Dayananda Sagar Academy of Technology & Management

Department of Management Studies

MBA- FIRST SEMESTER ( Batch of 2021-2023)

Course Code: 22MBA12

Course Title: Managing and Growing New Venture

Faculty Instructor: Rachana. D

Email ID: [email protected]

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 Introduction:
• The formation of new commercial businesses, establishment of new social businesses and other organizations
are all referred to as “Entrepreneurial venture” or “New enterprise” or “ New venture”.

• By starting a new venture, entrepreneurs are able to fulfil their personal dreams and objectives.

• The start-up of a new venture is considered as the 1st stage of the business cycle, where a business is first
assessed and then formed.

• According to Schumpeter, Entrepreneurs hinder the market equilibrium by launching innovative products and
new processes. This results in variations in the existing business processes.

• On the other hand, the owners of small businesses typically operate their businesses to earn their livelihood,
e.g., small retail stores, coffee shops, service centers etc. these businesses grow eventually and tend to imitate
similar businesses that already exist in the market.

• Usually, there are three fundamental characteristics of an entrepreneurial venture, viz., Innovative, Value-
creating and Growth- oriented.
 Meaning Of New Venture:

New ventures, or entrepreneurial ventures, are broadly

defined as those firms that are in their early stages of
development and growth. Often they are in the process of
bringing their initial products or services to the market and
of developing their customer base.
 Preparing for the New Venture
Steps For New Venture Start-Ups

1. Scanning for Opportunities: For scanning the opportunities an entrepreneur uses his personal
observations, contacts, official reports, published documents, surveys, etc. He carefully analyses each
opportunity and works out how he can use them to create goods and services. He analyses the
situations based on several factors such as market size, where to procure goods from, at what price to
sell, probable competitors, etc.

2. Deciding on the Product/Idea:

The next step is to zero in on a particular product or service in the selected market segment . For instance,
suppose an entrepreneur decides to set up a venture in the fast-food market. He must decide the
products or combination of products that he would supply.

3. Analysis of Feasibility:
The entrepreneur to check whether the idea is practically possible or not. The entrepreneur needs to find
this out, on the basis of different parameters such as whether the technology to be used is available,
whether the product will derive profits, is the idea financially feasible and whether the good will face any
legal restrictions.
4. Appraisal by Funding Agencies: To set up the business, an entrepreneur requires funds.
For receiving the required funds, the entrepreneur discusses the business plan and the
feasibility reports with the financial agencies. The financial institutions provide the funds only
when they are convinced about the plan and its feasibility.

5. Resource Mobilisation: the entrepreneur starts identifying and collecting the resources that
are needed for the commencement of the project. The resources required comprise of raw
materials, technology, human resources, machines, etc. The entrepreneur tries to obtain the
resources at the minimum possible cost.

6. Project Launch: the entrepreneur proceeds with the commencement of the project. That is,
he undertakes activities such as establishing the factory premises, purchasing equipment’s,
collecting the inputs for production, etc. Thereby, he establishes the enterprise.

7. Adoption and Management of Growth: The role of an entrepreneur does not end with the
establishment of enterprise. He performs various other day-to-day functions such as
organising goods and services, ensuring production, keeping an eye on competition etc. Thus,
he needs to manage the business and continuously strive for better growth and development.
 Why New Ventures Fail?
1. Lack of Experienced Management: main problems faced by new enterprises is that the management team is
usually very new to this role. The entrepreneur and his/her top management usually have no prior record of being
in charge of the fortunes of a whole company.

2. FewTrained or Experienced Manpower: Shortage of skilled and experienced manpower is faced by new
ventures, which represent a riskier job opportunity, most people prefer to work with a well-established organization
employing hundreds of employees and having a stable track record.

3. Poor Financial Management: the entrepreneur may find the technicalities of accounting and finance intimidating
and avoid looking deep into it. Common errors in financial management can be bad receivables management,
unproductive investments, and poor budgeting decisions.

4. Rapid Growth: Higher growth will mean greater stress on production facilities, manpower, and marketing
channels. Sometimes, these will not be designed to cater to the rise in volumes and might need further capital
investments.
5. Lack of Business Linkages:
Existing working relationships with vendors, customers, and others is a huge advantage to established businesses. A
new venture will have to forge new relationships and work hard at strengthening them before coming to an equal
footing with the entrenched players.
6. Weak Marketing Efforts: Entrepreneurial firms are very reluctant to spend on marketing efforts. Investing in a
marketing campaign is not going to give you assured returns and the link between the marketing expenditure and
the sales is not very easy to establish.
7. Lack of Information: Even in this era of free-flowing information, the quality of information available to large
corporations is far superior to that available to new small entrepreneurial ventures: There is a cost to information
and small ventures may not be able to invest so much in getting the high-quality information.
8. Incorrect Pricing:
The price is most likely close to that of the competition and takes care of costs leaving a modest or seemingly
generous margin. There are many sophisticated pricing policies a new venture can adopt, taking into account its
cost structure, nature of demand, and extent of competition. The entrepreneur can introduce new innovative
pricing systems too.

