This is an entrepreneurship development course titled new venture formation. Read it and thank me later

1. VENTURE FORMATION
The formation of a venture drive entrepreneurs towards realizing their ambitions. However,
creating a new venture is highly demanding. That is why most who conceive great ideas do not
take the step of starting their own venture. This is not to say that every innovative idea or
opportunity must translate into new venture formation, but that most promising ideas do not
materialize due to the challenging nature of enterprise formation and nurturance.
Venture formation is risky, exhausting, but it is also an exciting and rewarding adventure.
Entrepreneurs therefore, need a good dose of enthusiasm, patience, creativity, resourcefulness, and
must be willing to make great sacrifices. Venture creation is the epitome of entrepreneurship. The
many benefits (such as optimal resource utilization, job and wealth creation) accruable from
entrepreneurship can be reaped mostly through exploiting well-considered opportunities, and
ventures are mostly the vehicles used to exploit opportunities.
Identifying or orchestrating and exploiting opportunities is the focus of entrepreneurship; and
ventures frequently get formed when entrepreneurs implement new ideas. Albeit a routine for
serial entrepreneurs, launching a new business is a mark of doggedness and tenacity, and is
anchored on the revolving order of creativity and innovation.
Definition of New Venture
A new venture is a business being created or recently created, with expectations of success and
profit, and which has not been in operation for more than five years. It is a firm in its early stages
of development and growth. Often, ventures are classed as new when they are in the process
launching, or have newly launched into a market. New ventures are both exciting and difficult,
and involves significant risks.
Generally, a venture formed recently, or which has not lasted for up to eight-year in operation is
considered as a new one. This is because new ventures need an average of eight years to start
yielding reasonable return on investment, and twelve years to stabilize.
Venture Feasibility Analysis
Intentionality is central to entrepreneurship. Hence, business opportunities when identified, are not
jumped upon; a feasibility analysis is conducted to determine if they are promising enough to
warrant investment (Shah et al., 2013). New venture formation is thus preceded by feasibility
analysis. A thorough feasibility analysis determines if the entrepreneur should proceed with a
business idea, review it, or drop it and evaluate another option (Lohrey, 2013).
Barringer and Ireland (2013) define feasibility analysis as the process of determining if a business
idea is viable. Feasibility analysis is important to new venture development because it:
a) allows entrepreneurs assess where, when and how to operate;
b) identifies potential obstacles that may impede operations; and
c) determines the level of funding that will be required to get the business up and running.

2. Feasibility analysis is an essential tool used to evaluate the possibilities inherent in new an
opportunity or idea, based on far-reaching enquiries to enhance decision-making. (Kreigsmann,
1979, as cited in Okochi, 2020) states that feasibility analysis unbiasedly reveal:
a) the strengths and weaknesses of a proposed venture;
b) opportunities’ and threats in the business environment;
c) resource availability; and importantly
d) the prospects of success and survival.
Thorough feasibility analysis convinces investors that a particular opportunity is a wise choice.
Barringer and Ireland (2013) and Scarborough (2013) states that other areas where feasibility
analysis helps to chart a path for new ventures include:
a) assessing the merit of a business idea before preparing a business plan;
b) determining if a market exists for a proposed product before launching a new venture;
c) determining the financial viability of a business idea, resource availability and economy of
scale;
d) determining if a business idea is worth investing in; based on assessment of overall demand
for new products;
e) selecting the best option among competing business ideas; and
f) providing understanding of the demographics and buying behavior of target customers.
Components of Feasibility Analysis
Four important components of feasibility analysis according to Barringer and Ireland (2013) are:
a) Solution feasibility analysis: This feasibility analysis evaluates the overall appeal of a
proposed solution. The acceptability of the proposed solution (product, process, or social
good) is the basic thing to consider when launching a new venture. Nothing else will matter
if the solution does not appeal to the target audience (Barringer & Ireland, 2013). Two
aspects of solution feasibility analysis are desirability and demand for the solution.
Desirability analyzes if the proposed solution is desired, and serve a need or solve a
problem. Demand feasibility analysis probes if there will be substantial demand for the
proposed solution.
b) Industry/market attractiveness feasibility analysis: This analysis according to Okochi
(2020) assesses the industry/market overall appeal to the proposed solution. It evaluates
the appropriateness of industry/market as a good takeoff point for the new venture; tries to
identify the market niche the proposed solution can occupy profitably; and openness of the
market to accommodate new ventures (Allen, 2016). The basic reason for conducting
industry/market attractiveness feasibility analysis hinges on industry challenges to be
addressed. Porter (1980) identified five threats to any new venture: Bargaining power of
suppliers; substitute solutions; threat of new entrants, bargaining power of buyers; and
intensity of rivalry among existing ventures.
c) Organizational feasibility analysis: This analysis is conducted to determine if the
proposed new venture has sufficient management expertise, competences and resources to
launch successfully (Okochi, 2020). This involves analyzing the strengths and weaknesses
of the entrepreneur to ensure that they fit the venture idea and the market niche. Other
factors covered in this analysis include resource sufficiency, facility availability,

