Fundamentals in Entrepreneurship: Module 3

Introduction to Module 3: Managing and Growing the Venture

Introduction

At this stage in the venture's growth it is imperative that the entrepreneur understands the challenges
and opportunities that the venture can face in as it grows, with technology. Moreover, it becomes
increasingly important that the venture is valued as part of an exit strategy. the intention of this module
is to highlight such issues.

Module Outline

 Chapter 12: Stages of the Venture Life Cycle

 Chapter 13: Venture Valuation
 Chapter 14: E-Commerce and Growing the Venture
 Chapter 15: Module 3 Activities

Specific Objectives of Module

• identify and understand the stages of the venture life cycle

• comprehend different venture models
• outline methods of venture valuation
• explain the impact of the internet on venture development
• assess and understand the role of e-commerce in venture operations
 Fundamentals in Entrepreneurship: Module 3

Chapter 12: Stages of the Venture Life Cycle

The venture life cycle applies to small as well as, large ventures. It traces the venture through its
developmental stage to introduction on the market through possible growth , stabilization and eventual
decline. It should be understood that a venture can grow or experience failure in the first years.
Additionally, each venture will proceed differently through the stages. Moreover, some will fail and exit
the market.

Diagram 1 outlines the stages of a venture life cycle

Profit/Revenues

Stabilization

Innovation

Venture growth decline

Start -up activities Failure

venture development

Stages

Stage I: New Venture Development: This stage begins with the entrepreneurial idea for the delivery
of a good or service to meet customer satisfaction. The entrepreneur will engage in activities such
assessing self, opportunities in the external environment, markets and product knowledge. He or she
will screen ideas and engage in feasibility analyses and the select among competing ideas. At the stage
the entrepreneur has to ensure that he or she has the knowledge, skills, attitude and experience to
capitalize on the business opportunity. Focus will also extend to business structure e.g. sole trader or
partnership and creating vision, mission, objectives and strategies. the entrepreneur will rely on funding
from self/owners, family and associates. Leading into the Start-up stage, the entrepreneur will define
the business model.

Stage 2: The Start-Up Stage: This stage is characterized by the venture being legally recognized and
producing goods or services to meet customer needs. The entrepreneur will have a formalized business
plan which will provide a roadmap for the venture. Further, sourcing of capital will be imperative for
 Fundamentals in Entrepreneurship: Module 3

meeting business needs. Budget revisions will be necessary to ensure the business is on the right track.
Start up stage will also require the venture to define its competitive advantage in order to differentiate
its product offering. Market research and risk analysis is also important to facilitate decision making to
ensure that the start- up moves to the growth stage or fails.

Stage 3: The Growth Stage: If the business makes it past the start-up stage the may be growth
characterized by new markets and expanding distribution channels. The entrepreneur will be seeking to
gain market share and make profits. This stage will require intense market scanning and may result in
positioning the product in new markets or re-positioning in existing markets. The venture may also
target new customer bases or add new products to the existing line. Additionally, funding will be
sourced from new sources such as, investors, banks, retained earnings, government. The venture may
also have to modify its strategy in light of new competition and substitute products on the market.

Stage 4: Business Stabilization or Maturity Stage: This stage is characterized by the venture facing
increased competition in the market with similar products. Profit and sales margins are stable initially,
then begin to decline in the face of competition and market saturation. Customers have high bargaining
power since choice is greater. The business is faced with reduced cash flow and the entrepreneur is
faced with the decisions whether to innovate, expand or to exit the market. The entrepreneur has to
project where he/she sees the venture in the next 3 to 5 years. activities will include searching out new
opportunities, cost cutting and sourcing funding.

Stage 5: Innovate or Decline/Exit Stage: The entrepreneur, will have at this stage conducted the
necessary internal and external analyses and decide that given the capabilities of the venture it will
innovate e.g. design new products for existing markets or new markets; venture into new geographical
territories; target new users of existing products; acquire new business. However, the decision could be
to decline and service existing clients and exit the market eventually or seek to be acquired by another
firm. If the decision is to exit by selling, the venture has to be valued.

Limitations of using the Venture Life Cycle Model

The model is subject to turbulence in the external environment, therefore, growth is not a definite
progression for the venture. Transition through the venture stages is not predictable. Trade cycles e.g.
boom or recession can affect the venture development. Moreover, internal variables will affect the
transition through the stages e.g. type of entrepreneur such as a lifestyle entrepreneur.
 Fundamentals in Entrepreneurship: Module 3

Venture Models

Sources: Bhide(2000): The origin and evolution of new businesses. Oxford: Oxford University Press.

