[Recommended]Developing Successful Business Ideas

Developing Successful Business Ideas Developing an effective business model Recognizing opportunities and generating ideas Introduction to entrepreneurship Feasibility analysis Decision to Become an Entrepreneur Industry…

Developing Successful Business Ideas
Developing an
effective business
model
Recognizing opportunities
and generating ideas
Introduction to entrepreneurship
Feasibility analysis
Decision to Become an
Entrepreneur
Industry and competitor analysis
Writing a business plan
CHAPTER 2
CHAPTER 4
CHAPTER 5
CHAPTER 6
CHAPTER 3
CHAPTER 1
Developing Successful Business Ideas
The Entrepreneurial Process
Passion plusPassion plus
Assessing a new venture’s
financial strength and
viability
Getting financing or
funding
Managing and Growing an
Entrepreneurial Firm
Unique marketing
issues
The importance of intellectual
property
Preparing for and evaluating the challenges
of growth
Strategies for firm growth
Franchising
Building a new- venture team
Preparing the proper ethical
and legal foundation
Moving from an Idea to an Entrepreneurial Firm
CHAPTER 7
CHAPTER 8
CHAPTER 9
CHAPTER 10
CHAPTER 11
CHAPTER 12
CHAPTER 13
CHAPTER 14
CHAPTER 15
Where a great idea meets a great process
Entrepreneurship Successfully Launching New Ventures
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Entrepreneurship Successfully Launching New Ventures
FOURTH EDITION
Bruce R. Barringer Oklahoma State University
R. Duane Ireland Texas A&M University
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Library of Congress Cataloging-in-Publication Data
Barringer, Bruce R. Entrepreneurship : successfully launching new ventures / Bruce R. Barringer, R. Duane Ireland.—4th ed.
p. cm. Includes bibliographical references and index. ISBN 978-0-13-255552-4
1. Entrepreneurship. 2. New business enterprises. I. Ireland, R. Duane. II. Title.
HB615.B374 2012 658.1’1—dc23
2011025010
ISBN 10: 0-13-255552-2 ISBN 13: 978-0-13-255552-4
10 9 8 7 6 5 4 3 2 1
Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps.
DEDICATION
To my wife Jan. Thanks for your never-ending encouragement and support. Without you, this book would have never been possible. Also, thanks to all the student entrepreneurs who contributed to the chapter opening features in the book. Your stories are both insightful and inspiring.
—Bruce R. Barringer
To my family: I am so proud of each of you and so blessed by your perseverance and never-ending love and support. I know that sometimes it seems as though “we lose ourselves in work to do and bills to pay and that it’s a ride, ride, ride without much cover.” But you are always in my heart, a gift for which I remain deeply grateful.
—R. Duane Ireland
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Preface xvii
PART 1 Decision to Become an Entrepreneur 1 CHAPTER 1 Introduction to Entrepreneurship 3
PART 2 Developing Successful Business Ideas 39 CHAPTER 2 Recognizing Opportunities and Generating
Ideas 41
CHAPTER 3 Feasibility Analysis 77
CHAPTER 4 Writing a Business Plan 111
CHAPTER 5 Industry and Competitor Analysis 147
CHAPTER 6 Developing an Effective Business Model 179
PART 3 Moving from an Idea to an Entrepreneurial Firm 211 CHAPTER 7 Preparing the Proper Ethical and Legal
Foundation 213
CHAPTER 8 Assessing a New Venture’s Financial Strength and Viability 253
