needed Similar Businesses
Overall Financial
Attractiveness of the
Proposed Venture

122
Total Start-Up Cash Needed
• Total Start-Up Cash Needed

– The first issues refers to the the total cash needed to prepare
the business to make its first sale.
– An actual budget should be prepared that lists all the
anticipated capital purchases and operating expenses
needed to generate the first $1 in revenues.
– The point of this exercise is to determine if the proposed
venture is realistic given the total start-up cash needed.

123
Financial Performance of Similar
Businesses
• Financial Performance of Similar Businesses
– Estimate the proposed start-up’s financial performance by
comparing it to similar, already established businesses.
– There are several ways to doing this, all of which involve a
little ethical detective work.
• First, there are many reports available, some for free and some that
require a fee, offering detailed industry trend analysis and reports
on thousands of individual firms.
• Second, simple observational research may be needed. For
example, the owners of New Venture Fitness Drinks could estimate
their sales by tracking the number of people who patronize similar
restaurants and estimating the average amount each customer
spends.
124
Overall Financial Attractiveness of the
Proposed Venture
1 of 2
• Overall Financial Attractiveness of the Proposed

Investment
– A number of other financial factors are associated with
promising business startups.
– In the feasibility analysis stage, the extent to which a
business opportunity is positive relative to each factor is
based on an estimate rather than actual performance.
– The table on the next slide lists the factors that pertain to
the overall attractiveness of the financial feasibility of the
business idea.

125
Overall Financial Attractiveness of the
Proposed Venture
2 of 2
Financial Factors Associated With Promising Business

Opportunities
• Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche.
• High percentage of recurring revenue—meaning that once a firm wins a
client, the client will provide recurring sources of revenue.
• Ability to forecast income and expenses with a reasonable degree of
certainty.
• Internally generated funds to finance and sustain growth.
• Availability of an exit opportunity for investors to convert equity to cash.

126
First Screen
• First Screen
– Shown in Appendix 3.1, is a template for completing a
feasibility analysis.
– It’s called “First Screen” because it’s a tool that can be
used in the initial pass at determining the feasibility of a
business idea.
– If a business idea cuts muster at this stage, the next step is
to complete a business plan.

127
Chapter 4
Writing a Business
Plan
Bruce R. Barringer
R. Duane Ireland

Chapter Objectives
1 of 2
1. Explain the purpose of a business plan.

2. Discuss the two primary reasons for writing a
business plan.
3. Describe who reads a business plan and what
they’re looking for.
4. Explain the difference between a summary business
plan, a full business plan, and an operational
business plan.
5. Explain why the executive summary may be the
most important section of a business plan.
Chapter Objectives
2 of 2
6. Describe a milestone and how milestones are used

in business plans.
7. Explain why its important to include separate
sections on a firm’s industry and its target market in
a business plan.
8. Explain why the “Management Team and Company
Structure” section of a business plan is particularly
important.
9. Describe the purposes of a “sources and uses of
funds” statement and an “assumptions sheet.”
Chapter Objectives
3 of 3
10. Detail the parts of an oral presentation of a business

plan.

What Is a Business Plan?
• Business Plan
– A business plan is a written narrative, typically 25 to 35
pages long, that describes what a new business plans to
accomplish.
• Dual-Use Document
– For most new ventures, the business plan is a dual-purpose
document used both inside and outside the firm.

Why Reads the Business Plan—And What
Are They Looking For?
There are two primary audience for a firm’s business plan
Audience What They are Looking For
A Firm’s A clearly written business plan helps the

Employees employees of a firm operate in sync and move
forward in a consistent and purposeful manner.
Investors and A firm’s business plan must make the case that the
other external firm is a good use of an investor’s funds or the
stakeholders attention of others.

Guidelines for Writing a Business Plan
1 of 5
• Structure of the Business Plan

– To make the best impression a business plan should follow
a conventional structure, such as the outline for the
business plan shown in the chapter.
– Although some entrepreneurs want to demonstrate
creativity, departing from the basic structure of the
conventional business plan is usually a mistake.
– Typically, investors are busy people and want a plan where
they can easily find critical information.

2 of 5
• Structure of the Business Plan (continued)

– Software Packages
• There are many software packages available that employ an
interactive, menu-driven approach to assist in the writing of a
business plan.
• Some of these programs are very helpful. However, entrepreneurs
should avoid a boilerplate plan that looks as though it came from a
“canned” source.
– Sense of Excitement
• Along with facts and figures, a business plan needs to project a
sense of anticipation and excitement about the possibilities that
surround a new venture.