U.S. Small Business Adminisatration

Promising start-ups: According to A.Bhide (2000) entrepreneurs of 'promising start-ups ' typically start
their business without ' novel ideas. These entrepreneurs may not have long established experience or
abundant resources. These businesses however, represent the 'majority of fast -growing privately held
businesses in the United States'. Bhide (2000) contends that promising start ups tend to pursue
opportunities with high uncertainty and require low initial investment. The likelihood of profits is also
low. The entrepreneur's ability to make sound decisions is what drives the venture rather than prior
planning and research.

Venture -backed start-ups: These ventures are described as the middle ground between promising start
ups and corporate supported start ups. They can result in significant profits. However, they are subject
to outside 'monitoring and oversight’. According to the U.S. Small Business Administration, venture
capital is a form of equity financing. This tends to meet the funding needs for ventures that cannot get
funding from traditional sources. Venture capitalist back start ups that are high growth by nature.
Investments are made in exchange for shares in the venture. The venture capitalist will also have an
active role in the venture.

Corporate-supported start-ups: This is described as a situation where a big, established company e.g.
eBay helps smaller ventures grow. This type of support is mainly in providing technology platforms to
sell on eBay. According to Bhide(2000), these start up have adequate capital but are subject to extensive
'checks and balances'. Corporate-supported initiatives are characterized by high investment and the
likelihood of profits. There is low uncertainty. Further, there is reliance on extensive planning and
research . These startups are also backed by the 'joint effort' of many personnel and functions.

Student Activity

Complete the matrix on Venture Models

Model Promising start -up Venture-backed start - Corporate supported

Criteria up start-up
Description

Investment/Source of
funding
Accountability
 Fundamentals in Entrepreneurship: Module 3

Chapter 13: Venture Valuation

Importance of venture valuation

Valuing a new venture is an important aspect in seeking financing for the enterprise. A venture
capitalist will emphasize the venture valuation process as it will indicate how much shares he/she will
receive in for investing in the venture. Moreover, valuation gives an indication of the venture's
profitability and expectations of the investor. In relation to the entrepreneur, the valuation puts a
financial statement to the inputs into the business. Key points on the importance of venture valuation
include:

▪ Tracking increases and decreases in business value:

▪ Buying or selling the business:
▪ Making preparations for selling the venture
▪ Raising growth capital through initial public offering (IPO) or sale of stocks: Raising finance or
equity
▪ Establishing an ESOP or employee stock option plan/employee stock ownership plan: Creating a
share option incentive plan that allows the employees to acquire ownership in the company
without investing their own finances; a stock option is therefore a ,'legal contract giving the
owner the right to buy or sell a quantity of stock at a set price on or before a specific date'
(volatilitytrading.net).
▪ Meeting tax obligations and tax management: Valuing the venture provides a basis for
calculating taxation obligations if the business is to be sold.
▪ Structuring a buy, sell or joint venture agreement with stock holders e.g. mergers and
acquisitions: A valuation helps the entrepreneur to consider which strategy is most feasible e.g.
exit planning. An exit strategy entails actions to 'bail out' the business at some point before it
declines. This is important as external investors want to collect a rate of return on their
investment. Exit strategies include: merger and acquisition which entails joining with a similar
entity or being purchased by a larger company; IPO or initial public offering;
▪ Insurance
▪ Protecting shareholder interest
▪ Motivational tool for internal stakeholders
▪ A reference document for accessing funding from banks
▪ To modify business plan
 Fundamentals in Entrepreneurship: Module 3

Venture Valuation Methods

Venture valuation begins with an understanding of the venture organization. This includes
understanding the systems such as managerial systems, technical systems, financial systems, human
resource systems and assessment of markets. This is a crucial step in financing a venture. Moreover,
different assessment methods should be combined to give a holistic view of the organization. Methods
include book value or balance sheet value; price earnings; discounted future earnings or discounted cash
flow.

Methods of venture valuation include:

• Book Value or Balance Sheet Value: A venture's 'book value' is the net worth of the venture. It
is the difference between total assets and liabilities. the net worth is also the value of
shareholders'/owners' equity stated in the balance sheet.

