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HUMBOLDT-UNIVERSITÄT ZU BERLININSTITUT FÜR INFORMATIK

TECHNICAL ENTREPRENEURSHIP

Vorlesung 1

INTRODUCTION

Wintersemester 1999

Leitung: Prof. Dr. Miroslaw MalekBetreuer: Peter K. Ibach

www.informatik.hu-berlin.de/~rok/entrepreneurship

TECHNISCHE UNIVERSITÄT BERLININSTITUT FÜR INFORMATIK

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THE GOALS

• Development of a viable Business Plan– Team Formation– Idea Development– Initial Presentation– Midterm Report– Final Presentation– Prize Award Ceremony for the Winning Team

• Guest speeches on– Sources of Financing– Marketing– Tax and Legal Issues– Management– Success Stories

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TECHNICAL ENTREPRENEURSHIP

1. Introduction2. Entrepreneurial Processes and Models3. Creating a Successful Business Plan4. Creativity: the Product or the Service5. Business Management6. Financial Projections and Sources of Financing7. Marketing8. Legal and Tax Issues9. Intellectual Property10. Ethics11. Special Problems and Who Can Help12. Advanced TopicsLectures by: M. Malek, Students, Guests

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Quelle:

Der Spiegel 38/99

Internet Revolution (Worldwide)

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Internet Revolution (Germany)

0

5

10

15

20

25

30

1999 2000 2001

Geschätzte Umsätze mit E-Commerce in Mrd. DM (Deutschland)

Quelle:

Berliner Wirtschaft Aug./Sept. 99

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E-COMMERCE IN GERMANY

Quelle: Wirtschaftswoche 42/99

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USEFUL SITES COLLECTION

• Books– Struck, Uwe: Geschäftspläne, Voraussetzung für erfolgreiche Kapitalbeschaffung, Schäfer Verlag,

Reihe: Kompaktes Wissen für Führungskräfte, ISBN: 3-8202-0562-4

• Magazines– www.infoquelle.de - Infoquelle Online Wirtschaftsmagazin, informiert u.A. über die Erstellung eines

Business-Planes– www.bizz.de - Bizz Online Kapitalmagazin mit Artikeln rund ums Thema "Existenzgründung"

• Websites– www.gruenderstadt.de - Suchmaschine und Informationsplattform speziell für Existenzgründer.– smallbusiness.yahoo.com - Entrepreneurial site of Yahoo with many hints and links

• Conferences and Workshops• Organizations and Societies• Venture Capital Companies• BP-Competitions

– www.berliner-sparkasse.de - StartUp Gründungswettbewerb zusammen mit McKinsey.

(exhaustive lists in Appendix)

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3 M’s of ENTREPRENEURSHIP

MONEY

MARKETING

MANAGEMENT

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ENTREPRENEUR

• A person who destroys the existing economic order by introducing new products and services, by creating new forms of organizations and by exploiting new raw materials

(Joseph Schumpeter)

• Someone who perceives an opportunity and creates an

organization to pursue it

• A person who organizes and manages a business undertaking

• A creator of a new company

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ENTREPRENEURSHIP

=

Creation of a new company

• The Entrepreneurial Process– involves all the functions, activities and actions associated with

perceiving opportunities and creating organizations to pursue them

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Fast Growing Areas Specific Topics

Electronic commerce / virtual stores: buying online and picking up physically problem (3 c’s: community, content and commerce).

·       Auctions, flea market, e.g., used books (www.ebay.com)·       Auctions for B2B competitions·       Email to media (letter, book, photo, poster, CD, DVD) gateway city net including delivery, e-commerce infrastructure, logistics

Security ·       Biometrics·       Cyber cash·       Firewalls·       Encryption·       Operating system extensions & tools

Telecommunication, mobile computing, communication networks, wireless communication

·       Wireless Internet access (www.sandner.net)

Remote control, observation, diagnostics

·       Intelligent building·       Remote housekeeping/controlling·       Video control

Audio/video streaming, protocols, visualization, 3D, entertainment, games, leisure, education

·       Internet video/TV (broadcast) ·       Video distribution (music: www.mp3.com) , ·       Online photo- and copy center·       Online training center·       Games over (wireless) networks

HOT TOPICS (1)

