Entrepreneurship:

Theory, Process,
Practice, 12e

Chapter 6: Assessment of
Entrepreneurial Opportunities

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
 Chapter Objectives
6.1 Explain the challenge of new-venture start-ups.
6.2 Review common pitfalls in the selection of new-venture ideas.
6.3 Present critical factors involved in new-venture development.
6.4 Study certain factors that underlie venture success.
6.5 Explain the critical need for an effective entrepreneurial team.
6.6 Examine why new ventures fail.
6.7 Analyze the traditional venture evaluation process methods: profile analysis, the
feasibility criteria approach, and the comprehensive feasibility method.
6.8 Highlight the contemporary venture evaluation methods: design methodology and
the Lean Start-Up methodology.
6.9 Present the importance of new-venture legitimacy and unique strategies for the
differing audiences.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Challenge of New-Venture Start-Ups
• New-Venture Formation
− The number of new-venture start-ups has been consistently high at
reports of more than 400,000 new firms in the United States every
year since 2010.
• Ideas for Potential New Businesses
− The U.S. Patent Office currently receives more than 600,000 patent
applications per year.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Components of New-Venture Motivation
1. The need for approval
2. The need for independence
3. The need for personal development
4. Welfare (philanthropic) considerations
5. Perception of wealth
6. Tax reduction and indirect benefits
7. Following role models

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Reasons for Starting a Venture
• Entrepreneurial Motivations
− Personal characteristics
− The environment
− The venture
• Successful Start-Up Characteristics
− More aggressive in making their business real
− Undertake more activities than others
− Act with more intensity
− Make use of professional advice
− Develop more detailed business plans
− Obtain legitimacy with early stakeholders
Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Elements Affecting New-Venture
Performance

Source: Arnold C. Cooper, “Challenges in Predicting New Firm Performance,” Journal of Business Venturing 8, no. 3 (1993):
243.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Pitfalls in Selecting New Ventures (1 of 2)
• Lack of objective evaluation: all ideas need rigorous review.
• No real insight into the market: need to understand the timing of
product introduction and the product life cycle.
• Inadequate understanding of technical requirements: unexpected
technical difficulties can be costly and time consuming.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Pitfalls in Selecting New Ventures (2 of 2)
• Poor financial understanding: the needed financing is often
underestimated.
• Lack of venture uniqueness: should provide a product or service
that is superior to that of the competition.
• Ignorance of legal issues: need to be aware of safety
requirements, patents, trademarks, and other legal issues.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8
 Phases in New-Venture Start-Ups
• Pre–start-Up Phase
− Begins with an idea for the venture and ends when the doors are
opened for business.
• Start-Up Phase
− Commences with the initiation of sales activity and the delivery of
products and services, and ends when the business is firmly
established and beyond short-term threats to survival.
• Post–start-Up Phase
− Lasts until the venture is terminated or the surviving organizational
entity is no longer controlled by an entrepreneur.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 A New-Venture Idea Checklist
Venture Feasibility Operations of the Venture

These are general 1. Is the concept possible? 1. What personnel are needed?
2. Is the concept legal? 2. Describe the operational procedures.
questions. More Value Proposition 3. What is the preferred location?

tailored assessments 1. Identify the specific competitive advantages of the

concept?
Venture Management
1. What is the background and experience of the lead
are available 2. What is unique about this venture idea? entrepreneur?
3. Are the unique advantages sustainable? 2. Explain the qualifications of each key person on the
management team?
Potential Market
3. How will each person be compensated?
1. What is the market niche?
Venture Financing
2. Who would be the specific customers targeted?
1. How much funding will be needed?
3. Is this a reachable and reasonable customer market?
2. What sources of funding will be pursued?
Marketing the Venture
Competition & Risks
1. What is the estimated share of market will the
venture capture? 1. What is the nature of the competition?
2. How will sales be accomplished? 2. Are there specific risks inherent in this venture?