9. Improper Inventory Control:

Improper inventory control can lead to myriad problems. Production can be halted due to insufficient inventory,
whereas excess inventory can lead to wastages and damages.

10. Short-term Outlook:A number of small new ventures face huge problems on a regular basis. In the early days of
a firm, these problems can threaten the very existence of the venture. In such circumstances, the management
and employees of the venture focus on surviving the immediate crisis and the long-term vision and strategy of the
firm are soon forgotten. If this continues for long, the danger is that long-term plans are discarded as impractical
or irrelevant.
 EARLY MANAGEMENT DECISIONS
CREATING AWARENESS OF THE NEW VENTURE

1. Publicity: The entrepreneur can increase the opportunity for getting exposure by preparing
news release and sending it to as many media sources as possible. For radio or TV, the
entrepreneur should identify programs that may encourage local entrepreneurs to
participate. Free publicity can only introduce the company.

2. Internet Advertising: The Internet is an excellent medium to create awareness and to

effectively support early launch strategies. Creating a website is the most important first stage.
The website should indicate: Background of the company. Its products, officers, address,
telephone and fax numbers. Contact names for potential sales. Direct sales from the website
may also be available.
3. Trade Shows: Every industry has a trade or professional association that sponsors annual
trade shows. Trade shows are where hundreds of thousands of people observe or identify
trends in their industry.
4. Selecting an Advertising Agency: Advertising agencies can provide many promotional services. The
advertising agency is an independent business organization composed of creative and business people
who develop, prepare, and place advertising in media for its customers. The agency can provide
assistance in marketing research. It is important to determine whether the agency can fulfill all of the
needs of the new venture.

5. Hiring Experts: If the entrepreneur has no expertise in financial analysis, marketing research, or
promotion, he or she should hire outside experts. There are accountants, financial experts, and
advertising agencies that cater to new ventures.
 MANAGING EARLY GROWTH OF THE NEW VENTURE

Venture management is a business management practice that focuses on being both innovative and
challenging in the realm of introducing what could be a completely new product or entering a promising
newly emerging market it is possible that the product or service already exists, but through venture
management efforts, it can be rebranded or updated with new innovative features to respond on new
requirements and opportunities.

1. Market Focus
What makes a venture succeed is the ability to identify emerging attractive markets and to seize on unmet,
unserved customer needs. Successful business is ruled not by the founders' decisions, but by the
marketplace. The entrepreneur must do market research, and develop an effective marketing, advertising
and selling strategy.

2. Management Focus
It's impossible to grow a successful business as a one-person operation, Sooner or later, the responsibility
must be shared with one or more partners.
When building your management team, remember also that top-quality people often emerge from
bankruptcies Prior bankruptcy, experience is valuable - failure has its rewards. It is often better to hire a
leader who has learnt from mistakes than it is to hire someone who was just lucky.
3. Strategic Focus
There are several types of strategies followed by successful companies. A careful study in this area will
help in sorting out the kind of enterprise strategy that could be used best Strengths-Weaknesses-
Opportunities- Threats (SWOT) analysis is to be carried out to define company's sustainable -competitive
advantage areas and develop an appropriate business strategy to capitalize on it.

4. Financial Focus
Many ventures fail because they fail to understand capital requirements of their growing business. The
focus must be on cash flow and start preparing for the next stage of venture financing well in advance.
 NEW VENTURE EXPANSION STRATEGIES AND ISSUES
Some of the key strategies to consider when expanding new venture are:

1. Conduct Market Research: Before expanding, research the target market to ensure there is demand for the
product/service. Look at trends, competitors, and consumer behaviour to determine the feasibility of expansion.

2. Develop a Clear Business Plan: Create a detailed plan outlining the expansion strategy, including objectives,
budget, timeline, and marketing strategy. This will help ensure that all stakeholders are on the same page and working
towards the same goals.

3. Identify the Right Funding Sources: Determine the amount of capital required for expansion and explore various
funding options such as venture capitalists, angel investors, bank loans, crowd funding, or other sources.

4. Build a Strong Team: Hire and train new staff or develop existing employees to support the expansion. Ensure that
team members have the necessary skills and experience to execute the plan effectively.