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HOT TOPICS (2)

Healthcare, medical applications, bio informatics, remote patient care

• Online expert locating and consulting• Online drugstores www.drugstore.com • “Virtual experiments” by processing the Human

Genome database

Transportation, aerospace, defense, airlines, aviation, automotive, travel, package delivery

• Collision avoidance• Logistics• Packing chip, tracking systems

Robotics, intelligent control, micro mechanics, embedded systems

·       Autonomous coordination·       Remote control

Financial services, banking, insurance, trust center

·       Online stock markets·       Venture Capital: Capital network for startups und

business angels (www.garage.com)

Billing/charging systems ·       Micro payment systems·       Internet payment systems

Smart cards & wearable computers ·       Payment systems, e-purse·       Security·       New applications (www.microsoft.com/smartcard)

Fast Growing Areas Specific Topics

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HOT TOPICS (3)

Matchmaking: people matching ·       “Competition server” matchmaking between people engaging in any kind of on- or offline games/sports·       “Reverse” auctions for services (painter, carpeter, IT experts, etc.), taking care of information asymmetries. Agency for self-employed IT experts: www.career-central.com

Matchmaking: product matching ·       Price broker (books, CDs, DVDs) www.powershopping.de ·       Specific search engines (music, photos: www.ditto.com, videos)

Work over net, market research, customer feedback

·       Remote secretary·       Internet call center: redirect incoming calls to home offices via Internet·       www.epinions.com

Fast Growing Areas Specific Topics

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Entrepreneurship is the engine of growth for the turn of 21st century

Entrepreneurship is the best hope for an eternal economic springtime

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A MODEL OF THE ENTREPRENEURIAL PROCESS

Personal Personal Sociological Personal OrganizationalAchievement Risk taking Networks Entrepreneur TeamLocus of control Job Teams Leader StrategyAmbiguity dissatisfaction Parents Manager Structure tolerance Job loss Family Commitment CultureRisk taking Education Role models Vision ProductsPersonal values AgeEducation CommitmentExperience

Innovation Triggering event Implementation Growth

Environment Environment EnvironmentOpportunities Competition CompetitorsRole models Resources CustomersCreativity Incubator Suppliers

Government policy InvestorsBankersLawyersResources

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STATS• BUT REMEMBER

– 1 business in 10 will reach its 10th birthday.– Starting businesses is like starting love affairs (paraphrasing George

Bernard Shaw)– "Any fool can start one, it takes a genius to end one successfully."

U. S. Examples:• JOBS

– 10.000 jobs have to be created every day (= 2,5 million jobs per year)– In the 80's 5% of the young companies created 77% of jobs– 15% of these companies created 94% of jobs– Fortune 500 companies eliminated 3.5 million jobs in the 80's

• GROWTH– 500,000 small companies grow by 20% per year

• ENTREPRENEURSHIP AT UNIVERSITIES - MIT– Over 4,000 businesses established by alumni– 1.1million jobs– $ 232 billion in sales

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WHAT MAKES AN ENTREPRENEUR?The Ten D’s (1)

• Dream– Entrepreneurs have a vision of what the future could be like for them and

their business. And, more importantly, they have the ability to implement their dreams.

• Decisiveness– They don't procrastinate. They make decisions swiftly. Their swiftness is a

key factor in their success.

• Doers– Once they decide on a course of action, they implement it as quickly as

possible.

• Determination– They implement their ventures with total commitment. They seldom give

up, even when confronted by obstacles that seem insurmountable.

• Dedication– They are totally dedicated to their business, sometimes at considerable

cost to their relationships with their friends and families. They work tirelessly. Twelve-hour days, and seven-day work weeks are not uncommon when an entrepreneur is striving to get a business off the ground.

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WHAT MAKES AN ENTREPRENEUR?The Ten D’s (2)

• Devotion– Entrepreneurs love what they do. It is that love that sustains them when the

going gets tough. And it is love of their product or service that makes them so effective at selling it.

• Details– It is said that the devil resides in the details. That is never more true than in

starting and growing a business. The entrepreneur must be on top of the critical details.

• Destiny – They want to be in charge of their own destiny rather than dependent on an

employer.

• D-Marks– Getting rich is not the prime motivator of entrepreneurs. Money is more a

measure of their success. They assume that if they are successful they will be rewarded.