CHAPTER 9 Building a New-Venture Team 289
CHAPTER 10 Getting Financing or Funding 319
PART 4 Managing and Growing an Entrepreneurial Firm 355 CHAPTER 11 Unique Marketing Issues 357
CHAPTER 12 The Importance of Intellectual Property 393
CHAPTER 13 Preparing for and Evaluating the Challenges of Growth 431
CHAPTER 14 Strategies for Firm Growth 461
CHAPTER 15 Franchising 495
Glossary 535
Name Index 547
Company Index 551
Subject Index 557
BRIEF CONTENTS
vii
Preface xvii
PART 1 Decision to Become an Entrepreneur 1 CHAPTER 1 Introduction to Entrepreneurship 3
Opening Profile—GIFTZIP.COM: The Classic Entrepreneurial Story 3
INTRODUCTION TO ENTREPRENEURSHIP 4
What Is Entrepreneurship? 6
Why Become an Entrepreneur? 7
Characteristics of Successful Entrepreneurs 9
WHAT WENT WRONG? How a Lack of Passion and Too Few Customers Can Kill a Business 12
SAVVY ENTREPRENEURIAL FIRM: Angry Birds and Zeo 14
Common Myths About Entrepreneurs 15
Types of Start-Up Firms 17
CHANGING DEMOGRAPHICS OF ENTREPRENEURS 18
ENTREPRENEURSHIP’S IMPORTANCE 21
Economic Impact of Entrepreneurial Firms 21
Entrepreneurial Firms’ Impact on Society 22
Entrepreneurial Firms’ Impact on Larger Firms 22
PARTNERING FOR SUCCESS: Working Together: How Biotech Firms and Large Drug Companies Bring Pharmaceutical Products to Market 23
THE ENTREPRENEURIAL PROCESS 23
Decision to Become an Entrepreneur (Chapter 1) 24
Developing Successful Business Ideas (Chapters 2–6) 24
Moving from an Idea to an Entrepreneurial Firm (Chapters 7–10) 25
Managing and Growing an Entrepreneurial Firm (Chapters 11–15) 26
Chapter Summary 26 | Key Terms 27 | Review Questions 27 Application Questions 28 | You Be the VC 1.1 29 | You Be the VC 1.2 30 | CASE 1.1 31 | CASE 1.2 33
ENDNOTES 36
PART 2 Developing Successful Business Ideas 39 CHAPTER 2 Recognizing Opportunities and Generating Ideas 41
Opening Profile—BENCHPREP: Solving a Problem by Merging a Customer Pain with an Emerging Technology 41
IDENTIFYING AND RECOGNIZING OPPORTUNITIES 43
Observing Trends 44
Solving a Problem 50
SAVVY ENTREPRENEURIAL FIRM: Xhale and Vestagen: Solving the Same Problem in Different Ways 52
FINDING GAPS IN THE MARKETPLACE 53
Personal Characteristics of the Entrepreneur 55
WHAT WENT WRONG? Clearly Canadian: What Happens When You Don’t Deliver on Your Promises 56
TECHNIQUES FOR GENERATING IDEAS 59
Brainstorming 59
Focus Groups 60
CONTENTS
viii
Library and Internet Research 61
Other Techniques 61
PARTNERING FOR SUCCESS: Want Help Fine-Tuning a Business Idea? Find a Mentor 62
ENCOURAGING AND PROTECTING NEW IDEAS 62
Establishing a Focal Point for Ideas 63
Encouraging Creativity at the Firm Level 63
Protecting Ideas from Being Lost or Stolen 64
Chapter Summary 65 | Key Terms 65 | Review Questions 65 Application Questions 66 | You Be the VC 2.1 67 | You Be the VC 2.2 68 | CASE 2.1 69 | CASE 2.2 71
ENDNOTES 73
CHAPTER 3 Feasibility Analysis 77 Opening Profile—MORPHOLOGY: The Value of Validating a Business Idea 77
FEASIBILITY ANALYSIS 79
WHAT WENT WRONG? eBay Drop-Off Stores: How Feasible Were They? 80
Product/Service Feasibility Analysis 81
SAVVY ENTREPRENEURIAL FIRM: How Learning from Customers Caused a Successful Firm to Make a 180-Degree Turn on the Positioning of a Product 87
Industry/Target Market Feasibility Analysis 88
