Entrepreneurial Venture

What is Venture?

A venture, generally in a business, refers to a new project or a plan of action that is established to make money and involves a certain degree of risk associated with it. Such type of business is usually a small-scale business as it is typically initiated with limited financial resources.

A business venture is established due to the customer demand for a service or product that is currently unavailable in the market. This demand fulfills a certain purpose for customers.

An investor or small-business owner invests capital and other resources to launch a business endeavor once the demand has been identified. In most cases, a business venture is supported by a single investor, who is frequently a firm owner, in its early stages. However, later on, it is backed by multiple investors, with the assumption that the business idea would become lucrative over time.

Additional investors may get engaged as the business grows, offering support and funds to boost the venture’s development through effective marketing strategies. All of this is done to draw out and distribute a sizable profit to all investors.

Small-business Venture Vs. Startup

The primary distinction between startups and established businesses is how they approach growth. Startups, unlike traditional businesses, are built to develop quickly. This necessitates entrepreneurs having something to sell to a broad market, which is why the majority of start-ups are tech firms. A vast market, on the other hand, isn’t necessary for most firms. A company can sell to whatever market it can reach and serve in general.

The source of capital is another significant distinction between start-ups and regular enterprises. Traditional small businesses rely on grants and loans, whereas startups frequently rely on cash from angel investors or venture capital organizations.

Those that provide venture capital, on the whole, take a more active part in the companies they invest in, unlike small enterprises, where lenders are less involved. After all, when it comes to company projects, investors assume the biggest risks, therefore, they are more willing to offer guidance and assistance.

Startups, unlike small enterprises, require an exit strategy as well. Investors may expect to see returns in a quicker timeframe than small enterprises, which may have been in operation for decades or even longer. If you are looking for venture money but do not have an exit strategy, you are unlikely to get it.

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Opportunity Analysis

In literal terms, an opportunity can be defined as an auspicious chance of an action occurring at a favorable time. Therefore, an investor identifies a propitious project or venture that appears to be right for success at a particular point in time before actually undertaking it. Here, the role of opportunity analysis comes into play.

Opportunity analysis is a method of analyzing the viability and profitability of a new venture or the expansion of an existing one. In other words, it involves identifying the level of competition, understanding the audience, and uncovering potential risks.

In this method, an investor examines the external environment to understand demand, market acceptance, and economic variables and aligns them with his/her preferences, market realities, and future developments. Based on this, the most appropriate business model for the situation is selected by the investor.

In the case of expansion of the existing business, opportunity analysis aids in identifying the products/services that must be included to create a lucrative business in the future. This covers specific details such as the service’s quality level, target audiences, and seasonal considerations.

By performing a thorough opportunity analysis, an investor can prioritize new business ideas based on how potentially profitable and risky they are.

Apart from that, opportunity analysis helps an investor in:

• Making effective long-term strategic decisions
  
  
• Evaluating product or service demand
  
  
• Identifying potential marketing strategies
  
  
• Recognizing areas for further research
  
  
• Navigating potential business obstacles

Opportunity analysis is a systematic process that involves several steps, which are explained as follows:

Recognize Potential Opportunities

This is the first step wherein an investor lays out the potential opportunities sought by him/her. This step involves answering the following questions:

• What segment to look into for creation/expansion?
  
  
• What target audience should be attracted to?
  
  
• Whether the venture should be started alone or in partnership?
  
  
• Do current events have created a potential opportunity?

Once the investor knows whether to expand, invest, create, or reposition offerings inform the next steps of market research.

Understand the Target Audience

Any business venture may fail if the product/service offering is distasted by customers. Thus, it is of utmost importance for an investor to deeply understand potential customers and their needs. It involves answering the following questions:

• Does the product offering meet customer needs?
  
  
• Do they have the purchasing power to make this idea profitable?
  
  
• How do they make their purchasing decisions?

This is done by using various tools such as customer interviews, customer journey maps, surveys, and demographic data.

