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Knowledge based
Entrepreneurship
by John Heebll
NOTE: This is a pre-release version for students at DTU 42435, DTU
42705, Copenhagen University SCIENCE and KU-HUM/DTU
Summerschool 2007. For your personal use only.
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mastering the process of getting a business up and running. What better
preconditions for entrepreneurship can one imagine? So the author is a
firm believer in the significance of good entrepreneurship teaching and
training: it creates more and better entrepreneurs and as an inherent
part of that: more and better companies.
The rest of this book is dedicated this purpose.
Being a kind of Mr. Pickwick within entrepreneurship in Denmark for
quite some years, I report on what we may call the emergence of an
academic entrepreneurial culture. Being also an observer of the
American endeavours in this field, I report on similarities anddifferences. Since this is a preface: here are the digests. Consider them
the axioms on which this book rests:
During the late nineteen nineties and early third millennium, a
Danish academic entrepreneurship culture has emerged out of
universities and the knowledge based industries, driven mostly
by political incentives and venture capital plus some inspiration
from the outside world.
This is in parallel to what happened in USA from late nineteen
seventies, and basically we are just some twenty years behind.
Hence, study the American high-tech entrepreneurial culture,
and you will get a fairly good idea of what is going to happen
here in Denmark in the coming decennia.
In the nineteen eighties, entrepreneurship in US was spurred by
concerns about the national twin deficit and the loss of global
economical leadership. The buzzword was globalization to
increase income from exports and decrease expenditures on
import. Entrepreneurs were encouraged to develop
internationally competitive products and start exports. To day,
2007, globalization still ranks high as a political goal for
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promoting entrepreneurship. However, much concern is also
raised on the issue of finding strategic countermeasures to the
fierce competition on classic industrial production from newly
industrialized countries, particularly in Asia. Entrepreneurs are
encouraged to join in the development of a completely new wing
of highly competitive knowledge based industries, capable of
gaining foothold on the international markets and expand, and
we cannot get enough of them: the quicker the better!
The academic entrepreneurial culture deals with complex
commercialization processes, where the presence of capital,
advanced specific knowledge and wideband interdisciplinaryskills and resources combined, create the preconditions for
success. In the start-up phase, the skills and experiences of the
founding team are mission-critical, and venture capital is
prudent. Capital is invested in teams capable of executing.
Hence, you better get to know what execution is about before
you launch your own venture.
High tech business start-up is a complex project to run. Apart from a
mandatory technical knowledge within the core business, it takes an
array of legal, economical and managerial skills and experiences. The
task is also demanding both physically and mentally; you are quickly
whirled into a chaotic and committing working life, which will absorb
almost any free time. During the critical years of gaining your
commercial foothold, it is never off your mind. To some, this is a rich and
rewarding lifestyle. To others it is devastating. And you are probablysomewhere in between. One of the purposes of this book is to introduce
you to this kind of working life so that you can prepare yourself mentally
and professionally - or opt out of it if your priorities are somewhere else.
This book differs as a textbook in that it treats the specific fields in a
holistic approach. You will not be able to find that much specific
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information and tools, but you will be introduced to entireties and
interrelations to enable you to acquire and maintain an overview of your
own situation plus an appropriate set of priorities.
It is not bookkeeper qualifications that make you a successful
entrepreneur. Success depends far more on your ability to maintain
control of a complex situation, your ability to weed out the essential from
the non-essential and your capacity for strategic thinking combined with
energetic tactical execution, a continous focus on serving your
customers needs while maintaining a sense of urgency. These abilities
do not unfold unless you keep an overview of your project, and this is
again is preconditioned by your ability to think in entireties andinterrelations and to grasp a complex and highly detailed project.
The failure rate of new businesses is appalling, and it can be argued
that no wise man or woman should ever engage in a business start-up.
Observations however indicate that with methodical preparations,
common sense, some intelligence, good customer relations, and good
advisors with networks and managemeent experience, only few
ventures flop. Quite a high proportion of them never really expand,
though. Some even close down again, but the entrepreneurs get on,
unhurt, to new endeavours and with increased capabilites. This
viewpoint, admittedly, does not rest on firm data and research, rather
than the surprizing staying power of companies, started together with
the Danish semi-public preseed investors: the innovation environments
(innovationsmiljerne), which methodically pick and choose the winning
teams from their deal flow. Darwin at work, and the sorting criteria are
management competencies and value creation perspectives combined.
This book aims at qualifying the readers capacity for identifying and
pursuing perspective business ventures. You are introduced to the
business plan, which is a mandatory compilation of your considerations,
analyses and calculations. The business plan is your personal basis for
your kick-off decision. It is also the indispensable precondition for
acquiring capital and human resources. In appendix 1 you will find a
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commented recipe on how to make a business plan. Use it with a bit of
imagination; include all the wisdom contained in this book plus a lot of
common sense. Then your start-up project will not fail although no
guarantees are given.
Many classic errors are repeated by one entrepreneur after another. It is
senseless to fall into well-documented pitfalls. Turn to chapter XX and
find them before you fall into them yourself. Equally, successful
business start-ups have common features, which can also be studied in
chapter XX.
Business start-up with success takes efficient resource management,the right kind of ressoruces (like money) at the right time, plus qualified
business management. Read about how to manage your business in
chapter XX, how to raise capital in chapter XX, and how to build up a
competent management in chapter XX.
This textbook is first and foremost designed for the students that sign up
at the entrepreneurial courses at graduate- and PhD-level at Technical
University of Denmark and Copenhagen University. Thus, it addresses
our darling: the knowledge-based high-tech entrepreneur and it takes
you all the way through a venture-backed ambitious and growth-oriented
internationally focussed start-up project. If you can do this, you can do
anything. So if you are more attracted by a less ambitious and probably
less risky concept, creating a sustainable, controllable and highly
awarding working life for you and your co-founders and employees, you
will also find most of what you need in this textbook.
The visiting lecturers at the entrepreneurial courses at Technical
University of Denmark since 1993 have provided a substantial part of
the input used in this book. They are successful and skilled
entrepreneurs, they come from pre-seed and venture capital companies,
they come from the Danish and Southern Swedish business community,
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from other institutions of higher education, or from industrial
development programmes. It is a group of more than 35 competent and
experienced consultants, investors, teachers, and entrepreneurs, all of
whom I wish to thank dearly for their contribution since 1993. None
mentioned none forgotten.
