Entrepreneurship: Successfully Launching New Ventures

596 Pages·2016·53.239 MB·English

by  Bruce R. Barringer, R. Duane Ireland

Entrepreneurship
SucceSSfully launching new VentureS
FiFth Edition
Bruce R. Barringer
Oklahoma State University
R. Duane Ireland
Texas A & M University
Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town
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Library of Congress Cataloging-in-Publication Data
Barringer, Bruce R.
Entrepreneurship : successfully launching new ventures/Bruce Barringer,
Oklahoma State University, Duane Ireland, Texas A&M University.—5 Edition.
pages cm
Includes bibliographical references and index.
ISBN 978-0-13-379719-0 (alk. paper)
1. Entrepreneurship. 2. New business enterprises. I. Ireland, R. Duane. II. Title.
HB615.B374 2016
658.1’1—dc23
2014016425
10 9 8 7 6 5 4 3 2 1
ISBN 10: 0-13-379719-8
ISBN 13: 978-0-13-379719-0
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 chap-
ter 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 per-
severance 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
Brief Contents
Preface xi
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 75
ChaPter 4 Developing an Effective Business Model 111
ChaPter 5 Industry and Competitor Analysis 149
ChaPter 6 Writing a Business Plan 181
Part 3 Moving from an Idea to an Entrepreneurial Firm 217
ChaPter 7 Preparing the Proper Ethical and Legal
Foundation 219
ChaPter 8 Assessing a New Venture’s Financial Strength and
Viability 259
ChaPter 9 Building a New-Venture Team 295
ChaPter 10 Getting Financing or Funding 327
Part 4 Managing and Growing an Entrepreneurial Firm 363
ChaPter 11 Unique Marketing Issues 365
ChaPter 12 The Importance of Intellectual Property 403
ChaPter 13 Preparing for and Evaluating the Challenges of
Growth 441
ChaPter 14 Strategies for Firm Growth 473
ChaPter 15 Franchising 507
Glossary 548
Name Index 558
Company Index 560
Subject Index 564
iv
Contents
Preface xi Economic Impact of Entrepreneurial Firms 22
Entrepreneurial Firms’ Impact on Society 24
Entrepreneurial Firms’ Impact on Larger Firms 24
Part 1 Decision to Become an
the Entrepreneurial Process 25
Entrepreneur 1
Decision to Become an Entrepreneur (Chapter 1) 25
Developing Successful Business Ideas
ChaPter 1 Introduction to
(Chapters 2–6) 25
Entrepreneurship 3
Moving from an Idea to an Entrepreneurial Firm
Opening Profile—Pure Fix CyCles: The Classic (Chapters 7–10) 26
entrepreneurial story 3 Managing and Growing an Entrepreneurial Firm
introduction to Entrepreneurship 5 (Chapters 11–15) 26
What is Entrepreneurship and Why is it Chapter Summary 28 | Key Terms 29
important? 6 Review Questions 29 | Application Questions 30
You Be the VC 1.1 31 | You Be the VC 1.2 31
Why do People Become Entrepreneurs? 7
CASE 1.1 32 | CASE 1.2 35
Be Their Own Boss 7
Endnotes 37
Pursue Their Own Ideas 8
Pursue Financial Rewards 8
Part 2 Developing Successful Business
Characteristics of Successful Entrepreneurs 9
Ideas 39
Passion for the Business 9
What WEnt Wrong? Prim: How a lack of Passion
ChaPter 2 Recognizing Opportunities
and resolve Can Kill a Business 11
and Generating Ideas 41
Product/Customer Focus 12
Tenacity Despite Failure 12 Opening Profile—iCrACKed: solving a
Problem and Building a Business in an exploding
Execution Intelligence 13
industry 41
Savvy EntrEPrEnEurial Firm: Pandora:
the differences Between opportunities and
What’s Possible When an entire Company Has
ideas 43
“Tenacity” 14
three Ways to identify opportunities 44
Common myths about Entrepreneurs 14
Observing Trends 44
