MODULE 3

Business Venture Life Cycle

Entrepreneurial ventures change over time through various stages from existence to maturity.
These changes in a venture require different skills, structures and resources to manage them at
each stage.

Format 1 (Hanks et al. 1993)

1. Start Ups: These are new and emerging small enterprises with simple organizational
structures. They focus on a single product or service targeted at a defined niche market

2. Expansion: These ventures are slightly older, larger, very centralized and more formal
than the start up. Growth is viewed in terms of increased revenues, stronger management
team and dominance in the market.

3. Maturity: These businesses are much larger, more formal and better organized at all
levels of the venture. There is a measure of comfort with its success and no strong
motivation to significantly change the business’ status quo.

4. Diversification: This business is established with departmental structures and

organization levels. There are specific functions within the venture. Creativity,
innovation and exploitation of opportunities are driving forces in a new business strategy

5. Lifestyle: These are businesses where the owners have decided to keep their ventures
small.

6. Capped Growth: These businesses are larger and older. They have reached a
comfortable stage of existence. Once there are no major threats or changes to the external
environment, they are quite satisfied to remain in their present position.

Format 2 (Relevant to the Caribbean)

1. New Venture Development: The beginning stage in a life cycle enterprise. It is the
subject of evaluation before creation and implementation. There is focus on areas of the
mission, vision, resources and strategies.

2. Start Up Activities: This is the stage in the life cycle before launching the venture. The
focus may be on registration and incorporation, management team selection, securing
start-up finance and commencement of operations or trading activities.

3. Venture Growth Stage: This is where consideration is given to expanding or remaining

small. Challenges arise from time to time but a steady hand must be on the venture
4. Business Stabilization: Market conditions do impact the venture and sales are steady.
There may be problems in the area of competition, decline in customer traffic and
slowing of innovation. The future of the business should be reassessed and new directions
advocated for an upswing in profitability.

5. Innovation or Decline: The admonition “Change or Die” is of utmost importance. The

entrepreneur may decide to implement new strategies or offer new products to increase
competitivity and profitability. Or the venture sales and profits will eventually start to
decrease and the entrepreneur may choose to exist the market at this stage.
 Venture Models
A venture model is a framework or approach that a business follows to grow and achieve
profits. Business ventures can move from one model to the next as they pursue growth and
profits.

Promising Start-Ups (Self)

A start up is a business venture that introduces a new, improved or better valued product or
service to the entrepreneurs market of choice.

The venture is positioned for fast growth and is characterized by quick decision making, a flat
management structure and a lot of creativity at work.

Results are evidenced by revenue, profit and an overwhelming amount of consumers/users

Venture-Backed Start Ups

Start-ups funded by venture capitalists (VCs), who are investors seeking high growth potential.
They finance the venture in exchange for ownership shares and are anxious for the business to go
public or become a large enterprise.

They provide management and technical skills to the venture. The opportunity to invest is done
by a process that covers:

1. Business Plan Submission: The start-up submits a business plan to the VC for
evaluation.
2. Meetings: The start-up meets with stakeholders to discuss the plan.
3. Due Diligence: Accountants perform a detailed check of the start-up’s finances and
business model.
4. Agreement: Final terms are agreed upon, and documents are signed.

Corporate Supported Start Ups

These are companies that invest in start ups or entrepreneurial enterprises with potential for hugh
growth.

They are based on shared financial interests, strategies and objectives that produce poisitive
outcomes.
 Venture Valuation

A valuation is a calculation of your company's worth. If the company is private, meaning not
being publicly traded, then it’s worth is called private equity. This tells owners, venture
capitalists etc. whether your company is worth investing in or where it is financially.

Reasons for Business Valuation

1. Knowing the Real Value of the Business Venture

- Helps track the company's performance over time and understand how its value changes.

2. Buying or Selling a Business or Major Asset

- Essential to determine a fair price for transactions and facilitate smoother negotiations.

3. Raising Growth Capital

- Helps attract investors by providing a clear understanding of the business's worth and
potential.

4. Establishing an Employee Stock Ownership Plan (ESOP)

- Determines the price at which employees can purchase shares, ensuring fairness and
transparency.

5. Assessing and Managing Tax Obligations

- Helps in determining the correct amount of tax to be paid and aids in tax planning.

6. Structuring a Buy, Sell, or Joint Venture Agreement with Stockholders

- Necessary for mergers, acquisitions, joint ventures, and partnerships to negotiate terms and
determine ownership shares.

7. Attempting to Buy-out a Partner or Shareholder

- Ensures the departing partner or shareholder receives a fair price for their stake.

8. Preparing Wills, Gifts of Deeds, and Settling Estates

- Critical for estate planning, helping in the distribution of assets according to the will.
 9. Preparing Divorce Settlements

- Helps in the equitable distribution of assets, ensuring both parties receive a fair settlement.

10. Conducting Business Analysis

- Provides insights into various aspects of the business for performance analysis and decision-
making.

11. Reporting for Internal Bookkeeping or Accounting Purposes or External Auditing

Purposes

- Crucial for maintaining transparent and accurate financial records.