Analyze the Level of Competition

Once the investor is aware of the target audience and their needs, he/she next needs to understand the players in the existing market. Competitor research can help the investor gain insight into the market share, positioning of the existing products, and so on.

This step involves answering the following questions:

• What is their value proposition?
  
  
• How is the product offering of competitors different from that of the investor?
  
  
• Who are their partners?
  
  
• What do their reviews say about their product or service?
  
  
• Are there any gaps that can be bridged?
  
  
• How likely are new competitors?

Take Into Consideration External Factors

These are uncontrollable factors that are always responsible for shaping the marketplace. These factors can include social (culture), technical (innovations), economic (e.g., new disposable income of customers), ecological (impact on the environment), and political (grants, tax breaks, or other incentives for businesses) factors.

Consider Internal Factors

These are controllable factors that are related to the business capabilities of the investor. This step involves answering the following questions:

• Are the skills, workforce, technology, and financial resources available to invest in a new product?
  
  
• Are the people with the necessary skills available to be hired if an innovative product is launched?
  
  
• What new departments or teams need to be created to manage this new opportunity?

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Lifecycle of a Successful Venture

The lifecycle of a venture refers to the progression of a business in phases over time and is most commonly divided into five stages.

Let us discuss these stages in detail.

Development Stage

Every venture starts usually by launching new products or services. During the development phase, sales are generally low but have the potential of slowly. At this stage, the focus is on reaching out to the target audience by advertising comparative advantages and value propositions of the venture.

The cash flow at the development stage is also negative and becomes lower than the profit. This is due to the capitalization of initial startup costs that may not be reflected in the business’ profit but that is certainly reflected in its cash flow.

Growth Stage

At this stage, the business venture experiences rapid sales growth. As sales increase rapidly, businesses start considering profit once the break-even point is passed. Although the profit cycle still lags behind the sales cycle, the cash flow during the growth phase becomes positive.

Shake-out Stage

At this phase, sales continue to increase, but at a slower rate. This can be attributed to various factors, such as the venture reaching market saturation or the entry of new competitors in the market. Although sales continue to increase, profit starts to decrease in the shake-out phase. The growth in sales and decline in profit leads to a significant increase in costs. But, cash flow increases and exceeds profit.

Maturity Stage

As the venture matures, sales begin to reduce at a slow rate. Profit margins shrink, while cash flow stays relatively stable. Cash generation is higher than the profit on the income statement due to major capital spending.

Decline Stage

This is the final stage of the business life cycle. Sales, profit, and cash flow all decline. During this phase, companies accept their failure to extend their business life cycle by adapting to the changing business environment, lose their competitive advantage, and finally exit the market.

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Industry Analysis

Industry analysis is a method that helps a business venture assess its position with other companies that make similar products or services. Effective strategic planning requires an understanding of the forces at work in the whole industry.

Industry analysis allows small business owners to identify the threats and opportunities facing their businesses, and to focus their resources on developing unique capabilities that could lead to a competitive advantage. Let us discuss a few tools that are used for performing industry analysis in the next sections.

Michael Porter’s Five Forces Model

Porter’s Five Forces model is a strategy for determining an industry’s vulnerabilities and strengths by identifying and analyzing five competitive forces that define every business. This model is widely used to define corporate strategy by identifying an industry’s structure, understanding the level of competition within an industry, and improving a company’s long-term profitability in any sector of the economy. Michael E. Porter, a Harvard Business School professor, is the creator of the Five Forces paradigm.

Porter’s Five Forces is a business analysis model that explains why different industries may maintain varying degrees of profitability. With certain qualifiers, Porter identified five indisputable forces that shape every market and business. The five forces are widely used to assess an industry’s or market’s competitiveness, attractiveness, and profitability. Let us understand these five forces in detail.

