Launching and Managing New Venture PDF

LAUNCHING AND MANAGING NEW VENTURE UNIT 5 SYLLABUS Choosing the legal form of new venture, protection of intellectual property, marketing the new venture Characteristics of high growth new ventures, strategies for growth, and building the new venture capital Exit Strategies for Entre...

LAUNCHING AND MANAGING NEW VENTURE UNIT 5 SYLLABUS Choosing the legal form of new venture, protection of intellectual property, marketing the new venture Characteristics of high growth new ventures, strategies for growth, and building the new venture capital Exit Strategies for Entrepreneurs, bankruptcy and succession and harvest- Strategies. Choosing the legal form of new venture, One of the foremost choices you'll make is determining the legal structure of your startup. This decision impacts not only how your business will operate but also its liability, taxation, and overall growth trajectory. 1. Sole Proprietorship A sole proprietorship is the simplest and most straightforward legal structure in India. It's suitable for individual entrepreneurs looking to test their business ideas or start small ventures. While it offers complete control, it also exposes the proprietor's personal assets to business liabilities, making it a high-risk option.  2. Partnership A partnership firm stands as a significant business structure, holding great importance in the Indian business landscape. This form of organization enjoys widespread popularity within India. Its establishment necessitates a minimum of two individuals. Essentially, a partnership firm emerges when two or more individuals unite to initiate a business venture, distributing its profits amongst themselves according to an agreed-upon ratio. This collaborative business model encompasses a broad spectrum, encompassing diverse trades, occupations, and professions.  3. Limited Liability Partnership (LLP) The Limited Liability Partnership (LLP) has gained notable favor among Indian entrepreneurs as a preferred organizational structure. It effectively combines the advantages inherent to both partnership firms and companies. In alignment with its name, an LLP is constituted by a minimum of two partners who establish the partnership through a legally binding LLP agreement. Nonetheless, what distinguishes LLPs is that their partners enjoy limited liability, and the LLP itself boasts perpetual succession, paralleling features found in corporate entities. Within the LLP structure, a minimum of two partners must be designated partners, each being a natural person, and at least one of them must maintain residency in India. The LLP agreement oversees the responsibilities and rights of these designated partners. They shoulder the direct responsibility for adhering to the stipulations of the LLP Act of 2008 and the clauses outlined in the LLP agreement. 4. Private Limited Company A Private Limited Company is a separate legal entity distinct from its owners. It offers limited liability protection to shareholders, making it an attractive option for startups seeking funding from investors. The compliance requirements are more complex, involving mandatory annual filings and board meetings. 5. One Person Company (OPC) Introduced to support solo entrepreneurs, the OPC structure enables a single person to establish a separate legal entity. It offers limited liability and full control to the owner. However, conversion to a Private Limited Company is required once the startup crosses specified turnover and capital thresholds. Protection of Intellectual Property, Intellectual Property Rights (IPRs) are emerging as a strategic business tool for any business organization to enhance industrial competitiveness. Startups, with limited resources and manpower, can sustain in this highly competitive world only through continuous growth and development oriented innovations; for this, it is equally crucial that they protect their IPRs in India and outside. The scheme for Startups Intellectual Property Protection (SIPP) is envisaged to facilitate protection of Patents, Trademark and Designs of innovative and interested Startups in India and outside  Types of Intellectual Property (IP) Protection for Startups: Patents: Protect new inventions and technological solutions. A startup can file for a patent to secure exclusive rights for a product or process that offers a new technical solution to a problem. Trademarks: Protect brand identity by securing logos, names, or symbols used in business. Registering a trademark ensures that the brand is protected from being used by others. Copyrights: Safeguard original literary, musical, or artistic works, software, or architectural designs. Startups dealing with software development, content creation, or media should consider copyright protection. Design Rights: Protect the visual design of objects that are not purely utilitarian, including the appearance of products or packaging. Trade Secrets: These are confidential business information, including formulas, practices, processes, or