3. availability of quality staff, and receptivity of stakeholders (potential clients or volunteers
perhaps) to the proposed venture (Barringer & Ireland, 2013).
d) Financial feasibility analysis: This analysis focuses on assessing the financial
practicability of the proposed venture. The most important factor to consider here is the
total start-up capital required, financial performance of similar businesses, and overall
financial performance or attractiveness of the proposed venture (Scarborough, 2013).
Financial feasibility analysis include among others; initial capital requirement, estimated
earnings, and the resulting returns on investment.
In addition, Ifechukwu (2006, as cited in Okochi, 2020) identify technical, economic, legal,
operational and schedule as other areas worth considering in a feasibility analysis. Technical
feasibility tries to understand technical resources needed to establish the new venture and their
applicability to the needs of the proposed venture (Okochi, 2020). Economic feasibility analysis
does a cost-benefit assessment of the proposed venture (Shane, 2019), using projected revenues
and costs as a guide. Legal feasibility analysis tries to determine if the proposed venture conflicts
with legal requirements; and looks at laws concerning contracts, and other legal traps. Operational
feasibility is conducted to ensure success in operational outcomes. Facets of operational feasibility
include reliability, maintainability, sustainability, affordability, etc. Schedule feasibility assesses
the probability that the venture will be completed and launched on scheduled.
New Venture Creation
Venture creation is a process of transforming an innovative idea into a business that hold the
potential to succeed; and also attract investors. It is a process that involves starting a new business,
growing it, and harvesting from it. Typically, entrepreneurs attempt to effectively utilize resources
to exploit viable business opportunities, and setting up a new venture constitutes the vehicle by
which this feat is achieved.
The entrepreneur as the most important factor of production, fosters the creation of new ventures,
thus stimulate economic activities. Entrepreneurship is thought to drive economic growth for three
reasons. It:
a) stimulates competition by increasing the number of business ventures in a society;
b) facilitates the transmission of knowledge from one point to another, in the society; and
c) generates diversity and variety of enterprises in a society.
The foregoing buttresses the notion that the entrepreneur is a change agent, one who recognizes
profitable opportunities; and also reinforces the entrepreneurial personality that distinguish
entrepreneurs from the general populace. The qualities of high need for achievement, preference
for challenge, acceptance of personal responsibility for outcomes, etc. enable entrepreneurs to
thrive; and are essential to success in new venture creation.
New Venture Creation Process
The efforts required to conceive, create and grow a venture can be organized in several different
ways. However, there are basic stages that can be identified in any approach taken by the
entrepreneur. These stages include:

4. Gestation stage: Every new enterprise starts as an idea, which is then developed into a
profitable market-worthy venture. The gestation stage of the enterprise formation process
thus involves the backend activities undertaken to properly understand the needs of a target
market or problem of a society, and contriving possible solutions. This stage also involves
analyzing current resources, competences, technologies and capacities to determine new
uses to which they can be put. Important activities at this stage include:
a) business opportunity identification or orchestration and evaluation activities;
b) new business idea generation activities;
c) planning activities;
d) resource acquisition and team building activities;
e) legitimacy building activities; and
f) relationship/partnership building activities.
Venture formation stage: This stage of the process involves actions taken to birth the new
entity. It is activated after the entrepreneur has found a sufficiently compelling opportunity
and has developed a plan to exploit it. The entrepreneur will then determine and choose the
right form of corporate entity most appropriate for the business opportunity and idea, and
then and create the venture as a legal entity.
Launch stage: This is the stage in the enterprise formation process where the new venture
is introduced or unveiled to the public. It is at this point that the backend activities and
efforts of the entrepreneur becomes public knowledge, and the venture takes or starts the
struggle to take place in the business world.
Growth stage: At this stage of the process, emphasis shifts from planning to execution.
However, sometimes, the launch of the new venture unveils important details of planning
that were overlooked, and new challenges not anticipated. Thus, while the entrepreneur
work diligently toward creating value, by delivering the promised or proposed solution;
and generating revenue and moving toward sustainable performance after the launch, they
also continue asking questions, spend time refining plans and marketing efforts, and
debugging products.
Consolidation stage: This is the stage where, the once upon a time, new venture is deemed
stable, well-established and strong enough to face the rigors of the business environment.
At this point, entrepreneurial principles and techniques gradually gets replaced with proper
business management principles and bureaucracy sets in, as procedures are established and
authority and responsibility gets more defined.
Though rendered sequentially, these steps often proceed in parallel. The sequential presentation is
informed by convenience, and a bid to create a mental map of the new venture formation process.
Thus, entrepreneurs are minded to keep in mind that the activities in the different stages are all
ongoing aspects of their entrepreneurial actions.
Types of Venture Ownership
The best form of ownership structure to adopt is about the first challenge every entrepreneur
starting a new venture face. This is on account of the peculiarities, merits and demerits associated