Competition in the Industry

The number of competitors and their ability to capture the market share is the first of the five factors. The more the number of competitors offering similar products and services, the less powerful a company becomes. If a company’s rival can offer a better deal or lower costs, suppliers and buyers seek them out. When competition is low, on the other hand, a corporation has more authority to charge higher prices and dictate the terms of deals to increase sales and profits.

Potential of New Entrants in an Industry

The force of new entrants into a market has an impact on a company’s power. The less time and money it takes a rival to enter a market and become a viable competitor, the more vulnerable an established company’s position becomes. Existing enterprises in an industry with high entry barriers would be able to charge higher prices and negotiate better terms.

Power of Suppliers

The fifth force is how quickly suppliers may raise input costs. It is influenced by the number of suppliers of raw materials, how unique their inputs are, and how much switching to another source would cost a company. The fewer suppliers in an industry, the more reliant a company is on them. As a result, the supplier has more clout and can raise input costs and demand other trade advantages. On the other hand, when a company has a large number of suppliers or low switching costs between competitor suppliers, it can keep its input costs low and increase profits.

Power of Customers

One of the five forces is the ability of customers to drive down prices or their level of power. It is influenced by the number of buyers or customers a firm has, the importance of each customer, and the expense of finding new consumers or markets for the company’s output. With a smaller and more powerful client base, each customer has more negotiating leverage to get better rates and packages. A business with a large number of smaller, independent consumers will find it easier to raise prices and increase profits.

Threat of Substitutes

The final of the five forces is concerned with substitutes. Alternative goods or services that can be utilized in place of a company’s products or services are a danger. Companies that manufacture goods or services with no near substitutes will have more freedom to raise prices and secure favorable terms. Customers will be able to forego purchasing a company’s product if close substitutes are accessible, eroding the company’s influence.

Pestle Analysis, Swot and Tows Matrix

When starting a new venture, an investor uses several tools to analyze the internal and external business environment. Let us study these tools in detail.

Pestel Analysis

It is a strategy framework that breaks down possibilities and hazards into Political, Economic, Social, Technological, Environmental, and Legal elements to evaluate a company’s external environment. It is a useful tool for determining the benefits and drawbacks of a business strategy in corporate strategy planning. The PESTEL framework is a variation of the PEST strategic framework that adds a consideration of environmental and legal variables that can affect a company.

The following are the elements of PESTLE analysis:

• Political factors: These factors are concerned with the intervention of government in the economy affecting businesses. Some of these factors include tax policy, trade restrictions, tariffs, bureaucracy, etc. These factors have a significant impact on businesses. For example, after a new government gets elected on a platform to impose regulations that would negatively influence the company’s core activities, a company decides to relocate its operations to a different state.
  
  
• Economic factors: These factors consider numerous areas of the economy and how the forecast in each sector may affect the company. Central banks and other government agencies are usually the ones who measure and report these economic indicators. Some of the economic factors include economic growth rates, interest rates, exchange rates, inflation, unemployment rates, etc. For example, businesses decide to refinance their debts a lower interest rate is announced by banks.
  
  
• Social factors: These are social aspects that are linked to cultural and demographic trends. Consumer behavior is heavily influenced by social conventions and influences. Social factors encompass cultural aspects and perceptions, health consciousness, population growth rates, age distribution, career attitudes, and so on.
  
  
• Technological factors: Technological aspects are linked to industry innovation as well as overall economic innovation. Being out of touch with current industry trends can be immensely detrimental to business operations. Examples of technological factors include R&D activity, automation, technological incentives, rate of change in technology, etc.
  
  
• Environmental factors: These factors are concerned with the effects of the environment on business. Some of these factors include weather conditions, temperature, climate change, pollution, natural disasters, etc.
  
  
• Legal factors: There is sometimes confusion about the difference between political and legal variables. Any legal elements that define what a firm can and cannot do are referred to as legal factors. The link between business and government is a political aspect. When governmental authorities create legislation and regulations that affect how corporations function, political and legal elements might collide.

SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths refer to benefits that a business has over the competition, while weaknesses are internal limitations of the business in comparison to the competition. On the other hand, opportunities refer to existing external trends that can be exploited, while threats are external movements that may cause a problem and hurt the firm.

TOWS Analysis

A TOWS analysis is extremely similar to a SWOT analysis, however, there is a significant difference between the two, aside from a few letters reshuffled. While SWOT analysis focuses on the internal environment (strengths and weaknesses), TOWS pushes to start with the outside world (threats and opportunities). TOWS analysis involves answering the following questions:

• What can be done to make the most of the assets?
  
  
• How to get over the flaws?
  
  
• How can an advantage of outside opportunities be taken?
  
  
• What is the best way to deal with threats?

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5W1H Model Worksheet

The 5W1H method can be defined as one where one can address all the Ws and H and gain an understanding of a problem. The questions can be changed to make it pertinent to whatever problem or issue is being addressed.

• ‘What’: It poses the question of what should be improved. What improvements would be beneficial to attain and what should be done?
  
  
• ‘Where’: It relates to questions about where something is located. Is it necessary to alter a worker’s method or orientation?
  
  
• ‘When’: It deals with concerns such as operation sequence, duration, and time. When should it be done? Is it possible to improve execution by altering the timeline?
  
  
• ‘Who’: It refers to who is accountable for addressing the problem or putting the solution into action. It is about task delegation, collaboration, and manpower.
  
  
• ‘Why’: One can ponder everything here, from the perceived problem to the approaches that have been presented on how to solve it and improve it.
  
  
• ‘How’: It relates to how a technique or method should be changed, whether a method requires less expenditure or expertise, and whether a procedure should be replaced with a better one.

For instance, if one’s car is giving inadequate gas mileage the following questions can be asked:

• Who has recognised the problem or who drives the car?
  
  
• What has changed – for instance, maintenance and repairs done last, change in the gas station?
  
  
• When did the mileage start to deteriorate?
  
  
• Where are the new driving routes or distances that the car is covering?
  
  
• How did the problem become noticeable? How can it be addressed?

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Competitive Factors

When starting a business venture, it is not sufficient to perform internal analysis. An investor should thoroughly study about its competitors. Competitor analysis is a process of identifying the strengths and weaknesses of market competitors. It helps investors in chalking out strategies to have a competitive advantage, analyzing barriers that can be built to keep competitors out, and identifying weaknesses of competitors that can be exploited as opportunities during the product development cycle.

The first step in a competitor analysis is to determine who the present competitors are and who can be in the future. Thereafter, competitors are categorized based on various competitive strategies to determine what motivates them.

Market Opportunities and Marketing Strategies

Market opportunities lay the groundwork for sales growth and are more likely to result in a successful closing. However, no matter how appealing a product or service is, not everyone will buy it, which is why it’s critical to recognize and capitalize on marketing opportunities.

Companies work hard to discover marketing opportunities, beginning with a broad view of the market potential for their product or service and honing it down to specific sales-oriented marketing chances. Marketing opportunity studies are conducted by businesses to see if they can offer new items, sell more products, attract more customers, and develop their business.

A marketing strategy is a company’s overall plan for reaching out to potential customers and converting them into paying clients for their goods or services. The company’s value proposition, core brand message, statistics on target customer demographics, and other high-level elements are all included in a marketing strategy. The “four Ps” of marketing — product, pricing, place, and promotion — are all covered in a comprehensive marketing strategy.

A sound marketing strategy should focus on the firm’s value proposition, which tells customers what the company stands for, how it runs, and why they should do business with it. Walmart (WMT), for example, is well-known as a bargain retailer with “everyday low pricing,” and its business operations and marketing activities are built on that concept.

Positioning Strategy, Unique Selling Proposition (USP)

A positioning strategy is a marketing strategy that helps you figure out where your company fits in the market and how to position it to attract more customers. A poorly positioned product will never reach its full potential, whereas a strong positioning strategy can be the difference between failure and profitability.