3. Pricing? How does the price compare to competitors?

Source: Karl H. Vesper, New Venture Strategies
4. What are the distribution channels—retail, online, (Revised Edition), 1st Edition, © 1990. Reprinted
social media? by permission of Pearson Education, Inc.,
Upper Saddle River, NJ.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Critical Factors for New-Venture
Development (1 of 2)
1. Uniqueness
− Range can be considerable, extending from routine to highly
nonroutine.
2. Investment
− Capital investment to start a new venture can vary from less than
$100,000 in some industries to millions of dollars in other
industries.
3. Growth of Sales
− Lifestyle ventures, small profitable ventures, high-growth ventures

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Critical Factors for New-Venture
Development (2 of 2)
4. Product Availability
− Availability of a salable good or service at the time the venture
opens its doors.
− Problems can occur because the product or service is still in
development and needs further modification or testing. For
example, “bugs” in a software firm.
5. Customer Availability
− A critical consideration is how long it will take to determine who the
customers are, as well as their buying habits.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Developing an Effective Entrepreneurial
Team
• Entrepreneurial team is critical to successful introduction of new
venture.
• Collaboration among team members is critical.
• Team should be considered as a dynamic entity that is
continually reevaluated.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Why New Ventures Fail

Product/Market Problems Financial Difficulties

Poor timing Initial undercapitalization
Product design problems Assuming debt too early
Inappropriate distribution Venture capital relationship
strategy problems
Unclear business definition Managerial Problems
Overreliance on one Concept of a team approach
customer Human resource problems

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14
 Research on Why New Ventures Fail

One study found dominant One study found internal

problems at start-up related to problems related to capital and
sales. cash. External problems related
to customer contact, and
market knowledge.
In the growth stage, sales and
regulatory problems are likely. Entrepreneurs need to recognize
that start-up problems might
remain.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15
 Types and Classes of First-Year Problems
1. Obtaining external financing 6. General management
• Obtaining financing for growth • Lack of management experience
• Other or general financing problems • Only one person/no time
2. Internal financial management • Managing/controlling growth
• Inadequate working capital • Administrative problems
• Cash-flow problems • Other or general management problems
• Other or general financial management problems 7. Human resource management
3. Sales/marketing • Recruitment/selection
• Low sales • Turnover/retention
• Dependence on one or few clients/customers • Satisfaction/morale
• Marketing or distribution channels • Employee development
• Promotion/public relations/advertising • Other or general human resource management problems
• Other or general marketing problems 8. Economic environment
4. Product development • Poor economy/recession
• Developing products/services • Other or general economic environment problems
• Other or general product development problems 9. Regulatory environment
5. Production/operations management • Insurance
• Establishing or maintaining quality control
• Raw materials/resources/supplies Source: David E. Terpstra and Philip D. Olson, “Entrepreneurial Start-up
• Other or general production/operations management problems and Growth: A Classification of Problems,” Entrepreneurship Theory and
Practice 17, no. 3 (Spring 1993): 19.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16
 New-Venture Failure Prediction Model
1. Role of profitability and cash flows
2. Role of debt
3. Combination of both
4. Role of initial size
5. Role of velocity of capital
6. Role of control

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Failure Process of a Newly Founded
Firm
1. Extremely high indebtedness (poor static solidity) and small size
2. Too slow velocity of capital, too fast growth, too poor
profitability (as compared to the budget), or some combination
of these
3. Unexpected lack of revenue financing (poor dynamic liquidity)
4. Poor static liquidity and debt service ability (dynamic solidity)

Source: Erkki K. Laitinen, “Prediction of Failure of a Newly Founded Firm,” Journal of

Business Venturing 7, no. 4 (1992): 326-28.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Profile Analysis Approach
• Profile Analysis Approach
− Identifying and investigating the financial, marketing, organizational,
and human resource variables prior to start-up.
− Through a careful profile analysis, entrepreneurs can mitigate
possible weaknesses that may inhibit the growth of their venture.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Feasibility Criteria Approach
• The use of a criteria selection list to gain insights.
– Is it proprietary?
– Are initial production costs realistic?
– Are the initial marketing costs realistic?
– Does the product have potential for very high margins?
– Is the potential market large?
– Is the product the first of a growing family?
– Does an initial customer exist?
– Are the development costs and calendar times realistic?
– Is this a growing industry?
– Can the product—and the need for it—be understood by the financial
community?
Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Comprehensive Feasibility Approach
• Incorporates external factors in addition to those included in the
criteria questions.
• Two main areas are technical feasibility and marketability.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Technical Requirements for Product and
Services
• Functional design of the product and attractiveness in appearance
• Flexibility, permitting ready modification of the external features of the product to
meet customer demands or technological and competitive changes
• Durability of the materials from which the product is made
• Reliability, ensuring performance as expected under normal operating conditions
• Product safety, posing no potential dangers under normal operating conditions
• Reasonable utility, an acceptable rate of obsolescence
• Ease and low cost of maintenance
• Standardization through elimination of unnecessary variety among potentially
interchangeable parts
• Ease of processing or manufacture
• Ease of handling and use

