contributed by: k. kumar, faculty & chair person nsrcel -iim b, india getting started:...
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Contributed by:K. Kumar,Faculty & Chair PersonNSRCEL -IIM B,India
Getting Started: Entrepreneurial Goals and Choice of Ventures
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©Prof.K.Kumar, IIMB
Getting Started …
Entrepreneurial motivations, goals, expectations and capabilities vary across individuals
Likewise, opportunities also vary in their characteristics and critical success factors
Opportunities are to be screened for both viability and ‘fit’ with the entrepreneurs before they are pursued
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©Prof.K.Kumar, IIMB
Entrepreneurial Strategy
HeuristicsHeuristics
Heuristics
Venture Characteristics
*Typology of Ventures
Entrepreneurial Fit
*Personal goals*Entrepreneurial
Capacity
Strategy to Exploit
*Research&Analysis*Process
*Resources*Growth
Iterative
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©Prof.K.Kumar, IIMB
Typology of New Ventures
Revolutionary ventures
Niche ventures
Ventures that are propagators of new technology or innovations
Hustle ventures
Speculative (deal) ventures
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©Prof.K.Kumar, IIMB
Revolutionary Ventures- Characteristics
Involve a revolutionary idea, innovation or concept
Involve new processes or manufacturing techniques
Can shake up a matured industry or can create a new industry
Examples?
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©Prof.K.Kumar, IIMB
Revolutionary Ventures- Critical Success Factors
Large investments spread over time with uncertain outcomes
Building organizational capabilities and sustainability
Requires a lot of creativity and exceptional managerial capabilities to execute
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©Prof.K.Kumar, IIMB
Revolutionary Ventures and Entrepreneurial Fit
Suits those who want to win or lose on a grand scale
New entrepreneurs can attempt but should be clear about their role in the future growth of the venture
Entrepreneurs should have extraordinary organizing capabilities
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©Prof.K.Kumar, IIMB
Niche Ventures- Characteristics
Need not be a radical concept or idea
Serve segments with a unique need not served by mainstream offerings
Examples?
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©Prof.K.Kumar, IIMB
Niche Ventures- Critical Success Factors
Existence of a niche that can be economically servicedSimple and easy to use product or service Modest managerial and leadership skills
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©Prof.K.Kumar, IIMB
Niche Ventures and Entrepreneurial Fit
Ideal for entrepreneurs with insightful knowledge of the larger market and the niche in particular
Suits entrepreneurs with moderate growth/wealth ambitions and limited resources
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©Prof.K.Kumar, IIMB
Propagatory Ventures-Characteristics
Propagate an emerging technology or a product
Examples?
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©Prof.K.Kumar, IIMB
Propagators- Critical Success Factors
Superior execution – speed and efficiency
Nimbleness rather than a great strategy
Investment and Managerial capacity to attempt market dominance
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Propagators – Fit With Entrepreneurs
Ideal for entrepreneurs with proven superior capability to executeSuits entrepreneurs with competence in deal making and fund raising to support growthEntrepreneurs should want be excited by high growth
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©Prof.K.Kumar, IIMB
‘Hustle’ Ventures- Characteristics
Does not need an innovative approach
No avenues to build proprietary assets
Low capital requirements
Limited exit options
Examples?
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©Prof.K.Kumar, IIMB
‘Hustle’ Ventures- Critical Success Factors
Extraordinary ability to execute
Meticulous selection and grooming of resources
Vision and values of the organization
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©Prof.K.Kumar, IIMB
Hustle Ventures- Fit With Entrepreneurs
Suits entrepreneurs with limited resources and modest growth ambitions
Fits those who value professional satisfaction and do not seek high growth
Ideal for entrepreneurs who seek a lifestyle business and satisfactory cash flow as against high growth and wealth creation
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©Prof.K.Kumar, IIMB
Speculative Ventures-Characteristics
An opportunity to buy low and sell highFinancial risks depend on the terms of the dealNo staged commitments- fully exposed once the deal is madeExamples?
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©Prof.K.Kumar, IIMB
Speculative Ventures-Critical Success Factors
Risk Taking AbilityInsight and TimingSpeculative Instinct
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©Prof.K.Kumar, IIMB
Speculative Ventures-fit With Entrepreneurs
Suits those who want quick profits
Those who are willing to take commensurate risks
Those who have the financial strength and staying power to go through the deal
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Use of Typology
For understanding the broad strategic issues
Types are not exhaustive and often overlap
For assessing the fit between the venture, resources and the entrepreneur’s preferences
For assessing the growth potential and sustainability
For assessing the nature and level of analysis required before getting the venture off the ground
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Acquiring Resources
Acquiring resources for a new venture is a task of enlisting stakeholders
Customers Financiers Employees Suppliers
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What Are the Challenges?
Uncertainty surrounding the venture
Downside risk perceived by the stakeholder (resource provider)
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Desirable Attributes in Stakeholders
Well diversified
Experienced and specialized
Has excess capacity
Demonstrated risk seeking disposition
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Convincing Stakeholders
Entrepreneurial attributes ( fairness and commitment)
Ham and egging
Basic sales closing skills
Special deals and benefits
‘Mimicry’ ( appearance of stability and size)
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© Prof.K.Kumar IIMB
Convincing Stakeholders
Framing (accentuating positives and playing down negatives)
Broad search
Incremental commitments (trial orders, pilot projects, ad hoc limits)
Second tier resources
Using social capital
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Sources of Finance
Own funds
Outside equity
Debt
Internal generation
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Bootstrap Finance
VC is a poor fit for many ventures
Money from outside investors comes with strings attached
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Hidden Costs of Outside Money
False sense of security leading to complacency and lack of control
Diminished flexibility to adopt the ‘try it- fix it’ approach required in new ventures
Conflicts between investors and managers can be debilitating
Hence - bootstrap !
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How to Bootstrap?
Get operational quickly
Look for quick break even and cash generating projects
Offer high value products or services that can sustain personal selling
Forget about the crack team
Keep growth in check
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How to Bootstrap?
Focus on cash, not on profits, market share or anything else
Cultivate the banks before the business becomes creditworthy
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Limits to Bootstrapping
Ideal for hustle and niche ventures
Revolutionary ventures can’t be completely bootstrapped
Speculative ventures are even more difficult to bootstrap
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Limits to Bootstrapping
Ventures outside the promoter’s knowledge domain are difficult to bootstrap
Ventures that require some critical assets to be deployed even before testing out the business concept can’t be bootstrapped
Need to change tact as the business approaches the growth phase