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seven components of new-venture motivation

1. The need for approval
2. The need for independence
3. The need for personal development
4. Welfare considerations
5. Perception of wealth
6. Tax reduction and indirect benefits
7. Following role models


Six pitfalls in Selecting New Ventures

1. Lack of objective evaluation
2. No real insight into the market
3. Inadequate understanding of technical requirements
4. Poor financial understanding
5. Lack of venture uniqueness
6. Ignorance of legal issues


Five critical factors for new venture development

1. Uniqueness
2. Investment
3. Growth of sales
4. Product availability
5. Customer availability


Why New Ventures Fail

1. Product/market problems
2. The financial difficulties
3. Managerial problems


Product/market problems involved the following factors:

- Poor timing
- Product design problems
- Inappropriate distribution strategy
- Unclear business definition
- Overreliance on one customer


The financial difficulties category involved the following factors:

Initial undercapitalization
- Undercapitalization contributed to failure in 30% of
the case studies

Assuming debt too early
- Some of the firms attempted to obtain debt financing
too soon and in too large an amount. This led to debt
service problems

Venture capital relationship problems
- Differing goals, visions, and motivations of the
entrepreneur and the venture capitalist resulted in
problems for the enterprise


Managerial problems involved two important factors

1. Concept of a team approach
2. Human resource problems


Types and classes of first-year problems

- obtaining external financing
- internal financial management
- sales/marketing
- product development
- product/operations management
- general management
- human resource management
- economic environment
- regulatory environment


The New-Venture Evaluation Process

entrepreneurs must put ideas through feasibility analyses to discover if their approach proposals contain any fatal flaws


Profile analysis approach

Is a tool that enables entrepreneurs to judge a business ventures potential by sizing up the ventures strengths and weaknesses along a number of key dimensions or variables


Feasibility criteria approach

A criteria selection list, based on the following questions, from which entrepreneurs can gain insights into the viability of their venture:
o Is it proprietary?
o Are initial production costs realistic?
o Are the initial marketing costs realistic?
o Does the product have potential for very high
o Is the time required to get to market and to reach the
break-even point realistic?
o Is the potential market large?
o Is the product the first of a growing family?
o Does an initial customer exist?
o Are the development costs and calendar times
o Is this a growing industry?
Can the product – and the need for it – be
understood by the financial community?


Comprehensive feasibility approach

A more comprehensive and systematic feasibility analysis

Incorporate external factors in addition to those included in the criteria approach questions.


Technical feasibility

The evaluation of a new-venture idea should start with identifying the technical requirements for producing a product or service that will satisfy the expectations of potential customers



Vital for judging a new ventures potential success

Three major areas in this type of analysis are:
1. Investigating the full market potential and identifying
customer (or users) for the goods or service

2. Analyzing the extent to which the enterprise might
exploit this potential market

3. Using market analysis to determine the opportunities
and risks associated with the venture