Chapter Two

Starting Technology Based New

Ventures

June, 2014 E.C

 Introduction

 Advances in technology are the only source of

permanent increases in productivity.

 Technological changes are basically the results of

innovations which in turn are the outputs of innovative

Entrepreneurs.

 It is widely accepted that one of the indicators of this

innovative capacity is the rate of creation of New

Technology-Based firms (NTBF). 2
Important aspects of Technology in Business

1. Technology Intelligence for Business: Technology

intelligence is technology-related information that is useful
and utilized by firms during strategic decisions.

2. Technology and Competition:

3. Appropriation of Technology

4. Deployment in New Products: new to the world to

repositioning of already-existing products.

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How to form and develop technology based ventures?

 Entrepreneurship studies have identified three critical

factors linked to successful creation of technology
ventures: technology, talent and capital.
 The strategic focus of new ventures is to facilitate the
effective fusion of innovative technology, strong scientific,
entrepreneurial and management talent, and investment
capital to create a successful venture.
 However, these by themselves will not be sufficient for the
successful development of technology based ventures;
sound national policies and strategies are always at the
heart of such development programs.

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 Cont…
 Government policies:
 Credit programmes with State-subsidized rates
 Share programmes by Government venture-capital
companies
 Grants by the Government, especially for creating
jobs and for research.
 Security programmes by the Government for
taking over part of the risk of the credit
institutions for enterprises
 Advisory services.
 Cont…
 Other support activities for enterprises with both
public and private sector involvement, include:
 Business consulting services: Assistance with
business development, developing business plans,
tax advice, and so forth;
 Technical consulting services: More specialized
services are provided such as networking
assistance between enterprises and science and
technology organizations, technology transfer, the
exchange of similar experiences and the
identification of potential for cooperation
 Cont…
 Financing support activities: Offer optimal
conditions to enterprises, especially SMEs, in
terms of rent and costs of spaces, infrastructure
and services.
 Intellectual property assistance: Assistance with
developing and patenting new and improved
technology, including bringing it to the market for
profit;
 International assistance: Assistance with the global
networking of incubation and innovation centers
for information exchange and technology transfer
 What is small business?

There are two approaches/criteria to define small

Business. These are:

1. By some measure of size

2. Using an economic /control definitions.

 1. Size Criteria

Examples of criteria used to measure size are:

1. Number of employees
2. Sales volume
3. Asset size
4. Insurance enforce
5. Volume of deposits
Although the first criteria located above, employee,
is the most widely used yardstick; the best criteria in
any given case depends upon the user’s purpose.
 2. Economic/Control Criteria
a). Independence:- Means that the owner has control of the
business himself.

b). Market share:- The characteristics of a small firm’s share

of the market is not large enough to enable it to influence
the prices of national quantities of goods sold to any
significant extent.

c). Personalized management:- Is the most characteristics

factor of all. It implies that the owner actively participates
in all aspects of the managements of the business, and in all
major decisions-making processes. There is no delegation
of authority.
All three of these characteristics must be satisfied if the
business is to rank as a small business.
To provide a clear image of the small firms, the
following general criteria for defining a small
business are suggested:
 Financing of the business is supplied by one
individual or a small group.
 The firm’s operations are geographically localized.
 Compared to the biggest firms in the industry is small
 The number of employees in the business is usually
fewer than 100
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Why are small business important to economy?

They make exceptional contributions as they provide

New jobs for populations and economy grow, small

business provide new job opportunity.

Introducing innovations-many scientific

breakthrough originated with small organization.

Stimulating Economic competitions.

Reasons for the more rapid growth of small firms in
most developed countries.
1. New technologies, such as numerically controlled

machine tools, may permit efficient production on

a smaller scale

2. Greater flexibility is required as a result of

increased global competitions

3. Consumers may be coming to prefer personalized

products over mass produced goods.

 What is special about small businesses?

 Provides strategic opportunities for small

businesses.

 Creates exporting and importing opportunities.

 Supported through appropriate governmental and

non-governmental organizations.

 Any large organization originates from small

business 14
Eight reasons why many small businesses fail.

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 How does one start a new venture?

 Important issues in new venture creation:

 Does the entrepreneur have good ideas
 Is the entrepreneur prepared to meet and master the test of
strategy and competitive advantage?
 Can the entrepreneur identify a market niche that is being
missed by other established firms?
 Can the entrepreneur identify a new market that has not yet
been discovered by existing firms?
 Can the entrepreneur generate first-mover advantage by
exploiting a niche or entering a market before competitors?
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 Cont…
 Questions that keep a new venture focused on its customers

 Who is your customer?

 How will you reach key customer market segments?
 What determines customer choices to buy or not buy your
product/service?
 Why is your product/service a forceful choice for the
customer?
 How will you price your product/service for the customer?
 How much does it cost to make and deliver your
product/service?
 How much does it cost to attract a customer?
 How much does it cost to support and retain a customer? 17
 Life cycle of entrepreneurial firms

– Birth stage

– Breakthrough stage

– Maturity stage

Each stage poses different managerial challenges and

requires different managerial competencies.