designs, which give a business competitive advantage. Protecting trade secrets ensures sensitive information remains confidential. Key Considerations for Startups – Intellectual Property Early Registration: Startups should file for IP protection early in their development phase to prevent theft or misuse of their ideas by competitors. Budgeting for IP: IP registration can be expensive, so startups need to allocate part of their budget toward the protection of intellectual property. Geographical Scope: Depending on the market, startups may need to register their IP not just in India but also in other countries where they plan to operate. Government Initiatives for IP Protection in India Startup India Initiative: Provides financial support and simplified procedures for startups to register their IP. Startups certified by the Department for Promotion of Industry and Internal Trade (DPIIT) can avail of benefits like reduced fees for IP filing and fast-track examination of patent applications. Facilitators for IP Protection: Startups can use facilitators provided by the Indian government to assist with IP filings. These facilitators help startups navigate the complex IP filing process. Challenges and Solutions: Lack of Awareness: Many startups lack awareness of the importance of IP protection. Educational initiatives and workshops can help bridge this gap. Cost of Litigation: Enforcing IP rights can be expensive, especially in case of infringement. To counter this, startups can consider partnerships, legal consultations, and government grants for legal defense. Steps to Protect IP: Conduct an IP audit to identify what needs protection. Seek professional legal advice to navigate the process of filing and protecting IP. Use Non-Disclosure Agreements (NDAs) when discussing your startup’s ideas with potential partners, investors, or employees to prevent unauthorized disclosures. Develop a strategy for global markets if the startup plans to scale internationally. Marketing the venture Understanding Your Venture Before diving into marketing strategies, it's crucial to have a clear understanding of your venture: ∙ Unique Selling Proposition (USP): What sets your business apart from competitors? ∙ Target Market: Who are you trying to reach? ∙ Brand Identity: How do you want your business to be perceived? Developing a Marketing Strategy 1. Set Clear Goals: o What do you want to achieve with your marketing efforts (e.g., increase brand awareness, drive sales, generate leads)? 2. Identify Your Marketing Channels: o Digital Marketing: Social media, email marketing, content marketing, search engine optimization (SEO), pay-per-click (PPC) advertising. o Traditional Marketing: Print advertising, radio, television, billboards. o Public Relations: Press releases, media outreach, event sponsorships. 3. Create a Content Calendar: o Plan your content, including blog posts, social media updates, and other marketing materials, to ensure a consistent presence. 4. Leverage Social Media: o Choose the right platforms for your target audience and create engaging content. o Use social media advertising to reach a wider audience. 5. Build an Email List: o Offer incentives to encourage people to sign up for your email list. o Send valuable content and promotions to nurture leads. 6. Optimize Your Website: o Ensure your website is user-friendly, mobile-responsive, and optimized for search engines. 7. Network and Build Relationships: o Attend industry events, join relevant associations, and connect with potential customers and partners. Measuring Success ∙ Track Key Performance Indicators (KPIs): Monitor metrics like website traffic, social media engagement, leads generated, and sales. ∙ Analyze Results: Use data to refine your marketing strategies and optimize your efforts. Common Growth Strategies Adopted by Startups 1. Customer Acquisition: ∙ Targeted Marketing: Identifying and reaching the right target audience through effective marketing channels. ∙ Content Marketing: Creating valuable content to attract and engage potential customers. ∙ Social Media Marketing: Leveraging social media platforms to build brand awareness and community. ∙ Public Relations: Securing media coverage to enhance visibility and credibility. 2. Product Development and Innovation: ∙ Continuous Improvement: Regularly updating and enhancing existing products or services. ∙ New Product Development: Introducing new offerings to expand the product portfolio. ∙ Innovation: Investing in research and development to stay ahead of competitors. 3. Market Expansion: ∙ Geographic Expansion: Entering new markets or regions. ∙ Market Penetration: Increasing market share within existing markets. ∙ Diversification: Entering new product categories or industries. 4. Partnerships and Alliances: ∙ Strategic Partnerships: Collaborating with complementary businesses to achieve mutual goals. ∙ Joint Ventures: Forming new entities with other companies to share resources and risks. ∙ Acquisitions: Buying out smaller competitors or businesses with complementary assets. 