• Price earnings ratio(PER) or earning per share ratio: The price earnings ratio of a share shows
the multiple of the earnings per share that is paid on the stock market. e.g.
Earnings per share=$2
Share price = $24
Price earnings ratio= Share price/earnings per share = 24/2 = 12

The equity value of the venture is found by multiplying the net income by the price earnings
ratio e.g.
Equity value for the venture= Annual net income X PER

• Discounted Cash Flow or Discounted Future Earnings: This method of valuation measure all
expected future cash inflows and outflows of the venture. The projections are then discounted
using the weighted average cost of capital to get the present value. This is then used to
evaluate the investment.

Net Present value: This method involves calculating the expected monetary profit or loss from
a venture by discounting all expected cash inflows and outflows to the present point in time,
using 'the required rate of return'. Only ventures with a zero or positive net present value
should be accepted.

Weighted Average Cost of Capital: The average of the minimum after-tax required rate of
return which a venture should earn. It represents the average risk faced by the venture.
 Fundamentals in Entrepreneurship: Module 3

Chapter 14:E-Commerce and Growing the Venture

E-Commerce

E-commerce can be defined as, 'the process of buying or selling goods and services using an electronic
medium such as the Internet,' (www.tutorialspoint.com). E-commerce utilizes information exchange via
electronic data exchange(EDI); E-mail; Electronic Fund Transfer (EFT); Electronic Bulletin Boards; Digital
Libraries; Electronic Publishing.

E-commerce models that a new venture can consider includes:

 Business- to -Business (B2B): Website that facilitates selling products to other businesses or
intermediaries e.g. Wholesaler places an order via the website with the business who then
supplies the wholesaler. The wholesaler then sells to the final consumer.
 Business- to- Consumer (B2C): The website sells products directly to the customer. The
customer can shop using the facilities such as a 'shopping cart' and order the product form the
business. The website notifies the business and the organization will process the order.
 Business - to -Government (B2G): Websites designed to facilitate trade between government
and business organizations.

Advantages and Drawbacks of E-Commerce

The basic advantages of e-commerce includes:(Source:

For the venture:

➢ Help the venture access national and international markets ;

➢ Help the venture contact more suppliers and customers;
➢ Cost reduction in terms of paper transactions;
➢ Helps to develop the company's image as being up to date;
➢ Increase productivity through' just in time' practices;

For the customers:

o Customers can access information at any time from various geographical locations;
o Customers can utilize databases to compare products and prices and research products;
o Customers can shop online using a variety of tools such as online stores; auction sites; variety of
payment methods;
o Increased competition online among sellers can result in discounts for customers;

For the society:

• Enables persons in remote geographical locations to access information, products and services;
• Firms and governments invest in infrastructure to develop e-business this can lead to the
development of the field and create jobs and businesses.
 Fundamentals in Entrepreneurship: Module 3

The role of the Internet and its impact on venture development

In the article entitled, "Impact of Internet Revolution in Business" (managementstudyguide.com),

Porter's Five Forces Model was used to analyze the impact of the internet on business. It describes the
internet as lowering entry barriers in setting up a venture. Therefore, there is an increasing threat of
new entrants into a market. Competition therefore, lowers profit margins as more suppliers of
products are available. As more suppliers enter the market, there is the present threat of substitute
goods and services. In order to meet customer needs businesses need to innovate product offering.
The internet has in effect shorten the product life cycle in terms of the availability of new substitutes.
Moreover, the internet has increased the bargaining power of customers in that information availability
lead customers to compare among offerings e.g. pharmaceutical products where the customer can
access information such as contents, side effects, testimonials on various products, as well as, price
comparisons. Suppliers also have information in terms of competitors' products, strategies, trends in
buying and selling, therefore, increasing bargaining power of suppliers. Clearly, the threat of
competition has increased as a result of the impact of the internet in terms of accessing information on
new products, doing business online, advertising using social media, knowledge of companies and
information such as, ethics and corporate social responsibility.