Organizational Feasibility Analysis 91
PARTNERING FOR SUCCESS: Finding the Right Business Partner 92
Financial Feasibility Analysis 93
First Screen 95
Chapter Summary 96 | Key Terms 97 | Review Questions 97 Application Questions 97 | You Be the VC 3.1 99 | You Be the VC 3.2 99 | CASE 3.1 100 | CASE 3.2 102
ENDNOTES 105 Appendix 3.1 106 Appendix 3.2 108
CHAPTER 4 Writing a Business Plan 111 Opening Profile—LINCOLN&LEXI: Proceeding on the Strength of a Winning Business Plan 111
THE BUSINESS PLAN 113
Reasons for Writing a Business Plan 113
Who Reads the Business Plan—And What Are They Looking For? 115
Guidelines for Writing a Business Plan 116
OUTLINE OF THE BUSINESS PLAN 119
Exploring Each Section of the Plan 119
SAVVY ENTREPRENEURIAL FIRM: Know When to Hold Them, Know When to Fold Them 120
PARTNERING FOR SUCCESS: Types of Partnerships That Are Common in Business Plans 125
WHAT WENT WRONG? What StyleHop Learned About the Value of Planning the Hard Way 132
PRESENTING THE BUSINESS PLAN TO INVESTORS 133
The Oral Presentation of a Business Plan 133
Questions and Feedback to Expect from Investors 135
CONTENTS ix
Chapter Summary 135 | Key Terms 136 | Review Questions 136 Application Questions 137 | You Be the VC 4.1 138 | You Be the VC 4.2 139 | CASE 4.1 140 | CASE 4.2 142
ENDNOTES 145
CHAPTER 5 Industry and Competitor Analysis 147 Opening Profile—ELEMENT BARS: Occupying a Unique Position in a Difficult Industry—and Thriving 147
INDUSTRY ANALYSIS 149
Studying Industry Trends 150
PARTNERING FOR SUCCESS: Three Ts That Are Important for Becoming Active in an Industry: Trade Associations, Trade Shows, and Trade Journals 151
The Five Forces Model 152
The Value of the Five Forces Model 158
Industry Types and the Opportunities They Offer 160
WHAT WENT WRONG? Eclipse Aviation: Sometimes an Industry Can’t Be Revitalized 162
COMPETITOR ANALYSIS 163
Identifying Competitors 164
SAVVY ENTREPRENEURIAL FIRM: Thriving in a Crowded Industry by Creating Meaningful Value and Differentiation from Competitors 165
Sources of Competitive Intelligence 166
Completing a Competitive Analysis Grid 167
Chapter Summary 168 | Key Terms 169 | Review Questions 169 Application Questions 170 | You Be the VC 5.1 172 | You Be the VC 5.2 172 | CASE 5.1 173 | CASE 5.2 175
ENDNOTES 177
CHAPTER 6 Developing an Effective Business Model 179 Opening Profile—STROOME: Working to Find a Viable Business Model for an Exciting New Web-Based Service for Editing and Remixing Video 179
BUSINESS MODELS 181
The Importance and Diversity of Business Models 182
SAVVY ENTREPRENEURIAL FIRM: Three Industries, Three Business Model Innovators 183
How Business Models Emerge 186
Potential Fatal Flaws of Business Models 187
COMPONENTS OF AN EFFECTIVE BUSINESS MODEL 189
Core Strategy 189
WHAT WENT WRONG? Joost: Why It’s Important to Be Sensitive to All Aspects of Your Business Model 190
Strategic Resources 192
Partnership Network 194
PARTNERING FOR SUCCESS: 99designs: Making Partnering with Freelancers the Essence of Its Disruptive Business Model 196
Customer Interface 197
Chapter Summary 199 | Key Terms 200 | Review Questions 200 Application Questions 200 | You Be the VC 6.1 202 | You Be the VC 6.2 202 | CASE 6.1 203 | CASE 6.2 206
ENDNOTES 208
x CONTENTS
PART 3 Moving from an Idea to an Entrepreneurial Firm 211
