venture planning chapter two dowling ba 560 fall term 2005

Venture PlanningVenture PlanningChapter TwoChapter Two

DowlingDowlingBA 560BA 560

Fall Term 2005Fall Term 2005

The Entrepreneurial ProcessThe Entrepreneurial Process

en·tre·pre·neuren·tre·pre·neur n. n.

A person who organizes, A person who organizes, operates, and assumes operates, and assumes the risk for a business the risk for a business venture.venture.

[French, from Old French, from [French, from Old French, from entreprendreentreprendre, ‘to undertake.’], ‘to undertake.’]

American Heritage American Heritage

Dictionary, 4th Ed.Dictionary, 4th Ed.


EntrepreneurshipEntrepreneurship

Entrepreneurship is a way of thinking, Entrepreneurship is a way of thinking, reasoning and acting that is reasoning and acting that is

opportunity obsessed, holistic in opportunity obsessed, holistic in approach, and approach, and leadership balanced. leadership balanced.

BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 44


It is It is opportunityopportunity driven driven

It is driven by a It is driven by a lead entrepreneurlead entrepreneur and an and an entrepreneurial teamentrepreneurial team

It is resource It is resource parsimoniousparsimonious and and creativecreative

It depends on the It depends on the fitfit and and balancebalance among these among these

It is It is integratedintegrated and and holisticholistic


The Timmons Model of the The Timmons Model of the Entrepreneurial ProcessEntrepreneurial Process

Opportunity(2)

Resources(4)

Team(3)

Creativity Leadership

Communication

Business PlanFits and gaps

Ambiguity Exogenous forces

Capital market contextUncertainty

Founder (1)


The Entrepreneurial LeaderThe Entrepreneurial Leader

An entrepreneurial leader:An entrepreneurial leader:– Learns and teaches—faster, betterLearns and teaches—faster, better

– Deals with adversity, is resilientDeals with adversity, is resilient

– Exhibits integrity, dependability, honestyExhibits integrity, dependability, honesty

– Builds entrepreneurial culture and Builds entrepreneurial culture and organizationorganization


CreativityCreativity&&InnovationInnovation

HIGHHIGH

LOWLOWGeneral management skills, business know-how, and networksGeneral management skills, business know-how, and networks

HIGHHIGH

InventorInventor

PromoterPromoter

EntrepreneurEntrepreneur

Manager,Manager,AdministratorAdministrator


Myths about EntrepreneursMyths about Entrepreneurs

•Entrepreneurs are Entrepreneurs are born, not madeborn, not made•Anyone can start a Anyone can start a businessbusiness•Entrepreneurs are Entrepreneurs are gamblersgamblers•Entrepreneurs want to Entrepreneurs want to run the show run the show themselvesthemselves

•Entrepreneurs work Entrepreneurs work longer hours than otherslonger hours than others•Entrepreneurs should Entrepreneurs should be young and energeticbe young and energetic•Entrepreneurs seek Entrepreneurs seek control over otherscontrol over others•Any entrepreneur with a Any entrepreneur with a good idea can raise VC good idea can raise VC $$

The OpportunityThe Opportunity

Market demand is a key ingredient Market demand is a key ingredient to measuring an opportunity. to measuring an opportunity.

Market Structure & SizeMarket Structure & Size

Margin Analysis helps differentiate Margin Analysis helps differentiate

an opportunity from an idea.an opportunity from an idea.


The Entrepreneurial TeamThe Entrepreneurial Team

Quality of the Team:Quality of the Team:– Relevant experience and track recordRelevant experience and track record– Motivation to excelMotivation to excel– Commitment, determination, and Commitment, determination, and

persistencepersistence– Tolerance of risk, ambiguity, and Tolerance of risk, ambiguity, and

uncertaintyuncertainty– CreativityCreativity


The Entrepreneurial TeamThe Entrepreneurial Team

Quality of the Team:Quality of the Team:– Team focus of controlTeam focus of control

– AdaptabilityAdaptability

– Opportunity obsessionOpportunity obsession

– LeadershipLeadership

– CommunicationCommunication

…………………………....Don’t be driven by them.Don’t be driven by them. Minimize & ControlMinimize & Control, versus , versus

Maximize & OwnMaximize & Own..

Unleashing creativity:Unleashing creativity:Financial ResourcesFinancial ResourcesAssetsAssetsPeoplePeopleYour Business PlanYour Business Plan

Think Cash Last!Think Cash Last!