It is not possible to write a practically oriented book about business start-
up without involving the entrepreneurs themselves. From 1987 to 2000,
Technical University of Denmark ran a centre for start-up companies:
Innovationscenteret. In 2000 Innovationscenteret was acquired by The
Hoersholm Research Center, which again was acquired by Technical
University of Denmark and split into a research park, a pre-seedinvestor: SCION-DTU A/S and an innovation environment : DTU
Innovation A/S. This system naturally is being swarmed with
entrepreneurs and their start-up companies. They are an inexhaustable
source for inspiration, information, experiences and knowledge and
visiting lectures. Thank you for letting me watch from the sideline and
thank you for joining us in the lecture room.
Three major Danish industrial foundations initially funded the first and
second edition of this book:
Tuborgfondet
Karl Pedersens og Hustrus Industri fond
Thomas B. Thriges fond
The foundations charters aim at supporting the development of Danish
industry and business. I hope that this book will help to promote this
purpose, and thank you very much for the economical support from
these great institutions within Danish industry.
The third edition of the book has been funded in a collaborative effort
between the International Danish Entrepreneurship Academy IDEA,
Socialfonden (EU Foundation for the Improvement of Living and
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Working Conditions) and Erhvervs & Byggestyrelsen through grants to
the Technical University of Denmark, Greenhouse+. (Greenhouse+
delivers entrepreneurship teaching and training as well as pre-start
consultancy at the DTU campus in Lyngby, Copenhagen.) Thus, these
three major promoters of entrepreneurship together with Technical
University of Denmark, Department of Manufacturing and
Management have enabled a long needed update of the textbook for
which I and hopefully also my future students - and the reader - are
grateful.
Snekkersten, August 2007
John Heebll
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Summary
The focus of this book is the knowledge-based business: a company,
which to a considerable extent is based on advanced technical
specialist knowledge.
The first chapter concludes that there is a great need for knowledge-
based entrepreneurs in our society. They stimulate the knowledge
diffusion from research to business. They revitalize industry by filling
gaps and by capturing technology-driven business opportunities. They
are important drivers in the continous adaption of industry and
businesses to the ever-changing conditions on national and global
markets. Some of them succeed in creating stunning ventures that
surpass the community of well established, well run companies on
valutation and shareholder value to underline the importance of a vibrant
community of start-ups as the breeding ground for future large and
globally competitive companies. Together, they impact the gross
domestic product (GDP) visibly, and whether big or small, growing or
stationary, they provide exiting and challenging working lives for
founders and employees.
The following chapters XX - XX deal with the fundamentals of starting a
new business. The classic question about how you identify a business
opportunity is discussed. Opportunity-driven creativity as an adaptable
skill as well as some appropriate commercialization strategies for
bringing the ideas via products or services to the market are introduced.
So is the working life in a newly established knowledge-based business.
Observations on the entrepreneurs background, personality, andmotivation are quoted, the classic startup process is introduced, and last
but not least, the classic doctrine of success and failure of the startup is
reviewed.
Then we turn to the mysterious art of creativity. A relative short chapter
explains the origin of ideas, and concludes, that opportunitydriven
creativity can be acquired and perfected. Once the idea is there, action
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must be taken to commercialize but how? For this, the difficult but
important art of developing appropriate business strategies is
introduced..
In chapter XX, the business plan, which is the synthesis of the
preliminary surveys and analyses, with an execution plan and some
budgets on top of that, is introduced. Appendix 1, which is an extension
of chapter 6, is a recipy for business planning, designed as a tool for
systematically analysing and planning a new venture.
The remaining XX chapters dig into classic fields within economy and
law, in order to highlight problems, essential to a knowledge-basedbusiness start-up process. The idea is to provide the reader with
operational and practical solutions to problems and challenges that are
generic to high-tec start-ups. This should remove any excuse for staying
behind your desk for too long. New companies are not created in the
office, at the desk. Hiding among your books, notes and computers for
fear of the real world, where your ideas are put to the test, is one of the
most classic entrepreneurial pitfalls. You need to go out and do it.
The last chapter deals with intellectual property rights (IPR) such as
patents and critical know-how from the start-up companys perspective.
Hopefully, at the end, the reader has acquired an overview of how to
handle a complex commercialization process, which again can be
turned into a realistic business plan, a sound and well founded decision
and, at the end: a successful new business venture, based on good
business management and entrepreneurship.
All the best!
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Contents
Preface ...................................................................................................................................................................... 3
Summary................................................................................................................................................................... 6
Chapter 1................................................................................................................................................................. 11
More Businesses, Please! ....................................................................................................................................... 11
1.1. Our Ancestors were Peasants ...................................................................................................... 11
1.2. Today, We Are a Necessary Evil ................................................................................................ 11
1.3. The Employment Society of the Future ...................................................................................... 12
1.4. The Knowledge-based Entrepreneur of the Future ..................................................................... 12
1.5. The Promotion of Enterprise in the Future.................................................................................. 13
1.6. The Danish Enterprise Culture .................................................................................................... 14
1.7. Summary, Chapter 1. ................................................................................................................... 15
Chapter 2................................................................................................................................................................. 16
Characterization of an Entrepreneur ...................................................................................................................... 16
2.1. Personality Types......................................................................................................................... 16
2.2. Motivation and Driving Force..................................................................................................... 17
2.3. The Personal Requirements......................................................................................................... 18
2.4. The Ideal Team............................................................................................................................ 19
2.5. Summary, Chapter 2. ................................................................................................................... 20
Chapter 3................................................................................................................................................................. 22
The Startup of the Business.................................................................................................................................... 223.1. Types of Businesses..................................................................................................................... 22
3.2. The Start of the Manufacturing Business.................................................................................... 24
3.2.1. The Preparation Phase........................................................................................... 24
3.2.2. The Startup Phase.................................................................................................. 25
3.2.3. The Expansion Phase............................................................................................ 26
3.3. The Startup of Service Businesses .............................................................................................. 26
3.4. Summary, Chapter 3.................................................................................................................... 28
Chapter 4................................................................................................................................................................. 29
The Good Idea ........................................................................................................................................................ 29
4.1. The Birth of an Idea..................................................................................................................... 29
4.2. The Birth of the Good Idea.......................................................................................................... 30
4.3. From Need to Problem ................................................................................................................ 30
4.4. Registration of a Need ................................................................................................................. 33
4.5. From Problem to Idea .................................................................................................................. 34
4.6. From an Idea to a Good Idea; a Systematic Process................................................................... 35
4.7. A Final Check.............................................................................................................................. 36
4.8. Summary, Chapter 4.................................................................................................................... 37
Chapter 5................................................................................................................................................................. 39
Learning from Experience...................................................................................................................................... 39
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5.1. The Universe of the Entrepreneur ............................................................................................... 39
5.2. The Success Factors of the Business........................................................................................... 40
5.3. The Failure Factors of the Business ............................................................................................ 40
5.4. The Bankruptcy Statistics............................................................................................................ 41
5.5. DICs Observations ..................................................................................................................... 42