Myth 1: Entrepreneurs Are Born, Not Made 15
Savvy EntrEPrEnEurial Firm: How to learn
Myth 2: Entrepreneurs Are Gamblers 15
About emerging Trends Through the effective use
Myth 3: Entrepreneurs Are Motivated Primarily
of social Media 50
by Money 16
Solving a Problem 50
Myth 4: Entrepreneurs Should Be Young and
Finding Gaps in the Marketplace 53
Energetic 17
Personal Characteristics of the Entrepreneur 54
Myth 5: Entrepreneurs Love the Spotlight 17
What WEnt Wrong? Why a Company that
types of Start-up Firms 18
solved a Problem With a Great Product Went Out
PartnEring For SuCCESS: start-up incubators
of Business 55
and Accelerators: A New Way of Gaining Access
Prior Experience 56
to Mentors, Partners, investors, and Other Critical
start-up resources 19 Cognitive Factors 56
Changing demographics of Entrepreneurs 20 Social Networks 57
Women Entrepreneurs 20 Creativity 57
techniques for generating ideas 59
Minority Entrepreneurs 21
Senior Entrepreneurs 21 Brainstorming 59
Young Entrepreneurs 21 Focus Groups 60
the Positive Effects of Entrepreneurship and Library and Internet Research 61
Entrepreneurial Firms 22 Other Techniques 62
v
vi CONTENTS
Encouraging the development of new ideas 62 Savvy EntrEPrEnEurial Firm: Quirky: How One
Establishing a Focal Point for Ideas 62 Company Creates, delivers, and Captures Value for
its stakeholders 114
Encouraging Creativity at the Firm Level 62
general Categories of Business models 115
PartnEring For SuCCESS: Want Help Fine-Tuning
a Business idea? Find a Mentor 63 Standard Business Models 115
Chapter Summary 64 | Key Terms 65 What WEnt Wrong? Peer-to-Peer Business
Review Questions 65 | Application Questions 66 Models: Good for some, Not so Good for
You Be the VC 2.1 67 | You Be the VC 2.2 67 Others 117
CASE 2.1 68 | CASE 2.2 70
Disruptive Business Models 118
Endnotes 72
the Barringer/ireland Business model
template 119
ChaPter 3 Feasibility Analysis 75
Core Strategy 120
Opening Profile—luMiNAid: The Value of Validating Resources 124
a Business idea 75
Financials 126
Feasibility analysis 77
Operations 129
Product/Service Feasibility analysis 78
PartnEring For SuCCESS: Odesk, elance, and
Product/Service Desirability 78 Guru: Platforms That Facilitate the Forming of
Product/Service Demand 83 Partnerships with Freelancers 132
industry/target market Feasibility analysis 85 Chapter Summary 133 | Key Terms 134
Review Questions 134 | Application Questions 135
Savvy EntrEPrEnEurial Firm: How learning
You Be the VC 4.1 136 | You Be the VC 4.2 136
from Customers Caused a successful Firm to
CASE 4.1 137 | CASE 4.2 141
Make a 180-degree Turn on the Positioning of
Appendix 1 145
a Product 86
Endnotes 146
Industry Attractiveness 87
Target Market Attractiveness 88
ChaPter 5 Industry and Competitor
organizational Feasibility analysis 89
Analysis 149
Management Prowess 89
Resource Sufficiency 89 Opening Profile—GreeNVelOPe: Occupying a unique
Position in an evolving industry—and Thriving 149
What WEnt Wrong? How Feasible Was standout
Jobs from the Beginning? 90 industry analysis 151
PartnEring For SuCCESS: Finding the right Studying Industry Trends 152
Business Partner 91 PartnEring For SuCCESS: Three Ts That Are
Financial Feasibility analysis 92 important for Becoming Active in an industry: Trade
Associations, Trade shows, and Trade Journals 153
Total Start-Up Cash Needed 92
the Five Forces model 154
Financial Performance of Similar Businesses 93
Threat of Substitutes 155
Overall Financial Attractiveness of the Proposed
Venture 94 Threat of New Entrants 156
a Feasibility analysis template 94 Rivalry Among Existing Firms 157