An effective positioning strategy can help businesses establish themselves as experts in their fields, differentiate themselves from competitors for improved brand recognition, and even develop new markets by recognizing unmet customer demands. This strategy may be used by businesses when they are competing against established players who have been operating longer as well as those who have a more impressive distribution chain.

A good brand positioning establishes a distinct area in the customer’s mind for the product or service. A brand can be killed by poor positioning. This can be accomplished by making the product unappealing to the appropriate audience or by targeting the incorrect audience. The Tata Nano is an excellent example of a misguided positioning strategy. It was marketed as an automobile for the poor.

However, who wants to drive an automobile for the poor? Poor people do not have cars, and buying your first one should be a dream come true. As a result, a superb product was ruined by bad marketing.

A USP, or unique selling proposition, is the one thing that sets your company apart from the competitors. It is a distinct advantage that distinguishes your company from the competition in your market. Developing an opinionated and deliberate USP aids in the focus of the marketing strategy and drives message, branding, copywriting, and other marketing decisions. A USP should, at its heart, instantly answer a potential customer’s most pressing query when they come into contact with the brand.

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Venture Capital and Other Sources of Financing a New Venture

Venture Capital (VC) is a type of private equity and a type of financing provided by investors to startups and small enterprises with the potential for long-term growth. Well-heeled investors, investment banks and other financial institutions are the most common sources of venture capital.

It does not always have to be in the form of money, it can be in the form of technical or management skills. Small businesses with outstanding development potential, or businesses that have expanded swiftly and are poised to expand, are frequently given venture capital.

Though it is dangerous for investors to put their money up, the prospect of above-average returns is enticing. Venture capital is gradually becoming a popular — even essential — source of finance for new companies or projects with a short working history (under two years), especially if they lack access to capital markets, bank loans, or other debt instruments. The biggest disadvantage is that investors typically receive shares in the company and thus have a say in its choices.

Funding is one of the most difficult obstacles for entrepreneurs who want to establish their firms. Without financing, an entrepreneur will be unable to purchase inventory, pay payroll, or meet the numerous other costs associated with starting a firm.

The following are some of the most common ways for entrepreneurs to get money:

Personal savings

The majority of entrepreneurs fund their businesses with their own money (also called bootstrapping). This is the most popular source of finance for businesses. Before launching a business, most people wait until they have at least some money in their personal bank account.

Personal funds, on the other hand, are not always sufficient to meet all of an entrepreneur’s expenses. As a result, it’s frequently utilized in conjunction with other sources of finance.

Patient capital

Money loaned by a spouse, parents, family, or friends is known as patient capital (sometimes known as “love money”). The money will be reimbursed when the company’s profit grows.

When it comes to patient capital, businesses should keep in mind that relatives and friends rarely have a lot of money. Also, never take a professional relationship with relatives or friends lightly.

Angel investing

Angel investing has become a popular way for companies to raise capital. An angel investor lends a big sum of money to a business owner so that he or she can start their own company. The angel may contribute funding in exchange for ownership in the entrepreneur’s company, or the entrepreneur may be required to repay the funding with interest.

Venture capital

Another typical approach for entrepreneurs to fund their businesses is through venture capital. Venture money is similar to angel investing in many respects. Both require money from a private investor or an investment firm. Angel investors, on the other hand, often invest more money than venture capitalists, and angel investors typically invest in early-stage enterprises.

Incubators

Business incubators (also known as “accelerators”) primarily serve the high-tech industry by assisting fledgling enterprises at various phases of growth. Local economic development incubators, on the other hand, focus on topics such as employment creation, revitalization, and hosting and sharing services.

A start-up incubator is typically a firm, university, or other organization that contributes resources – such as laboratories, office space, or consultancy — in exchange for equity in emerging businesses when they are at their most vulnerable.

Bank loans

Bank loans are a tried-and-true funding alternative for entrepreneurs, notwithstanding their difficulty in obtaining them. A small business loan may be available to an entrepreneur with good credit.