5.6. The Classic Rules of Thumb ....................................................................................................... 43
Chapter 6................................................................................................................................................................. 44
The Business Plan................................................................................................................................................... 44
6.1. The Purpose of the Business Plan ............................................................................................... 44
6.2. What is a Business Plan?............................................................................................................. 45
6.3. What Does a Business Plan Contain?.......................................................................................... 45
6.3.1. The Introduction.................................................................................................... 45
6.3.2. The Static Part....................................................................................................... 46
6.3.3. The Dynamic Part ................................................................................................. 47
6.3.4. The Conclusion Part.............................................................................................. 48
6.3.5. The Sensitivity Analysis ....................................................................................... 48
6.4. The Gathering and Processing of Information............................................................................ 486.5. Quality Considerations................................................................................................................ 49
6.6. Summary, Chapter 6.................................................................................................................... 51
Chapter 7................................................................................................................................................................. 52
Marketing Economics for Entrepreneurs............................................................................................................... 52
7.1. Michael Porters Market.............................................................................................................. 52
7.2. The Reaction of the Market to a New Product............................................................................ 55
7.3. The Marketing Plan ..................................................................................................................... 57
7.4. Summary, Chapter 7.................................................................................................................... 58
Chapter 8................................................................................................................................................................. 59
Sale and Marketing................................................................................................................................................. 59
8.1. The Art and Ethics of the Sale..................................................................................................... 59
8.1.1. The Salesman Must Believe in the Product.......................................................... 60
8.1.2. The Product Must Create Values.......................................................................... 60
8.1.3. The Unique Advantage of the Product ................................................................. 61
8.1.4. Expand the Visible Offer ...................................................................................... 61
8.1.5. Create an Expectation and Make an Offer............................................................ 62
8.1.6. Quality and Trust .................................................................................................. 62
8.2. Marketing Methods...................................................................................................................... 63
8.3. Summary, Chapter 8.................................................................................................................... 65
Chapter 9................................................................................................................................................................. 67
Export ..................................................................................................................................................................... 67
9.1. Export from Day One .................................................................................................................. 67
9.2. Where to Start .............................................................................................................................. 69
9.3. How to Start ................................................................................................................................. 69
9.4. Distribution on the Export Market .............................................................................................. 71
9.5. Agent, Dealer, or Your Own Marketing Subsidiary................................................................... 72
9.6. An Export Seminar for Sellers..................................................................................................... 75
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9.8. Summary, Chapter 9.................................................................................................................... 77
Chapter 10............................................................................................................................................................... 78
The Finances of a Business .................................................................................................................................... 78
10.1. Book-keeping in Practice........................................................................................................... 78
10.1.1. The Accountant................................................................................................... 8110.1.2. The Book-keeper................................................................................................. 81
10.2. Cash Flow through Budgetary Control ..................................................................................... 82
10.3. The Financial Statements........................................................................................................... 83
10.3.1. The Accounts ...................................................................................................... 83
10.3.2. The Profit and Loss Account .............................................................................. 84
10.3.3. The Balance Sheet............................................................................................... 85
10.3.4. The Notes to the Accounts.................................................................................. 86
10.4. The Budgets of the Business ..................................................................................................... 86
10.4.1. Spreadsheet Models ............................................................................................ 87
10.4.2. The Cash Budget................................................................................................. 88
10.4.3. The Profit and Loss Budget ................................................................................ 88
10.4.4. The Balance Sheet Budget.................................................................................. 8910.5. Summary, Chapter 10................................................................................................................ 90
Chapter 11............................................................................................................................................................... 91
Financing ................................................................................................................................................................ 91
11.1. Capital; for What?...................................................................................................................... 93
11.2. Types of Capital for Running and Investments......................................................................... 96
11.3. Subordinate Loan Capital or Debt Capital? .............................................................................. 98
11.3.1. The Risk of Debt Capital .................................................................................... 99
11.4. How the Investors Assess a Business........................................................................................ 99
11.4.1. Investors Think Three-Dimensionally.............................................................. 101
11.4.2. The Rich-Gumpert Evaluation System............................................................. 102
11.5. Where Does the Money Come From?..................................................................................... 104
11.5.1. Financing of the Preparation Phase .................................................................. 104
11.5.2. Financing of the Startup Phase ......................................................................... 106
11.5.3. Financing of the Expansion Phase.................................................................... 109
11.5.4. Summary, Section 11.5..................................................................................... 110
11.6. Investor Types ......................................................................................................................... 110
11.6.1. Venture Capital ................................................................................................. 110
11.6.2. The Development Investment Companies........................................................ 113
11.6.3. Institutional Investors........................................................................................ 114
11.6.4. Subordinate Loans............................................................................................. 114
11.6.5. Leasing .............................................................................................................. 115
11.7. A Survey of Financing Schemes............................................................................................. 116
11.8. Investors You Should Know Of .............................................................................................. 11711.8.1. Venture Companies........................................................................................... 117
11.8.2. The Danish Fund for Industrial Growth ........................................................... 119
11.8.3. The Development Investment Companies........................................................ 120
11.8.4. 2M Invest .......................................................................................................... 121
11.9. Subordinate Loan Capital Injection in Practice....................................................................... 121
11.9.1. The Investor's Demands Regarding the Return on
Investments................................................................................................ 122
11.9.2. Capital for Business A ...................................................................................... 122
11.9.3. Capital for Business B....................................................................................... 125
11.10. Summary, Chapter 11............................................................................................................ 127
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Chapter 12............................................................................................................................................................. 128
Commercial Law for Entrepreneurs..................................................................................................................... 128