Chapter Summary 95 | Key Terms 96 Bargaining Power of Suppliers 158
Review Questions 97 | Application Questions 97 Bargaining Power of Buyers 159
You Be the VC 3.1 99 | You Be the VC 3.2 99
the value of the Five Forces model 160
CASE 3.1 100 | CASE 3.2 102
industry types and the opportunities they
Appendix 3.1 105
offer 162
Appendix 3.2 107
Emerging Industries 163
Endnotes 109
Fragmented Industries 163
ChaPter 4 Developing an Effective Mature Industries 163
Business Model 111 Declining Industries 164
Global Industries 165
Opening Profile—Her CAMPus MediA: executing on
an established Business Model and Preparing for the Competitor analysis 165
Future 111 Identifying Competitors 165
Business models and their importance 113 Sources of Competitive Intelligence 166
CONTENTS vii
Savvy EntrEPrEnEurial Firm: Thriving in a Establish a Code of Conduct 223
Crowded industry by Creating Meaningful Value and Implement an Ethics Training Program 224
differentiation from Competitors 167 dealing Effectively with legal issues 225
Completing a Competitive Analysis Grid 168
Choosing an Attorney for a Firm 225
What WEnt Wrong? digg: A start-up That lost
What WEnt Wrong? Fitbit Force recall:
its Way and its Place in its industry 170
did Fitbit react Quickly enough? 226
Chapter Summary 171 | Key Terms 172
Drafting a Founders’ Agreement 228
Review Questions 172 | Application Questions 173
You Be the VC 5.1 174 | You Be the VC 5.2 174 Avoiding Legal Disputes 228
CASE 5.1 175 | CASE 5.2 177 Savvy EntrEPrEnEurial Firm: Vesting
Endnotes 179 Ownership in Company stock: A sound strategy
for start-ups 229
ChaPter 6 Writing a Business PartnEring For SuCCESS: Patagonia and Build-A-
Plan 181 Bear Workshop: Picking Trustworthy Partners 232
obtaining Business licenses and Permits 233
Opening Profile—TeMPOruN: Proceeding on the
strength of a Winning Business Plan 181 Federal Licenses and Permits 233
the Business Plan 183 State Licenses and Permits 233
Reasons for Writing a Business Plan 183 Local Licenses and Permits 234
Who reads the Business Plan—and What are they Choosing a Form of Business organization 235
looking for? 185 Sole Proprietorship 236
A Firm’s Employees 185 Partnerships 238
Investors and Other External Stakeholders 185 Corporations 239
guidelines for Writing a Business Plan 186 Limited Liability Company 242
Structure of the Business Plan 186 Chapter Summary 243 | Key Terms 244
Review Questions 244 | Application Questions 245
Content of the Business Plan 187
You Be the VC 7.1 247 | You Be the VC 7.2 247
outline of the Business Plan 189
CASE 7.1 248 | CASE 7.2 251
Exploring Each Section of the Plan 190 Appendix 7.1 254
Savvy EntrEPrEnEurial Firm: Know When to Endnotes 256
Hold Them, Know When to Fold Them 191
PartnEring For SuCCESS: Types of Partnerships
ChaPter 8 Assessing a New Venture’s
That Are Common in Business Plans 195
Financial Strength and Viability 259
What WEnt Wrong? What eventVue learned the
Hard Way About Making Assumptions 202 Opening Profile—GyMFlOW: Managing Finances
Presenting the Business Plan to investors 203 Prudently 259
introduction to Financial management 261
The Oral Presentation of a Business Plan 203
Financial objectives of a Firm 262
Questions and Feedback to Expect from Investors 205
the Process of Financial management 262
Chapter Summary 205 | Key Terms 206
Review Questions 206 | Application Questions 207 PartnEring For SuCCESS: Organizing
You Be the VC 6.1 209 | You Be the VC 6.2 209 Buying Groups to Cut Costs and Maintain
CASE 6.1 210 | CASE 6.2 213 Competitiveness 263
Endnotes 216 Financial Statements 265
