The document discusses various external means for entrepreneurs to grow their businesses, including franchising, joint ventures, acquisitions, mergers, and leveraged buyouts. Franchising allows entrepreneurs to expand while reducing risk through accepted business models and support from franchisors. Joint ventures require carefully evaluating potential partners and having realistic expectations. Acquisitions provide established resources but come with integration challenges. Negotiation skills are important for all external growth options.

1. Accessing Resources for Growth from External
Sources
In this chapter we explored alternate means by which an entrepreneur
can grow his or her business. Franchising was discussed as a means of
new entry that can reduce the risk of downside loss for the franchisee
and also as a way that an entrepreneur can expand his or her business
by having others pay for the use of the business formula. For the
franchisee, the advantages of franchising are that he or she enters into
a business with an accepted name, product, or service; has access to
managerial assistance provided by the franchisor; receives up-front
support that could save the entrepreneur significant time and possibly
capital; has access to extensive information about the market; and has
other operating and structural controls to assist in the effective
management of the business. However, there are a number of
potential disadvantages, which usually center on the inability of the
franchisor to provide the services, advertising, and location that were
promised.
For the franchisor, the primary advantage of franchising is that he or
she can expand the business quickly, using little personal capital. But
the franchisor also incurs certain risks in choosing this expansion
alternative. In some cases, the franchisor may find it very difficult to
locate quality franchisees. Poor management, in spite of all the
training and controls, can still cause individual franchise failures, and
these can reflect negatively on the entire franchise system. As the
number of franchises increases, the ability to maintain tight controls
becomes more difficult.
Entrepreneurs can also achieve growth through joint ventures. The
effective use of joint ventures as a strategy for expansion requires the
entrepreneur to carefully appraise the situation and the potential
partner(s). First, the entrepreneur needs an accurate assessment of
the other party to best manage the new entity in light of the ensuing
relationship. Second, there needs to be symmetry between the two (or
more) firms in terms of "chemistry" and the combination of their
resources. Third, expectations of the results of the joint venture must
be reasonable. Far too often, at least one of the partners feels that a
joint venture will be the cure-all for other corporate problems.
Expectations of a joint venture must be realistic. Finally, the timing
must be right.

2. Another way the entrepreneur can expand the venture is by acquiring
an existing business. For an entrepreneur, there are many advantages
to acquiring an existing business, such as gaining access to an
established image and track record, familiar location, established
distribution and resource channels, and knowledgeable and skilled
employees. Besides, the cost of an acquisition can be cheaper than
other mechanisms for growth. However, history suggests that
acquisitions have only a marginal success record. Entrepreneurs seem
to be overly confident about their ability to achieve envisioned
synergies, integrate organizational cultures, and retain key employees.
After balancing the pros and cons of the acquisition, the entrepreneur
needs to determine a fair price for the business.
Mergers and leveraged buyouts are other ways that entrepreneurs can
grow their businesses. An essential skill for all these alternatives is the
ability of the entrepreneur to negotiate. Good negotiation involves two
tasks. The first task involves determining how the benefits of the
relationship are going to be distributed between the parties. The
second task is exploring the mutual benefits that can be gained from
the relationship. To negotiate in a way that maximizes benefits
requires the entrepreneur to use information about one's own
preferences and those of the other party to create an outcome that is
mutually beneficial. This requires an initial assessment of oneself and
the other party and the use of strategies to elicit more information
during the negotiation interactions to better inform those initial
assessments. To these ends, this chapter offered four important
assessments an entrepreneur should make and four strategies that
can be used to achieve a successful negotiation.
http://highered.mcgraw-hill.com/sites/0073530328/student_view0/chapter14/