5. Operational Efficiency: ∙ Lean Operations: Streamlining processes and reducing waste. ∙ Technology Adoption: Utilizing technology to improve efficiency and productivity. ∙ Cost Optimization: Identifying and implementing cost-saving measures. 6. Customer Retention and Loyalty: ∙ Excellent Customer Service: Providing exceptional customer support and experiences. ∙ Loyalty Programs: Implementing rewards and incentives to encourage repeat business. ∙ Customer Feedback: Gathering and acting on customer feedback to improve products and services. 7. Scaling: ∙ Hiring: Attracting and retaining top talent to support growth. ∙ Infrastructure: Investing in the necessary infrastructure to handle increased demand. ∙ Financing: Securing adequate funding to support expansion plans. Market Penetration Strategies A market penetration strategy focuses on the firm’s existing product in its existing market. The entrepreneur attempts to penetrate this product or market further by encouraging existing customers to buy more of the firm’s current products. Marketing can be effective in encouraging more frequent repeat purchases. Market Development Strategies Market development strategies involve selling the firm’s existing products to new groups of customers. New groups of customers can be categorized in terms of geographics or demographics and/or on the basis of new product u New Geographical Market This simply refers to selling the existing product in new locations. For example, a firm selling its products in Singapore could start selling its products in Malaysia, Thailand, and Indonesia. This has the potential of increasing sales by offering products to customers who have not previously had the chance to purchase them. This can be particularly useful for firms that sell seasonal products—for firms with markets in the northern hemisphere, entering markets in the southern hemisphere provides an opportunity to sell their products year round. However, the entrepreneur must be aware of possible regional differences in customer preferences, language, and legal requirements that may necessitate a slight change in the product (or packaging). New Demographic Market Demographics are used to characterize (potential) customers based upon their income, location, education, age, sex, and so on. For an entrepreneur who is currently selling the firm’s existing product to a specific demographic group, the business could grow by offering the same product to a different demographic group. For example, a studio currently produces and sells computer games (specializing in games on baseball and soccer) to males between the ages of 13 and 17. However, there is an opportunity for this company to expand its sales by also targeting males between the ages of 24 and 32, who are university educated, have high disposable incomes, and would likely enjoy the escapism of these computer game products. New Product Use An entrepreneurial firm might find out that people use its product in a way that was not intended or expected. This new knowledge of product use provides insight into how the product may be valuable to new groups of buyers Product Development Strategies Product development strategies for growth involve developing and selling new products to people who are already purchasing the firm’s existing products. Experience with a particular Product development strategies for growth involve developing and selling new products to people who are already purchasing the firm’s existing products. Experience with a particular For example, Disney Corporation built on its existing customer base of Disney movie viewers and developed merchandising products specifically aimed at this audience. A further advantage of using a product development strategy is the chance to capitalize on existing distribution systems and on the corporate reputation the firm has with these customers. Characteristics of High-Growth New Venture 1. Scalability: ∙ Efficient Growth: These ventures have business models that can be easily scaled without proportionally increasing costs. ∙ Large Market Potential: They target markets with substantial growth potential and address unmet needs. 2. Innovation: ∙ Unique Value Proposition: They offer products or services that are significantly different or superior to existing offerings. ∙ Intellectual Property: They often have strong intellectual property protection, such as patents or copyrights. 3. Strong Leadership: ∙ Visionary Founders: The founders possess a clear vision, passion, and the ability to inspire and motivate their teams. ∙ Effective Management: They have a strong management team with complementary skills and experience.  4. Market Opportunity: ∙ Timing: They enter the market at the right time, capitalizing on favorable market conditions. ∙ Customer Demand: They have a deep understanding of their target market and can effectively meet their needs. 