In analyzing this impact of the internet on venture development, several key points can be highlighted:

▪ The internet enhances speed and flexibility in conducting business. The entrepreneur can
communicate in a timely manner with suppliers and also receive feedback from customers and
suppliers. Flexibility is gained in terms of internet banking and enabling access to remote
geographical areas from home or office. Moreover, there is 24 hour access to the business. The
entrepreneur has the option to engage in flexible work schedules.
▪ Physical issues such as business space availability or building size is not a key factor when
conducting ecommerce therefore ventures that are electronic based can have lower
infrastructure costs. In growing a venture web based applications such as 'cloud computing'
can help store data. Moreover, the actual transactions take place online reducing the need for
face to face transactions requiring sophisticated physical evidence such as office space or board
room for example.
 Fundamentals in Entrepreneurship: Module 3

▪ Clouding computing describes 'the delivery of hosted services over the Internet'
(techtarget.com). It benefits business entities by enabling them to use 'compute resources as
utility'. The business does not have to build maintain the infrastructure within the
establishment. cloud computing results in time and financial savings by improving productivity
through information access. Moreover, there is collaboration among users of information.

Approaches to E-commerce

Source: Approaches to E-commerce by Edwin Kuller; www.emarket services.com

In the article Approaches to E-commerce by Kuller, the writer underscores main issues in approaches to
e-commerce. In approaching the concept of buying and selling online consideration is given to the
following:

 Using the 'shopping cart': This is a tool that allows the buyer to select items to be purchased.
The buyer selects the items from the online catalogue or menu and places them in the shopping
cart. This feature is least preferred based on security risks.
 Using a' payment gateway: This feature allows the buyer's credit card to be authorized in 'real
time'. The buyer is allowed to complete the process and facilitate payment to the seller's bank
account. This feature allows a certain degree of risk management.
 Use of 'an internet merchant account facility': This works in combination with the payment
gateway and is an account facility set up to receive online payments (credit card) to the
merchant's account.
 Use of a third party such as Paypal by the merchant: The third party takes care of some of the
main elements of e-commerce.

Other approaches include: Source: software.ucv.ro

 Online Shopping malls: A type of store front model that provides consumers with a wide array
of goods and services. The consumer can browse and shop for different products rather than
making separate purchases. This approach combines with the shopping cart feature to buy from
a variety of stores in one transaction.
 Fundamentals in Entrepreneurship: Module 3

Case:( Source pointshop.com) The PointShop.com

The Pointshop.com shopping mall offers a wide array of brand name products from electronics
to clothing and apparel, furniture, bedding and jewellery and handmade collectibles for
example. This is a network of online stores, department stores and national retailers. the site
provides a variety of ways to shop such as merchant directory, stores by category, services
directory, deals and savings. Pointshop is described as a 'complete e-commerce designed for
small and medium sized businesses. Customer care facility offers order tracking as well as a
returns policy.

Question
(a) Define the term 'e-commerce".
(b)Discuss 'The PointShop' approach to e-commerce.

 Auction Model: This site is a forum whereby users can log on and be a seller or bidder. the
seller posts and item he/she wishes to sell with a minimum price and a closing date for the
auction. Some sites do not facilitate payment and delivery. Moreover, the auction site usually
require a commission fee and sometimes a percentage of the sale amount.

Case: Source: ebay.com Ebay

Ebay is described as a community where persons and seller have 'equal' opportunity to buy and
sell merchandize at 'fair prices'. The site offers a payment system via a third party such as,
PayPal. PayPal permits the seller to accept credit card or bank account payments for eBay
purchases. The eBay site offers the user a registration overview, tips on how to sell items,
trading safely and how to find and buy an item.

Question
(a)State the approach to e-commerce used by 'Ebay'.
(b) How does 'Ebay' enhance its service offering.

 The venture can hire professionals/experts to build a website to facilitate e-commerce. The site
can be customized to meet the needs of the entrepreneur and the buyer. This can be costly to
customize and maintain.
 Building a Site in -house is another approach: The venture can utilize its in house capabilities
and a build the website. Utilizing this approach allows the venture to have control over the
website in terms of design and maintenance. Conversely, the cost of hiring staff to maintain the
site can be expensive.
 Fundamentals in Entrepreneurship: Module 3