3. Informal Risk Capital, Venture Capital, and
Going Public
In financing a business, the entrepreneur determines the
amount and timing of funds needed. Seed or start-up capital is
the most difficult to obtain, with the most likely source being
the informal risk-capital market (angels). These investors, who
are wealthy individuals, average one or two deals per year,
ranging from $100,000 to $500,000, and generally find their
deals through referrals.
Although venture capital may be used in the first stage, it is
primarily used in the second or third stage to provide working
capital for growth or expansion. Venture capital is broadly
defined as a professionally managed pool of equity capital.
Since 1958, small-business investment companies (SBICs) have
combined private capital and government funds to finance the
growth and start-up of small businesses. Private venture-
capital firms have developed since the 1960s, with limited
partners supplying the funding. At the same time, venture-
capital divisions operating within major corporations began
appearing. States also sponsor venture-capital funds to foster
economic development. To achieve the venture capitalist's
primary goal of generating long-term capital appreciation
through investme1nts in business, three criteria are used: The
company must have strong management; the product/market
opportunity must be unique; and the capital appreciation must
be significant, offering a 40 to 60 percent return on investment.
The process of obtaining venture capital includes a preliminary
screening, agreement on principal terms, due diligence, and
final approval. Entrepreneurs need to approach a potential
venture capitalist with a professional business plan and a good
oral presentation.

4. Valuing the company is of concern to the entrepreneur. Eight
factors can be used as a basis for valuation: the nature and
history of the business, the economic outlook, book value,
future earnings, dividend-paying capacity, intangible assets,
sales of stock, and the market price of stocks of similar
companies. Numerous valuation approaches that can be used
were discussed. In the end, the entrepreneur and investor must
agree on the terms of the transaction, known as the deal. When
care is taken in structuring the deal, the entrepreneur and the
investor will maintain a good relationship while achieving their
goals through the growth and profitability of the business.
Going public—transforming a closely held corporation into
one in which the general public has proprietary interest—is
indeed arduous. An entrepreneur must carefully assess
whether the company is ready to go public as well as whether
the advantages outweigh the disadvantages of doing so.
Once the decision is made to proceed, a managing investment
banking firm must be selected and the registration statement
prepared. The expertise of the investment banker is a major
factor in the success of the public offering. In selecting an
investment banker, the entrepreneur should consider
reputation, distribution capability, advisory services,
experience, and cost. To prepare for the registration date, the
entrepreneur must organize an "all hands" meeting of
company officials, the company's independent accountants and
lawyers, and the underwriters and their counsel. A timetable
must be established for the effective date of registration and
for the preparation of necessary financial documents, including
the preliminary and final prospectuses. Following the initial
public offering, the entrepreneur should strive to maintain a
good relationship with the financial community and adhere
strictly to the reporting requirements of public companies.

5. acquisition Financing to buy another company
financing
acquisition Purchasing all or part of a company
affordable loss Prescribes committing in advance to what one
principle is willing to lose rather than investing in
calculations about expected returns to the
project
aftermarket support Actions of underwriters to help support the
price of stock following the public offering
assessment of a new Determining whether the entrepreneur
entry's believes she or he can make the proposed
attractiveness new entry work
assessment of risk Identifies potential hazards and alternative
strategies to meet business plan goals and
objectives
asset base for loans Tangible collateral valued at more than the
amount of money borrowed

6. assets Items that are owned or available to be used
in the venture operations
assets of newness Positive implications arising from an
organization's newness
attribute listing Developing a new idea by looking at the
positives and negatives
backward A step back (up) in the value-added chain
integration toward the raw materials
balance of The trade status between countries
payments
bargaining zone The range of outcomes between the
entrepreneur's reservation price and the
reservation price of the other party
barter A method of payment using nonmoney items
big-dream approach Developing a new idea by thinking without
constraints
bird-in-hand Involves negotiating with any and all
principle stakeholders who are willing to make actual
commitments to the project; determines the
goals of the enterprise
blue-sky laws Laws of each state regulating public sale of
stock
book value The indicated worth of the assets of a
company
brainstorming A group method for obtaining new ideas and
solutions
breakeven Volume of sales where the venture neither
makes a profit nor incurs a loss
breakthrough New products with some technological change
innovations
brokers People who sell companies
business angels A name for individuals in the informal risk-
capital market
business ethics The study of behavior and morals in a
business situation

