Chapter 12: Promoting entrepreneurship and new

ventures.

LEARNING OBJECTIVES
After this chapter you should be able to:
• Identify the individual and contextual factors influencing the creation of new ventures.
• Understand the process of creating an innovative new venture.
• Distinguish the challenges of each of the stages of new venture development.
• Understand the motives and management of corporate ventures.
• Identify the advantages and drawbacks of different structures for corporate ventures
VENTURES DEFINED

 Internal Entrepreneurship: This means encouraging employees to think and

act like entrepreneurs while working for a company. It's about sparking new
ideas and innovation from within the organization.
 Intrapreneurship Programs: These are structured plans set up by
companies to help employees develop and carry out innovative projects.
They're like support systems for turning ideas into reality.
 Why It Matters: When employees get to be creative and come up with new
things, it keeps them engaged and helps the company stay competitive. It's
like tapping into a hidden goldmine of ideas from your own team.
 Challenges: Some difficulties include resistance to change, being too
cautious about risks, and finding the right balance (between new ideas
and the company's existing goals).
 Creating an Innovative Culture: This involves building a work environment
that encourages trying new things, learning from mistakes, and rewarding
people who come up with fresh ideas.
 Providing Support: Companies need to give resources like money,
guidance, and connections to help their employees succeed with their
innovative projects.
 Corporate Ventures: Sometimes companies invest in or partner with startups
from outside to bring new technologies and ways of doing business into their
own organization.
 What Makes It Work: Success often comes from having a clear plan that
matches the company's overall goals, support from top-level managers,
good communication, and a culture that's all about working together and
sharing knowledge.
 Real-Life Examples: The chapter talks about how some companies have
successfully encouraged entrepreneurship among their employees and how
they've benefited from it.
 e.g. Google's "20% Time": Google famously allows its employees to spend 20% of their
workweek on projects of their choice. This policy has led to the development of successful
products like Gmail and Google Maps, showcasing how internal entrepreneurship can drive
innovation in large companies.

e.g. Apple's Incubator for New Ideas: or Amazons Innovation Labs

 Looking Ahead: In the future, this kind of internal entrepreneurship will likely
become even more important as businesses evolve. Technology will play a
big role in driving these changes and helping companies stay agile and
adaptable.

Profile of a Venture Champion

 Profile of a Venture Champion: Personal Characteristics: Traits like family

background, goal orientation, personality, and motivation play significant roles in the
decision to start an NTBF.
 Influence of Family Background and Religion: Having a self-employed or
professional parent influences the likelihood of starting a venture. Certain religions
also show overrepresentation among technical entrepreneurs.
 Education and Experience: Technical entrepreneurs typically have a master's
degree and around 13 years of work experience before starting an NTBF. They often
come from a background of higher productivity and have experience in development
work.

Range of different ways of developing innovations, that are alternatives to conventional

internal processes for new products or service development
Work with others it introduces other competencies from the partner

 Age and Timing: Technical entrepreneurs usually establish their first venture
between the ages of 30 and 40, influenced by a combination of acquiring necessary
skills and reaching a stage in life with more responsibilities.

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  Psychological Traits: Successful entrepreneurs exhibit traits like an internal locus of
control, a high need for achievement (n-Ach), and moderate risk-taking tendencies.
They are motivated by a desire for independence and personal responsibility.
 Frustration and Triggers: Many technical entrepreneurs report frustration in
previous jobs, often due to poor selection, training, or major organizational changes,
which can trigger the decision to start their own venture.

Overall, successful technical entrepreneurs combine specific personal characteristics,

education, experience, and timing to navigate the challenges of starting and running new
ventures.

FACTORS AFFECTING NEW VENTURES

VENTURE BUSINESS PLAN

Attract external funding ( a start of a new business needs money, new ventured need
money before they can sell anything. So funding is not always from sales but can come
from sources like personal savings, loans from loved ones or from remortgaging a home

1. Importance of a Business Plan: A formal business plan is crucial for attracting

external funding and also serves as a clear agreement among founders about the
venture's goals and development.
2. Avoiding Conflicts: A business plan helps prevent misunderstandings among
founders, reducing conflicts over responsibilities and rewards.
3. Clarity and Decision-Making: It translates vague goals into specific operational
needs, aiding in decision-making and identifying trade-offs.
4. Impact on Performance: Among factors under entrepreneurs' control, business
planning has a significant positive impact on new venture performance. However,
market opportunities remain crucial and can have a bigger influence.
5. Preparation is Key: Just like Pasteur said, "chance favors only the prepared mind."
This highlights the importance of thorough preparation and planning for success.