Factors to consider prior to launching into E-commerce

In starting an e-commerce business venture the entrepreneur must be conscious of what will drive the
customer to visit his/her website; how will the business provide customer service and what is the nature
of the product to be sold (develop and sustain customer relationships). The venture therefore has to
differentiate from its competitors. One, therefore has to develop and reinforce a unique selling
proposition for the venture or what can you offer the customer that the competitors cannot. Moreover,
the entrepreneur has to understand the technology and how it can assist the venture in securing
customer satisfaction. Further, the e-commerce process should be simple for the customer to articulate
and provide a sense of security when making purchases. The process should be clear, convenient and
confidential. Consequently, the venture must be able to fulfil its mandate to the customer that is supply
what the customer purchases and ensure that it is delivered on time, free from defects and accurate.
Therefore, in starting, maintaining and growing an ecommerce business venture, strategy development
and implementation is important such as, pricing strategy, promotion strategy, customer service
strategy, supply chain and distribution strategy and cost management. There should be integration of
the web (internet, intranet, web site etc.) into the overall business strategy(Porter's Generic Strategy
Model: cost leadership, differentiation or focused/niche strategy). The entrepreneur must also consider
that to maintain an e-commerce venture requires ongoing investment in maintaining the site, updating
skills, money and time.

Consequently, e-commerce can provide the venture with networking potential to create collaboration
through data sharing with suppliers( supply chain co-ordination, replenish stocks); customers (requests
and orders); co-ordinate internal processes (marketing and sales; human resources etc.). Another,
consideration is data mining. The entrepreneur will have to analyze data to uncover patterns and rules
that can be used to guide decision making and predict consumer behaviour. To ensure that the venture
is relevant it is important to monitor online sales to find out if the venture is meeting consumer tastes
and preferences.
 Fundamentals in Entrepreneurship: Module 3

Assessing the online potential of the venture

In assessing the online potential of a venture, the entrepreneur should consider:

o The venture 's appeal to customers in that, does the product (good or service ) being offered
satisfy a need in the market and will this need motivate potential customers to search for the
venture.
o Target market: Who is the target market segment and will those customers access the venture
online; does the target market have the facilities to access the website;
o Distribution costs: How will products be shipped to customers and who will incur the cost of
shipping will also need consideration
o Cost and benefits: the venture will have to conduct a cost benefit analysis of whether it is
feasible/viable to go online with the business. This would include cost to develop and maintain
website versus the benefits of accessing a wider geographical market and 24 hour accessto the
business for example.

Benefits of a website in selling through the internet

According to Laudon and Laudon (2006), a website is 'all of the Web pages maintained by an
organization or individual'. Key benefits of using a website in e-commerce include:

• Capacity to enhance customer service: The website becomes another 'sales tool' whereby the
venture could address customer concerns and provide buying information.
• Interactive communication: A website can provide interactive features to enhance the
communication experience e.g. push button or scroll interactivity, videos, blogs, podcasts;
• Lower cost of doing business, ability to grow faster: Promotion of the venture is less expensive
than traditional printed media.
• Track sales results: More visitors to the site can mean more sales and the website can have a
feature to track sales.
• Ability to spot new business opportunities: Through the website persons from around the
world can have access to the business even markets not at present being served, this can
provide opportunities for the venture to access new markets;
• Online visibility through search engines as more persons can find the venture;
• Provides more environmentally friendly marketing and a multitude of techniques can be used
e.g. advertising through social media.
• Accessible to customers 24 hours and prospective customers can search for the business;
• Communicate credibility about the business through features such as photo album; About Us
page;

Sources: ine.com;smallbiztrends.com
 Fundamentals in Entrepreneurship: Module 3

Myths about E-commerce

Myths on E-commerce can be outlined in the following headings: Source 'An IPC White Paper Report:The
Myths of E-Commerce produced by the IPC E-Business and Supply Chain Committee (2000)'

▪ 'E-commerce is primarily about technology': According to G. Haller(2000) in the IPC White

Paper Report, e-commerce is basically 'business' implementing new methods to enhance
efficiency.
▪ 'E-commerce will replace purchasing': According to G. Hayden(2000) with the implementation
of e-commerce may be seen as diminishing the role of the purchasing department in the
'procurement process'. However, Hayden(2000) contends that 'the buyer'/purchaser's role will
be expanded in the procurement process.
▪ 'E-commerce is a zero-sum game': According to J. Ferry(2000), auction sites have provided
sellers with competitive environments which benefit the buyers so they tend to view this as zero
sum. However, e-commerce can prove to be challenging if businesses refuse to change.
Therefore, the seller needs to recognize the opportunities presented in terms of lowering costs
and enhancing customer relations.
▪ 'E-commerce will go away'. It's a passing fad.': According to P. Dave(2000),there is a belief that
the 'hype' surrounding e-business will subside. However, the evolving economic reality is that
there is a trend towards a 'frictionless economy' characterized by lower costs of interaction.
Firms are looking to engage in partnerships and outsourcing to remain competitive. Further,
given that in an e-business scenario, market entry can be fast tracked and growth can be
accelerated.
▪ 'E-commerce is only about exchange': G. Wild (2000), argues that exchange deals with fulfilling
orders after the purchasing decision has been made, however, B2B e-commerce goes beyond
this to include decision making and 'approval processes within the organization. This entails for
example planning and forecasting as well as, enterprise collaboration.