7. business plan (1)The description of the future direction of
the business (2) Written document describing
all relevant internal and external elements and
strategies for starting a new venture
causal process A process that starts with a desired outcome
and focuses on the means to generate that
outcome
Chapter 07 Requires the venture to liquidate, either
bankruptcy voluntarily or involuntarily
Chapter 11 Provides the opportunity to reorganize and
bankruptcy make the venture more solvent
Chapter 13 Voluntarily allows individuals with regular
bankruptcy income the opportunity to make extended
time payments
checklist method Developing a new idea through a list of related
issues
cognitive Describes the extent to which entrepreneurs
adaptability are dynamic, flexible, self-regulating, and
engaged in the process of generating multiple
decision frameworks focused on sensing and
processing changes in their environments and
then acting on them
collective notebook Developing a new idea by group members
method regularly recording ideas
comment letter A letter from the SEC to a company indicating
corrections that need to be made in the
submitted prospectus
comprehension Questions designed to increase entrepreneurs'
questions understanding of the nature of the
environment
concept stage Second stage in product development process
connection tasks Tasks designed to stimulate entrepreneurs to
think about the current situation in terms of
similarities and differences with situations
previously faced and solved
contract A legally binding agreement between two

8. parties
conventional bank Standard way banks lend money to companies
loan
copyright Right given to prevent others from printing,
copying, or publishing any original works of
authorship
corporate culture The environment of a particular organization
corporation legal entity that is run by stockholders having
Separate limited liability
creative problem A method for obtaining new ideas focusing on
solving the parameters
deal structure The form of the transaction when money is
obtained by a company
demand uncertainty Considerable difficulty in accurately estimating
the potential size of the market, how fast it
will grow, and the key dimensions along which
it will grow
departure points The activities occurring when the venture is
started
description of the Provides complete overview of the product(s),
venture service(s), and operations of new venture
development Financing to rapidly expand the business
financing
direct exporting Involves the use of independent distributors or
the company's own overseas sales office in
conducting international business
disclosure Statement to U.S. Patent and Trademark
document Office by inventor disclosing intent to patent
idea
distribution task Negotiating how the benefits of the
relationship will be allocated between the
parties
diversification A strategy to grow by selling a new product to
strategy a new market
diversified activity A conglomerate merger involving the

9. merger consolidation of two essentially unrelated
firms
dual process for Involves oscillation between the two grief
grief recovery approaches (loss-orientation and
restoration-orientation)
due diligence The process of deal evaluation
early-stage One of the first financings obtained by a
financing company
earnings approach Determining the worth of a company by
looking at its present and future earnings
effectuation process A process that starts with what one has (who
they are, what they know, and whom they
know) and selects among possible outcomes
emerging industries Industries that have been newly formed and
are growing
employee stock A two- to three-year plan to sell the business
option plan (ESOP) to employees
entrepreneur as an An individual developing something unique
innovator
entrepreneur Individual who takes risks and starts
something new
entrepreneurial The environment of an entrepreneurial-
culture oriented firm
entrepreneurial The motivational factors that influence
intentions individuals to pursue entrepreneurial
outcomes
entrepreneurial Involves the ability to rapidly sense, act, and
mind-set mobilize, even under uncertain conditions
entrepreneurial The process of pursuing a new venture,
process whether it be new products into existing
markets, existing products into new markets,
and/or the creation of a new organization
entrepreneurial The ability to obtain, and then recombine,
resource resources into a bundle that is valuable, rare,
and inimitable

10. entrepreneurial self- The conviction that one can successfully
efficacy execute the entrepreneurial process
entrepreneurial The set of decisions, actions, and reactions
strategy that first generate, and then exploit over time,
a new entry
entrepreneurially An environment that enhances organizational
fostering members'perceptions of entrepreneurial action
environment as both feasible and desirable
entrepreneurship (1) Process of creating something new and
assuming the risks and rewards (2) is the
process of creating something new with value
by devoting
environmental Assessment of external uncontrollable
analysis variables that may impact the business plan
equity participation Taking an ownership position
equity pool Money raised by venture capitalists to invests
error of commission Negative outcome from acting
error of omission Negative outcome from not acting
exporting The sale and shipping of products
manufactured in one country to a customer
located in another country
factor approach Using the major aspects of a company to
determine its worth
factors in valuation Nonmonetary aspects that affect the fund
valuation of a company
FIFO Inventory costing method whereby first items
into inventory are first items out
final approval A document showing the final terms of the
deal
financial plan Projections of key financial data that
determine economic feasibility and necessary
financial investment commitment
Financial ratios Control mechanisms to test the financial
strength of the new venture
focus groups Groups of individuals providing information in