3 of 5
• Content of the Business Plan

– The business plan should give clear and concise
information on all the important aspects of the proposed
venture.
– It must be long enough to provide sufficient information
yet short enough to maintain reader interest.
– For most plans, 25 to 35 pages is sufficient.
• Types of Business Plans
– There are three types of business plans, which are shown
on the next slide.

4 of 5
Types of Business Plans

5 of 5
• Recognizing the Elements of the Plan May Change

– It’s important to recognize that the plan will usually change
while written.
– New insights invariably emerge when an entrepreneur or a
team of entrepreneurs immerse themselves in writing the
plan and start getting feedback from others.

Outline of Business Plan
• Outline of Business Plan

– A suggested outline of a business plan is shown on the next
several slides.
– Most business plans do not include all the elements
introduced in the sample plan; we include them here for the
purpose of completeness.
– Each entrepreneur must decided which elements to include
in his or her plan.

Section 1: Executive Summary
1 of 2
• Executive Summary
– The executive summary is a short overview of the entire
business plan
– It provides a busy reader with everything that needs to be
known about the new venture’s distinctive nature.
– An executive summary shouldn’t exceed two single-space
pages.

Section 1: Executive Summary
2 of 2
Key Insights
• In many instances an investor will
ask for a copy of a firm’s executive
Executive Summary summary and will ask for a copy of
the entire plan only if the executive
summary is sufficiently convincing.
• The executive summary, then, is
arguably the most important
section of a business plan.

Section 2: Company Description
1 of 2
• Company Description
– The main body of the business plan beings with a general
description of the company.
– Items to include in this section:
• Company description.
• Company history.
• Mission statement.
• Products and services.
• Current status.
• Legal status and ownership.
• Key partnerships (if any).

Section 2: Company Description
2 of 2
Key Insights
• While at first glance this section
may seem less important than the
Company Description others, it is extremely important.
• It demonstrates to your reader that
you know how to translate an idea
into a business.

Section 3: Industry Analysis
1 of 2
• Industry Analysis
– This section should being by describing the industry the
business will enter in terms of its size, growth rate, and
sales projections.
• Industry size, growth rate, and sales projections.
• Industry structure.
• Nature of participants.
• Key success factors.
• Industry trends.
• Long-term prospects.

Section 3: Industry Analysis
2 of 2
Key Insights
• Before a business selects a target
market it should have a good grasp
Industry Analysis of its industry—including where its
promising areas are and where its
points of vulnerability are.
• The industry that a company
participates in largely defines the
playing field that a firm will
participate in.

Section 4: Market Analysis
1 of 2
• Market Analysis
– The market analysis breaks the industry into segments and
zeros in on the specific segment (or target market) to which
the firm will try to appeal.
• Market segmentation and target market selection.
• Buyer behavior.
• Competitor analysis.

Section 3: Market Analysis
2 of 2
Key Insights
• Most startups do not service their
entire industry. Instead, they focus
Market Analysis on servicing a specific (target)
market within the industry.
• It’s important to include a section in
the market analysis that deals with
the behavior of the consumers in the
market. The more a startup knows
about the consumers in its target
market, the more it can tailor its
products or service appropriately.
Section 4: Marketing Plan
1 of 2
• Marketing Plan
– The marketing plan focuses on how the business will
market and sell its product or service.
• Overall marketing strategy.
• Product, price, promotions, and distribution.

Section 4: Marketing Plan
2 of 2
Key Insights
• The best way to describe a startup’s
marketing plan is to start by
Marketing Plan articulating its marketing strategy,
positioning, and points of
differentiation, and then talk about
how these overall aspects of the
plan will be supported by price,
promotional mix, and distribution
strategy.

Section 5: Management Team and Company
Structure
1 of 2
• Management Team and Company Structure
– The management team of a new venture typically consists
of the founder or founders and a handful of key
management personnel.
• Management team.
• Board of directors.
• Board of advisers.
• Company structure.

Section 5: Management Team and Company
Structure
2 of 2
Key Insights
• This is a critical section of a
business plan.
Management Team and • Many investors and others who
Company Structure read the business plan look first at
the executive summary and then go
directly to the management team
section to assess the strength of the
people starting the firm.

Section 6: Operations Plan
1 of 2
• Operations Plan
– Outlines how your business will be run and how your
product or service will be produced.
– A useful way to illustrate how your business will be run is
to describe it in terms of “back stage” (unseen to the
customer) and “front stage” (seen by the customer)
activities.
• General approach to operations.
• Business location.
• Facilities and equipment.