5. Leverage Technology: Implement new technologies and tools to streamline processes, efficiency, and enhance the
customer experience.
6. Expand Product or Service Offerings: Diversify the product or service offerings to appeal to a broader customer
base. This can involve developing new products or services, improving existing offerings, or entering new markets.

7. Establish Partnerships and Alliances: Forge partnerships with complementary businesses to expand the customer
base and tap into new markets. This can include strategic alliances, joint ventures, or other types of partnerships.

8. Develop a Strong Brand Image: Build a strong brand image to attract and retain customers. This can involve
branding efforts such as advertising, social media, public relations, and other marketing initiatives.

9. Monitor Performance and Adjust Strategies: Track performance metrics and adjust strategies as needed to
ensure success. This can involve monitoring sales, customer feedback, and other indicators of success.

10. Foster a Culture of Innovation: Encourage a culture of innovation and experimentation within the organization to
continually improve products, services, and processes. This can involve providing training, rewards, and other
incentives for innovation.
 Key Issues to Consider While Venture Expansion Financial Planning

Human Resources
Expanding your venture will likely require additional human resources, whether it's hiring new
employees or retaining existing staff. It's important to consider how the expansion will affect
your existing team and what additional skills and resources you'll need to successfully expand.

Legal and Regulatory Compliance

Expanding your venture may require compliance with new legal and regulatory requirements.
It's important to understand the legal and regulatory landscape in the new market and to
ensure that you are aware with all relevant laws and regulations
 ESTIMATING THE FINANCIAL NEEDS OF A NEW VENTURE
Following steps must be considered to determine new business financial needs:

a) Calculate the One-Time Expenses: These are expenses that will only occur at the beginning of opening of new
business. They may include professional and legal expenses for registering or incorporating the company; long-
term assets like machinery, real estate, or a vehicle; consulting services; web design; office equipment and supplies;
permit fees and license; advertising; market search; mileage, and training.
b) Determine the Recurring Costs: These are expenses that we have to pay again and again, generally on a weekly,
monthly, or bi-weekly basis. They include costs of wages, insurance, and utilities, professional fees, etc.
c) Ascertain whether Costs are Variables, or Fixed: Variables costs are those that will change over time, such as
insurance, packaging shipping and wages. Fixed expenses are those that won't change.
d) Create a Business Balance Sheet: It is advisable to consider writing balance sheets if a small business is about to
be launched. It should include equity, liability, and assets. Each of these categories will assist in keeping track of
your finances and make it simpler for paying bills.
e) Develop a Business Cash Flow Analysis: Nothing is more important in a business than cash flow. Cash flow
measures funds coming into (inflow) and flowing out (outflow) of business. This is broken down into financing
activities, investment activities, and operational activities. The analysis will aid to know when the business break
even so that the entrepreneur can start expanding the company or reinvesting.
 Types of Business Financing Available/ Sources of Personal Finance
a) Family and Friends: Most new entrepreneurs depend on working capital from friends and family -
sometimes referred to as love money. Friends and family often do not mind waiting to be paid back
until operating profits begin rolling in, however, it can be hard to mix personal relationships with
business.
b) Personal Investment: Many start-ups need some personal investment by the owner either personal
assets\valuables used as collateral to secure funding or cash.
c) Debt Funding: Lenders provide various types of debt funding, including lines of credit and term
loans. Some lenders provide loans particularly designed for a new venture, which comes with flexible
payback terms.
d) Grants & Subsidies: Some businesses may be eligible qualified for government grants and subsidies
to assist with start-up expenses.
e) Equity Financing: Equity financing typically comes from other companies or primary investors. They
will inject venture with funds, in exchange for part-ownership of the new company. Equity investors
can help decrease personal risk, However, they will want to interfere or rather change some aspects of
the company model.
 PREPARATION OF A FINANCIAL PLAN
Financial planning involves the following steps:
1. Determination of Long-Term and Short-Term Financial Objectives:
• First step - establishment of financial objectives. It is advisable for a business enterprise to establish long-term as well as short-
term objectives. They serve as guide to the finance manager in determining financial policies and laying down procedures.
• The long-term financial objective of a firm is maximization of wealth.
• The firm should set short-term objectives of maximizing profits while minimizing risk. Finance manager should seek courses of
action that avoid unnecessary risks.
• The financial reporting system must be designed to provide timely and accurate picture of the firm's operations.
2. Formulation of Financial Policies:
Financial policies serve as guide to all those associated with acquisition, allocation and control of funds of the firm. Those policies
can be categorized as follows:
a. Policies regarding quantum of funds to be required to accomplish the goal.
c. Policies regarding selection of sources of funds.
d. Policies regarding controlling powers of suppliers of funds.
h. Policies with respect to allocation of income.
In formulating financial policies, a finance manager is required to forecast the figure in his endeavour to predict the variability of the
factors which have their bearing upon the policies.
3. Developing Financial Procedures:
• So as to implement financial policies the firm must lay down detailed procedures.
• This will, besides making the employees understand what they are supposed to do, simplify the
administrative process, assure coordination of activities, improve the quality of performance, assure
consistency of action, increase the efficiency of work performed and improve the control process.