Other Key Myths include:

• Setting up a site is easy and inexpensive: If an organization does not have in-house capabilities
to set up and maintain this initiative then, the development of the site has to be done by an
outside expert. This can be expensive and maintenance has to be ongoing. Moreover, it will
prove to be additional cost if the venture has to hire permanent personnel to set up and
maintain the site.
• Customers will flock to my site: The venture will have to consider if the target market will be
accessible through a web presence.
• Making money is easy: E-commerce will mean that goods have to be shipped to certain parts of
the world, this will incur shipping costs. The venture will have to decide who will bear the
burden of shipping costs. Moreover, with the proliferation of online competition, a small
venture will have to provide incentives to attract customers.
• Privacy is not an important issue: In contemporary society where e-commerce is a facet of
existence, there is the rise of cybercrime. This involves fraud and identity theft, and invasion of
 Fundamentals in Entrepreneurship: Module 3

privacy. Legislation for example in Trinidad is being considered to deal with cybercrime.
Moreover, information sent via the computer networks may pass through different systems and
online activities can be subject to recording. Certain websites also carry 'cookies' which tracks
visits to the site. Spyware for instance can install itself on the user's computer.
• Customer service is not as important as in a traditional retail store: As with a traditional retail
store, customer service is equally or more so important in e-commerce. Websites have to be
designed to maximize the customer experience, since, online it is easy to search for alternatives
as geographical restrictions are reduced. Moreover, the e-commerce initiative via websites has
to track buying behaviour and respond immediately as online there may not be the face to face
interaction. Also, online buying and selling can be subjected to increase speed in the spread of
information across social media sites.
 Fundamentals in Entrepreneurship: Module 3

Strategies for E-commerce success

Strategies to promote e-commerce success include:

o Data mining: The process of data mining should be continuous by the venture. This would help
the venture to keep abreast of developments/changes in customer behaviour. The business
through its analysis of customer data, can respond proactively to changes.
o Develop an on line marketing plan: This would include providing competitive shipping rates
and incentives. Moreover, according to a 'Comscore Report (May , 2011),' consumers are likely
to leave a purchase transaction if the seller does not provide free shipping. Also, it is beneficial
to have an operational 'return management system. Further, it will benefit the seller to provide
multiple storefronts by customizing sites to meet different customer needs. They can provide
outlets for different products, brands, payment systems and shipping options. Another area is
'repricing' using an automated tool (websitemagazine.com). E-commerce ventures can also use
'interactive features on its web pages to attract customer attention and to facilitate information
gathering on consumer preferences such as tastes and interests. Additionally, 'blogs' which are
websites set up where individuals/customers can publish accounts, stories, opinions and links.
This facilitates a less formal, more personal way of providing product insights.
o Develop a community: The venture can utilize social networking e.g. Facebook to create a
community around its product offering. This can be at a minimal cost to the venture.
Moreover, the venture can create a customer database and access comments, criticisms and
suggestions on the products.
o Attract by giving incentives: Through its 'community' and website, the venture can offer
promotional items to customers e.g. free samples, sales incentives, advice on product use. This
would help to maintain customer interest in product offering.
o Creative use of emails: Through e-mails the venture can connect with its customer base by
encouraging comments and concerns about products. Moreover, the venture can email
customers with special offers and promotions as well as, new product information.
o Credibility: The seller /venture needs to maintain the credibility of what is offered on its website
e.g. pricing, shipping charges; availability of products; delivery process.
o Strategic alliances: This entails the creation of for example, 'private industrial networks' which
are focused on 'continuous business co-ordination between companies' (Laudon and Laudon,
2006). This facilitates the sharing of information such as, product development strategies,
marketing information, production scheduling and other communication.
o Promote site on and off line: Customers should have access to sites both online and off line.
This is to maintain a level of access to reassure to the customer and to avoid switching.
 Fundamentals in Entrepreneurship: Module 3

Chapter 15: Module 3 Activities

Multiple Choice

Choose the appropriate answer for each multiple choice question.