5. with each of the several legal forms of ownership (Jaja & Okwandu, 2006). The legal framework
and organizational format that can be adopted to create a new enterprise varies, according
environmental considerations, people involved, culture and legal and fiscal considerations. Within
these constraints, entrepreneurs can choose the form of business ownership that will be most
suitable or adequate for them to achieve their objectives.
The entrepreneur must however, choose an ownership structure before registration formalities can
commence; though they can convert to a different ownership structure in the future. The
commonest forms of business ownership to choose from are:
Sole proprietorship: This is a form of business ownership that is simple and common. It is a form
of ownership where a single individual owns a business and runs it personally, or through their
agents. The continued operation of a sole proprietorship is entirely dependent on the owners’
decisions, and all the benefits of the business goes to them alone. A business is considered a sole
proprietorship by default, if the entrepreneur starts business activities without any kind of business
registration.
Sole proprietorship suffers less regulatory controls, requires very few start-up requirements and
puts all benefits from the business in the hands of the owner. It is however associated with the
demerits of having limited equity, as the business is limited to personal resources of the owner.
The owners carries 100% liability for the business and there is less distinction between income of
the business and income of the business owner.
Partnership: This is a form of business ownership where two or more persons agree to pursue a
common business interest, and share the risks and benefits involved. A partnership may be limited
partnership or general partnership. A limited partnership limit partners’ benefits and liability
according to their investment or portion of ownership. It require agreements between the partners,
who must also file a certificate of partnership with appropriate authorities. A limited partnership
also protects each partner from debts against the partnership, they will not be responsible for the
actions of other partners.
In a general partnership on the other hand, all partners invest resources into the business and share
of benefits and liabilities of the business. The implication is that, irrespective of value or volume
of investment of individual partners, they have equal responsibility for all benefits and the debts
of the business. General partnerships may not require formal agreements, they are often entered
verbally or informally.
Partnership offer the merits of providing more capital for a business through shared resources, it
is relatively less expensive to establish, it is simple and flexible, and partners share both benefits
and liabilities of the business. Also, selling the business is difficult because it will require finding
new partners. Partnerships however end any time each partner choses to end it.
Corporation: This is form of ownership structure, which for tax reasons are separate entities from
their owners and are legally considered “a person.” A corporation is thus a legal entity created by
law, and which is different from its owners, and possesses the same rights and responsibilities of
individuals. This means that a corporation can:
a) enter into contracts;