5. Financial Performance: ∙ Revenue Growth: They experience rapid and sustained revenue growth. ∙ Profitability: While early-stage ventures may focus on growth, they strive for profitability in the long run. 6. Risk Tolerance: ∙ Adaptability: They are willing to take calculated risks and adapt to changing market conditions. ∙ Resilience: They can overcome challenges and setbacks. 7. Culture of Excellence: ∙ High Standards: They set high standards for performance and innovation. ∙ Employee Engagement: They foster a positive and engaging work environment. Examples of high-growth new ventures include companies like Uber, Airbnb, and Tesla, which have revolutionized their respective industries through rapid growth and innovation. Diversification Strategies Diversification strategies involve selling a new product to a new market. Even though both knowledge bases appear to be new, some diversification strategies are related to the entrepreneur’s (and the firm’s) knowledge. In fact, there are three types of related diversification that are best explained through a discussion of the value-added chain. For the value added, each firm makes some profit. If we focus on the manufacturer, opportunities for growth arise from backward integration, forward integration, and horizontal integration. Backward integration refers to taking a step back (up) on the value-added chain toward the raw materials, which in this case means that the manufacturer also becomes a raw materials wholesaler. In essence, the firm becomes its own supplier. Forward integration is taking a step forward (down) on the value-added chain toward the customers, which in this case means that the firm also becomes a finished goods wholesaler. In essence, the firm becomes its own buyer. Example of a Value – added Chain and Types of Related Diversification  A third type of related diversification is horizontal integration. The growth opportunityoccurs at the same level of the value-added chain but simply involves a different, but complementary, value-added chain. For example, a firm that manufactures washing machines may go into the manufacture of detergent. These products are complementary in that they need each other to work. Again the relatedness of the new product to the firm’s existing product means that the firm will likely have some competencies in this new product and may provide learning opportunities. Further, horizontal integration provides the opportunity to increase sales of the existing product EXIT STRATEGY Every entrepreneur who starts a new venture should think about an exit strategy. A number of possible exit strategies will be discussed in the following paragraphs. Exit strategies include an initial public offering (IPO), private sale of stock, succession by a family member or a nonfamily member, merger with another company, or liquidation of the company. The sale of the company could be to employees (an ESOP) or to an external source (a person or persons, or a company).  FEW EXIT STRATEGIES - AQUISITION 1. Acquisition: o Strategic Acquisition: A larger company buys your business to expand its market share or gain access to your technology or intellectual property. o Financial Buyer: A private equity firm or venture capital fund acquires your business for financial returns. o Acquisition is one of the most common and potentially lucrative exit strategies for entrepreneurs. It involves selling your business to another company, which can be either strategic or financial. Strategic Acquisitions ∙ Market Expansion: The acquiring company aims to enter new markets or expand its geographic reach. ∙ Product Line Extension: The acquiring company wants to add complementary products or services to its existing offerings. ∙ Technology Acquisition: The acquiring company seeks to acquire innovative technology or intellectual property. ∙ Talent Acquisition: The acquiring company is interested in acquiring your company's skilled employees or management team. o Investment Returns: The acquiring company, often a private equity firm or venture capital fund, is seeking to generate financial returns through the appreciation of the acquired company's value. Advantages of Acquisition ∙ Potential for High Returns: Acquisitions can offer significant financial rewards for entrepreneurs. ∙ Quick Exit: The process can be relatively swift compared to other exit strategies. ∙ Employee Transition: The acquiring company may be able to offer employment opportunities to your employees. IPO – Initial Public Offering Initial Public Offering (IPO) is a significant milestone for entrepreneurs, representing the transition of a privately-held company to a publicly-traded one. It allows the company to raise capital by selling shares to the public on a stock exchange. Advantages of an IPO ∙ Significant Financial Rewards: IPOs can generate substantial wealth for entrepreneurs and existing shareholders. ∙ Increased Visibility and Credibility: Becoming a public company can enhance a company's reputation and attract new customers and partners. ∙ Access to Capital: IPOs provide a steady stream of capital for growth and expansion. ∙ Employee Ownership: IPOs often offer employees the opportunity to purchase company shares, creating a sense of ownership and alignment. Disadvantages of an IPO ∙ Complex and Expensive: The IPO process is time-consuming, costly, and involves significant legal and regulatory hurdles. ∙ Public Scrutiny: Public companies face increased scrutiny from investors, regulators, and the media. ∙ Market Volatility: Stock prices can fluctuate significantly, impacting the company's valuation and financial performance. ∙ Loss of Control: Public companies are subject to the demands of public shareholders, which can dilute the control of founders and management.  