1. All of the following are key stages in the venture life cycle, EXCEPT
a) New venture development
b) Start up stage
c) Generation X stage
d) Stabilization stage

2. The stage of the venture life cycle characterized by increased competition with substitiute
products and where the market becomes saturated is specifically termed
a) The Growth Stage
b) The Maturity Stage
c) Innovation Stage
d) Decline Stage

3. Which of the following are key characteristics of a 'promising start up'?

I. new ideas and ample experience
II. require low investment
III. typically start without new ideas
IV. Likelihood of profits is low
a) I, II, III and IV
b) I, II and III
c) II, III and IV
d) III and IV

4. Key features of a venture-backed start up include the following, EXCEPT

a) high growth by nature
b) subject to outside monitoring and oversight
c) requires no prior planning and research
d) venture capitalist will have an active role in the venture
 Fundamentals in Entrepreneurship: Module 3

5. Key reasons for valuing a venture include

I. important when seeking financing
II. indicate how much shares a venture capitalist will receive
III. indicates profitability and investor expectations
IV. necessary when selling the venture
a) all of the above
b) I, II and III
c) II, III and IV
d) I, II and IV

Items 6 and7 are based on the following information

XYE Company
Balance Sheet
Balance Sheet Items 2015 2014
Current Assets $ 3 575 000 $2, 856 735
Net Fixed Assets $ 956 050 $ 1 567 321
Total Assets $ 4 531 050 $ 4 424 056
Current Liabilities $1,274 684 $ 1 675 000
Long Term Debt $ 500 000 $ 875 000
Other Items
No. of shares 300 000 200 000
Earnings per Share (EPS) $ 1. 05 - $0.85
Dividend per share (DPS) $0.44 $ 0.09
Stock Price $ 8.75 $2.00

6. According to the Book Value approach( balance sheet value approach), determine the value of
XYE Company in 2015
a) $ 800 000
b) $ 2 300 316
c) $ 2 756 366
d) $ 1 774 684

7. Determine the price earnings multiple/price earnings ratio of XYE Company in 2015.
a) 2
b) 12
c) 8.33
d) 4.33
 Fundamentals in Entrepreneurship: Module 3

8. The net worth of a venture, that is the difference between total assets and liabilities is
appropriately termed
a) earnings per share
b) discounted future earnings
c) equity value
d) book value

9. Discounted future earnings is conceptualized as

a) discounting of assets versus liabilities
b) the required rate of return
c) projecting the expected future cash inflows and outflows then , discounting using
weighted average cost of capital
d) projecting the expected future cans inflows and outflows then, discounting using a fixed
percentage

10. The average of the minimum after-tax required rate of return is specifically termed
a) the return on investment
b) the weighted average cost of capital
c) the net present value
d) the expected rate of return

11. The process of buying or selling products using an electronic medium is appropriately termed
a) e-business
b) net market place
c) e-commerce
d) e-trading

12. Which of the following statements are main advantages of e-commerce?

I. Helps the venture access more suppliers and customers
II. Increase competition results in cost savings for customers
III. Enables persons in remote areas to access goods and services
IV. Makes available a variety of payment options
a) I, II and III
b) I, II and IV
c) II, III and IV
d) I, II, III and IV
 Fundamentals in Entrepreneurship: Module 3

13. A feature that allows the buyer's credit card to be authorized in 'real time' is
a) shopping cart
b) internet merchant account facility
c) online shopping site
d) payment gateway

14. All of the following are key factors for a venture to consider before deciding to enter into e-
commerce, EXCEPT
a) ability to maintain on-going investment
b) data mining
c) ability to integrate the web into overall strategy
d) home based working

15. Key myths surrounding e-commerce include

I. E-commerce is only about technology
II. Making money through e-commerce is easy
III. Privacy is not a key issue
IV. E-commerce entails on- going investment in structures
a) I, II, III and IV
b) I, II and III
c) I, II and IV
d) II, III and IV

16. Analyzing data to find patterns and trends that can be used to guide decision making and predict
consumer behaviour in an effort for the venture to remain relevant is termed
a) data mining
b) data processing
c) data input
d) data inflow