6. b) loan or borrow money
c) sue and be sued;
d) hire and fire employees;
e) own assets; and
f) pay taxes.
Profits generated by corporations are taxed as personal income of the business, and when profits
are shared as dividend to shareholders, they are again taxed as personal income. Creating a
corporation requires rigorous legal process, and its owners may not be directly involved in running
its routine operations.
A corporation offer strong protection against personal liability, but is also the costliest form of
ownership. It require more extensive record-keeping, operational processes, and reporting; has an
advantage when it comes to raising capital because it can raise funds through sale of stock, which
is also beneficial in attracting employees. A corporation is preferred in situations of medium or
higher-risk businesses, those that require raising external funds, and for a business that plan to “go
public” or eventually be sold.
Key advantages of a corporation are that: (a) liabilities of is limited to losses and debts; (b) profits
and losses belong to the corporation; and (c) personal assets of owners cannot be seized to pay for
debts of the corporation. Its disadvantages are: (a) corporate operations are expensive; (b) they
require complex documentation to start; and (c) corporate income is taxed twice.
Limited Liability Company: This is a type of ownership structure in which, owners of the
business are protected from personal responsibilities for debts or losses of the business. It is akin
to limited partnership which provides owners with limited liability while providing some of the
income advantages of a partnership. Essentially, a limited liability company combine the merits of
a partnership and those of a corporation, and mitigates the demerits of both. The major merits of a
Limited Liability Company are: it limits the liability of owners for debts and losses; and its profit
is not double-taxed. The demerits are: ownership is limited by law; its formation involves
comprehensive agreements that are often complex; and it has high cost of starting due to filing
fees.
Cooperative: This is a form of ownership structure wherein, individuals or associations come
together to establish a business, and to own and manage it collectively. A cooperative is created
mostly to provide benefits to members through services offered. All members of the cooperative
contribute to the running of the business. Cooperatives focus less on making profit, and more
providing services that existing business do not offer.
Profits of a cooperative are distributed among the members, who are also known as user-owners.
An elected board of directors and officers typically run the cooperative, while regular members
reserve voting rights to control the direction of the cooperative. Individual become part of the
cooperative by purchasing shares, though the value of shares held do not affect the weight of votes.
Franchising: This is a form of business ownership wherein, an entrepreneurs obtains a license
that allows them to use another party’s (the franchisor) name, trademark, proprietary knowledge,
and processes commercially. The license allows the franchisee to conduct business under the

7. franchisor’s name. In return, the franchisor is paid a start-up fee and ongoing licensing fees by the
franchisee.
Nonprofit Corporation: Nonprofit corporations are organized to do charity, education, religious,
literary, or scientific work. Nonprofits receive tax-exempt status because their work benefits the
public, meaning they do not pay income tax. Nonprofits must however, file with appropriate
authorities to get the tax exemption. Nonprofit corporations follow organizational rules similar to
a regular corporations; and also follow special rules about what they do with any profits they earn.
For example, they are not expected to distribute profits to members or to political campaigns.
New Venture Management
New venture management involves leading start-ups or growing new ventures into mature
businesses by adopting innovative principles and techniques to preempt or react to challenges
associated with introducing new solutions or entering new markets. It focuses on competences,
methods and technics required to manage rapid growth of a new venture in basically unknown or
immature markets and highly dynamic conditions.
According to Drucker (1985), a new venture may have an idea or a solution. It may even have
substantial volume of sales and costs; and revenues and profits; but may not have is a “business,”
a viable, operating, organized structure or system in which people know where they are going,
what they are supposed to do, and what the results are, or should be. But unless a new venture
develops into a new business and makes sure of being “managed,” it will not survive, no matter
the brilliance of the entrepreneurial idea, how much money it attracts, how good its products are,
nor even how great the demand for them (Drucker, 1985).
Alexander (2023) states that new venture management refers to aligning and coordinating all
aspects of a new venture, from product development, managing employees, suppliers, finances,
and performing routine tasks. Hence, astute new venture management that leads to long-term
success is entrepreneurial, hence, often termed “entrepreneurial management.”
Drucker (1985) states that entrepreneurial management in the new venture has five prerequisites:
a) it requires a focus on the market;
b) it requires financial foresight;
c) it requires building a top management;
d) it requires determining the entrepreneurs’ role, area of work, and relationships; and
e) it requires advice from outside.
Need for a market focus: A common explanation for the failure of new ventures to live up to their
promise or even survive is “lack of market focus.” The lack of market focus is the most serious
affliction of new ventures in their early stages, and one that can lead to the demise of the venture,
or permanently stunt the growth of those that survive.
Drucker (1985) states that, when a new venture succeeds, more often than not, it is in a market
other than the one it originally intended to serve; with a product that is not quite those with which
they set out; bought in large by consumers it did not even think of, when it started; and used for a
host of purposes besides the ones for which the products were intended or first designed. If a new
venture does not anticipate this, and organize itself to take advantage of unexpected and unseen