Section 6: Operations Plan
2 of 2
Key Insights
• Your have to strike a careful balance
between adequately describing this
Operations Plan topic and providing too much
detail.
• As a result, it is best to keep this
section short and crisp.

Section 7: Product (or Service) Design and
Development Plan
1 of 2
• Product (or Service) Design and Development Plan

– If you’re developing a completely new product or service,
you need to include a section that focuses on the status of
your development efforts.
• Development status and tasks.
• Challenges and risks.
• Intellectual property.

Section 7: Product (or Service) Design and
Development Plan
2 of 2
Key Insights
• Many seemingly promising startups
never get off the ground because
Product (or Service) their product development efforts
Design and Development stall or turn out to be more difficult
than expected.
Plan • Its important to convince the reader
of your plan that this won’t happen
to you.

Section 8: Financial Projections
1 of 2
• Financial Projections
– The final section of a business plan presents a firm’s pro
forma (or projected) financial projections.
• Sources and uses of funds statement.
• Assumptions sheet.
• Pro forma income statements.
• Pro forma balance sheets.
• Pro forma cash flows.
• Ratio analysis.

Section 8: Financial Projections
2 of 2
Key Insights
• Having completed the earlier
sections of the plan, its easy to see
Financial Projections why the financial projections come
last.
• They take the plans you’ve
developed and express them in
financial terms.

Presenting the Business Plan to Investors
1 of 3
• The Oral Presentation

– The first rule in making an oral presentation is to follow
directions. If you’re told you have 15 minutes, don’t talk
for more than the allotted time.
– The presentation should be smooth and well-rehearsed.
– The slides should be sharp and not cluttered.
• Questions and Feedback to Expect from Investors
– The smart entrepreneur has a good idea of the questions
that will be asked, and will be prepared for those queries.

2 of 3
Twelve PowerPoint Slides to Include in an Investor Presentation
1. Title Slide 7. Marketing and sales

2. Problem 8. Management team
3. Solution 9. Financial projections
4. Opportunity and target market 10. Current status
5. Technology 11. Financing sought
6. Competition 12. Summary

3 of 3
• It’s also important to

look sharp when
presenting a business
plan.
• This new venture team
is going over its
PowerPoint slides one
last time before an
investor presentation.

Chapter 5
Industry and
Competitor Analysis
Bruce R. Barringer
R. Duane Ireland

Chapter Objectives
1 of 2
1. Explain the purpose of an industry analysis.

2. Identify the five competitive forces that determine
industry profitability.
3. Explain the role of “barriers to entry” in creating
disincentives for firms to enter an industry.
4. Identify the nontraditional barriers to entry that are
especially associated with entrepreneurial firms.
5. List the four industry-related questions to ask
before pursuing the idea for a firm.
Chapter Objectives
2 of 2
6. Identify the five primary industry types and the

opportunities they offer.
7. Explain the purpose of a competitor analysis.
8. Identify the three groups of competitors a new firm
will face.
9. Describe ways a firm can ethically obtain
information about its competitors.
10. Describe the reasons for completing a competitive
analysis grid.
What is Industry Analysis?
• Industry
– An industry is a group of firms producing a similar product
or service, such as airlines, fitness drinks, furniture, or
electronic games.
• Industry Analysis
– Is business research that focuses on the potential of an
industry.

What is Industry Analysis Important?
Importance
• Once it is determined that a new
venture is feasible in regard to the
industry and market in which it
Industry Analysis
will compete, a more in-depth
analysis is needed to learn the ins
and outs of the industry.
• The analysis helps a firm determine
if the niche market it identified
during feasibility analysis is
favorable for a new firm.
Three Key Questions
When studying an industry, an entrepreneur must answer
three questions before pursuing the idea of starting a firm.
Question 1 Question 2 Question 3
Is the industry Are there positions in

Does the industry
accessible—in other the industry that avoid
contain markets that
words, is it is realistic some of the negative
are ripe for innovation
place for a new attributes of the
or are underserved?
venture to enter? industry as a whole?

How Industry and Firm-Level Factors
Affect Performance
• 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.
• Conclusion
– In various studies, researchers have found that from 8% to
30% of the variation in firm profitability is directly
attributable to the industry in which a firm competes.