• Distribute– Entrepreneurs distribute the ownership of their business with key

employees who are critical to the success of the business.

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IDEA

• The idea per se is not most important. In entrepreneurship, ideas really are a dime a dozen. Developing the idea implementing it, and building a successful business are the important things.

• Perhaps the biggest misconception about an idea for a new business is that it must be unique, obsessed with the thought that the idea might be stolen.

• "Always invest in a grade A man with a grade B idea. Never invest in a grade B man with a grade A idea.“

Georges Doriat

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OpportunityEntrepreneur

Fits & Gaps UncertaintyUncertainty

Resources

Uncertainty

Uncertainty

ENTREPRENEUR, OPPORTUNITY AND RESOURCE

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KEY TO SUCCESS

• The crucial ingredients for entrepreneurial success are a superb entrepreneur with a first-rate management team and an excellent market opportunity.

• Would-be entrepreneurs who are unable to name customers are not ready to start a business. They have only found an idea and have not yet identified a market need.

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SOURCES OF STARTUP CAPITAL (USA)

PERSONAL SAVINGS (78,5%)

BANK LOANS (14,4%)

FAMILY MEMBERS (12,9%)

EMPLOYEES / PARTNERS (12,45)

FRIENDS (9,0%)

VENTURE CAPITALISTS (6,3%)

MORTGAGED PROPERTY (4,0%)

GOVERNMENT LOANS (1,1%)

OTHERS (3,9%)

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SOURCES OF STARTUP CAPITAL (GERMANY)

Quelle: DtA, Hochschul-Anzeiger 44/99

staatliche Eigenkapitalhilfe

Überbrückungsgeld vom Arbeitsamt

Kredite und Bürgschaften von Verwandten und

Freunden

75%

normale Bankkredite 75.8%

38.4 %

33.3 %

Wagniskapital 2.5 %

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STARTUP CAPITAL

• 25% start with less than $5,000

• 50% start with less than $25,000

• 75% start with less than $75,000

• Less than 5 % with $ 1,000,000 or more

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INGREDIENTS FOR A SUCCESSFULNEW BUSINESS

The Ten F’s (1)• Founders

– Every startup company must have a first-class entrepreneur.

• Focused– Entrepreneurial companies focus on niche markets. They specialize.

• Fast – They make decisions quickly and implement them swiftly.

• Flexible– They keep an open mind. They respond to change.

• Forever-innovating – They are tireless innovators.

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INGREDIENTS FOR A SUCCESSFULNEW BUSINESS

The Ten Fs (2)• Flat

– Entrepreneurial organizations have as few layers of management as possible.

• Frugal– By keeping overhead low and productivity high, entrepreneurial

organizations keep costs down.

• Friendly– Entrepreneurial companies are friendly to their customers, suppliers, and

workers.

• Fun– It's fun to be associated with an entrepreneurial company.

• Fanatic– Completely devoted to the cause

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PRODUCTIVITY PER EMPLOYEE (1990)IN COMPUTER INDUSTRY

• Nintendo $1,000,000

• Apple $451,600

• Compaq $317,500

• NEC $198,200

• IBM $184,600

• Siemens-Nixdorf $106,700

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TECHNOLOGY TRANSFER AT FOUR LEVELS OF INVOLVEMENT

Collaboration ComplexityLevel IV

Application

Level III

Implementation

Level II

Acceptance

Level I

Quality R&D

G. Kozmetzky, UT-Austin

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KEY FACTORS IN THE DEVELOPMENTOF A TECHNOLOGY TRANSFER INFRASTRUCTURE

Talent

Technology

Transfer

Infrastructure

Capital

Kn ow - How

Te c hno l og y

G. KozmetzkyUT-Austin

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ENVIRONMENTAL CONDITIONS

ClimateEnvironment

Push/Pull Factors

BusinessTalent

R&DPerformers

Nature ofTechnolo-

gical Innovation

Private CapitalInstitutions

Technical

Technology Transfer

Infrastructure

Capital

Technology VenturingInstitutions

K n o w - H o w

T e c h n o l o g y

G. KozmetzkyUT-Austin

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Techno-

Profe- ssional Support Organi-zation

POLICY IMPLICATIONS

ClimateEnvironment

Push/Pull Factors

Business

Talent

R&DPerformers

Nature of

logical

Innovation

Private CapitalInstitutions

Technical

Technology

Transfer

Infastructure

Capital

Technology VenturingInstitutions

GovernmentFunding

TechnologyTransfer

ScienceParks

Consortia

IntellectualProperty

Venture Capital PoolsTax AdvantagesR&D Limited PartnershipsSmall Business Investment Corp.

