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Collins et al - The Venture Crowd [Crowdfunding]

Collins et al - The Venture Crowd [Crowdfunding]

Equity crowdfunding is becoming more common (where people get micro-shares in a young business). People invest with monetary and intrinsic motivations in mind.

Legislation still imposes a barriers to EB-funding.

Equity based crowdfunding essentially fills an equity gap-->

-VCs and angels are not investing in the seeding stages as frequently anymore (they want high risk/high reward options)

Main differences EB-crowdfunding vs traditional investments:

. Crowdfunding has a degree of newness

. Smaller companies (within the equity-gap)

. Direct interaction with the entrepreneurs

-Equity based crowdfunding is likely suited for specific niches such as consumer-based products but not suited for very complex businesses (e.g. bioengineering).-Businesses worried about competitor might shy away from crowdfunding since it implies sharing confidential info

-Businesses that mix social benefits with monetary rewards might be best suited for equity based crowdfunding

Issues:-pro investors might scoop away businesses almost reaching their target contacting them personally.

-Crowd is intelligent but there is also a notio of herding due to signalling effects

-Competitors stealing info and using it to compete with the business itself

overall it might be valueable to combine pro investors and the crowd.

2. Mollick - The dynamics of crowdfunding [Crowdfunding]The author studied a shitload of campaigns on Kickstarter and looked at succesfactors, succes rates and so on.

The goals of funders are extremely heterogenous.

Generally projects succeed by a small amount or fail by a large amount.

Project quality results in herding (via signaling effects) therefore it is very important.

Project quality indicators:

-Presence of a video

-Produc quality

-Frequency of spelling errors/typos/grammar mistakes

-Size of social network (successrate is positively correlated with being a fb slut)

-update frequency

Businesses also often seem to reflect their cultural/geographic origins via their projects and creative regions are more likely to find support for their campaign.

Overall a big issue remains delivering the rewards on time. Few if any deliver these rewards on time. This is especially difficult for ventures that got a lot more money than was originally anticipated.

Mullins & Churchill - Managing Cash [Growth]

Because growth takes cash - it is important to truly understand the hidden powers of a balance sheet.

They suggest doing 2 analyses every month to determine whether the business is in good shape and where cash for growth might be found:

. Cash-days analysis

. Hidden cash analysisCash-days analysis assesses a companys working capital accounts. In most businesses there are 3 main working capital accounts:

- Accounts receivable--> what customer owe to you

Sales / 365 (per day)=sales day --> divide account receivables by sales day=cash day

-Accounts payable--> what you owe to suppliers etc.

-Inventory-->materials, work in progress, finished goods.

Sales cost /365 (per day)= sales cost day-->divide payables by sales cost day= cash day (same for inventory)

Doing this analysis every month should be followed by 2 questions:

-How do this months cash days compare with those in prior months or to our goals?

-How do our cash-days compare with those for others in our industry?

The benefit of the method is twofold: easy to outsource with guidelines + finding hidden cash for growth

Hidden-cash analysis

Two basic approaches: slow down payables and/or increase receivables.

Calculate the difference between variations to expose hidden cash.

for examples see article

4. Krogh & Cusumano - Managing Fast Growth [Growth]

Steady growth is necessary to create a long and healthy business. Planning for growth has an internal focus and is directed at using existing capabilities.

This growth is advised to take place in 3 ways - usually semi-sequentially:

. Scaling

Works best when: 1) the market is large for rapid growth, 2) product creates unique value, 3) distribution can be done at low costs.

Key principles:

-Invest agressively -->using existing resources to bring more products to market

-Specialize & standardize -->simple functional structure and standardized tasks

-Hire the right mix --> get a team on board with know-how

-Adapt the structures --> setup an organizational structure facilitating growth

-Learn from customers early --> i.e. using lead users etc.

. DuplicationWorks best when: 1). physical presence of business is needed (+geographical expansion) 2) better distribution is needed 3) experience can be adapted to local markets easily.

Key principles:

-Balance standard. & adaptation--> adapt to local markets, standardize know-how

-Hire independent managers-->who can help using their unique skills & know-how

-Duplicate entrepreneurial knowledge-->use devote practice

-Duplicate key parts of infrastructure --> i.e. using blackbox to spread know-how

-Be aware of limitations. GranulationWorks best when: 1). former 2 strategies dont work, 2) a new technology opens up possibilities 3) company is mature enough to pursue new business activitiesKey principles:

-Balance the old & new-->develop new capabilities and create new business

-Balance the formal & informal-->create teams that like to exchange knowledge

-Evaluate & monitor-->local opportunities presented to senior management etc.-Learn from customers-->use lead users etc etc.It is generally advisable to use all 3 strategies -but somewhat sequentially

5. Hamm- Why Entrepreneurs dont scale [Growth]The main reason excutives/founders fail in business later on is because they lack skills a CEO needs when the business grows and the team gets larger.

CEO skills are things like:

-Thinking about the strategy

-Dealing with people objectively

-Creating a loyal and diverse workforce

-Impressing customers

-Finding & Dealing with investors

Without tweaking their skills, executives/founders often fall back to old habits and previous experience - which will not usually lead to signficant results in the future.