Techniques Available to Assess Industry
Attractiveness
Assessing Industry Attractiveness
Study Environmental The Five Competitive

and Business Trends Forces Model

Studying Industry Trends
• Environmental Trends
– Include economic trends, social trends, technological
advances, and political and regulatory changes.
– For example, industries that sell products to seniors are
benefiting by the aging of the population.
• Business Trends
– Other trends that impact an industry.
– For example, are profit margins in the industry increasing
or falling? Is innovation accelerating or waning? Are input
costs going up or down?

The Five Competitive Forces Model
1 of 3
• Explanation of the Five Forces Model

– The five competitive forces model is a framework for
understanding the structure of an industry.
– The model is composed of the forces that determine
– They help determine the average rate of return for the firms
in an industry.

2 of 3
• Explanation of the Five Forces Model (continued)

– Each of the five-forces impacts the average rate of return
for the firms in an industry by applying pressure on
– Well managed firms try to position their firms in a way that
avoids or diminishes these forces—in an attempt to beat the
average rate of return of the industry.

3 of 3

Threat of Substitutes
1 of 3
• Threat of Substitutes
– The price that consumers are willing to pay for a product
depends in part on the availability of substitute products.
– For example, there are few if any substitutes for
prescription medicines, which is one of the reasons the
pharmaceutical industry is so profitable.
– In contrast, when close substitutes for a product exist,
industry profitability is suppressed, because consumers will
opt out if the price gets too high.

2 of 3
• Threat of Substitutes (continued)

– The extent to which substitutes suppress the profitability of
an industry depends on the propensity for buyers to
substitute between alternatives.
– This is why firms in an industry often offer their customers
amenities to reduce the likelihood that they will switch to a
substitute product, even in light of a price increase.

3 of 3
• A customer could easily get

a cup of coffee cheaper at
one of Starbuck’s competitors.
• To decrease the likelihood of
this, Starbucks offers high-
quality fresh coffee, good
service, and a pleasant
atmosphere.
• Starbucks has therefore
reduced the threat of
substitutes.
Threat of New Entrants
1 of 6
• Threat of New Entrants

– If the firms in an industry are highly profitable, the industry
becomes a magnet to new entrants.
– Unless something is done to stop this, the competition in
the industry will increase, and average industry profitability
will decline.
– Firms in an industry try to keep the number of new entrants
low by erecting barriers to entry.
• A barrier to entry is a condition that creates a disincentive for a new
firm to enter an industry.

2 of 6
Barriers to Entry
Barrier to Entry Explanation
Industries that are characterized by large economies

Economies of Scale of scale are difficult for new firms to enter, unless they
are willing to accept a cost disadvantage.
Industries such as the soft drink industry that are

Product characterized by firms with strong brands are difficult
differentiation to break into without spending heavily on advertising.
Capital The need to invest large amounts of money to gain

requirements entrance to an industry is another barrier to entry.

3 of 6
Barriers to Entry (continued)

Existing firm may have cost advantages not related to
Cost advantages size. For example, the existing firms in an industry
may have purchased land when it was less expensive
independent of size
than it is today.
Distribution channels are often hard to crack. This is

Access to distribution particularly true in crowded markets, such as the
channels convenience store market.
Government and Some industries, such as broadcasting, require the

legal barriers granting of a license by a public authority to compete.

4 of 6
• Non Traditional Barriers to Entry

– It is difficult for start-ups to execute barriers to entry that
are expensive, such as economies of scale, because money
is usually tight.
– Start-ups have to rely on nontraditional barriers to entry to
discourage new entrants, such as assembling a world-class
management team that would be difficult for another
company to replicate.

5 of 6
Nontraditional Barriers to Entry

If a start-up puts together a world-class management

Strength of team, it may give potential rivals pause in taking on
management team the start-up in its chosen industry.
If a start-up pioneers an industry or a new concept

First-mover within an industry, the name recognition the start-up
advantage establishes may create a barrier to entry.
If the employees of a start-up are motivated by the

Passion of the
unique culture of a start-up, and anticipate large
management team
financial reward, this is a combination that cannot be
and employees
replicated by larger firms.

6 of 6
Nontraditional Barriers to Entry (continued)

If a start-up is able to construct a unique business
Unique Business model and establish a network of relationships that
Model makes the business model work, this set of advantages
creates a barrier to entry.
Some Internet domain names are so “spot-on” that

Internet Domain they give a start-up a meaningful leg up in terms of e-
Name commerce opportunities.
Inventing a new If a start-up invents a new approach to an industry

approach to an and executes it in an exemplary fashion, these factors
industry create a barrier to entry for potential imitators.