12.1. Corporate Forms...................................................................................................................... 128
12.1.1 The Single Proprietorship.................................................................................. 129
12.1.2. The Partnership ................................................................................................. 129
12.1.3. The Limited Company and the Private LimitedCompany.................................................................................................... 130
12.1.4. Other Corporate Forms ..................................................................................... 131
12.2. The Selection of Corporate Form............................................................................................ 132
12.2.1. Risk Versus Corporate Form ............................................................................ 132
12.2.2. Fiscal Considerations ........................................................................................ 133
12.2.3. Company Image................................................................................................ 134
12.3. Company Conversion.............................................................................................................. 134
12.4. Agreements.............................................................................................................................. 135
12.5. The Danish Sales of Goods Act............................................................................................... 136
12.6. Product Liability ...................................................................................................................... 137
12.7. Rules between the Seller and the Buyer.................................................................................. 138
12.7.1. Rules between the Producer and the Wholesaler ............................................. 13912.8. The Danish Salaried Employees Act....................................................................................... 140
12.9. Summary, Chapter 12.............................................................................................................. 140
Chapter 13............................................................................................................................................................. 142
Business Management for Entrepreneurs ............................................................................................................ 142
13.1. The Core Group and the Employees ....................................................................................... 142
13.2. The Board ................................................................................................................................ 145
13.2.1. The Board in Practice........................................................................................ 146
13.2.2. The Board Work in the New Business ............................................................. 148
13.2.3. The Main Tasks of the Board ........................................................................... 149
13.2.4. The Useful Effect of the Board......................................................................... 151
13.2.5. The Directors Fee ............................................................................................ 151
13.3. Summary, Chapter 13.............................................................................................................. 153
Chapter 14............................................................................................................................................................. 154
Intellectual Property Law..................................................................................................................................... 154
14.1. The Patent; Capitalism or Business Promotion....................................................................... 154
14.2. The Basics of Intellectual Property ......................................................................................... 155
14.3. The Patent ................................................................................................................................ 155
14.3.1. Patentability....................................................................................................... 155
14.3.2. The Patent Application and the Regulatory
Requirements............................................................................................. 157
14.3.3. The Scope and Time of the Patent.................................................................... 15814.3.4. The Commercial Protection of the Patent......................................................... 159
14.3.5. The Interaction between Patents....................................................................... 159
14.3.6. The Patent Procedure........................................................................................ 161
14.4. The Utility Model.................................................................................................................... 162
14.5. Design Protection..................................................................................................................... 163
14.6. Trademark................................................................................................................................ 163
14.7. Trade Secrets............................................................................................................................ 164
14.8. The Buying and Selling of Intellectual Property Rights........................................................ 165
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14.9. Patent Strategies for Knowledge-Based Entrepreneurs.......................................................... 167
14.10. The Search Report ................................................................................................................. 169
14.11. Summary, Chapter 14............................................................................................................ 169
Danish Development Investment Companies as of 27th July 1995 .................................................................... 171
Appendix 1 ............................................................................................................................................................... 1
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Chapter 1
Summary
Entrepreneurs are important to us: they create jobs, they
innovate, they challenge the existing industry and business
community, and their activities even impact the gross domestic
product of nations. The Danish entrepreneurial activity level as
such is average in an international context, but our entrepreneurs
dont really seem to expand their ventures. [GEM 2005: Global
Entrepreneurship Monitor: a cooperation between universities all
over the world, providing compatible researc on entrepreneurial
activities on a national level] This is a serious problem, which
needs special attention. This book is part of that.
New business ventures have a high mortality rate, but
countermeasures such as starting in teams, get acces to
experiences, acquiring entrepreneurial skills, apply common
sense, do sanity checks, and communicate with the customers
before start-up, have a dramatic impact on the staying power of
new ventures.
A such sanity-check list from MIT is presented. The importance of
applying it before throwing resources into a new business venture
cannot be emphasized strongly enough.
Next, the personal traits of the entrepreneur are presented. So is
the importance of developing a strong founding team, if you plan
to start a complex high tech venture.
Consequently, the art of team-formation is presented. What kind
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of skills, experiences and personalities do you need, and how do
you attract such people? Some ideas and answers are given.
Finally, personal incentives and preconditions for starting a new
business as well as the working life in nacent businesses are
presented.
By the end you have developed a a more comprehensive picture
of what knowledge-based entrepreneurship is about and what it
requires from you. If it doesnt appeal to you then dont do it. If it
does: read on!
More Companies, please
Do we need entrepreneurs?
An obvious question: do we really need more entrepreneurs?
We invest a lot of attention, time, money, energy and
enthusiasm in encouraging, promoting, supporting and teaching
entrepreneurship in virtually all its many forms. Almost from
kindergarden to retirement. Does it really matter?
The Global Entrepreneurship Monitor (GEM) is a sensible
starting point in the quest for answers. GEM represents a
collaborative effort between universities in many countries aiming
at establishing global standards for monitoring entrepreneurial
activity on a national level, supporting monitoring programs
worldwide, based on the GEM standards and of course
submitting periodical reports on their findings.
So letss have a look at what GEM has to say about the
importance of a sound and active entrepreneurial culture to a
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nation. In the very first GEM report 1999, following questions are
discussed:
1. Does the level of entrepreneurial activity vary between
countries, and, if so, to what extend?
Answer: Yes it does. In the 1999 cohorte of nations, it
spanned from 1,4% to 8,4% of the adult population having
been involved in a start-up venture per year. We will
have a look at the 2005 situation later on and include
Danish figures in a global cross section
2. Does the level of entrepreneurial activity affect a
countrys rate of economic growth and prosperity?
Anser: Yes it does. The level of entrepreneurial activity is
positively correlated with recent gains in GDP1. Variation in
the rates may account for as much as one-third of the
variation in economical growth. This finding was most
certainly an eye-opener that infused a lot of attention and
action into industrial development programs and industrial
policy-making in the early years of the first decennium of
the third millenium
3. What makes a country entrepreneurial?
Answer: In the most active countries, entrepreneurship is
an integral and accepted feature of economical and
1A region's gross domestic product, or GDP, is one of several measures of the size of itseconomy. The GDP of a country is defined as the market value of all final goods and servicesproduced within a country in a given period of time. Until the 1980s the term GNP or grossnational product was used. The two terms GDP and GNP are almost identical. The mostcommon approach to measuring and understanding GDP is the expenditure method:
GDP = consumption + investment + government spending + (exports imports)
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personal life. In the remaining GEM countries, entrepre-
neurship through enterprise creation remains a structural
and cultural anomaly.Clearly this indicates that there is no
easy road to change. GEM consequently conludes, that in
such countries, it may take decades of sustained changes
in many national, cultural, political and economic
institutions, if they are to join the elite of entrepreneurial
economies.
In Denmark, this and other impacts revitalized the
puplic interest in furthering entrepreneurship. Since then,
perspective entrepreneurial programs within education and
industrial development have been initiated and maintained.
By example: public pre-seed capital available to
perspective start-up projects and public investments into
the development of quality entrepreneurship teaching in
further and higher education. Thus, we have embarked on
change and here in 2007, it seems quite likely, that
entrepreneurship will change from a structural and cultural
anomaly into an accepted feature of economical and
personal life. And now, let the numbers have their saying.