Business Angels NetworkGovernment Programs (SBIR)State Venture Capital Funds

Culture for InnovationQuality of life

Local infrastructureAccess to other areasSuccessful role models

Incubators

EducationalPrograms

TechnicalSupportPrograms

LocalAdvisors

BusinessNetworks

K n o w - H o w

T e c h n o l o g y

G. KozmetzkyUT-Austin

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SUCCESS FACTORS FOR TECHNOLOGY TRANSFER

AcademicBusiness

Government

Community

Talent Technology Capital Know-How

Market - Need

Successful Value-AddedTechnology Transfer

G. KozmetzkyUT-Austin

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ELEMENTS OF THE TECHNOPOLIS Newtechnologies

Government services

Businessservices

Globallinkages andrelationships

Airporttele-communication

infrastructure

Quality-of-life support

Universityand otherinstitutions

Technology- related industries

Technopolis model

Program Marketing

Land use allocation and site requirementsG. KozmetzkyUT-Austin

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CASE STUDY: TIVOLI SYSTEMS INC.

• ONE OF THE HIGHEST PRICES AFTER ONE YEAR ON THE WALL STREET:

– IBM PAID $743 MILLON

• PRODUCT:– NETWORK MANAGEMENT SOFTWARE

• HEADQUARTERS: – AUSTIN, TEXAS

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TIVOLI SYSTEM INC.• In 1989, 12 IBM engineers left the company and founded Tivoli Systems Inc. in Austin, Texas

Summary Financial Information (In thousands, except per share data)

1990 1991 1992 1993 1994 1995Statement of Operations Data:

Total revenues $542 $--- $4,699 $12,746 $26,878 $50,000 Operating income (loss) (653) (3,808) (1,904) (735) 1,539 Net income (loss) (590) (3,732) (1,885) (735) 1,397 Pro forma net income per share 1 0,11 Pro forma weighted average common shares and equivalents 1 13,239

Shares Purchased Total Consideration Average $Number Percent Amount Percent Per Share

Existing stockholders 2 11,845,038 85,6% $11,089,925 35,7% $0,94

New investors 2 2,000,000 14,4 20,000,000 64,3 10,00Total 13,845,038 100,0% $31,089,925 100,0%

•Pro forma as of December 31, 1994, to give effect to the conversion of the Company’s redeemable convertible Preferred Stock.

•Assumes the conversion of all outstanding shares redeemable convertible Stock into an aggregate of 9,025,006 shares of Common Stock upon the closing of the offering. The net effect of sales by the Selling Stockholders in the offering will reduce the number of shares held by existing stockholders to 11,520,038 or 83,2% of the total number of shares held by new investors to 2,325,000 or 16,8% of the total number.

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TIVOLI’S BALANCE SHEET (1)PERCENT OF TOTAL REVENUES, YEARS ENDED DECEMBER 31

1992 1993 1994Revenues: License fees and 100% 91% 85% other services no 9 15 Total revenues 100 100 100Cost of revenues: License fees and 21 13 10 other services no 9 11 Total cost of revenues 21 22 21 Gross margin 79 78 79Operating expenses: Sales and marketing 42 40 43 Product development and engineering 63 34 22 General and administrative 14 10 8 Total operating expenses 119 84 73

Operating income (loss) (40) (6) 6 Interest and other income (expense), net no no (1) Net income (loss) (40)% (6)% 5%

Total expenses 140 106 94

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TIVOLI’S BALANCE SHEET (2)Statement of Operations Data, (in thousands, except per share data)