11. a structured format
forced relationships Developing a new idea by looking at product
combinations
Form S-1 Form for registration for most initial public
offerings of stock
forward integration A step forward (down) on the value-added
chain toward the customers
foundation company A type of company formed from research and
development that usually does not go public
Franchising is an arrangement whereby a franchisor gives
exclusive rights of local distribution to a
franchisee in return for their payment of
royalties and conformance to standardized
operating procedures.
free association Developing a new idea through a chain of
word associations
full and fair The nature of all material submitted to the
disclosure SEC for approval
gazelles Very high growth ventures
general partner The overall coordinating party in a partnership
agreement
general valuation Methods for determining the worth of a
approaches company
going public Selling some part of the company by
registering with the SEC
Gordon method Method for developing new ideas when the
individuals are unaware of the problem
government as an A government active in commercializing
innovator technology
grief A negative emotional response a person feels
from the loss of something important
high-potential A venture that has high growth potential and
venture therefore receives great investor interest
horizontal Occurs at the same level of the value-added
integration chain but simply involves a different, but

12. complementary, valueadded chain
horizontal merger A type of merger combining two firms that
produce one or more of the same or closely
related products in the same geographic area
idea stage First stage in product development process
imitation strategies Copying the practices of other firms
indirect exporting In international business, involves having a
foreign purchaser in the local market or using
an export management firm
industry analysis Reviews industry trends and competitive
strategies
informal risk-capital Area of risk capital markets consisting mainly
market of individuals
initial public offering The first public registration and sale of a
(IPO) company's stock
integration task Exploring possible mutual benefits from the
relationship so that the "size of the pie" can be
increased
intellectual property Any patents, trademarks, copyrights, or trade
secrets held by the entrepreneur
international An entrepreneur doing business across his or
entrepreneurship her national boundary
inventor An individual who creates something new
involuntary Petition of bankruptcy filed by creditors
bankruptcy without consent of entrepreneur
joint venture (1) The joining of two firms in order to form a
third company in which the equity is shared
(2) Two or more companies forming a new
company
key success factors The requirements that any firm must meet in
order to successfully compete in a particular
industry
lead time The grace period in which the first mover
operates in the industry under conditions of
limited competition

13. lemonade principle Prescribes leveraging surprises for benefits
rather than trying to avoid them, overcome
them, or adapt to them
leveraged buyout Purchasing an existing venture by any
(LBO) employee group
liabilities of Negative implications arising from an
newness organization's newness
liabilities Money that is owed to creditors
licensing (1) Contractual agreement giving rights to
others to use intellectual property in return for
a royalty or fee (2) Involves giving a foreign
manufacturer the right to use a patent,
technology, production process, or product in
return for the payment of a royalty
lifestyle firm A small venture that supports the owners and
usually does not grow
LIFO Inventory costing method whereby last items
into inventory are first items out
limited partner A party in a partnership agreement that
usually supplies money and has a few
responsibilities
liquidation value Worth of a company if everything was sold
today
loss-orientation An approach to grief recovery that involves
working through, and processing, some aspect
of the loss experience and, as a result of this
process, breaking emotional bonds to the
object lost
majority interest The purchase of over 50 percent of the equity
in a foreign business
Management A nonequity method of international business
contract in which an entrepreneur contracts his or her
management techniques and skills to a
(foreign) purchasing company
Managing Lead financial firm in selling stock to the