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 6. Further Details: Detailed guidance on developing business plans can be found in
Chapter 9 of the book.

Types of funding:
 Crowdfunding: many people contribute small amounts of money online to support a
project
 Corporate venture funding: big companies invest in smaller companies. Good option
as it offers resources and expertise but it also means giving up control and sharing
profits.

 Initial Funding Challenges: New ventures often lack a marketable product early on,
making it challenging to secure funding based on cash flow from sales. The cash-
flow profile depends on factors like development time, costs, sales volume, and profit
margins.
 Development and Sales Strategies: Different industries have varying capital
needs and development timelines. For example, biotech ventures require more
capital and longer development times compared to software-based ventures.
 Funding Sources: Initial capital needs for new ventures are relatively modest, but
the amount and source of funding vary widely. Software firms often rely on personal
funding, while biotech firms typically need external funding due to higher R&D costs.
 Stages of Financial Needs: New ventures require funding at different stages of
development, including launch, initial development and growth, consolidation, and
maturity or exit. Professional financial bodies are generally less interested in initial
funding due to high risk.
 Funding Challenges: Entrepreneurs prefer independence but may need external
funding, especially in later growth stages. Funding is often obtained through personal
savings, loans from friends and family, bank loans, and sometimes government
sources.
 Venture Capital: Venture capitalists provide funding for ventures with proven track
records and strong business plans, but they often require equity or management
involvement. Entrepreneurs may sacrifice growth to maintain control, and few opt for
going public for further funding.
 Second-Round Financing: Securing funding for development and growth (second-
round financing) can be challenging and time-consuming. Venture capitalists
evaluate ventures based on founders' strengths, business plans, and product merits.

Overall, funding for new ventures involves navigating challenges related to industry
differences, funding stages, investor preferences, and the balance between independence
and growth.

Venture Capital role for innovation?

Venture capital plays a vital role in innovation by providing funding to early-stage high-risk
ventures, aiming for high-value exits through acquisitions by larger corporations. Venture
capitalists also contribute to innovation by enforcing rigorous selection processes that
prioritize successful ventures, accelerating the pace of innovation compared to traditional
corporate R&D.

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Crowd-funding
 Crowd-funding is a newer resource avenue where projects are posted on web
portals, attracting investments from multiple nonprofessional investors interested
in the project's focus.
 Kickstarter Example: Kickstarter.com is a major crowd-funding platform since 2009,
having funded 64,000 projects with $1 billion from 6.5 million investors, averaging
around $16,000 per project, mainly for creative and media projects.
 Seedups.com: Another platform with a focus on technology startups, raising larger
sums ($25,000-$500,000) where investors have 6 months to review and bid for
stakes in projects.

Corporate Venture Funding

 Corporate Venture Funding Overview: Large companies in the UK invest in external
new ventures, mostly within their own sectors, with investments reflecting business
trends.
 Investment Trends: Investments typically exceed £500,000, prioritizing ventures
needing capital for expansion OVER start-ups, with an investment period of 5-7 years
and a desired rate of return of 20-30%.
 Venture Capital Inequalities/Disparities: Availability of venture capital varies
globally, leading to potential venture-funding gaps, especially in the UK, between
self-financed stages and professional venture capital involvement.
 High-Tech Sector Investments: Corporate investment is increasing in high-tech
sectors where companies lack in-house technologies or are exploring unproven
emerging technologies.
 Case Study: Johnson & Johnson Development Corporation: Johnson & Johnson's
venture capital arm invests globally in start-ups and early growth stages, focusing on
pharmaceutical and healthcare technologies, with a preference for direct investments
in near-term impactful technologies and indirect investments for broader technology
scouting.
 Strategic vs. Financial Goals: Corporate venture funds prioritize strategic goals like
technology and product pipeline enhancement, unlike purely financial goals of
venture capitalists.

12.2 Internal Corporate Venturing

 Corporate Venturing Overview:
 Internal corporate venturing, also known as intrapreneurship, combines the
resources of large organizations + the entrepreneurial spirit of small ones.
 It differs from traditional R&D by focusing on developing new competencies
rather than exploiting existing ones.
 Strategic Assessment of New Ventures:
 We look at how important the new idea is for maintaining competitiveness,
finding new niches, understanding risks (risk assessment), and planning how
we can leave the venture if needed (potential exit strategies).
 Using what we already know: We see how much of what we already know
and can do (existing skills) matches with this new idea. This helps us figure
out how much control and how closely we should work with the new venture.
 We try to see how different parts of our business, like our tech, products, or
markets, can work together with this new idea to create the best chances for
success (find synergies to maximize opportunities).
 Management of Internal Corporate Ventures:
 Internal corporate ventures require different management structures and
processes compared to routine operations.