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Figure Stages in the life cycle of an entrepreneurial firm.

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 Types of Businesses

There are several ways of going into business and

becoming an entrepreneur. You can:

1 Start your own business

2. Buy a new or existing business

3. Purchase a franchise business

4. Enter a family business

5. Web-based business
 1 Start Your Own Business

Advantages of Starting Your Own Business

Independence

Satisfaction

Challenge of creating something new

Triumph/success when business is profitable

Make all the decisions about everything

 Disadvantages of Starting Your Own Business

Risks
Uncertainty of demand for the product/service
Need to make decisions daily
 No certainty that customers will purchase what
you offer
 Difficult to start a new business

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 2. Purchase an Existing Business

Advantages
 Existing businesses already have customers,
suppliers, and procedures.
 Seller of the business may be willing to train the
new owner.
 Prior records of revenues, expenses, and profits
 Financial arrangements can be easier
 Has the location
 Experienced employees
 Disadvantages

 Business may be for sale because it is not

making a profit.
 Problems may be inherited with the purchase of
an existing business.
 Many entrepreneurs may not have the capital
needed to purchase an existing business.

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 3. Franchise Ownership

Franchise:Legal agreement that gives an

individual the right to market a company’s products
or services in a particular area.
Franchising is an agreement where one company
grants to another the right to use its trademark and
business model.
The franchisee may receive Franchiser help,
training, a protected market, and technical
assistance
A franchise agreement is the legal document that
binds the franchisor and franchisee together
Franchises :A system in which semi-independent
business owners (franchisees) pay fees and royalties
to a parent company (franchiser) in return for the
right to become identified with its trademark, to sell
its products or services, and often to use its business
format and system.

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Advantage of purchasing franchise business

 An established product or service is being

Provided
 Franchisors often Offer management,
technical, and other assistance
 Equipment and supplies can be less expensive
 A guarantee of consistency attracts customers
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 Disadvantages of purchasing franchise business

 The cost of franchises may be high, which can reduce

profits.
 Franchise owners are limited in the decisions they can
make regarding the business.
 The performance of other franchises impact on the
franchisee.
 The franchise agreement may be terminated by the
franchisor.
 Franchises are dependent on the performance of other
franchisees in the chain
 Owners of franchises have less freedom to make
decisions than other entrepreneurs
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 4. Entering a family business

Advantages
 There is a certain sense of pride and accomplishment
that comes from being part of a family endeavor.
 Trust and togetherness
 Great potential for success
 A business can remain in the family for generations.
 Some people enjoy working with relatives.
 The efforts of running a family business give one the
benefit of knowing that their efforts are helping those
whom they care about.
 Disadvantages

 Senior management positions are often held by

family members who may not be the best qualified.
 It may be difficult to retain qualified employees
who are not members of the family.
 Family politics may affect decisions regarding the
business.
 It is often difficult to separate business life and
private life in family-run businesses.
 It is often difficult to set policies and procedures
and to make decisions
 5. Web-based Enterprises

Businesses that generate their revenue directly from

their website fall into the web-based business
category

The following are some of the web-based enterprises:

1 E-bay

2 Monster

3 Amazon
Forms of ownership and legal requirements

Ownership of business is represented by the right of

individual or a group of individuals to acquire legal
title to property (assets) for the purpose of
controlling them and to enjoy the gains of profits
from such possession and use.
 The most common forms currently in wide use by

any business enterprises are:

• Sole proprietorship

• Partnership

• Corporations and

• Cooperatives

Each form of ownership has a characteristic internal

structure, legal status, size and field to which it is
best suited.
1) Sole proprietorship

• It is an individual or single ownership

• The sole proprietorship is a form of business
organization in which
• An individual introduces his capital,
• Use of his own skill and intelligence in the
management of its affairs and
• It is solely responsible for the results of its
operation.
• This form is known also as individual or single
proprietorship, sole ownership or individual
enterprise.
 Advantages of Sole proprietorships

a. Ease and low cost of formation and dissolution:-

there are no restrictions on either starting or
terminating small business operations.
b. Direct motivation and personal care
c. Freedom and promptness /rapidity of action
d. Business confidentiality
e. Single Tax:-The proprietorship does not pay tax as a
business; the profits from the business are the personal
income of the owner and are declare on his individual
income tax return.
Disadvantages of sole proprietorship

a. Limited resources and size

b. Limited Managerial Skill:- in complex and difficult
condition which requires different expertise
knowledge
c. Unlimited liability:-The sole proprietor will be
legally liable for all debts of the business,
d. Uncertain future/Death of the owner terminates the
business
e. Difficulty in hiring and keeping high achievement
employees
 2. Partnership

 The association of two or more persons to carry as

co-owners of a business where the relationship is
based on agreement is called partnership.
 This form of a business requires the existence of
two or more persons entering into a contractual
relationship.
 This contract, which is an agreement between the
parties, is known as a memorandum of
association or article of partners’ deed (legal
document).
 Kinds of Partners

1. A general partner: Assumes unlimited liability and

is usually active in managing the business. Most
partners are general partners.