Entrepreneurship in Denmark, 2005
One very active observer of the Danish entrepreurial culture,
Vaekstfonden has released a number of analysis that shed some
light on entrepreneurship in Denmark in an international
comparative context. In an analysis of GEM data, Vaekstfonden
draws following picture:
Pct. of the Adult Population involved in Entrepreneurial Activities, per Year.Red line indicates global average
0
2
4
6
8
1012
14
16
18
20
New Australi Ireland USA Denmar Finlan U
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As such, this picture does not indicate any serious problems
though room is still left for improvement. However, in October
2005, GEM published a report on growth perspectives: GEM
2005 Report on High-Expectation Entrepreneurship.Look at
the synopsis: The first global study of high expectation
entrepreneurship has found that just 9.8% of the world's
entrepreneurs expect to create almost 75% of the jobs
generated by new business ventures. The report defines high
expectation entrepreneurship as all start-ups and newly formed
businesses, which expect to employ at least 20 employees
within five years. These ventures have far reaching
consequences for the economies in which they operate,
particularly because of their impact on job creation and
innovation.
So in other words - the entrepreneurial activities as presented
in fig. 1 above do not present the full information needed to
assess the state and importance of the entrepreneurial culture.
We need to look at ambitions and growth also.
GEM concludes that differences between nations are high. By
example: 5% of US entrepreneurs are HE-entrepreneurs. The
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Nordic countries display a discouraging 0,7%. Since these more
ambitious entrepreneurs are the true job- and wealth creators,
we have a problem here. It cohers with figures from
Vaekstfonden, concluding that whereas up to 15% of newly
founded companies start to grow rapidly in the best countries,
only 5% of Danish start-ups are able to expand out of the
cradle.
This rollercoaster ride to perceiving the Danish entrepreneurial
culture thus leads to the conclusion that we have an acceptable
entrepreneurial birthrate, but the new businesses for whatever
reasons dont grow. This is probably the singlemost important
challenge to policy-makers within entrepreneurship and
certainly also an important issue in entrepreneurship teaching
and training: we need more entrepreneurs willing to and
capable of expanding their ventures.
This book is very much about growth. Throughout he
subsequent chapters, a number of preconditions for growth,
such as appropriate venture strategies, good business
management and venture capital backing are treated to turn
you, dear reader, into the qualified and successful high-
expectancy entrepreneur, that we need so much
Applied EntrepreneurshipTo most of us, entrepreneurship is synonymous with risk and luck.
This perception is justified by the discouraging fact than less than
half of newly founded companies in Denmark live to celebrate
their five years birthday. A closer look, however, disclose a more
encouraging picture of the knowledge-based entrepreneurial
activities.
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First, we are dealing with a small proportion of the app. 15 -
20.000 companies being started per year in Denmark. No
statistical data are available, and, of course, numbers depend on
definition. A guesstimate around less than 1.000 companies,
being started to commercialize advanced knowledge per year in
Denmark, is probably not far from reality. Among these, less than
2 - 300 are backed by venture capital. These companies have a
completely different staying power and a capacity for growth.
They tend to stubbornly stick to life and fight for a break through to
success.
Secondly, succesrate increases with experience. The so-called
Serial entrepreneurs prove this beyond any reasonable doubt.
Coming from USA, where venture capital backed
entrepreneurship has a long and distinguished track record, serial
entrepreneurship descripes the phenomenon that founding,
developing and selling companies becomes a lifestyle of gifted
entrepreneurs with a talent for identifying and exploiting business
opportunities. This is really intriguing. Clearly these people
demonstrate that success in starting a business is more than just
random luck. So how do they do it? Where is the hidden secret?
Can it be learned?
The answer is complex but predominantly yes. Complex
because part of the causes for success are embedded in personal
behaviour and characteristics such as energy, aggressiveness,
self-confidence, vanity, boldness, stubbornness, integrity etc.,
which together form the enterprising and executive person.
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The more straightforeward part of the answer is that starting
knowledge-based companies requires vocational skills that are
generic to business venturing and which can be acquired. What
more efficient learning procedure can one imagine than learning
by doing? (Well - maybe learning from others successes and
failures could be a more cost-efficient way so carry on reading!)
Personal networks and personal credibility are also part of the
preconditions for repetitive success. Hence, serial entrepreneurs
are prudent and carefull about their personal track records. Not
that they try to hide failure but they turn failure into a learning
process and a precondition for future success. And they are
generally believed and rightfully so. Some home-spun
philosophy here: not long ago, flopping a start-up venture here in
Denmark meant loss of credibility and social denouncement. The
so-called Janteloven, defined as a set of views that scorns
individual success and those who set themselves above others;
the who-do-you-think-you-are to-be-better-than-us mentality,
prevailed, in particular in what might be defined as the
tradesmans entrepreneurial culture, where it may still live a
miserable life. It does not apply within the academic
entrepreneurial culture that developed rapidly in DK since the
start of the millennium. Here, it is acceptable even
courageous to fold, as long as the company flops for reasons
that are an inherent part of high-risk high gain ventures, and as
long as no third parties are economically or otherwise
devastated by the disaster. In other words: even well thought
out and well managed start up ventures may crash on the
impact with reality. You cannot possibly cover all aspects in
your preparations, and luck also has some saying. So, as long
as the quality of preparations, decisions and management is
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impeccable, your personal standing is not harmed by a
company collapse. It could even be strengthened, and surely
you gained valuable and recyclable experience.
Serial entrepreneurs tend to operate in regional business
communities such as the well-known entrepreneurial hotspots like
Silicon Valley or Route 128, Boston, where business
opportunities, customers and venture capital are found in
abundance and where getting known in the right networks is
achievable. In such communities, entrepreneurs can raise to the
level of rock stars. In Denmark this phenomina is less developed,
but still we have samples such as the Navision Billionaires and the
Giga-man.
Finally, it is important to notice, that high-tec venturing is a team
sport. Even though the entrepreneur is often very visible, rest
assured that there is a team behind every good one. Often
carefully designed to match the challenges of the start-up and
early development stages.
And now to the question: what can we learn from all that:
Personal characteristics are important to success. Hence:
when you form your entrepreneurial team, you should think
about what skills and personalities you need to access. We
dig into this later.
Personal networks are also important to success. If you
succeed in getting connected in the regional business
communities, you get access to knowledge and resources
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that can be applied when needed. You also get access to
experienced advisors, who may even join your
management at some point in time. And you get access to
their networks too. Quite often this allows you to recruit
your personell, to find your founding partners and your
funding sources or even better: to get access to your first
customers. Networks are also an indicator of your ability to
involve other people, which again is a precondition for
growing a business. With entrepreneurship you are really
in the people-business. Enjoy!
The skills: indisputably, the repeated successes of serial
entrepreneurs depend on acquired skills, which allow them
to act almost by instinct whenever they sense a business
opportunity. This sense of opportunity and how to act upon
it- at least to some extend - can be acquired through
teaching and training. Just like good airmanship can be
acquired to some extend in the flight simulator. So read
on to get airborne!