The 4 main qualities that turn into The Achilles Heel later on:

#1 Loyalty to comrades

Problem: being to much of a friend and forgiving mistakes etcSolution: keeping a good relationship, but seperating bizz & personal#2 Task orientation

Problem: failing to establish strategic priorities (confusing tasks with goals)Solution: zooming out, establishing a strategic orientation#3 Single mindedness

Problem: Devotion to a single issueSolution: Seeing beyond area of own interest#4 Working in isolation

Problem: introverts especially having a hard time coming out of their shellSolution: personal growth via coaches etc/stepping out of comfort zone

6. Winter & Szulanski - Replication as Strategy

The auhors argue that replication is as simple as companies often think.

It comes in two stages : exploration followed by exploitation where the Arrow core plays a central role.

Arrow Core (the hidden truth about replication potential).

-The full and correct specifications of the fundamental replicable features of a business model as well as its ideal target applications.

-Includes all the outlet local info that accounts for the value-creating potential of the BM when replicated.

--> it must be acquired via experiential learningReplicators add value by:

discovering and refining a business model

choosing necessary components to replicatedeveloping capabilities to routinize knowledge (transfer)maintain the model in operationReplication means knowledge transfer on a broad scale where outlets themselves are capable of refining the business model with knowledge in house.

To implement a business model successfully a replicator must:

. Know the valued featurues of the product and/or service

. Know the procedures involved to commercialize the product and/or service. Have the right procurement methods to acquire the inputs needed to execute those proceduresA company that pursues a replication strategy basically tries to formulate and reformulate hypotheses about the Arrow Core and infers templates (plans) from those hypotheses. This is difficult because idiosyncrasies are at play -always.

Exploration

Always be flexible during this phase because complete info doesnt

exist. -Exploration is less effective when hypotheses about the

arrow core are unknown.

Exploitation

Precize replication of a template could means maximum results.

-However, copying irrelevant things might be too costly.

A rigid approach to replication tends to halt the process of discovering

the arrow core.

This is referred to as the replication dilemma-->precision over learning and adaptation.

Palich et al - Curvilinearity in the diversifcation... [Core competencies]

Diversification is often assumed to positively correlate with an increase in performance and profits. However, this is not always the case.

In general there is a major trend on re-focussing on the core businsses. However, diversification still occurs frequently hence they wanted to study this.

MODELS

Main idea is that performance increases when diversification is used (whether is is related on unrelated).

Lineair--> performance and diversification as positively associated

It is assumed that a diversified firm has more flexibility and it enjoys economies of scope.

Curvelinear models

Inverted U-model--> Limited diversification is positively associated with increased performance.

This is superior to unrelated diversification where strain on management (among other entities) is significant.

Intermediate model--> Diversification yields positive returns up until a certain point

Generally pros and cons of related vs unrelated diversifcation mentioned

Related : + less strain on management, ability to use economies of scope

- riskier than unrelated diversification

Findings:

Diversification has an inverted-U curvilinear relationship with performance. Positive effects when business starts with related diversification.

Negative effects when a business moves from related to unrelated diversifcation.

The relationship however, is weak, and a the biggest bottleneck is strain in management with increased diversification of any kind

DeTienne - The Entrepreneurial exit [Exit Strategies]

There is little research with regards to the entrepreneurial exit. However

A central part of new venture creation revolves around harvesting the value that has been created at some point.

Less than 50% of the entrepreneurs started out with an exit strategy in mind. This is largely related to the fact that idiosyncracies cause for different motivations and so forth.

Importance of the exit to the entrepreneur, firm, and industry

Entrepreneur--> there are often (major) financial and psychological implicationsFirm--> may change the firm either positively or negatively after a saleIndustry--> impacting regional economic development + wealth diffusion

Ownership

Ownership can be in equity and psychological form.

3 factors influence the degree of psychological ownership:

Control of the organization

Intimate knowledge of the organizationSelf-investmentGoal theory: In general, entrepreneurs with an exit strategy in mind (the goal) having some monetary driving reasons are most successful. Imprinting an exit strategy will influence future business building and thus increases the chances of successfully selling the business later.

Reasons for exitAlternative--> new opportunitie emerge/new alternativesCalculative--> refers to the chance that goals will be met (i.e. selling the business)Normative--> the entrepreneurs perception of the expectation of friends & family

As a firm matures its exit options increase - but so could emotional attachment!

Wennberg et al- Reconceptualizing entrepreneurial exit [Exit strategies]

There are four general models of exit:

Exit by liquidation by high performing firms

Exit by liquidication by low performing firmsExit by sale by high performing firmsExit by sale by low performing firmsExits are influenced by the entrepreneurs experience, education level, and age

Prospect theory & selling a firm--> gain framing vs loss framing

Performance -->

Exit route: HIGH LOW

Exit by saleHarvest saleDistress sale

Exit by liquidationLiquidationDistress liquidation

Harvest sale--> A situation where the firm continues while the entrepreneur exists as majority owner.Distress sale--> The sale of a firm under financial stress

Liquidation--> Termination of the firm and distribution of the value of its assets to the owners & creditors

Distress liquidation--> Highly linked with bankruptcy but to avoid stigma assets are sold

Experience

Generally experience has a positive effect on the probability of making a harvest sale

Education

Higher education is linked with higher firm performance due to more (social) resources. Therefore, harvest sale exits are more likely in the end.Age

The older entrepreneurs get, the more likely a harvest sale or a distress sale.