17. Key factors to consider in assessing the online potential of a venture include
I. cost and benefit of the investment
II. sustainability of the target market
III. ability of website appeal to customers
IV. data mining to determine customer preferences
a) all of the above
b) I, II and III
c) I, II and IV
d) II, III and IV
 Fundamentals in Entrepreneurship: Module 3

18. Benefits of a website in business to business transaction include

I. provides interactive communication with buyers and sellers
II. involves lower cost of business transactions
III. exposes the buyer to cybercrime
IV. provides tracking of orders
a) all of the above
b) I, II and III
c) I, II and IV
d) II, III and IV

19. MAJOR disadvantages associated with building a website in-house are

I. utilize the venture's personnel
II. maintain full control over the site
III. experience a lack of expertise in building site
IV. cost of hiring persons to maintain site can be expensive
a) I, II, III and IV
b) I and II
c) II and III
d) III and IV

20. A website is specifically

a) a document written in HTML
b) a group of web pages that belong together and are linked using hyperlinks
c) an icon , information object that displays another document
d) a special purpose application software

21. Major strategies that the entrepreneur can employ to promote e-commerce success include
I. Prototyping the system
II. Providing incentives to customers
III. Ensuring credibility of website
IV. Data mining
a) all of the above
b) I, II and IV
c) II, III and IV
d) III and IV
 Fundamentals in Entrepreneurship: Module 3

22. Amazon.com is specifically a

a) portal
b) virtual community
c) content provider
d) virtual storefront

23. Electronic commerce involving retailing products to individual shoppers is most appropriately
termed
a) C2C electronic commerce
b) B2B electronic commerce
c) B2C electronic commerce
d) B2G electronic commerce

24. Clouding is BEST described as

a) storage system
b) the delivery of hosted services over the internet
c) transferring of information
d) a net marketplace

25. Which group of products is NOT suitable for online selling in the international market?
a) books, clothing, shoes
b) computers and accessories
c) fresh fruits and vegetables
d) wines and bottled drinks
 Fundamentals in Entrepreneurship: Module 3

Module 3: Managing the Venture

Case Study 1

The Car Fix It Factory

During the existence of 'The Car Fix It Factory', the venture in the first two years of existence was able
to cover its operating expenses. Within the next three years ,with the opening up of the foreign used
vehicles market , the ventures sales and profits increased. During the following three years, the car
industry became saturated and with low barriers to entry more 'fix it' businesses were opened.
Competition caused excess supply of goods and services. Revenue and profits levelled off and then
declined. In managing the venture, 'The Car Fix it Factory' had valued the venture as part of its Exit
Strategy. Now in the decline stage and given that the industry is facing new government legislation
prohibiting the importation of used cars, the owner is forced to decide on the future strategy of the
venture.

Questions

(a)Identify the STAGES of the venture life cycle. (5 marks)

(b)Explain, based on the case, one external issue that impacted the venture. (2 marks)

(c)State THREE reasons that show the importance of venture valuation. (3 marks)

(d)Outline ONE method of venture valuation. (3 marks)

(e) Describe one venture model. (2 marks)

Case Study 2

Online!

Fu Lin Supermarket is a small grocery store, located in the heart of a buzzing commercial centre. There
are many housing developments as well as, other residential areas within close proximity to Fu Lin.
After operating for three years in the present location, the owner realized that while the location is
central and is accessible to the walking and public transportation customers, persons with their own
vehicles were finding it difficult to access the grocery. Moreover, parking became difficult.

The matter was discussed with the family members who all had a stake in the business. The eldest
daughter suggested that they look to offer an online shopping facility. This would be offered to persons
in the environs. The family researched the concept of e-commerce and how they can benefit from this
technology. They decided to hire a website developer to create a website for the grocery.
 Fundamentals in Entrepreneurship: Module 3

Questions

(a) Define the term 'e-commerce'. (2 marks)

(b) Outline ONE approach to e-commerce that Fu Lin can utilize in this venture. (2 marks)

(c) State THREE benefits that Fu Lin can experience by employing e-commerce. (3 marks)

(d) Discuss THREE strategies that Fu Lin requires to achieve success in an e-commerce venture.

(6 marks)

(e)Outline ONE myth about e-commerce that can hinder Fu Lin's success. (2 marks)