Common sense and rational decisionmaking: This is the
hallmark of fine businessmanship. Take a look at stunning
successes, and you will find them almost without exeption
easy to comprehend. Further, success seems to follow as
a logic consequence of apparently uncomplicated, rational
and obvious decisions. But this picture is deceptive: to
analyse a complex business opportunity, to distill the
essential information, to formulate the conclusions and
formulate the decisions, requires the combination of
knowledge, experience, time and work.
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The knowledge-part and some experience can be acquired
by learning and training, and that is where the highlights of
this textbook comes in and here it comes:
be relentless in complying with the following five basic
rules. If you are, you have a business opportunity, and
aswers to questions on how to pursue it come easy.
The Entrepreneurs Five Basic
Rules
The following rules2are the singlemost important checkpoints
in this book. Learn them by heart and put them to the test
whenever you consider a new business venture. If you
comply, you have increased your chances of succeeding,
even more than you may imagine!
Rule No. 1.
Where is the Pain?
If you cannot identify a real pain = a strong need in the market,
you should turn your attention to better start-up projects.
Please be loyal to this! And be carefull too: pain can be so
difficult to identify or interpret. By example: an entrepreneur
invents a wireless diaper that trickers an alarm when fouled.He thinks that the pain is in the mothers anxiety and guilt
when baby rash (inflammation of private parts) occur. Well
2The fundamental rules as presented here are copied from the MIT Sloan School of Business
executive entrepreneurial course: MIT Entrepreneurship Development Program, in which the author
participated, Cambridge, Boston Massachusetts, January 30 February 3, 2006 with the kind
support of IDEA: International Danish Entrepreneurship Academy.
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there is some pain here, but the real pain that eventually
caused a major distributor to acquire the entrepreneurs
company was the need to differentiate an established diaper
brand in a highly competitive and stagnant market with five big
companies, fighting for market shares. So what the
entrepreneur first perceived as a large competitor turned out to
be his real business opportunity and here he found pain on a
large scale.
Rule No. 2.
What is Your Value Proposit ion?
You need to really kill the pain. There is so much noise out
there and so many fighting for the customers time and money,
that unless you really can do something extraordinary, you
dont get any attention. This applies in particular to new
businesses without a track record.
Rule No. 3.
Quantify Your Value Proposit ion.
You cannot sell on qualitive statements in professional
business-to-business markets, which is where almost all high-
tec ventures operate. And you dont get any attention from
your customer, unless you are able to quantify the value
creation that comes with buying your product or service. A lot
of other questions like your selling price also find their
answers, once you have made some calculations on the value
creation. By example: the selling price is determined by the
values that your product or your service creates for your
customer not by what it costs to produce and sell it and a
good deal is equally beneficial to buyer and seller. So once
you know your quantified value proposition, you also know
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your selling price. Simple and logic isnt it? But it is certainly
not always easy to get the information needed to calculate the
QVP. The diaper-case: introducing a high-end wireless diaper
is expected to increase the sales of ordinary dispensable
diapers by some 3 - 5% simply because it draws attention and
adds a flavour of high-tec and better baby care to the brand.
With an annual turnover of USD 250 mill. and annual net
profits around USD 50 mill. on the existing product portfolio,
the wireless diaper thus will increase profits by 1.5 to 2.5 mill.
USD. A price for the start-up company is agreed upon, based
on a simple payback time of two years worst case - and the
entrepreneur walks away with USD 3 mill. plus some
performance-based options. Not bad for inventing, developing
and testing a simple wireless diaper, which took him three
years and some USD 100.000 to procure.
Rule No. 4.
Who is Your Jury?
Who decides to buy? You focus on your customer, but quite
often several stakeholders have to be catered for, before your
customer is allowed to sign the order form. Identify the
decision makers and prepare yourself for rule no. 5. The
diaper case: the jury is not only the worried mother. Its the
management in particular the CEOs of the large distribution
companies. So Mr. Big is on your jury too.
Rule No. 5.
Prepare Your Elevator Pitch. (1 minute max.)
Now, this rule is very American and somewhat alien to us
Danes. It does hold some qualities though. An elevator pitch
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by definition: imagine yourself entering an elevator, and there
you meet Mr. Decision Maker and CEO of a very important
company, whom you have dreamt of meeting, whithout being
able to get even close. You now have one minute to catch his
attention, explain your value proposition and get a meeting set
up, before the elevator reaches its destination and Mr. D.
Maker steps out. You probably acknowledge that this requires
a very well prepared speech, where Mr. D. Makers pain is
identified and the perspectives of killing it are cut out
unmistakingly.
Elevator pitches do not work in Denmark for the sheer lack of
high-rises, but there are other ways of bumping into Mr. Big.
Further, the importance of presenting your companys reason
for being, shortly, precisely and to the point, cannot be
underestimated. If you cannot do it, you most likely dont have
a business case.
If you can do it, you can conquer the world at least you can
get a lot of people interested, and thats what your company
thrives on.
The Entrepreneur
Given the importance of the business birth rate, it comes as
no surprise that the personal traits and motives of
entrepreneurs have been exposed to comprehensive
research. By example, one of the American grand old men
within entrepreneurship research, Professor Karl H. Vesper of
University of Washington Business School in his book New
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Venture Strategies" identifies a wide variety of personalities,
all of whom deserve the right to be called entrepreneurial:
- The single self-employed individual; independent,
hard-working people who work without help from others. In
this group we find small retailers and businessmen as well as
the Mom and Dad company..
- The job-shopper: someone who is always brewing on a
new start-up venture. Goes for any interesting business
opportunity, which pops up randomly and only rarely goes all
the way to a commercial breakthrough. Quite often, otherwise
sensible entrepreneurs in economical distress turn into job
shopping to survive. Not so bad provided they get back on
their trail once they enter fair weather.
- The team builder; this type is able to turn even the
most modest of enterprise projects into large corporations
through an incredible ability to find the right employees and
fully exploit their knowledge and talent.
- The independent innovator: the Edison-type who is
primarily a remarkable inventor, but rarely a great business
talent. Once in a while, they hit the jackpot, and that is
remembered. Great innovators that are able to team up with
executive and skilled business people often produce very
successful start-up ventures. Such teams are the darlings of
venture capital companies.
- The pattern multiplier type: enters an already existing
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business area with a phenomenal business and
organizational talent and turns a local shop into a global
player. In Denmark we have a fine sample in Lars Larsen
from Jysk Sengetoejslager. (Sells reasonably good quality
towels, bed linen, pillows, etc., at moderate to low prices
globally!).
- The economy-of-scale exploiter is the type who knows
how to bring down the cost level and thereby increase the
earnings through economies of scale and well-thought out
logistics. Henry Ford is one of the most well known.
- The capital aggregator. This type pulls together a
substantial financial stake, which is used on starting a large
business, which almost from one day to the other establishes
itself as dominating on its market. Not a frequent phenomina
in Denmark, though.