14. underwriter public
market development Strategy to grow by selling the firm's existing
strategy products to new groups of customers
market extension A type of merger combing two firms that
merger produce the same products but sell them in
different geographic markets
market knowledge Possession of information, technology, know-
how, and skills that provide insight into a
market and its customers
Market Process of dividing a market into definable and
segmentation measurable groups for purposes of targeting
marketing strategy
marketing goals and Statements of level of performance desired by
objectives new venture
marketing mix Combination of product, price, promotion, and
distribution and other marketing activities
needed to meet marketing objectives
marketing plan (1) Describes market conditions and strategy
related to how the product(s) and service(s)
will be distributed, priced, and promoted (2)
Written statement of marketing objectives,
strategies, and activities to be followed in
business plan
marketing strategy Specific activities outlined to meet the
and action plan venture's business plan goals and objectives
marketing system Interacting internal and external factors that
affect venture's ability to provide goods and
services to meet customer needs
merger Joining two or more companies
me-too strategy Copying products that already exist and
attempting to build an advantage through
minor variations
minority interest A form of direct foreign investment in which
the investing entrepreneur holds a minority
ownership position in the foreign venture
new entry Offering a new product to an established or

15. new market, offering an established product
to a new market, or creating a new
organization
Nonequity A method by which an entrepreneur can enter
arrangement a market and obtain sales and profits without
direct equity investment in the foreign market
Opportunity The process by which an entrepreneur comes
identification up with the opportunity for a new venture
Opportunity Barriers to new product creation and
parameters development
Ordinary New products with little technological change
innovations
organizational plan Describes form of ownership and lines of
authority and responsibility of members of
new venture
owner equity The amount owners have invested and/or
retained from the venture operations
parameter analysis Developing a new idea by focusing on
parameter identification and creative synthesis
participative style of The manager involves others in the decision-
management making process
patchwork quilt Means-driven action that emphasizes the
principle creation of something new with existing
means rather than discovering new ways to
achieve given goals
patent Grants holder protection from others making,
using, or selling similar idea
penetration strategy A strategy to grow by encouraging existing
customers to buy more of the firm's current
products
Perceived The degree to which an individual has a
desirability favorable or unfavorable evaluation of the
potential entrepreneurial outcomes
pilot-in-the-plane Urges relying on and working with people as
principle the prime driver of opportunity and not
limiting entrepreneurial efforts to exploiting

16. factors external to the individual
political risk Prior to entering into business in another
analysis country, an assessment of that country's
political policies and its stability
Preliminary Initial evaluation of a deal
screening
present value of Valuing a company based on its future sales
future cash flow and profits
pricing amendment Additional information on price and
distribution submitted to the SEC to develop
the final prospectus
principle of analysis Understanding how time is currently being
allocated, and where it is being inefficiently
invested
principle of desire A recognition of the need to change personal
attitudes and habits regarding the allocation of
time
principle of A focus on the most important issues
effectiveness
principle of Categorization of tasks by their degree of
prioritized planning importance and then the allocation of time to
tasks based on this categorization
principle of Periodic review of one's time management
reanalysis process
principle of Acknowledgment that only a small amount of
teamwork time is actually under one's control and that
most of one's time is taken up by others
private offering A formalized method for obtaining funds from
private investors
private venture- A type of venture-capital firm having general
capital firms and limited partners
pro forma balance Summarizes the projected assets, liabilities,
sheet and net worth of the new venture assets
Items that are owned or available to be used
in the venture operations
pro forma cash flow Projected cash available calculated from

17. projected cash accumulations minus projected
cash disbursements
pro forma income Projected net profit calculated from projected
revenue minus projected costs and expenses
pro forma sources Summarizes all the projected sources of funds
and applications of available to the venture and how these funds
funds will be disbursed
problem inventory A method for obtaining new ideas and
analysis solutions by focusing on problems
product development Third stage in product development process
stage
product development A strategy to grow by developing and selling
strategy new products to people who are already
purchasing the firm's existing products
product extention A type of merger in which acquiring and
merger acquired companies have related production
and/or distribution activities but do not have
products that compete directly with each other
product life cycle The stages each product goes through from
introduction to decline
product planning and The stages in developing a new product
development
process
product safety and Responsibility of a company to meet any legal
liability specifications regarding a new product
covered by the Consumer Product Safety Act
production plan Details how the product(s) will be
manufactured
professional-support Individuals who help the entrepreneur in
network business activities
prospectus Document for distribution to prospective
buyers of a public offering
public-equity One of the risk-capital markets consisting of
market publicly owned stocks of companies
quiet period 90-day period in going public when no new
company information can be released