SUCCESSION OF BUSINESS Successfully passing down a business to a family member faces tough odds. Research by the Family Business Institute indicates that only 30 percent of family businesses survive into the second generation and only 12 percent survive into the third generation. An effective succession plan needs to consider the following critical factors: The role of the owner in the transition stage: Will he or she continue to work full time? Part time? Or will the owner retire? Family dynamics: Are some family members unable to work together? Income for working family members and shareholders. The current business environment during the transition. Treatment of loyal employees. Tax consequences. Transfer to Nonfamily Members Often, family members are not interested in assuming responsibility for the business. When this occurs, the entrepreneur has three choices: train a key employee and retain some equity, retain control and hire a manager, or sell the business outright Passing the business on to an employee ensures that the successor (or principal) is familiar with the business and the market. The employee’s experience minimizes transitional problems. In addition, the entrepreneur can take some time to make the transition smoother. The key issue in passing the business on to an employee is ownership. If the entrepreneur plans to retain some ownership, the question of how much becomes an important area of negotiation. The new principal may prefer to have control, with the original entrepreneur remaining as a minority owner, stockholder, or consultant. The financial capacity and managerial ability of the employee will be important factors in deciding how much ownership is transferred. In many cases, the transfer or succession of a venture can take many years to meet all the requirements of the parties involved. Since evidence indicates that most entrepreneurs wait until it is too late, it is important to begin the process long before there is a need to sell or transfer the ownership of the business. OPTIONS FOR SELLING THE BUSINESS Direct Sale This is probably the most common method for selling the venture. The entrepreneur may decide to sell the business because he or she wants to move on to some new endeavor or simply decides that it is time to retire. A sale to a larger company that can infuse much-needed capital may also provide opportunities for the company to grow and reach larger markets. If the entrepreneur has decided to sell the business but does not need to sell immediately, there are a number of strategies that should be considered early in the process. A business can be more valuable if it is focused on a narrow, well-defined segment. In other words, a larger share in a small market niche can be more valuable than a smaller share in a large market. The entrepreneur should concentrate on keeping costs under control and focus on higher margins and profits. Get all financial statements in order, including budgets and cash flow projections. Prepare a management documentation of the business explaining how the business is organized and how it operates. Employee Stock Option Plan Under an employee stock option plan (ESOP), the business is sold to employees over a period of time. The ESOP establishes a new legal entity, called an employee stock ownership trust, that borrows the money against future profits. The borrowed money then buys the owner’s shares and allocates them to individual employees’ retirement accounts as the loan is paid off. The ESOP has the obligation to repay the loan plus interest out of the cash flow of the business. Typically, these ESOPs are a way to reward employees and clarify the succession process. In addition, ESOPs result in significant stock values for employees, provided that the company continues to succeed Management Buyout It is conceivable that the entrepreneur only wants to sell or transfer the venture to loyal, key employees. Since the ESOP described earlier can be rather complicated and expensive, the entrepreneur may find that a direct sale would be simpler to accomplish. Management buyouts usually involve a direct sale of the venture for some predetermined price. This would be similar to selling one’s house. To establish a price, the entrepreneur would have an appraisal of all the assets and then determine the goodwill value established from past revenue.  