12. Developing a Succession Plan

- Helps in planning the transfer of ownership and control of the business, ensuring continuity.
 Venture Valuation Methods
1. Book Value (Balance Sheet Values) Method

The book value represents the net difference between a company's total assets and total
liabilities, reflecting what shareholders would receive if the company were liquidated. It is useful
for businesses with significant assets or low long-term revenue potential. The formula is: Book
Value of Assets - Liabilities = Venture Valuation.

2. Asset-Based Method

This method determines the current value of a company's assets, such as equipment and
goodwill, minus its liabilities, after accounting for depreciation. It is often used before buying,
selling, or insuring assets and provides an accurate measure of a company's net worth.

3. Discounted Future Earnings (Discounted Cash Flow) Approach

This method values a business based on its forecasted future earnings, discounted back to
present-day values. It relies on assumptions about future earnings and discount rates, making it
detailed but sometimes less practical.

4. Price Earnings Method (Multiple Earnings Value)

This method multiplies the business's adjusted profit by a selected profit multiple, usually
between 2 to 6, to determine its value. It is influenced by factors like brand strength and market
share, with positive factors suggesting a higher multiplier and negative factors a lower one.

5. Comparable (Market Value Approach)

This approach uses the valuations of recently sold similar businesses as benchmarks. It is
effective when there are many comparable businesses with accessible sales data, ensuring the
business is valued in line with market trends.

6. Entry Cost Method

This method estimates the cost to set up a similar business, considering startup costs, tangible
assets, and potential savings. It provides a realistic view of the investment needed to replicate the
business, establishing a fair market value based on actual costs and efficiencies.
 Approaches to Value Intangible Assets
Market Approach

The value of the intangible asset is estimated by identifying and analyzing the price at which
similar assets have been exchanged between willing buyers and sellers

For Patents, Technology, Copyright, Internally developed software and Brand names

Income Approach

The value of the intangible asset is equal to the present value of the expected income to be
owned from the ownership of the asset

For Patents, Technology, Copyright, Brand names and Customer relations

Cost Approach

Based on the economic principle of substitution: the intangible asset is the estimated cost to
purchase or construct an asset of equal utility.

For Assembled Workforce, Internally developed software and Customer relations

 Venture Growth Strategies
An entrepreneur may choose to use one of the following strategies to grow his/her business.

Market Penetration

Market penetration is geared towards growing one’s market share for an existing product or
increasing the number of existing goods that are bought my existing customers by providing
trade discounts or reducing prices.

Market Expansion

The market expansion strategy involves the promoting of the business’ existing goods and
services to new markets through activities like new packaging or promotional methods. This
strategy is used when existing markets are saturated.

Product Expansion

This strategy is used when new products are being developed and promoted in existing markets.
The incoming of new technology facilitates this strategy.

Diversification

This occurs when new products are promoted in new markets. The products may be related to
those already being sold my competitors or unrelated, being like no other in the new market. It’s
a risky strategy so market research is helpful.

Acquisition of Other Companies

A business may choose to acquire an existing business or number of businesses. This may lead to
the addition of new products and services and new markets.
 E-Commerce
IMPACT OF THE INETRNET ON BUSINESS VENTURE DEVELOPMENT

The internet has allowed businesses to develop by:

1. Having more speed and flexibility in reach customers online

2. Being able to place less emphasis on the space

3. Being able to providing high volume of output to its market due to saving on overhead
expenses (leasing office space)

4. Being able to improve low profit margins through online sales

E-commerce is defined as the process of buying and selling goods and products over the internet,
including the service and support after the sale. The internet acts as an enabling environment fir
completing business transactions. E-commerce creates interdependencies between your
entrepreneurial venture and your suppliers and customers.

Types of E-commerce

1. Business to Consumer (B2C) - The sellers are organizations and the buyers are
individuals

2. Consumer to Business (C2B)- Consumers make their product or service interest known
and organizations compete to provide the product or service to consumers.

3. Business to Business (B2B)- Business sells its products or service to another business

4. Consumer to Consumer (C2C)- Transactions where an individual sells products or

services to other individuals

5. Intrabusiness or Intraorganizational commerce- Transactions between employees in

organizations and between departments

6. Mobile Commerce- The latest form of e-commerce which is facilitated over a wireless
environment.
Approaches to E-Commerce for Venture Growth

1. Online Banking/ Internet Banking- Provided increased payment access for products
between the businesses and its customers. Eg: NCB Online Banking

2. Online Shopping Malls- Provided customers with increased access to a venture’s

product. Eg; Amazon

3. Virtual Communities- Help to attract potential customers to a business website which

can bring sales. Eg: Storefront services with pop up ads

4. Partnership with existing online payment facilities- Increase payment options for
customers to purchase a business’s products. Eg: Visa, MasterCard, PayPal, Apple Pay

5. Internet providers- Provide a way for customers to interact online with businesses and
their products

6. Private Initiatives- Will make potential customers aware of the business when they carry
out online services like:

- Hiring a professional to design an attractive customized

website and maintain it for business. Eg: Web Developers

- Building a website in-house using one of the IT personnel

Factors to Consider before Launching In E-Commerce

1. Networking Potential

Evaluate the ability to network with essential service providers such as payment
facilitators, shipping companies, and web developers.