Rivalry Among Existing Firms
1 of 3
• Rivalry Among Existing Firms

– In most industries, the major determinant of industry
profitability is the level of competition among existing
firms.
– Some industries are fiercely competitive, to the point where
prices are pushed below the level of costs, and industry-
wide losses occur.
– In other industries, competition is much less intense and
price competition is subdued.

2 of 3
Factors that determine the intensity of the rivalry among

existing firms in an industry.
Number and The more competitors there are, the more likely it
balance of is that one or more will try to gain customers by
competitors cutting its price.
Degree of The degree to which products differ from one

difference product to another affects industry rivalry.
between products

3 of 3
Factors that determine the intensity of the rivalry among existing

firms in an industry (continued)
The competition among firms in a slow-growth

Growth rate of an industry is stronger than among those in fast-
industry growth industries.
Firms that have high fixed costs must sell a higher

Level of fixed
volume of their product to reach the break-even
costs
point than firms with low fixed costs.

Bargaining Power of Suppliers
1 of 3
• Bargaining Power of Suppliers

– Suppliers can suppress the profitability of the industries to
which they sell by raising prices or reducing the quality of
the components they provide.
– If a supplier reduces the quality of the components it
supplies, the quality of the finished product will suffer, and
the manufacturer will eventually have to lower its price.
– If the suppliers are powerful relative to the firms in the
industry to which they sell, industry profitability can suffer.

2 of 3
Factors that have an impact on the ability of suppliers to

exert pressure on buyers
Supplier When they are only a few suppliers that supply a

concentration critical product to a large number of buyers, the
supplier has an advantage.
Switching costs are the fixed costs that buyers

encounter when switching or changing from one
Switching costs
supplier to another. If switching costs are high, a
buyer will be less likely to switch suppliers.

3 of 3
Factors that have an impact on the ability of suppliers to exert

pressure on buyers (continued)
Attractiveness of Supplier power is enhanced if there are no

substitutes attractive substitutes for the product or services
the supplier offers.
Threat of The power of a supplier is enhanced if there is a

forward credible possibility that the supplier might enter
integration the buyer’s industry.

Bargaining Power of Buyers
1 of 3
• Bargaining Power of Buyers

– Buyers can suppress the profitability of the industries from
which they purchase by demanding price concessions or
increases in quality.
– For example, the automobile industry is dominated by a
handful of large companies that buy products from
thousands of suppliers in different industries. This allows
the automakers to suppress the profitability of the
industries from which they buy by demanding price
reductions.

2 of 3
Factors that have an impact on the ability of suppliers to exert

pressure on buyers
If there are only a few large buyers, and they buy

Buyer group from a large number of suppliers, they can
concentration pressure the suppliers to lower costs and thus
affect the profitability of the industries from which
they buy.
The greater the importance of an item is to a

Buyer’s costs buyer, the more sensitive the buyer will be to the
price it pays.

3 of 3
Factors that have an impact on the ability of buyers to exert

pressure on suppliers (continued)
Degree of The degree to which a supplier’s product

standardization differs from its competitors affect the buyer’s
of supplier’s bargaining power.
products
Threat of The power of buyers is enhanced if there is a

backward credible threat that the buyer might enter the
integration supplier’s industry.

First Application of the Five Forces Model
1 of 2
• First Application of the Model

– The five forces model can be used to assess the
attractiveness of an industry by determining the level of
threat to industry profitability for each of the forces.
– If a firm fills out the form shown on the next slide and
several of the threats to industry profitability are high, the
firm may want to reconsider entering the industry or think
carefully about the position it would occupy.

First Application of the Five Forced Model
2 of 2
Assessing Industry Attractiveness Using the Five Forces Model

Second Application of the Five Forces Model
1 of 2
• Second Application of the Model

– The second way a new firm can apply the five forces model
to help determine whether it should enter an industry is by
using the model to answer several key questions.
– The questions are shown in the figure on the next slide, and
help a firm project the potential success of a new venture in
a particular industry.

Second Application of the Five Forced Model
2 of 2
Using the Five Forces Model to Pose Questions to Determine the Potential
Success of a New Venture in an Industry

Industry Types and the Opportunities
They Offer
1 of 3
• Emerging Industries
– Industries in which standard operating procedures have yet
to be developed.
• Opportunity: First-mover advantage.
• Fragmented Industries
– Industries that are characterized by a large number of firms
of approximately equal size.
• Opportunity: Consolidation.