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Marketability
• General Economic Trends
− Various economic indicators such as new orders, housing starts,
inventories, and consumer spending
• Market Data
− Customers, customer demand patterns in seasonal variations in
demand, and governmental regulations affecting demand
• Pricing Data
− Range of prices for the same, complementary, and substitute
products; base prices; and discount structures
• Competitive Data
− Major competitors and their competitive strength
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Key Areas for Assessing the Feasibility of a
New Venture

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Contemporary Methodologies for
Venture Evaluation (1 of 2)
• The Design Methodology
− Universities are now building programs that take a general approach
to design rather than concentrating it in just technical schools like
architecture and engineering.
− Takes an initial concept idea and develops a proof of concept that
elicits feedback from relevant stakeholders.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Design Methodology
• A process that shapes and converts ideas into form, whether
that is a plan of action, an experience, or a physical thing.
• An initial concept taken and developed into a proof of concept
that elicits:
− Proof of concept feasibility
− Proof of concept desirability
− Proof of concept viability

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Design-Centered Entrepreneurship (1 of 2)
• Taking action and learning that culminates in a venture concept
for further development.
• Applying a prototyping stage that addresses the technical issues
of the concept, and ensures that a feasible product or service
can be made and delivered.
• Incorporating microiterations (within each action stage to
improve the outcome) and macroiterations (moving from one
particular action stage back to a previous stage for further
development).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Design-Centered Entrepreneurship (2 of 2)

Source: Michael G. Goldsby, Donald F. Kuratko, Matthew R. Marvel, and Thomas Nelson, “Design-Centered Entrepreneurship: A
Four Stage Iterative Process for Opportunity Development,” Journal of Small Business & Entrepreneurship 29, no. 6 (2017): 5.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Contemporary Methodologies for
Venture Evaluation (2 of 2)
• The Lean Startup Methodology
− Provides a scientific approach to creating early venture concepts
and delivers a desired product to customers faster.
− Reduces waste by maximizing the time and effort that goes into an
incorrect hypothesis by putting a lean-focused process on the
development of a product or service.
− Entrepreneurs must work to gather and incorporate customer
feedback early and often.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Build-Measure-Learn Feedback Loop

Source: Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically
Successful Businesses (New York, NY: Crown Business, 2011).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Lean Startup Terminology
• The Lean Startup Terminology
− Minimum Viable Product: actionable, accessible, auditable
− Pivot: a structured course correction designed to test a new
fundamental hypothesis
− Build-Measure-Learn Feedback Loop: applying the scientific method
to start-up.
− Validated Learning: process in which one learns by trying out an
idea and then measuring the results.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 The Challenge of New-Venture Legitimacy
• Legitimacy enables new ventures to overcome newness and
allows acquisition of resources such as financial capital, human
resources, and strategic relationships.
• Basic Strategies
− Conformance: new venture follows the rules
− Selection: new venture in a favorable environment
− Manipulation: consistency between an organization and the
environment
− Creation: entrepreneur creates new rules, values, models, etc.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Legitimacy
• External audiences must view as legitimate.
• Institutional logics: socially constructed practices, assumptions,
rules that provide meaning.
• Audiences and their logics:
− Governments use state logic.
− Venture capitalists use professional logic.
− Corporate capitalists use corporate logic.
− Crowd-funding platforms use community logic.
− Angel investors use market logic.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Mechanisms to Establish Legitimacy
• Identity mechanism such as symbols and images.
• Associative mechanism looks at who the venture is tied with.
• Organizational mechanism includes the organizational leaders
and success measures.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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 Summary
Click the link to review the objectives for this presentation.

Link to Learning Objectives

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12th Edition. © 2024 Cengage Learning, Inc. All Rights Reserved.
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