Historical Financial Statements 265
Part 3 Moving from an Idea to an
Savvy EntrEPrEnEurial Firm: Know the Facts
Entrepreneurial Firm 217 Behind the Numbers 268
Forecasts 273
ChaPter 7 Preparing the Proper Sales Forecast 273
Ethical and Legal Foundation 219 Forecast of Costs of Sales and Other Items 275
Opening Profile—TeMPered MiNd: Proceeding on a Pro Forma Financial Statements 277
Firm legal Foundation 219 Pro Forma Income Statement 278
Establishing a Strong Ethical Culture for a What WEnt Wrong? Be Careful What you Wish
Firm 221 For: How Growing Too Quickly Overwhelmed One
Lead by Example 222 Company’s Cash Flow 279
viii CONTENTS
Pro Forma Balance Sheet 279 Friends and Family 332
Pro Forma Statement of Cash Flows 280 Bootstrapping 333
Ratio Analysis 283 Preparing to raise debt or Equity Financing 334
Chapter Summary 284 | Key Terms 285 Sources of Equity Funding 337
Review Questions 285 | Application Questions 286
Business Angels 337
You Be the VC 8.1 287 | You Be the VC 8.2 287
Venture Capital 338
CASE 8.1 288 | CASE 8.2 290
Endnotes 292 Initial Public Offering 340
What WEnt Wrong? How One start-up Caught
the Attention of VCs, Gained 25,000 daily users,
ChaPter 9 Building a New-Venture
and still Failed 341
Team 295
Sources of debt Financing 343
Opening Profile—NexT BiG sOuNd: Hitting the Ground
Commercial Banks 343
running 295
SBA Guaranteed Loans 344
liability of newness as a Challenge 297
Other Sources of Debt Financing 345
Creating a new-venture team 297
Creative Sources of Financing and Funding 345
PartnEring For SuCCESS: To Overcome the
Crowdfunding 345
liabilities of Newness, Consider Joining a start-up
Accelerator 298 Leasing 346
The Founder or Founders 299 SBIR and STTR Grant Programs 347
What WEnt Wrong? devver: How Miscues in Other Grant Programs 348
regard to the Composition and Management of a Savvy EntrEPrEnEurial Firm: Working Together:
New-Venture Team Can Kill a start-up 302 How Biotech Firms and large drug Companies
The Management Team and Key Employees 303 Bring Pharmaceutical Products to Market 349
Savvy EntrEPrEnEurial Firm: Overcoming a Strategic Partners 349
lack of Business experience 304 Chapter Summary 350 | Key Terms 351
Review Questions 351 | Application Questions 352
The Roles of the Board of Directors 307
You Be the VC 10.1 354 | You Be the VC 10.2 354
rounding out the team: the role of Professional
CASE 10.1 355 | CASE 10.2 358
advisers 310
Endnotes 361
Board of Advisors 310
Lenders and Investors 311
Part 4 Managing and Growing an
other Professionals 313
Entrepreneurial Firm 363
Consultants 313
Chapter Summary 314 | Key Terms 315
ChaPter 11 Unique Marketing
Review Questions 315 | Application Questions 315
You Be the VC 9.1 317 | You Be the VC 9.2 317 Issues 365
CASE 9.1 318 | CASE 9.2 321
Opening Profile—WiNK NATurAl COsMeTiCs:
Endnotes 324 Creating a New Brand in the Cosmetics industry 365
Selecting a market and Establishing a
ChaPter 10 Getting Financing or Position 367
Funding 327 Segmenting the Market 367
Opening Profile—rOOMiNATe: raising Money Selecting a Target Market 368
Carefully and deliberately 327 Crafting a Unique Market Position 369
the importance of getting Financing or Branding 370
Funding 329
the 4Ps of marketing for new ventures 373
Why most new ventures need Funding 329
Product 373
Cash Flow Challenges 329
PartnEring For SuCCESS: How Co-Branding is
Capital Investments 330 Combining the strengths of Two Already successful
Lengthy Product Development Cycles 330 Brands 374
PartnEring For SuCCESS: startup Weekend: A Price 376
Fertile Place to Meet Business Cofounders 331 Promotion 377