2. Integration of the Web into Overall Strategy

Ensure the online aspect of the business integrates well with overall business strategy and
objectives.

3. Importance of Customer Relationships

Consider the business's ability to maintain lasting relationships and build brand loyalty
with customers online.

4. Ongoing Resource Investment

Assess whether the business will need to continuously invest resources (financial, capital,
human) to operate online and if it will be cost-effective.

5. Data Mining Capabilities

Determine if the business is capable of carrying out data mining to uncover patterns and
valuable information from large data sets.
 Assessing the Online Potential of the Business

Firms will consider the following factors when determining if its feasible to take their business
online:

1. Appeal to Customers

Assess if the product appeals to an online audience. For instance, some beauty services
may be more effective and appealing in a physical store, while products like food
delivery services are highly appealing to online users.

2. Target Market

Evaluate whether the firm’s target market actively uses online platforms. If the primary
customers are not frequent online users, the business may not benefit from an online
presence.

3. Distribution Cost

Determine if the shipping cost is affordable for both the business and the customers.
The business must decide if it is more cost-effective for customers to purchase products
in-store rather than incurring potentially high shipping costs.

4. Costs and Benefits

Assess if the potential overall revenue from online sales outweighs the costs associated
with maintaining an online presence, including website maintenance, marketing, and
logistics.

These factors help businesses evaluate the feasibility and potential success of
transitioning to or expanding their operations online.
Benefits of Using a Website to sell through the Internet

1. Greater Global/International Reach- Businesses can access a global customer base,

allowing people from anywhere in the world to purchase their products.

2. Enhanced Customer Service and Convenience- Customers can post queries and
browse products at their own convenience, leading to improved customer service and
satisfaction.

3. Greater Interactive Communication- Businesses can interact more effectively with

customers through online chats and data mining, helping to understand and meet their
needs better.

4. Lower Operational Costs- Online operations can reduce overall operational costs,
enabling the business to grow faster by reallocating savings to other areas.

5. Tracking Customer Purchases- Firms can use online software to track customer
purchases and analyze sales results, providing valuable insights for decision-making.

6. Spotting New Business Opportunities- Businesses can identify and capitalize on new
opportunities in potential markets through data analysis and online trends.
 Myths About E-Comemrce

1. Setting up the site is easy and inexpensive: Once the entrepreneur understands the
technology or engages a person who understands the technology, setting up an e-
commerce site can be easy. However, consideration must be given to local
telecommunications infrastructure. The cost of setting up the website varies based on
the complexity of the site.

2. Customers will flock to my site: most entrepreneurs believe that, once they set up an
e-commerce site, customers will come to the site in abundance. This is not true as
customers still need to be made aware of the website through some means of
marketing.

3. Making money is easy: until customers are made aware of the site and start using it,
sales are not going to take place. Therefore, making money through the website is still
very dependent on how the website is marketed and how easy it is to navigate and
make purchases. It does not matter how much money you spend on advertising and
marketing. If your website does not serve the customer, you lose.

4. Privacy is not an important issue: one of the biggest challenges with websites now
is privacy. Privacy issues highlighted in most policies deal with storing information,
repurposing, provision to third parties and displaying of information pertaining to
oneself via the Internet.

5. Technology is the most important element: technology is believed to be the most

important element in ecommerce as it allows the business to be more efficient.
Technology also makes life easier for everyone. However, the human aspect is
overlooked with online transactions. The leadership of the entrepreneur and the
perception of trust and integrity of the business is quite important to the potential
customer.

6. Customer service is not as important as in a traditional retail store: with the

emergence of new online customer service channels, the desire for high expectations
being met and ever-changing needs of consumers have made it especially challenging
for businesses to provide a consistent and exceptional online customer service
experience. This service must match or exceed the traditional retail store service.

7. You do not need a strategy, only a site: most entrepreneurs who develop sites that
are not in keeping with the overall business strategy find themselves missing out on
the opportunity. Since the site is not a standalone package, it has to be incorporated
into the overall vision of the business.
 Strategies for E-Commerce Success

1. Engage in data mining to allow the business to gather useful information on its
customers to better meet their needs.

2. Develop an effective online marketing plan that includes the four PS of the marketing
mix to ensure that online promotion techniques, pricing and distribute channels are
appropriate.

3. Develop an online community using storefront services to traffic potential customers to

your page.

4. Attract customers by having online giveaways- for example coupons.

5. Have your business e-mail or instant chat box present on the website, for easy
correspondence with customers.

6. Promote the business online platform as a credible place to do- Eg secure payment
system, deliveries on time etc.

7. Form strategic alliances with payment providers, website developers/managers, online

security companies, shipping companies etc

8. Promote the business website on and offline to encourage potential customers to view.