Other sources of income

When other sources of income are present (i.e. a good job aswell) the entrepreneur might be satisfied with lower returns. Therefore, unrelated to high performance exits but higher related to eventualt distress sales.

Additional equity investments

More money invested usually means postponing any type of exit.

Battilana et al - In Search Of The Hybrid Ideal [Teams]

A hybrid organization--> an organization that combines aspects of nonprofits and for-profits.

Hybrid organizations must strike a delicate balance between social and economic objectives to avoid mission drift

There are 4 big challenges for hybrid organizations:

Challenge #1 - Legal structure

Traditionally there are 2 legal structures: for-profits where they are allowed to distribute gains amongst shareholders and non-profits that receive substantial tax benefits.

Solution--> creating 2 seperate legal entities to enjoy the best of both worlds

Challenge #2 - Financing

Funding for for-profits can be done in a variety ways via equity and debt. Non-profits might receive funding from grants and philantrophic communities.

Solution--> many hybrid entrepreneurs first focus on getting funding via the non-profit path though sometimes investors might be comfortable with the hybrid ideal

Challenge #3 - Customers & Benificiaries

The line between customers and benificiaries migh become quite blurry in a hybrid organization. A common problem is that benificiaries dont have the financial means to pay for the value delivered.

Solution--> ideally, there is an integrated model where both entities are the same preventing mission drift.Challenge #4 - Organozational Structure & Talent Development

Hybrids face the problem of building an organizational culture committed to both economic and social gains.

Solution-->clear communication to team members and selecting the right employees.

McGrath & MacMillan - Discovery Driven Planning

Major strategic decisions need be based on tested assumptions.

The following is a 5 step process advocated to use for successful venture planning

Bake profitability into your ventures plan

Make a reverse income statement - determine the profit required to make it worthwile.

Calculate allowable costsLay out all the activities required to produce, sell, service, and deliver the product/service (combined these are the allowable costs).

Identify your assumptionsList all assumptions you have behind the profit, revenue, and allowable costs and challenge them to open up discussion.Determine if the venture still makes senseCheck your assumptions against your reverse income statement and ask yourself if it is still worth it. To be more precise: can you still make the required profit given the latest estimate of the revenues and allowable costs? If not, stop right now.

Test assumptions at milestonesIf you decide to continue , postpone major decisions until you have challenged and proven assumptions at key milestone points in time.Delmar et al - Arriving at the high-growth firm

The authors defined 7 types of growth patterns because all high-growth firms do not grow in the same way. Growth criteria were mainly (organic & absolute) employees and sales growth.

There are 7 types of growth they classified:

Super absolute growers

High absolute growth in both sales and employment. Mostly found in knowledge intensive manufacturing industries.

Steady sales growers

Rapid growth in sales and negative development in employment. Found in traditional industries.

Acquisition growers

Growth is achieved by acquiring other firms. Negative organic employment growth. Mostly found in older firms.

Super relative growers

Strong both somewheat erratic development in both sales and employment. Mostly SMEs in knowledge intensive industries.

Erratic one-shot growers

Negative development on average with exception of 1 high growth year. Dominated by SMEs found in low-technology firms.

Employment growers

Stronger growth in employment than sales. SMEs mostly in low tech service industries.

7. Steady overall growers

Generally steady growth on both levels. Mostly found in larger firms active in the manufacturing industry.

13. Katzenbach & Smith - The Discipline of TeamsTeams are different than working groups. In teams, individual and mutual accountability in prevalent. In working groups, individual accountability is important (hence for larger organizations these often work best).

ELEMENTS THAT MAKE TEAMS FUNCTION

Common commitment & purpose-The essence of a team is common commitment and trust.

-A team should strive towards a shared goal or have a shared purpose

Performance goals

-Specific team performance goals should be set to translate the purpose in action

-These specific goals help the team eachieve multiple mini-wins to gain momentum

Complementary skills

-Teams should be complementary and skill criteria should be #1 not personality

-Communicating with each other should not be a major struggle

Mutual accountability

-Again, commitment and trust are key

-Mutual accountability is about the promises we make to others and delivering on them

Other important elements

Effective teams are not large groups (which adds complexity) 2-25 people is the avg range

TYPES OF TEAMS

Teams that recommend things

Their suggestions might get lost of knowledge isnt shared crystal clear and workers are instructed to make it happen.

Teams that make or do things

These teams are at the frontline. The main issue that arrives is for top management: making sure the logistics are there to support the frontline team.

Teams that run things

The main issue they face is determining whether they should be a team or a workgroup.