Sources of Personal Financing 332
What WEnt Wrong? What start-ups Can learn
Personal Funds 332 About Marketing from Missteps at JCPenney 378
CONTENTS ix
Savvy EntrEPrEnEurial Firm: How Airbnb used The Process of Conducting an Intellectual Property
Blogs as a stepping-stone to Generate substantial Audit 429
Buzz About its service 383 Chapter Summary 430 | Key Terms 432
Place (or Distribution) 386 Review Questions 432 | Application Questions 433
You Be the VC 12.1 434 | You Be the VC 12.2 434
Sales Process and related issues 387
CASE 12.1 435 | CASE 12.2 437
Chapter Summary 390 | Key Terms 391
Endnotes 438
Review Questions 391 | Application Questions 392
You Be the VC 11.1 393 | You Be the VC 11.2 393
CASE 11.1 394 | CASE 11.2 397 ChaPter 13 Preparing for and
Endnotes 400 Evaluating the Challenges
of Growth 441
ChaPter 12 The Importance of Opening Profile—BiG FisH PreseNTATiONs: Growing
in a Cautious, yet deliberate Manner 441
Intellectual Property 403
Preparing for growth 443
Opening Profile—driPCATCH: The Key role of
Appreciating the Nature of Business Growth 443
intellectual Property early in a Firm’s life and its
Ongoing success 403 Staying Committed to a Core Strategy 445
the importance of intellectual Property 405 PartnEring For SuCCESS: How Threadless
Averted Collapse by Bringing on a Partner with
Determining What Intellectual Property to Legally
Back-end Operational expertise 446
Protect 407
Planning for Growth 447
The Four Key Forms of Intellectual Property 407
reasons for growth 448
Patents 408
Capturing Economies of Scale 449
Types of Patents 410
Capturing Economies of Scope 449
Who Can Apply for a Patent? 411
Market Leadership 449
The Process of Obtaining a Patent 412
Influence, Power, and Survivability 449
Patent Infringement 414
trademarks 414 Need to Accommodate the Growth of Key
Customers 450
Savvy EntrEPrEnEurial Firm: Knowing
Ability to Attract and Retain Talented Employees 450
the ins and Outs of Filing a Provisional Patent
Application 415 managing growth 450
The Four Types of Trademarks 416 Knowing and Managing the Stages of Growth 451
PartnEring For SuCCESS: individual inventors Savvy EntrEPrEnEurial Firm: safesforce.com
and large Firms: Partnering to Bring New Products Crosses the Chasm 454
to Market 417 Challenges of growth 455
What Is Protected Under Trademark Law? 418 Managerial Capacity 455
Exclusions from Trademark Protection 419 Day-to-Day Challenges of Growing a Firm 456
The Process of Obtaining a Trademark 419 What WEnt Wrong? How Trying to Build Out its
Copyrights 421 Own Capabilities in a Key Area Contributed to the
Failure of a Promising Firm 458
What Is Protected by a Copyright? 421
Chapter Summary 459 | Key Terms 460
Exclusions from Copyright Protection 422
Review Questions 461 | Application Questions 461
How to Obtain a Copyright 422 You Be the VC 13.1 463 | You Be the VC 13.2 463
Copyright Infringement 423 CASE 13.1 464 | CASE 13.2 467
Copyright and the Internet 424 Endnotes 470
What WEnt Wrong? GoldieBlox vs. Beastie Boys:
The Type of Fight That No start-up Wants to Be a ChaPter 14 Strategies for Firm
Part Of 425 Growth 473
trade Secrets 426
Opening Profile—sHAKe sMArT: Maintaining
What Qualifies for Trade Secret Protection? 427 Consistent strategies for Growth 473
Trade Secret Disputes 427 internal growth Strategies 475
Trade Secret Protection Methods 428 New Product Development 475
Conducting an intellectual Property audit 429 Savvy EntrEPrEnEurial Firm: switchFlops: How
Why Conduct an Intellectual Property Audit? 429 to Create Built-in Avenues for Future Growth 477