18. red herring Preliminary prospectus of a potential public
offering
referral sources Ways individual investors find out about
potential deals
reflection tasks Tasks designed to stimulate entrepreneurs to
think about their understanding and feelings
as they progress through the entrepreneurial
process
Registration Materials submitted to the SEC for approval to
statement sell stock to the public
Regulation D Laws governing a private offering
replacement value The cost of replacing all assets of a company
research and Money given to a firm for developing a
development limited technology that involves a tax shelter
partnerships
reservation price The price (the bundle of resources from the
agreement) at which the entrepreneur is
indifferent about whether to accept the
agreement or choose the alternative
resources The inputs into the production process
Restoration- An approach to grief recovery based on both
orientation avoidance and a proactiveness toward
secondary sources of stress arising from a
major loss
Reverse A group method for obtaining new ideas
brainstorming focusing on the negative
risk The probability of, and magnitude of,
downside loss
risk-capital markets Markets providing debt and equity to
nonsecure financing situations
role models Individuals influencing an entrepreneur's
career choice and style
S corporation Special type of corporation where profits are
distributed to stockholders and taxed as
personal income

19. SBIC firms Small companies with some government
money that invest in other companies
SBIR grants Grants from the U.S. government to small
program technology-based businesses
scope A choice about which customer groups to
serve and how to serve them
situation analysis Describes past and present business
achievements of new venture
state-sponsored A fund containing state government money
venture capital fund that invests primarily in companies in the
state
strategic tasks Tasks designed to stimulate entrepreneurs to
think about which strategies are appropriate
for solving the problem (and why) or pursuing
the opportunity (and how)
switching costs The costs that must be borne by customers if
they are to stop purchasing from the current
supplier and begin purchasing from another
synergy In a joint venture, the qualitative impact on
the acquiring firm brought about by
complementary factors inherent in the firm
being acquired
target market Specific group of potential customers toward
which venture aims its marketing plan
technological New products with significant technological
innovations advancement
technological Possession of information, technology, know-
knowledge how, and skills that provide insight into ways
to create new knowledge
technological Considerable difficulty in accurately assessing
uncertainty whether the technology will perform and
whether alternate technologies will emerge
and leapfrog over current technologies
technology transfer Commercializing the technology in the
laboratories into new products
test marketing Final stage before commercialization in

20. stage product development process
third-party Paying for goods indirectly through another
arrangements source
time management The process of improving an individual's
productivity through more efficient use of time
top management Managers in an organization strongly
commitment supporting corporate entrepreneurship
trade barriers Hindrances to doing international business
trade secret Protection against others revealing or
disclosing information that could be damaging
to business
trademark A distinguishing word, name, or symbol used
to identify a product
traditional Managers in a non-entrepreneurial-oriented
managers organization
turn-key project A method of doing international business
whereby a foreign entrepreneur supplies the
manufacturing technology or infrastructure for
a business and then turns it over to local
owners
uncertainty for Customers may have considerable difficulty in
customers accurately assessing whether the new product
or service provides value for them
underwriting Group of firms involved in selling stock to the
syndicate public
venture-capital One of the risk-capital markets consisting of
market formal firms
venture-capital The decision procedure of a venture-capital
process firm
vertical merger A type of merger combining two or more firms
in successive stages of production
voluntary Entrepreneur's decision to file for bankruptcy
bankruptcy
window of (1) The period of time when the environment
opportunity is favorable for entrepreneurs to exploit a

21. particular new entry (2) The time period
available for creating the new venture
work history The past work experience of an individual