BANKRUPTCY—AN OVERVIEW Failure is not uncommon in many new ventures, especially in light of the poor global economic environment, the wars in Iraq and Afghanistan, and the continued battle against terrorism. According to the Small Business Administration, about half of all new start-ups fail in their first years. The failures are personally painful for the entrepreneur and too often could have been prevented if the entrepreneur had paid more attention to certain critical factors in the business operation. It is important to understand the issues involved in bankruptcy since it does occur and there may even be an opportunity to use the bankruptcy options to get the company back on solid financial ground. Many entrepreneurs spend too much time and effort trying to diversify in markets where they lack knowledge. They should focus only on known markets. Bankruptcy protects entrepreneurs only from creditors, not from competitors. It’s difficult to separate the entrepreneur from the business. Entrepreneurs put everything into the company, including worrying about the future of their employees. Many entrepreneurs do not think their businesses are going to fail until it’s too late. They should file early. Bankruptcy is emotionally painful. Going into hiding after bankruptcy is a big mistake. Bankruptcy needs to be shared with employees and everybody else involved. Warning signs of bankruptcy Management of finances becomes lax, so no one can explain how money is being spent. Directors cannot document or explain major transactions. Customers are given large discounts to enhance payments because of poor cash flow. Contracts are accepted below standard amounts to generate cash. Bank requests subordination of its loans. Key personnel leave the company. Materials to meet orders are lacking. Payroll taxes are not paid. Suppliers demand payment in cash. Customers’ complaints regarding service and product quality increase STARTING OVER Bankruptcy and liquidation do not have to be the end for the entrepreneur. History is full of examples of entrepreneurs who have failed many times before finally succeeding. Generally, entrepreneurs who have failed in their endeavors tend to have a better understanding and appreciation for the need for market research, more initial capitalization, and stronger business skills. Unfortunately, not all entrepreneurs learn these skills from their experiences; many tend to fail over and over again. strategies for growth, and building the new venture capital  THE REALITY OF FAILURE Unfortunately, failure does happen, but it isn’t necessarily the end. Many entrepreneurs are able to successfully turn failure into success. It is one of the important historical characteristics of entrepreneurs that we have continually identified throughout this text. Since failure can happen, there are also some important considerations that should be mentioned if it should occur. First and foremost, the entrepreneur should consult with his or her family. As difficult as it is for the entrepreneur to deal with bankruptcy, it is even more so for spouses. Problems occur because the spouse usually has no control over the venture’s operations unless it is a family-operated business. As a result, he or she may not even be aware of any bankruptcy threats. Thus, the first thing the entrepreneur should do is sit down with his or her spouse and explain what is happening. This discussion will also help alleviate some of the stress of dealing with bankruptcy. Second, the entrepreneur should seek outside assistance from professionals, friends, and business associates. Third, it is important to not try to hang on to a venture that will continually drain resources if the end is inevitable BUSINESS TURNAROUNDS A business turnaround is when a business recovers financially from a period of poor performance. Turnarounds represent renewed stability and profitability after a prolonged span of financial hardship, ineffective business strategies or mismanagement. A company may implement strategic steps to keep its businesses viable and prevent possible insolvency or liquidation. Well-executed management plans can help businesses recover and return to consistently positive performance. During a business’s life cycle, it is likely that an entrepreneur will face adversity, perhaps because of external factors (the economy; competition; changes in consumer needs; technology; or unpredictable acts such as war, terrorism, or weather), or the adversity may be self-inflicted (that is, due to poor management). The severity of the adversity can result in bankruptcy or in a need to refocus the business and strive for a turnaround. The process of turnaround can take many directions, but there are some basic principles and support that can be considered to help the entrepreneur.  How to conduct a business turnaround Identify the problem Cultivate shared goals Create a plan Stabilize the business Restore profitability Increase sales Stay consistent