2. limited or special partner: Assumes limited

liability, risking only his /her investment in the
business. Limited partners may not be active in
management, and their names are not used in the
name of the business.
 Cont…

3. A secret partner: Takes an active role in managing

a partnership but, whose identities are unknown to
the public. i.e. the general public does not know of
this person’s partnership status.

4. A silent partner: As opposed to a secret partner, a

silent partner, his identities and involvement, is
known to the general public, but is inactive in
managing the partnership business 39
5.Senior partners: Assume major roles in
management because of the long tenure (term),
amount of investment in the partnership, or age.
They normally receive large shares of the
partnership’s profits.
6. Junior partners: Are generally younger partners in
tenure, have only small investment in the firm, and
are not expected to make major decision. They
assume limited role in the partnership’s
management and receive a smaller share of the
partnership’s profits.
 Advantages of partnership

1. Ease of starting
2. Increased source of capital:-Partnership can offer creditors
less risk than a sole proprietorship; it is often an attractive
investment.

3. Combined managerial skill

4. Definite legal status

6. Motivation of important employees

7. Reduced risk
 Disadvantages of partnership

1.Unlimited liability
2. Risk of implied authority: The fault and miss
judgment made by a single partner binds the firm
and the remaining partners.
3. Lack of harmony…agreement or synchronization
4. Lack of continuity/instability/: If any one of the
general partners dies, withdraws because of mentally
or physically incapable (injured), the partnership
ends.
5. Investment withdrawals difficulty
 3. Corporation

 A corporation is an artificial person authorized and

recognized by law, with distinctive name, a common

seal, comprising of transferable shares of fixed values,
carrying limited liability and having a perpetual or
continued or uninterrupted succession(sequence)life.

Examples Google, Amazon, Apple, Microsoft, and

General motors
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Characteristics of Corporation
1. Separate legal entity
 It has the right to manage its own affairs.
 Shareholders cannot be liable for the acts of the corporation
2. Limited liability
 Since the corporation has separate legal entity its debts are
its own. The assets and liabilities, rights and obligations
incidental to the company’s activities are assets and
liabilities, rights and obligations respectively of the
company and not of its members.
3.Transferiablity of shares
 It is easy to transfer ownership in a corporation. A
stockholder may sell stock to another person and transfer
the membership and membership interest freely without
consulting other stockholders.
4.Perpitual existence
 Death, insanity, retirement and withdrawal of shareholders
will not affect the company.
5.Common seal
 A corporation has a common seal with the name of the
company engraved on it, which is used as a substitute for
its signature through it acts through its agents.
6.Separation of ownership from management
7.Written Constitution
 On the creation of a company, the promoters must file
certain documents with the Registrar of Companies. These
include the Article of Association and the Memorandum
of Association.
 Advantages of a corporation

1. Financial strength
2. Limited liability
3.Scope of expansion
 Corporations have greater potential than sole
proprietorship or partnerships
4.Managerial efficiency
Corporations enjoy the advantage of efficient management by
hiring specialist’s skilled persons to become members of
the board of directors to mange the corporation
5.Ease in transferring ownership
6.Legal entity status: A corporation can purchase property,
make contracts, sue and be sued in the corporate name.
Disadvantages of a corporation

1. Difficulty of formation
It is time consuming and cumbersome/not manageable to
establish corporations unlike the other forms of businesses.
2. Lack of owner’s/manager’s personal interest
These forms of organizations are managed by directors, hired
officials, and employees who may not be expected to have
such an interest in the success of the business as the
individual owner or partner would have in his own
business.
3. Delay in decision-making…it needs official meeting of
managers or board
4.Lack of secrecy….openness…lack of privacy
5.Double taxation
 4.Cooperatives

 It is an organization owned by members/persons

who pay an annual membership fee and share in
any profits (if it is profit making organization).
 It has to adopt the following principles:
 Members have an equal vote in decisions
 Membership is open to every one who fulfills specified
conditions (e.g. Number of hour worked)
 Assets controlled and usually owned jointly by members
 Profit shared equally between members with limited interest
payment on loans made by members;
 Members benefit from participation, not investment
 Types of cooperative organizations

 Agricultural cooperative societies

 Housing cooperative societies
 Industrial & artisans producers cooperative
societies
 Consumers & marketing cooperative societies
 Saving & credit cooperative societies
 Fishery cooperative societies
 Mining cooperative societies

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 5.Other forms of business

 Franchises

 Management buy-outs and buy-ins

When growing the popularity of management buy-outs’. This

is where a group of members pool their resources to buy
the business they have been running, usually from as
larger, parent company.

A management buy-in is where a group of managers buys

into an existing firm, usually replacing those who have
been running it.
END
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