They Offer
2 of 3
• Mature Industries
– Industries that are experiencing slow or no increase in
demand.
• Opportunities: Process innovation and after-sale service innovation.
• Declining Industries
– Industries that are experiencing a reduction in demand.
• Opportunities: Leadership, establishing a niche market, and
pursuing a cost reduction strategy.

They Offer
3 of 3
• Global Industries
– Industries that are experiencing significant international
sales.
• Opportunities: Multidomestic and global strategies.

Competitor Analysis
• What is a Competitor Analysis?

– A competitor analysis is a detailed analysis of a firm’s
competition.
– It helps a firm understand the positions of its major
competitors and the opportunities that are available.
– A competitive analysis grid is a tool for organizing the
information a firm collects about its competitors.

Identifying Competitors
Types of Competitors New Ventures Face

Sources of Competitive Intelligence
1 of 3
• Collecting Competitive Intelligence

– To complete a competitive analysis grid, a firm must first
understand the strategies and behaviors of its competitors.
– The information that is gathered by a firm to learn about its
competitors is referred to as competitive intelligence.
– A new venture should take care that it collects competitive
intelligence in a professional and ethical manner.

2 of 3
Ethical ways to obtain information about competitors
• Attend conferences and trade shows.

• Purchase competitor’s products.
• Study competitors’ Web sites.
• Set up Google and Yahoo! e-mail alerts.
• Read industry-related books, magazines, and Web sites.
• Talk to customers about what motivated them to buy your
product as opposed to your competitor’s product.

3 of 3
• Many companies attend

trade shows to not only
display their products,
but to see what their
competitors are up to.
• This is a photo of the
the 2008 Consumer
Electronics Trade Show
in Las Vegas.

Completing a Competitive Analysis Grid
• Competitive Analysis Grid

– A tool for organizing the information a firm collects about
its competitors
– A competitive analysis grid can help a firm see how it
stakes up against its competitors, provide ideas for markets
to pursue, and identify its primary sources of competitive
advantage.

Competitive a Analysis Grid for Expresso
Fitness

Chapter 6
Developing an
Effective Business
Model
Bruce R. Barringer
R. Duane Ireland
Chapter Objectives
1 of 2
1. Describe a business model.

2. Explain business model innovation.
3. Discuss the importance of having a clearly
articulated business model.
4. Discuss the concept of the value chain.
5. Identify a business model’s two potential fatal
flaws.

Chapter Objectives
2 of 2
6. Identify a business model’s four major components.

7. Explain the meaning of the term business concept
blind spot.
8. Define the term core competency and describe its
importance.
9. Explain the concept of supply chain management.
10. Explain the concept of fulfillment and support.

What is a Business Model?
• Model
– A model is a plan or diagram that’s used to make or
describe something.
• Business Model
– A firm’s business model is its plan or diagram for how it
competes, uses its resources, structures its relationships,
interfaces with customers, and creates value to sustain itself
on the basis of the profits it generates.
– The term “business model” is used to include all the
activities that define how a firm competes in the
marketplace.
Dell’s Business Model
1 of 2
• It’s important to understand that

a firm’s business model takes it
beyond its own boundaries.
• Almost all firms partner with
others to make their business
models work.
• In Dell’s case, it needs the
cooperation of its suppliers,
customers, and many others to
make its business model
possible.
Dell’s Business Model
2 of 2
Dell’s Approach to Selling PCs versus Traditional Manufacturers

The Importance of Business Models
Having a clearly articulated business model is important
because it does the following:
• Serves as an ongoing extension of feasibility analysis. A business
model continually asks the question, “Does this business make
sense?”
• Focuses attention on how all the elements of a business fit
together and constitute a working whole.
• Describes why the network of participants needed to make a
business idea viable are willing to work together.
• Articulates a company’s core logic to all stakeholders, including
all employees.
Diversity of Business Models
• There is no standard business

model for an industry or for
a target market within an
industry.
Diversity or Variety in
• However, over time, the most
Business Models successful business models
in an industry predominate.
• There are always opportunities
for business model innovation.

Business Model Innovation
Netflix is an example of
a business model
innovator.