4. Reviewing Financial Plan:

• The management must revise the firm's short-term objectives, policies and procedures in the light of
changed economic and business situations.
• Reviewing of financing plan is a continuous process.
 SOURCES OF FINANCE FOR START-UPS
1. Equity financing: Equity financing means exchanging a portion of the ownership of the business for a
financial investment. The ownership stake resulting from an equity investment allows the investor to share in
the company's profit. Companies may establish different classes of stock to control voting rights among
shareholders, similarly, companies may use different types of preferred stock.

2. Life insurance policies: A standard feature of many life insurance policies is the owner's ability to
borrow against the cash value of the policy. It takes about two years for a policy to accumulate sufficient cash
value for borrowing. Most of the cash value of the policy may be borrowed.

3. Home equity loans: A home equity loan is a loan backed by the existing mortgage, it can provide funds
on the difference between the value of the house and unpaid mortgage amount.

4. Friends and relatives:

5. Venture capital: is a privately raise external equity capital and used to fund entrepreneurs of early-stage
firms with attractive growth prospects.
They provide capital to young businesses in exchange for an ownership share of the business. Venture capital firms
usually don't want to participate in the initial financing of a business unless the company has management with a
proven track record.
Salient features of VC's:
i. Venture capitalists provide seed capital for new and rapid potential companies and growth potential companies.
ii. Venture capitalists are inclined to assume high degree of risk, in expectation of earning high rate of return.
iii. VC's usually hold equity shares or quasi-equity shares which enable them share risk and reward of the investee firm.
(Quasi-equity is a hybrid form of finance with characteristics of both debt and equity investments. The
characteristics include flexible repayment terms)
iv. VC's actively work with the companies' and add value to the growth of the firm.

Types of Venture Capitalists

a. Generalist: Those who invest in various industry sectors or various geographic locations, or various states of a
company's life are known as "Generalist". This category of venture capitalists is interested in any business ideas with
highly prospective success.

b. Specialists: Those who invest in one or two industries or sectors or many seek to invest in only a localized
geographic area are known as "Specialist. Specialists help companies in the acquisition, turnaround or recapitalization
of public and private companies that represent favourable investment opportunities.
6. Angel investors: Angel investors are typically affluent high net worth individuals who have spare cash
available and looking for investment in a new or on-going small business venture, providing capital for
start-up or expansion under favourable terms. They focus on earlier stage financing and smaller financing
amounts than venture capitalists.

7. Government grants: AIM, PMMY, SISF, VCA, CGT- MSE, CLCS, IEDC, MGS
8. IPO: Initial Public Offering (IPO) refers to the process of offering shares of a private corporation to the
public in a new stock issuance for the first time. An IPO allows a company to raise equity capital from
public investors.

9. Warrants: A warrant gives the holder the right to purchase a company's stock at a specific price and a
specific date. The price at which the underlying security may be bought or sold is called the exercise price
or the strike price.

10. Personal savings:

11.Commercial banks: A commercial bank is a financial intermediary that provides liquidity by bridging
sources of capital from depositors and creating credit that can be extended to borrowers.
 FORMS OF BUSINESS ORGANISATION

1. SOLE PROPRIETORSHIP: or individual entrepreneurship is a business concern owned and operated by one
person. Is a person who carries on business exclusively by and for himself. He alone contributes the capital and
skills and is solely responsible for the results of the enterprise.

2. PARTNERSHIP: a partnership is an agreement among two or more persons to carry on jointly a lawful business and
to share the profits arising there from Persons who enter into such agreement are known individually as 'partners' and
collectively as 'firm.
3. LIMITED LIABILITY PARTNERSHIP: A limited liability partnership is a partnership in which some or all partners have
limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not
responsible or liable for another partner's misconduct or negligence.

4. JOINT STOCK COMPANIES: A joint-stock company is a business entity in which shares of the company's stock can
be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares.
Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.

5. COOPERATIVES: A cooperative is an association of persons (organization) that is owned and controlled by the
people to meet their common economic, social, and/or cultural needs and aspirations through a jointly-owned and
democratically controlled business (enterprise).