- The acquirer is at the lookout for businesses, which are
ready to be straightened out, instead of starting from the
bottom. In this group we find the corporate raiders who take
over troubled companies, break them up, sell off the best
pieces, dump the rest, and use the profit to live a life in the
utmost luxury. See the movie Pretty Woman with Richard
Gere and Julia Roberts in which the underlying business
ethics are commented amongst other issues. This approach
however should not hide the fact that many good companies
have been developed by talented acquirers, so this could be a
fine way of getting started. In fact many companies are
acquired when the original founder retires. New management
often works wonders with such companies.
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There are many types of entrepreneurs to choose from, and if
this - on the one hand - creates more confusion than clarity, it
contains the positive message, that on the other hand most of
us have some of the characteristics, which match one or more
of these types. This again underlines that there is a kind of an
entrepreneur in all of us. The challenge is rather to identify
what the start-up project requires and then think of getting
yourself a team with a match.
The Entrepreneurial TeamMost high-tech ventures are founded by teams or by partners,
if you like. For many good reasons. Stress and loneliness is
one. You need capacity and you need to share and discuss
your thoughts. The required wide band skills and experiences
needed to handle a technology venture is another good one.
Here is a third from the authors own library of experiences:
once the going gets tough, you invariably get frustrated and
exhausted and ready to give up at some point in time, but
then there is always someone else in the team in a better
condition than you, who manages to revitalize optimism and
pull through to better times. (The hallmark of a real good team
member: he/she knows how to act in difficult times.) Finally,
given the importance of networks, teams have larger
networks than individuals.
So you need a team. But who should they be, and how do
you attract them? Answers to these two questions depend on
preconditions and objectives of your business venture. You
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Founding Team Competen cies
0
2
4
6
8
10General Business Experience
Strategic Business Management
Specific Market Experience
Sales & Marketing
Start-up Experience
Business Administration
Production & Logistics
Technology
will find some of the basics about how preconditions and
strategies relate to your team in subsequent chapters. The
rest can be picked up below.
A good tool to assist you in identifying your vocational and
professional needs is the spider web graphical presentation of
skills. Start by considering what kinds of expertice and
experiences you think you need to establish a team, capable
of handling the tasks and challenges, you expect to meet
during the start-up phase. Then draw up a diagram like a
spider web, letting each radial represent a competence or
experience. Then for each competence or experience -
estimate on a scale from say zero to ten, the level that you
have access to already. Draw a polygon, and it will indicate
where you are compared to where you should be. If you have
a technical-scientific background, your polygon will probably
lay askew as indicated below. Here, we have fictious team of
a scientist from a technical university and a production
engineer, who have joined forces with a retired CEO. Clearly,
this venture needs access to people with some background
within sales, specific market experience and business
administration.
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Now, professional skills are not enough to form the complete
founding team. Different personalities that supplement each
other are essential too. Here, we get some help form the
famous American economist, Dr. Ichak Adizes3, who divides
human personal traits into four categories, claiming that you
find them all in each of us, but one of them would typically
prevail. Here they are, and Dr. Adizes recommends that you
try to get them all into your team to get a group capable of
handling any situation:
Producer (P)Producers like to produce. They stay busy and get thingsdone. They focus on what we are doing and this makes theorganization functional. They would rather work than go tomeetings. They have no time for filing or planning. They finishone project and are ready to start another. They would rather
work alone because they have no time to train others. Needsomething done? Give it to a Producer.
Administrator (A)Administrators like to organize. They like rules, systems, andprocedures. They focus on how we do our work. If you donthave a policy on this, they will create one for you. They makesure we are doing things right, and by the book. Time is aprimary orientation. They are on schedule and would likeothers to be also. Need something organized? Give it to an
Administrator.
Entrepreneur (E)Entrepreneurs are thinkers and risk takers. They create anddevelop ideas of what to produce in the future. They areenergetic and enthusiastic. They are always on the move,
3
Learn more about the Adizes Methodology at: www.adizes.com
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sometimes not looking where they are going. Need to startsomething new? Give it to an Entrepreneur.
Integrator (I)Integrators bring people together and help people feel
involved. Their focus is on who is helping and how well we areworking together. This makes an organization organic, orinterdependent, like a living entity. Need to connect withothers or resolve conflicts? Call an Integrator.
How you find such partners ?
Part of the answer is, that it is a marketing job. You need to
sell your visions and your project. So start by preparing your
elevator pitch and a brief business plan. Your prospects will
ask for the latter, once their interest is spurred by the first.
Allow them to put your assumptions to the test. If they involve
themselves even as opponents - the first hurdle is passed.
Secondly, you find your partners via networks. So if you go
about the team creation in a serial way, your acces to
networks increase whenever the next partner is identified.
We also cannot conceil that success in team formation
depends on your own personal traits. Most remarkable
entrepreneurs are very extrovert and charismatic people. It
cannot be taught but it can be promoted. So dont be shy.
Once you feel confident that the business opportunity is really
there and you have checked the five basic rules: considerwhat kind of back-up you need and start your quest for
partners and consultants. And also keep one of Soeren
Kierkegaards most famous statements in mind: if the
individual does not act, destiny cannot prevail.
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The IncentivesWe need more entrepreneurs and we need better ones
with a high expectancyand a capacity for growth. But the
risks involved and the advanced broad-band skills needed
are counterproductive to this. Add to this, that real good
entrepreneurs usually dont need to look for a job and
good entrepreneurs are capable of creating really
interesting working lives for them selves and others. So why
would they bother to start up something of their own?
This question is highly interesting to those who want to
further high-expectancy entrepreneurship. Consequently, a
lot of efforts have been invested in understanding what
trickers an entrepreneur.
As the personal driving force and motivation, Karl Vesper
lists the following:
- An intense need for freedom
- Finds joy in creating
- A need to see concrete results
- Financial profit
- Threats in the present job
- Stimulation by challenging and risky jobs
- Obsessed with the role of entrepreneur- A need to direct others
- A need to prove own competence to him/herself and
to others
- A need to dominate
- A need to get a job
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Vaekstfonden has also been here and found, that among
the many motives, the predominant ones here in Denmark
are the need for creating tangible and much-admired results
and to make money on it.
In USA you often hear that we are in it for fun and profit.
That is very good reasoning!
According to Karl Vesper, the entrepreneurs place
themselves low on Maslows hierarchy of needs in regards
to the need for safety and love, but high when it comes to
creating respect for themselves. That fits nicely with the
above statements
Within the five management disciplines; planning,
organizing, human resources, management, and control,
the entrepreneurs turn out to be very good at planning
activities and to select and motivate staff members, but they
are not very good at organizing and controlling the
activities. Thus Karl Vesper.