Years Ended December 31Revenues: 1990 1991 1992 1993 1994 License fees and $--- $--- $4,699 $11,542 $22,725 other services 542 --- --- 1,204 4,153 Total revenues 542 --- 4,699 12,746 26,878Cost of revenues: License fees and --- --- 991 1,602 2,765 other services 126 --- --- 1,191 2,951 Total cost of revenues 126 --- 991 2,793 5,716 Gross margin 416 --- 3,708 9,953 21,162Operating expenses: Sales and marketing 51 630 1,992 5,134 11,599 Product development and engineering 753 2,406 2,973 4,287 5,765 General and administrative 265 772 647 1,267 2,259 Total operating expenses 1,069 3,808 5,612 10,688 19,623 Operating income (loss) (653) (3,808) (1,904) (735) 1,539 Interest & oth. income (expense), net 63 76 19 --- (142) Net income (loss) $(590) $(3,732) $(1,885) $(735) $1,397

Balance Sheet Data (in thousands $): 1990 1991 1992 1993 1994 Working capital $2,614 $2,092 $2,443 $3,075 $3,652 Total assets 2,936 2,889 4,721 8,201 15,908 Long-term liabilities, net of current Portion --- 201 242 388 1,375 Redeemable convertible preferred stock 3,500 6,810 9,449 11,158 11,369 Common stockholders’ equity (deficit) (588) (4,406) (6,439) (7,267) (5,700)

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FINANCIAL SERVICES TELECOMMUNICATIONS ELECTRONICS/COMPUTERS

Automatic Data Processing Inc. American Telephone/Telegraph Co. Adobe Systems Inc.

Cargill Inc. Ameritech Services Inc. Comdisco Systems Inc.

Charles Schwab AT&T Bell Laboratoires Inc. Cray Research Inc.

Chase Manhattan Corp. Bell Atlantic Network Services Inc. Cypress Semiconductor Corp.

Citicorp North America Inc. BellSouth Telecommunications Inc. Hitachi America Ltd.

Fidelity Systems Development Co. BT North America Inc. Intel Corp

GE Capital Corp. Claircom Communications Group IBM Corp.

IDS Financial Services Inc. GTE Data Services Inc. LSI Logic Corp.

MBNA Corp. McCaw Cellular Communications Motorola Inc.

M. Lynch, Pierce, Fenner & Smith Network general Corp. National Semiconductor Corp.

Metropolitan Life Insurance Co. Pagenet Paging Network Inc. Siemens Rolm Communications

Paine Webber Inc. TDS Computing Services Inc. Sybase Inc.

Prudential Securities Inc. US West inc. Xilinx Inc.

Securities Industries Automation C.

Union Bank of Switzerland

Wells Fargo & Company

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GOVERNMENT UTILITIES

Federal National Mortgage Association Carolina Power & Light Co.

Federal Reserve Bank of New York Delmarva Power & Light Co.

Student Loan Marketing Association Detroit Edison Co.

U.S. Department of the Army Duke Power Co. Inc.

U.S. Department of Labor Florida Power Corp.

Northern States Power Co.

Public Service Electric & Gas Co.

Southern Company Services Inc.

TRANSPORTATION OTHERS

BMW Manufacturing Corp. Amgen Inc.

Delta Airlines Inc. Circuit City Stores Inc.

Federal Express Corp. Eli Witt Co.

Lynden Inc. Exxon Corp.

United Parcel Service Inc. Hughes Aircraft Co., Inc.

Marriott International Inc.

Martin Marietta Corp.

Mobil Oil Corp.

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THE U.S. ENTREPRENEURSHIPSUCCESS STORIES

• FIRST COMPANY WHICH ACHIEVED $ 100 MILLION SALES IN THE FIRST YEAR:

COMPAQ INC.

• PRODUCT: PORTABLE PC’S

• HEADQUARTERS: HOUSTON, TEXAS

• FIRST COMPANY WHICH ACHIEVED $1 BILLION SALES IN THREE YEARS:

SUN MICROSYSTEMS INC.

• PRODUCT: WORKSTATIONS + SOFTWARE

• HEADQUARTERS: MOUNTAIN VIEW, CALIFORNIA

• FIRST COMPANY WHICH ACHIEVED $4 BILLION SALES AT INITIAL PUBLIC OFFERING

NETSCAPE COMM. CORP. (BOUGHT BY AOL IN 1999)• HEADQUARTERS: MOUNTAIN VIEW, CA www.home.netscape.com