CHAPTER 7 Preparing the Proper Ethical and Legal Foundation 213 Opening Profile—XPLOSAFE: Proceeding on a Firm Legal Foundation 213
INITIAL ETHICAL AND LEGAL ISSUES FACING A NEW FIRM 215
Establishing a Strong Ethical Culture for a Firm 216
Choosing an Attorney for a Firm 220
Drafting a Founders’ Agreement 221
SAVVY ENTREPRENEURIAL FIRM: Vesting Ownership in Company Stock: A Sound Strategy for Start-Ups 222
Avoiding Legal Disputes 223
WHAT WENT WRONG? How Legal and Management Snafus Can Kill a Business 224
PARTNERING FOR SUCCESS: Patagonia and Build-A-Bear Workshop: Picking Trustworthy Partners 227
OBTAINING BUSINESS LICENSES AND PERMITS 228
Business Licenses 228
Business Permits 228
Choosing a Form of Business Organization 229
Sole Proprietorship 230
Partnerships 232
Corporations 233
Limited Liability Company 236
Chapter Summary 237 | Key Terms 238 | Review Questions 238 Application Questions 239 | You Be the VC 7.1 241 | You Be the VC 7.2 242 | CASE 7.1 242 | CASE 7.2 244
ENDNOTES 247 Appendix 7.1 249
CHAPTER 8 Assessing a New Venture’s Financial Strength and Viability 253 Opening Profile—KLYMIT: The Critical Importance of Cash Flow 253
INTRODUCTION TO FINANCIAL MANAGEMENT 255
Financial Objectives of a Firm 256
The Process of Financial Management 257
PARTNERING FOR SUCCESS: Organizing Buying Groups to Cut Costs and Maintain Competitiveness 258
FINANCIAL STATEMENTS AND FORECASTS 259
Historical Financial Statements 260
SAVVY ENTREPRENEURIAL FIRM:Know the Facts Behind the Numbers 262
Forecasts 267
PRO FORMA FINANCIAL STATEMENTS 271
WHAT WENT WRONG? Be Careful What You Wish For: How Growing Too Quickly Overwhelmed One Company’s Cash Flow 272
Pro Forma Income Statement 273
Pro Forma Balance Sheet 273
Pro Forma Statement of Cash Flows 275
Ratio Analysis 277
CONTENTS xi
Chapter Summary 278 | Key Terms 278 | Review Questions 279 Application Questions 279 | You Be the VC 8.1 281 | You Be the VC 8.2 281 | CASE 8.1 282 | CASE 8.2 284
ENDNOTES 286
CHAPTER 9 Building a New-Venture Team 289 Opening Profile—SCRIPPED: Hitting the Ground Running 289
CREATING A NEW-VENTURE TEAM 291
The Founder or Founders 292
WHAT WENT WRONG? Devver: How Miscues in Regard to the Composition and Management of a New-Venture Team Can Kill a Start-up 293
Recruiting and Selecting Key Employees 296
SAVVY ENTREPRENEURIAL FIRM: Overcoming a Lack of Business Experience 297
The Roles of the Board of Directors 300
ROUNDING OUT THE TEAM: THE ROLE OF PROFESSIONAL ADVISERS 302
Board of Advisers 302
Lenders and Investors 303
PARTNERING FOR SUCCESS: Need Help with Product Development? Consider Establishing a Customer Advisory Board 304
Other Professionals 306
Chapter Summary 307 | Key Terms 308 | Review Questions 308 Application Questions 308 | You Be the VC 9.1 310 | You Be the VC 9.2 311 | CASE 9.1 311 | CASE 9.2 313
ENDNOTES 316
CHAPTER 10 Getting Financing or Funding 319 Opening Profile—INDINERO: Raising Money Carefully and Deliberately 319
THE IMPORTANCE OF GETTING FINANCING OR FUNDING 321
Why Most New Ventures Need Funding 321
Sources of Personal Financing 322
Preparing to Raise Debt or Equity Financing 324
PARTNERING FOR SUCCESS: TechStars and Y Combinator: A New Breed of Start-Up Incubators 328
SOURCES OF EQUITY FUNDING 329
Business Angels 329
Venture Capital 330

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