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  The corporate environment often prioritizes short-term returns and efficiency
over radical innovation, necessitating a conducive environment for
entrepreneurial behavior.
 Clear strategic objectives, organizational structures, and processes are
essential for successful corporate venturing.

Motives for Establishing Corporate Ventures:

 Motives include business growth, resource utilization, internal pressure,
divestment of non-core activities, risk diversification, learning, and strategic
diversification.
 These motives can be operational or strategic in nature, driving organizations
to explore new technological or market competencies.

To Grow the Business

 Many companies venture into new areas to meet or exceed expected growth rates,
especially when their main businesses are slowing down.
 Maintaining growth is crucial for publicly traded companies because investors and
financial markets expect it.

To Exploit Underutilized Resources in New Ways

 Companies may seek to utilize their underused resources, both technological and
human, in innovative ways.
 Options include divesting and outsourcing, or generating extra value by offering
services to external clients while maintaining control internally.
 Creating internal venture teams can be a strategy to leverage underutilized resources
for external clients while retaining control.
 e.g. A large technology corporation has a department specializing in artificial intelligence (AI)
research. They notice that their AI experts have spare capacity and are not fully engaged in
ongoing projects. To leverage this underutilized resource, the company forms an internal
venture team that offers AI consulting services to startups and small businesses.

To Introduce Pressure on Internal Suppliers

 Companies may aim to introduce competitive pressure on internal suppliers, often in
line with outsourcing trends and internal service market testing.
 This motive involves a choice between subjecting the business to real commercial
competition or using it as a learning experience.
 If corporate clients can withdraw contracts, which hinders learning, selling the
business to compete elsewhere may be necessary.
 e.g. A company introduces competitive pressure on its in-house marketing team by allowing
external agencies to bid for project contracts. This approach helps evaluate the performance
of the internal team and fosters a culture of continuous improvement.
 e.g. To enhance efficiency in manufacturing, a company creates an internal competition
among different production units, encouraging them to reduce costs and improve productivity.
This strategy leads to cost savings and process optimization.

To Divest Non-core Activities

 Companies often divest non-core activities to focus strategically, streamline
operations, and maintain competitiveness.

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  While outsourcing such activities can help, it risks losing skill diversity crucial for
adaptability; new ventures can allow divestment while retaining some control and
financial interest.

To Satisfy Managers' Ambitions

 Managers' ambitions for growth and change often drive the creation of new ventures
within a company.
 As business areas evolve through different life cycle phases, managers may seek
new opportunities or expansions to maintain their commitment.
 Establishing internal venture programs can harness managers' entrepreneurial spirit
and drive innovation within the organization.

To Spread the Risk and Cost of Product Development

 Companies may engage in corporate venturing to mitigate risks and share the
financial burden associated with developing new products or technologies.
 This strategy is particularly relevant when technologies or products require further
development before they can be integrated into mainstream business operations
or sold to existing markets.
 By exploring intermediary markets or alternative customer groups, companies can
diversify revenue streams and offset some of the costs associated with product
development.

To Combat Cyclical Demands of Mainstream Activities

 Boeing responded to cyclical demand challenges by establishing specific groups like
Boeing Technology Services (BTS) and Boeing Associated Products (BAP).
 BTS aimed to utilize excess engineering capacity during downtimes without affecting
major project commitments, while BAP focused on commercializing Boeing
inventions beyond their immediate applications.
 Through licensing agreements and strategic utilization of resources, Boeing
managed to balance its workforce utilization and generate additional revenue from its
intellectual property.

To Learn About the Process of Venturing

 Venturing involves high risk and uncertainty, requiring a different management
approach compared to mainstream business activities.
 Setting clear goals, objectives, and review schedules is crucial for learning effectively
from venture activities and maximizing benefits.
 Establishing subsidiary ventures or hobby-sized business activities can provide
hands-on learning experiences, but without time limits and formal evaluation, these
ventures may not evolve into viable businesses and could demotivate managers over
time.

To Diversify the Business

 Corporate ventures are often established to create new businesses within the
corporate framework, aiming to grow through diversification.

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  This diversification can take various forms, such as vertical (expanding downstream
or upstream of current processes) or horizontal (leveraging existing competencies
across different product markets).
 Trends in internal ventures reflect shifts in corporate strategy, from a focus on
reengineering existing processes to exploring new business creation for sustained
growth and efficiency.