So where does that bring us? Well, at least one usefull
statement can be deducted: when you set up your founding
team, you need to motivate your tentative partners to join,
and here, you may draw upon the above in attracting good
entrepreneurs: being part of a visible success apparently is
one of the strongest incentives. The possible obscene gain
is another. So be it. Enter these perspectives in your draft
business plan to facilitate your team building.
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The Personal Preconditions
Finally lets have a look at the working life that awaits you, and at
some of the essential personal preconditions and traits that helps
you getting through the tough years of business formation.
In his Guide for Entrepreneurs and Smaller Businesses [18],
Niels Ravn points out that the entrepreneurs must be prepared to:
- Make decisions under pressure
- Take chances; that is make decisions on a loose
ground
- Cut through
- Be a good loser
- Work hard
- Cope with deprivation; vacations, family, other interests
- Delegate responsibility
Consequently, the requirements of an entrepreneur thus are a
good health, a patient family, and a capacity to work under
stressing conditions witout getting too stressed.
Next a Swedish viewpoint on the subject: Peter Tovman and
Bengt-Arne Vedin claim in their book Start Your Own Business -
With Success [41], that the ideal personal specifications of the
entrepreneur are:
- Motivation and energy
- Experience within the business area
- Work experience
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- A positive life situation
- A good education
- Focus
The point of views of Tovman and Vedin are interesting from
several perspectives: they underline the business experience as
an important precondition for success, and they also warn against
staring a business out of dire necessity.
In fact, Tovman and Vedin indirectly suggest that you prepare
your business from a secured social and economical position and
settle down in a business area where you feel at home - without
violating the Salaried Employees Act and the Marketing Practices
Act. The latter is the authors addition with a view to the inherent
conflict of interests that arise, when a good employee quits her job
to start her own in the very market where she was previously
paied to operate.
This could be a good place to comment on the relationship
between established companies and entrepreneurial employees.
In the academic entrepreneurial culture and amongst knowledge-
based industries, such divorces are generally peacefull and they
often end in cooperation with the old company as the first
customer, maybe even co-owner and represented in the
management based on an investment through its corporate
venture division. This is in stark contrast to the situation among
Danish industries in the late previous century, where active
entrepreneurship was perceived as disloyalty and handled
consequently. But thats behind us now. The essence of spinning
out new companies from existing ones is that of course you must
be methodical in not violating the rights of your employer. Rather,
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you should look for mutual interests and act based on the
assumption that your employer is governed by common sense
and professionalism when you present you start-up visions.
Types of BusinessesBefore digging into the issues of business formation, we need to
establish some categories of start-up companies.
The differences between different types of start-ups are
pronounced, and without a sensible divison into types, we loose a
lot of type-sensitive information. Here is a way of looking at this:
A. The traditional start-up company.
New businesses within trade, manufacturing, service etc. like car
repair shops, hairdressers, bicycle shops, plummers, etc.
Companies like lawfirms, dentists, etc. also arguably belong to
this group. These businesses are much needed. They keep many
hands and heads busy. They keep the existing business
community on the marks. They create some wealth, they provide
a breeding ground for entrepreneurship in general and they
deserve all the back up they can get from regional business
development programs, since it is not easy at all to get such
companies up and running. It requires a lot of hard work,
continous attention and high-level vocational skills and
craftmanship. Though highly esteemed, they are however not the
focus of this textbook.
B. Knowledge based companies
This is our field of interest. These companies depend on specific
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and advanced knowledge. They thrive on research results and
close relations to universities, research institutions and major
knowledge based industries. They are often started by teams of
highly skilled academics and business people, and occasionally
they create stunning values to their owners, customers and
employees. Since the late nineteen nineties, a venture capital
industry has emerged in Denmark to stimulate the growth and
success of such companies through early-stage high-risk high-
gain investments. A lot more about this later in this book.
Knowledge-based companies operate in a wide variety of
business areas, and their need for capital and competencies differ
correspondingly. For the purpose of this book, it is convenient to
divide them according to their need for resources to get into
business.
The underlying reasoning is, that from the entrepreneurs point of
view, a resource-demanding and growth-oriented start-up
company is very different in objectives, working life and
management skills from a start-up company with a capacity for
breaking even, based on own earnings, the founders savings plus
maybe a little from family and friends.
One may argue that the divison into types should include a divison
into biotech, life sciences, information technology, communication
and industry, since the capital requirements and the investors in
the venture capital market reflect this kind of mapping. However,
the preconditions for venture capital funding are basically the
same, independent of types, so for the purpose of this book, such
subdivision does not really matter.
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What really matters in the way a start-up venture is managed, is
the need for resources to break even. So a sensible subdivision
related to the following chapters would be
1. Resource demanding business ventures. By example:
a. Drug development companies
b. Manufacturing companies
c. Research and development companies
2. Self-contained business ventures. By example:
a. Software companies
b. Consulting companies
Whether your start-up venture belongs to one type or the other
depends on whether or not it can get up and running based on a
combination of following three resources:
1. FFF = Family, Friends and Fools, who invest in your
venture.
2. In kind = using facilities that belong to someone else,
benevolent to your course.
3. Your first customers money. That is really the best.
If you can do that, you dont need to bother about professional
funding like venture capital and hence, your company belongs to
group 2 unless you want it kick-started and expanded rapidly,
which again requires external fundig.
If funding is what you want or need, you have to acquire capital
from the financial markets, and that is quite a challenge, which we
are going to spend quite some time on studying closer.
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Here is another statement that may surprise you: the rest of this
book is about catergory 1: the resource demanding and venture
capital backed business ventures. The reasoning is simple: if you
can do that, you can do anything including starting self-
contained business ventures.
In the lecture rooms at the Technical University of Denmark, this
approach invariably provokes some of the students, who find it
arrogant and over-ambitious. But this is an unjust interpretation.
As pointed out unambiguously in chapter 1, we need more high-
expectancy entrepreneurs. Insight in what it takes to start a new
company with a venture capital potential is your personal
precondition for deciding, if you want to do it. Finally, there is a lot
to learn from venture capital backed business formation. Study
what it takes and you become a better entrepreneur and business
manager, whether you decide to go for external backing of your
business venture or not.
Enough of this. Lets for a moment have a look at the fundamental
precondition for a start-up venture: the business idea. You need to
have an idea, so you need to do some creative invention to start
with.
Opportunity-driven Creativity
Two schools with very different vews on the importance of
creativity and the ability to train creativity seem to coexist:
(According to the Hunter Center of Entrepreneurship, University of
Strathclyde, Scotland)
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The elitist view:
1. Creativity is a rare talent
2. Creativity cannot be taught or learned