Environmental Assessment Preparing for New Venture

Part III – Developing the Part III – Developing the Entrepreneurial Plan Entrepreneurial Plan

Chapter 7 – Environmental Assessment: Chapter 7 – Environmental Assessment: Preparation for a New Venture Preparation for a New VentureChapter 8 – Marketing Research forChapter 8 – Marketing Research for New Ventures New VenturesChapter 9 – Financial Preparation forChapter 9 – Financial Preparation for Entrepreneurial Ventures Entrepreneurial VenturesChapter 10 – Developing an EffectiveChapter 10 – Developing an Effective Business Plan Business Plan

Copyright (c) 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Chapter 7 – EnvironmentalChapter 7 – Environmental Assessment: Assessment: Preparation for a Preparation for a New Venture New Venture

The Environment for The Environment for New VenturesNew Ventures

Environmental ScanningEnvironmental Scanning

• Refers to the efforts by which an owner-Refers to the efforts by which an owner-entrepreneur examines the external and entrepreneur examines the external and internal environments before making a internal environments before making a decision.decision.– Task environmentTask environment

– Societal environmentSocietal environment

Environmental VariablesEnvironmental Variables

TASK TASK ENVIRONMENTENVIRONMENT

(Industry)(Industry)

INTERNALINTERNALENVIRONMENTENVIRONMENT

SOCIETAL ENVIRONMENTSOCIETAL ENVIRONMENT

EconomicEconomicForcesForces

TechnologicalTechnologicalForcesForces

Political/LegalPolitical/LegalForcesForces

SocioculturalSocioculturalForcesForces

SuppliesSupplies

Employees/Employees/Labor UnionsLabor Unions

CompetitorsCompetitors

TradeTradeAssociationsAssociations

CommunitiesCommunities

CustomersCustomers

CreditorsCreditors

SpecialSpecialInterestInterestGroupsGroups

GovernmentsGovernments

StockholdersStockholders

StructureStructureCultureCultureResourcesResources

A Macro View: The A Macro View: The Economic and Industry Economic and Industry

EnvironmentsEnvironments

Assessing the Economic Assessing the Economic EnvironmentEnvironment

Understanding the Understanding the Regulatory EnvironmentRegulatory Environment

Governmental Regulations Affect Smaller Governmental Regulations Affect Smaller Ventures in a Variety of Ways:Ventures in a Variety of Ways:

• PricesPrices

• Cost inequitiesCost inequities

• Competitive restrictionCompetitive restriction

• Managerial restrictionManagerial restriction

• Mental burdenMental burden

Trends in Policy FormationTrends in Policy Formation

• The Regulatory Flexibility ActThe Regulatory Flexibility Act

• The Equal Access to Justice ActThe Equal Access to Justice Act

• The Congressional Review ActThe Congressional Review Act

• The Small Business Regulatory Enforcement The Small Business Regulatory Enforcement Fairness ActFairness Act

• The Paperwork Reduction ActThe Paperwork Reduction Act

• The Unfunded Mandates Reform ActThe Unfunded Mandates Reform Act

Examining the Industry Examining the Industry EnvironmentEnvironment

Elements of Industry – The Five Forces ModelElements of Industry – The Five Forces Model

SuppliersSuppliers BuyersBuyers

NewNewEntrantsEntrants

SubstitutesSubstitutes

IndustryIndustryCompetitorsCompetitors

Intensity ofIntensity ofRivalryRivalry

BargainingBargainingPower ofPower ofSuppliersSuppliers

BargainingBargainingPower ofPower ofBuyersBuyers

Threat of New EntrantsThreat of New Entrants

Threat of SubstitutesThreat of Substitutes

Common Industry CharacteristicsCommon Industry Characteristics

• Technological UncertaintyTechnological Uncertainty

• Strategic UncertaintyStrategic Uncertainty

• First-Time BuyersFirst-Time Buyers

• Barriers to EntryBarriers to Entry

• Competitive AnalysisCompetitive Analysis

Components of Competitive AnalysisComponents of Competitive Analysis

Future GoalsFuture Goals Current StrategyCurrent Strategy

What Drives the CompetitorWhat Drives the CompetitorWhat the Competitor is DoingWhat the Competitor is Doing

and Can Doand Can Do

Held about itself andHeld about itself andthe industrythe industry

Both strengths andBoth strengths andweaknessesweaknesses

AssumptionsAssumptions CapabilitiesCapabilities

Competitor’s Competitor’s Response ProfileResponse Profile

A Micro View:A Micro View:The Community The Community

PerspectivePerspective

Researching the LocationResearching the Location

• Community DemographicsCommunity Demographics

• Economic BaseEconomic Base

• Population TrendsPopulation Trends

• Overall Business ClimateOverall Business Climate

Determining Reliance Determining Reliance and Deservednessand Deservedness

Reliance Versus Commitment:Reliance Versus Commitment:Development of Exceptional Development of Exceptional Community SupportCommunity Support

Community’s “RelianceCommunity’s “Reliance(or Need) for the Venture(or Need) for the Venture

Entrepreneur’s Willingness to CommitEntrepreneur’s Willingness to Committo Local Community (Loyalty)to Local Community (Loyalty)

LowLow HighHigh

HighHigh

Exceptional Support UnlikelyExceptional Support Unlikely

Some Support LikelySome Support Likely

Exceptional Support LikelyExceptional Support Likely

Deservedness vs. Identification:Deservedness vs. Identification:Development of Exceptional Development of Exceptional Community SupportCommunity Support

Perception of Entrepreneur’sPerception of Entrepreneur’sDeservednessDeservedness

Community Identification with the VentureCommunity Identification with the VentureLowLow HighHigh

HighHigh

Exceptional Support UnlikelyExceptional Support Unlikely

Some Support LikelySome Support Likely

Exceptional Support LikelyExceptional Support Likely

Examining the Use of IncubatorsExamining the Use of Incubators

Business incubatorBusiness incubator is a facility is a facility with adaptable space that small with adaptable space that small businesses can lease on flexible businesses can lease on flexible

terms and at reduced rents.terms and at reduced rents.

Types of IncubatorsTypes of Incubators1.1. Publicly SponsoredPublicly Sponsored

2.2. Nonprofit-sponsoredNonprofit-sponsored

3.3. University-relatedUniversity-related

4.4. Privately sponsoredPrivately sponsored

How Does the Incubator Work?How Does the Incubator Work?

•Potential to growPotential to grow•Ability to create jobsAbility to create jobs•Ability to pay op.Ability to pay op. Expenses Expenses•Business planBusiness plan•Market analysisMarket analysis•Cash-flowCash-flow statement statement

CommercialCommercialHigh TechHigh Tech

Research &Research &DevelopmentDevelopment

ServiceServiceBusinessBusiness

LightLightManufact.Manufact.

WholesalerWholesaler

RetailerRetailer

Mail OrderMail Order

Import/Import/ExportExport

NonprofitNonprofit

BusinessBusinessEnteringEntering

thetheIncubatorIncubator

BusinessBusinessDevelopingDeveloping

Well-Well-EstablishedEstablished

BusinessBusiness

BusinessBusinessGrowthGrowth

RequiresRequiresMove OutMove Out

of Incubatorof Incubator