To Develop New Competencies

 Corporate ventures provide opportunities for learning new competencies
alongside exploiting existing ones in new markets.
 Experimentation and organizational learning are facilitated in corporate ventures due
to diverse interpretations and information distribution across the organization.
 The primary motives for establishing corporate ventures are strategic, aiming for
long-term growth, diversification, and leveraging in-house R&D capabilities, among
others.

Approaches to CV (help companies grow and innovate widely)

1. Opportunistic
2. Enabling
3. Advocacy
4. Producer
MANAGING CV

 Managing Corporate Ventures: Corporate venturing is a structured process that

involves creating an environment for entrepreneurship and supporting potential
entrepreneurs. It includes six stages:
1. Establish an environment that encourages the generation of new ideas and the
identification of new opportunities and establish a process for managing
entrepreneurial activity (+ commitment from top management)
2. Select and evaluate opportunities for new ventures and select managers to
implement the venturing program.

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 3. Develop a business plan for the new venture, decide the best location and
organization of the venture and begin operations.
Development stages:
4. Monitor the development of the venture and venturing process.
5. Champion the new venture as it grows and becomes institutionalized within the
corporation.
6. Learn from experience in order to improve the overall venturing process.

 Generating Ideas: Ideas for new ventures can come from various sources like
demographic changes, new knowledge, industry shifts, unexpected outcomes, and
customer demands. Systematic monitoring is key to identifying viable opportunities.
 Venture Capital: Firms can leverage venture capital to monitor the external
environment and invest in potential partnerships discreetly, especially in industries
like pharmaceuticals.

Overcoming Barriers:

 Potential entrepreneurs within a company face challenges such as proving the

venture's legitimacy, resource constraints, and resistance to change. They need
political, social, technical, and market skills to navigate these challenges
successfully.

Roles in New Ventures:

 Key roles include the technical innovator, venture manager (oversees whole progress
and mgmt of venture), product champion (promotes venture in early stages and advocates
for its success), organizational champion (acts as protector and intermediary between
venture and large firm), and high-level executive (monitors, evaluates and allocates
resources).

Skills Required:

Successful ventures require a blend of technical expertise for product development +

management skills for market communication and sales. Balancing these skills within
the team is essential for success.

Overall, managing corporate ventures involves creating a conducive environment, identifying

opportunities, overcoming barriers, and assembling a skilled team to drive the venture's
success.

12.4 Assessing New Ventures

 Filtering Ventures: Choosing the right filter for a new venture depends on why
you're starting it. A good way to see if a CEO has a strategy is by watching how they
evaluate new opportunities. They usually use a series of filters to check if an
opportunity fits well with their business.
 Assessing Ventures: When assessing a new venture, it's crucial to define its
purpose and success criteria in the market, business, or technology. The assessment
style depends on the venture's size, the team's skills, and whether new partners or
managers will join. Managers need to write a plan to show they understand both the
business and the technology. Market research should involve in-house managers
more than external consultants.

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  Business Plans for New Ventures: Business plans for new ventures are different
from those for established businesses. They focus on starting and running the new
business, attracting key people and resources. New venture plans have more
uncertainty in technical and commercial aspects compared to plans for existing
businesses.
 Elements of a New Venture Plan: A new venture plan should include 10 essential
elements. The main criteria for evaluating such plans in corporate ventures are
strategic fit and the potential to improve competitive position.

Structures for Corporate Ventures

 Location and Structure: Choosing where and how to set up a new venture depends
on factors like how closely it relates to the parent company's core business.
Balancing the need to learn new things with using existing resources is important.
The location and structure should allow the venture to access resources and markets
while being politically protected.
 Organizational Challenges: Setting up and managing internal ventures can be
tricky. There's no one-size-fits-all solution, and different situations require different
structures and processes. The choice depends on factors like the level of venturing
activity, the corporate culture, and the balance between learning new skills and
leveraging existing ones.
 Design Options for Ventures: Companies can integrate new ventures directly with
existing operations, create integrated business teams, establish a dedicated function
to support ventures, set up a separate venturing unit, or even spin off the venture as
a separate entity.
 Management Methods: Each structure requires different monitoring and
management methods, including procedures, reporting systems, and accountability
measures.

Overall, deciding on the location, structure, and management approach for a new venture
involves balancing learning and leveraging existing resources while ensuring access to
necessary support and protection.