8. markets; if it is not totally market-focused or market-driven, then it will succeed only in creating
an opportunity for a competitor (Drucker, 1985).
Anything that is genuinely new, creates markets that nobody imagined. The innovator has limited
vision, they see the area with which they are familiar, to the exclusion of all other areas. Thus, the
new venture needs to start with the assumption that its solutions may find customers in markets no
one thought of, for uses no one envisaged when the solution was designed; and that it will be
bought by customers outside its field of vision and even unknown to them. Without such a market
focus from the beginning, all the new venture is likely to create is a market for a competitor.
Financial foresight: Financial foresight is the ability to forecast the future financing needs of a
venture, and determining the sources of finance will be most adequate. A lack of adequate financial
focus, and of the right financial policies is the greatest threat to ventures in the growth stage. It is
above all, a threat to the rapid growth of the venture. The more successful a new venture is, the
more dangerous lack of financial foresight becomes. According to Drucker (1985), the causes of
bankruptcy or shuttering of new ventures are often, a lack or shortage of cash, inability to raise
needed capital for expansion and loss of control, with expenses, inventories, and receivables in
disarray. These financial affliction often hit at the same time. Yet, anyone of them by itself,
endangers the heath, if not the life, of the new venture.
Venture growth and survival has to be fed, and in financial terms, this means that the growth of a
new venture requires injecting financial resources, rather than taking out. Growth needs more cash
and more capital. The healthier a new venture is, and the faster it grows, the more feeding it
requires. New ventures need cash flow analysis, cash flow forecasts and cash management. Cash
flow management is fairly easy if there is reliable cash flow forecast. A growing venture should
know ahead of time, how much it will need, when, and for what purposes; plan the financial system
they require to manage growth (Drucker, 1985).
Building a top management team: A new venture often start off with an excellent product,
excellent market standing and excellent growth potential; it may also successfully find the financial
structure and system it needs. Nevertheless, it can still run into problems just when it appears to
be on the threshold of becoming a successful business. The reason for this phenomenon is always
the same: lack of top management.
The venture has outgrown being managed by one person, and now needs a management team at
the top. If it does not have one in place already, it is late. The best to be hoped is that the venture
will survive. But is likely to be crippled or suffer scars that will bleed it for many years. Morale
has been shattered, employees are disillusioned and cynical; the entrepreneur who built the venture
ends up on the outside, embittered and disenchanted.
Building a top management team before the venture reaches the point where it must have one, is
the simple remedy. Teams are not formed overnight; they require long periods, before they can
function effectively. Teams work well based on mutual trust and understanding, and this takes
considerable time to build.
However, a small and growing new venture cannot afford a top management team just yet. So, the
remedy is, a will on the part of the entrepreneur to build a management team, rather than run

9. everything by themselves. This management team ought to be instituted as soon as market survey
or demographic analysis shows that the venture’s growth will double in the next three or five years.
This is “preventive medicine” that requires thinking through important activities upon which the
survival and success of the enterprise depend. These activities frequently hover around (a)
management of people and (b) management of money. Every other activity will be determined by
the people in the business and at their own jobs, values, and goals.
It is however prudent to establish the top management team informally at first, without ascribing
titles, making announcements or paying extras. What is important is for team members to learn
their jobs, how they work together, and what they have to do to enable their colleagues do their
jobs well. If a new venture fails to build a top management team before it needs one, it will lose
the capacity to manage itself long before it actually needs a top management team.
The entrepreneur’s role, area of work, and relationships: Drucker (1985) argues that building
a top management team may be the most important step toward entrepreneurial management in a
new venture. It is however, only the first for the entrepreneur, who now have to think through what
their own future will be in the venture. The roles and relationships of the original entrepreneur
change, as a new venture develops and grows. And the entrepreneur must accept this reality, if
they do not intend to stunt the business or destroy it.
It is best if the entrepreneur identifies what they like to do, or where they fit in well, in the growing
new venture and concentrate on doing those things. It is also expedient that the entrepreneur probes
their place in the new venture each time the venture grows significantly or changes direction or
character; that is, changes its solutions or products, markets, or the kind of people it needs.
Need for outside advice: A growing new venture may not need a formal board of directors,
moreover, the typical board of directors, often, do not provide the advice and counsel the
entrepreneur needs (Drucker, 1985). Yet, the entrepreneur needs people with whom they can
discuss basic decisions, and to whom they listen. Such persons are rarely found within the
enterprise, they are mostly outside of enterprise.
Someone has to challenge the entrepreneur’s appraisal of the needs of the venture, and even their
own strengths. Someone that is not part of the problem has to ask questions, to review decisions,
and above all, to push consistently to have the long-term survival needs of the new venture satisfied
by building-in the market focus, supplying financial foresight and creating a functional top
management team. This is the final requirement of entrepreneurial management in the new venture.