Business model Innovators
Solar Energy seems like an ideal alternative to fossil fuels. However,
the reality is that purchasing and installing a solar energy system is
simply too expensive given the potential cost savings in most
instances. Installing a solar energy system also requires a consumer
or business to make a substantial capital outlay for future cost
savings. Although there are obvious environmental benefits to
consider, how would you like to pay your next five years of electric
bills in advance? There’s also the issue of maintenance. Once you
buy a solar energy system you own it and are responsible for
upkeep and repairs. So how can solar energy be affordable
alternative business model, pioneered by Sun Edison, is to make
solar energy a service rather than a product. The company, which
was started by Jigar Shah, a former British Petroleum executive,
purchases, installs, and maintains the solar panels placed on its
customers’s roofs in exchange for service contracts that provide
SunEdison a steady stream of revenue to fund its operators.

Business Model Innovators
In 1991, a student at the University of Helsinki named Linus Torvarlds
posted his Linux operating system on the Internet to compete with
the Microsoft Windows operating system. Torvalds, a believer in free
software, invited other programmers to try to improve it-for free. The
only caveat is that if an individual or company downloads the source
code and improved upon it, they must then make the upgraded
version freely available to everyone else.
Linux quickly developed a global following among programmers and
business. Many companies, like Google or Amazon.com use Linux
rather than a system from Microsoft to cut their technology costs.
The problem with Linux is that even though is free, it takes some
expertise to download and properly implement it. To solve this
problem, Red Hat introduced an innovative business model to
complement Linux software. RedHat didn’t sell Linux, that is not
allowed. But it started supporting and customizing Linux for clients
and developed applications to make Linux run smoother.
How Business Models Emerge
1 of 3
• The Value Chain

– The value chain is the string of activities that moves a
product from the raw material stage, through
manufacturing and distribution, and ultimately to the end
user.
– By studying a product’s or service’s value chain, an
organization can identify ways to create additional value
and assess whether it has the means to do so.
– Value chain analysis is also helpful in identifying
opportunities for new businesses and in understanding how
business models emerge.
2 of 3
The Value Chain

3 of 3
• The Value Chain (continued)

– Entrepreneurs look at the value chain of a product or a
service to pinpoint where the value chain can be made more
effective or to spot where additional “value” can be added.
– This type of analysis may focus on:
• A single primary activity such as marketing and sales.
• The interface between one stage of the value chain and another,
such as the interface between operations and outgoing logistics.
• One of the support activities, such as human resource management.

Potential Fatal Flaws in Business Models
• Fatal Flaws
– Two fatal flaws can render a business model untenable
from the beginning:
• A complete misread of the customer.
• Utterly unsound economics.
Pets.com sported an unsound

business model, and failed.
Components of a Business Model
Four Components of a Business Model

Core Strategy
1 of 3
• Core Strategy
– The first component of a business model is the core
strategy, which describes how a firm competes relative to
its competitors.
• Primary Elements of Core Strategy
– Mission statement.
– Product/market scope.
– Basis for differentiation.

Core Strategy
2 of 3
Primary Elements of Core Strategy
A firm’s mission, or mission statement,

Mission
describes why it exists and what its business
Statement
model is suppose to accomplish.
Product/Market A company’s product/market scope defines the

Scope products and markets on which it will
concentrate.

Core Strategy
3 of 3
Primary Elements of Core Strategy
It is important that a new venture

differentiate itself from its competitors in
Basis of some way that is important to its customers.
Differentiation If a new firm’s products or services aren’t
different from those of its competitors, why
should anyone try them?

Strategic Resources
1 of 3
• Strategic Resources
– A firm is not able to implement a strategy without
resources, so the resources a firm has affects its business
model substantially.
• For a new venture, its strategic resources may initially be limited to
the competencies of its founders, the opportunity they have
identified, and the unique way they plan to serve their market.
– The two most important strategic resources are:
• A firm’s core competencies.
• Strategic assets.

Strategic Resources
2 of 3
Primary Elements of Strategic Resources
A core competency is a resource or capability that

serves as a source of a firm’s competitive advantage.
Core Examples include Sony’s competence in
Competencies miniaturization and Dell’s competence in supply
chain management.
Strategic assets are anything rare and valuable that a

Strategic firm owns. They include plant and equipment,
Assets location, brands, patents, customer data, a highly
qualified staff, and distinctive partnerships.