Components of A Typical Business Plan for a New Venture

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 Criteria for Selecting Corporate Ventures

The most effective structure for a corporate venture (balance between leverage and
learning - exploit vs explore)

Design options for CV

1. Direct integration
2. Integrated business teams

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 3. New ventures department
4. New venture division
5. Special business units
6. Independent business units
7. Nurtured divestment
8. Complete spin-off (RCL is a house of brands which owns things like Ouma rusks and
the Rainbow brand, but it wants to unbundle this brand from the others

Direct Integration
 Direct integration is favored when radical changes in product or process design
would directly affect mainstream operations.
 It's often seen in engineering-based companies adding consultancy or technical
organizations utilizing their laboratory facilities for analysis and testing.
 This approach is chosen when outsourcing is not feasible due to the need for the
same personnel and equipment for core business operations.
 e.g. large automotive manufacturer wants to introduce cutting-edge technology into its production line.
Instead of outsourcing the development of this technology to an external company, the manufacturer
decides to establish an in-house research and development (R&D) team who works directly within
company facilities, together with existing engineers. New tech will significantly impact manufacturing
process.

Integrated Business Teams

 Integrated business teams are suitable when expertise has been developed within
mainstream operations and requires support from those departments/operations.
 This approach is strategic when the product is closely related to the core
technologies or expertise of the mainstream business, and the center wants to retain
some control.
 A business team is formed with seconded members to manage both internal and
external clients, often treated as a separate entity for easier transition to a special
business unit later on.
 e.g. A bank is planning to launch a digital payment system. They set up an integrated team comprising
IT, compliance, and customer service personnel to develop and implement the system.
 e.g. A technology firm is planning to develop a new software solution. They create an integrated team of
software developers, UX designers, and product managers to understand the requirements and
build the software.

 e.g. A food manufacturer wants to introduce a new range of vegan products. They deploy an integrated
team consisting of nutrition scientists, packaging designers, and sales experts to develop and
market the products.

New Ventures Department

 A new ventures department operates independently from regular line management
and focuses on external trading (explore partnerships, collaborate with startups, etc.).
 It is beneficial when projects frequently arise from the operational business and when
proposed activities may target different markets or offer unique product packages.
 This department handles marketing, contracting, and negotiation, while technical
aspects and service supply occur at the operational level.
 e.g. A retail chain creates a New Ventures Department to develop and market a new line of eco-friendly
products targeted at environmentally conscious consumers.
 e.g. automotive manufacturer forms a New Ventures Department to collaborate with startups and
innovative suppliers in developing next-generation electric vehicle components.

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  A healthcare organization sets up a New Ventures Department to explore partnerships with digital
health startups for innovative telemedicine solutions.
 A financial institution establishes a New Ventures Department to invest in fintech startups and develop
new financial services catering to digital-first customers.

New Venture Division

 A new venture division provides a controlled environment for various projects across
the organization, allowing separate administrative oversight.
 It enables top management to maintain some control while ensuring the mainstream
business's efficiency is not compromised, necessitating a degree of autonomy.
 The division may originate from efforts to consolidate technologies, accelerate
product development, acquire external expertise, or explore new market
opportunities, but clear operational boundaries and termination criteria are crucial to
avoid becoming overwhelmed with every new opportunity.
 e.g. A pharmaceutical company creates a New Venture Division to explore partnerships with biotech
startups and academic institutions for the research and development of new products: drugs and
therapies.
 e.g. An energy conglomerate forms a New Venture Division to invest in renewable energy projects, such
as solar and wind farms, to diversify its energy portfolio and reduce its carbon footprint.
 e.g. A media and entertainment company sets up a New Venture Division to explore opportunities in
digital streaming platforms, original content production, and interactive media experiences.

Special Business Units

Special business units are fully owned by the corporation, requiring strong administrative
control due to their strategic significance
 They are established when an activity shows enough potential to operate as a profit
center independently, but key personnel must be identified and allocated from
mainstream roles.
 While physical separation grants autonomy, a risk arises if the unit becomes too
reliant on the parent company's support, hindering its ability to compete effectively in
the market.
 e.g. A technology conglomerate creates a Special Business Unit focused on developing cutting-edge
artificial intelligence solutions for various industries, such as healthcare, finance, and logistics.
 e.g. A retail giant establishes a Special Business Unit dedicated to e-commerce and digital marketing
strategies, aiming to capture a larger share of the online retail market.

Random question in class:

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Growth and performance of innovative small firms; Three phases
1. Gazelles:
2. Unicorns (Airbnb and Uber): Ventures that have grown
3. Muppets: a more typical economically marginal, undersize, performance expertise
Reasons for failure
1. Poor financial control
2. Lack
Entrepreneur interaction for innovative new ventures
Factors for consideration (Conjoint innovation: the combination and interaction of two or
more entrepreneurs with different capabilities to create a novel technology, product,
service or venture)
1. Complementary capabilities: multifunctional, typically technological and commercial,
create greater novelty
2. Creative conflict: different perspectives result in better decisions
3. Adjacent networks: combinations of resources into innovative business models

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