Strategic Resources
3 of 3
• Importance of Strategic Resources

– New ventures ultimately try to combine their core
competencies and strategic assets to create a sustainable
competitive advantage.
– This factor is one that investors pay close attention when
evaluating a business.
– A sustainable competitive advantage is achieved by
implementing a value-creating strategy that is unique and
not easy to imitate.
– This type of advantage is achievable when a firm has
strategic resources and the ability to use them.
Partnership Network
1 of 2
• Partnership Network
– A firm’s partnership network is the third component of a
business model. New ventures, in particular, typically do
not have the resources to perform key roles.
– In most cases, a business does not want to do everything
itself because the majority of tasks needed to build a
product or deliver a service are not core to a company’s
competitive advantage.
– A firm’s partnership network includes:
• Suppliers.
• Other key relationships.

Partnership Network
2 of 2
Primary Elements of Partnership Network
A supplier is a company that provides parts or

Suppliers services to another company. Intel is Dell’s primary
suppler for computer chips, for example.
Firms partner with other companies to make their

business models work. An entrepreneur’s ability to
Other Key launch a firm that achieves a competitive
Relationships advantage may hinge as much on the skills of the
partners as on the skills within the firm itself.

Customer Interface
1 of 3
• Customer Interface
– The way a firm interacts with its customer hinges on how it
chooses to compete.
• For example, Amazon.com sells books over the Internet while
Barnes & Noble sells through its traditional bookstores and online.
– The three elements of a company’s customer interface are:
• Target customer.
• Fulfillment and support.
• Pricing model.

Customer Interface
2 of 3
Primary Elements of Customer Interface
Target A firm’s target market is the limited group of

Market individuals or businesses that it goes after or tries to
appeal to.
Fulfillment and support describes the way a firm’s

Fulfillment product or service reaches it customers. It also refers
and Support to the channels a company uses and what level of
customer support it provides.

Customer Interface
3 of 3
Primary Elements of Customer Interface
The third element of a company’s customer

Pricing interface is its pricing structure. Pricing models
Structure vary, depending on a firm’s target market and its
pricing philosophy.

Recap: The Importance of Business Models
• Business Models
– It is very useful for a new venture to look at itself in a
holistic manner and understand that it must construct an
effective “business model” to be successful.
– Everyone that does business with a firm, from its customers
to its partners, does so on a voluntary basis. As a result, a
firm must motivate its customers and its partners to play
along.
– Close attention to each of the primary elements of a firm’s
business model is essential for a new venture’s success.

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Chapter 1

Delivered by Sohail Afzal

1. Explain entrepreneurship and discuss its

6. Explain how entrepreneurial firms differ from

Entrepreneurship is the process of creating or starting a new business venture

One key concept of entrepreneurship is the

Another important concept of entrepreneurship is

Entrepreneurship also involves the ability to organize

Another concept of entrepreneurship is leadership.

Another aspect of entrepreneurship is risk-taking.

Salesmanship is the ability to sell a product or service

Financial management is a critical component of

Strategic thinking is the ability to think critically and

Persistence is the ability to persevere and stay

Entrepreneurial Firms Conservative Firms

• Proactive • Take a more “wait and see”

The three primary reasons that people become

Desire to be their own boss

Desire to pursue their

©2010 Prentice Hall 1-20

Four Primary Characteristics

• Passion for the Business

• Tenacity Despite Failure

• Myth 1: Entrepreneurs Are Born Not Made

Myth - a widely held but false belief or idea.

• Decisive (producing a definite result.)

• Myth 2: Entrepreneurs Are Gamblers

• Myth 3: Entrepreneurs Are Motivated Primarily by

• Myth 4: Entrepreneurs Should Be Young and

©2010 Prentice Hall 1-29

• Interest among young people in entrepreneurial careers is

The Entrepreneurial Process Consists of Four Steps

Step 3: Moving from an idea to an entrepreneurial firm.

The stage in which the entrepreneur

Entrepreneurs consider the following:

Entrepreneurs prepare the following in this

The stage in which the entrepreneur

Entrepreneurs contemplate the following:

The stage in which the entrepreneur

Entrepreneurs prepare for the following:

The stage in which the entrepreneur

Entrepreneurs consider the following:

Understand the procedures and requirements

1. Develop a Business Plan

A Business Plan is a detailed proposal that

Business Plans are:

Business Plans are used to:

Helps organize and analyze data critical to new business.

Provides a start-up proposal

Identify Potential Investors

Going into business for the wrong reasons. Some

©2010 Prentice Hall 1-53

1. Explain why it’s important to start a new firm when

6. Identify the five steps in the creative process.

©2010 Prentice Hall 2-57

©2010 Prentice Hall 2-58

An opportunity has four essential qualities

©2010 Prentice Hall 2-59

©2010 Prentice Hall 2-60

©2010 Prentice Hall 2-61