Understand and Marshall ResourcesUnderstand and Marshall Resources


Paradox # 1Paradox # 1An opportunity with no or very low potential can be an An opportunity with no or very low potential can be an

enormously big opportunity.enormously big opportunity.

Paradox # 2Paradox # 2In order to make money you have to first lose money.In order to make money you have to first lose money.

Paradox #3Paradox #3In order to create and build wealth, one must relinquish In order to create and build wealth, one must relinquish

wealth.wealth.

Paradox #4Paradox #4In order to succeed, one first has to experience failure. In order to succeed, one first has to experience failure.


Paradox # 5Paradox # 5Entrepreneurship requires considerable thought, preparation and Entrepreneurship requires considerable thought, preparation and

planning, yet is basically an unplannable event. planning, yet is basically an unplannable event.

Paradox # 6Paradox # 6In order for creativity and innovativeness to prosper, rigor and In order for creativity and innovativeness to prosper, rigor and

discipline must accompany the process.discipline must accompany the process.

Paradox #7Paradox #7Entrepreneurship requires a bias toward action and a sense of Entrepreneurship requires a bias toward action and a sense of

urgency, but also demands patience and perseverance.urgency, but also demands patience and perseverance.

Paradox #8Paradox #8The greater the organization, orderliness, discipline, and control, the The greater the organization, orderliness, discipline, and control, the

less you will control your ultimate destiny.less you will control your ultimate destiny.


Paradox # 9Paradox # 9Adhering to management best practice, especially staying close to the Adhering to management best practice, especially staying close to the

customer that created industry leaders in the 1980’s, became a customer that created industry leaders in the 1980’s, became a seed of self-destruction and loss of leadership to upstart seed of self-destruction and loss of leadership to upstart competitors. competitors.

Paradox # 10Paradox # 10To realize long-term equity value, you have to forgo the temptations of To realize long-term equity value, you have to forgo the temptations of

short-term profitability.short-term profitability.


Leading PracticesLeading Practices

Leading marketing practices of fast-growth firmsLeading marketing practices of fast-growth firms Leading financial practices of fast-growth firmsLeading financial practices of fast-growth firms Leading management practices of fast-growth Leading management practices of fast-growth

firmsfirms Leading planning practices of fast-growth firmsLeading planning practices of fast-growth firms


Marketing PracticesMarketing Practices

Deliver products and services that are perceived Deliver products and services that are perceived as highest quality to expanding segmentsas highest quality to expanding segments

Cultivate pace-setting new products and Cultivate pace-setting new products and services that stand out in the market as the best.services that stand out in the market as the best.

Deliver product and service benefits that Deliver product and service benefits that demand average market or higher pricingdemand average market or higher pricing


Financial PracticesFinancial Practices

Anticipate multiple rounds of financing (on Anticipate multiple rounds of financing (on average, every 2.5 years)average, every 2.5 years)

Secure funding sources capable of significantly Secure funding sources capable of significantly expanding their participation amountsexpanding their participation amounts

Utilize financing vehicles that retain the Utilize financing vehicles that retain the entrepreneur’s voting controlentrepreneur’s voting control

Maintain control by selective granting of Maintain control by selective granting of employee stock ownershipemployee stock ownership


Management PracticesManagement Practices

Use a collaborative decision-making style with Use a collaborative decision-making style with the top management team.the top management team.

Assemble a balanced board of directors Assemble a balanced board of directors comprised of both internal & external directorscomprised of both internal & external directors

Calibrate strategies constantly w/board meetingsCalibrate strategies constantly w/board meetings Involve the board of directors heavily at strategic Involve the board of directors heavily at strategic

inflection pointsinflection points


Planning PracticesPlanning Practices

Prepare detailed plans for each of the next 12 to Prepare detailed plans for each of the next 12 to 24 months; annual plans for 3 or more years24 months; annual plans for 3 or more years

Periodically share actual performance w/staffPeriodically share actual performance w/staff Link job performance standards that have been Link job performance standards that have been

jointly set by management and employees to the jointly set by management and employees to the business planbusiness plan

Prospectively model the firm based on Prospectively model the firm based on benchmarksbenchmarks

62.7%

51.7%

23.7%

0 20 40 60 80

Within 6Years

Within 4Years

Within 2Years

Time to FailTime to FailThe following percentages of small businessesThe following percentages of small businessesAre dissolved within two, four and six years.Are dissolved within two, four and six years.


3.7%

3.4%

7.1%

38.4%

47.4%

0 10 20 30 40 50

Other

Owner Neglect

Inexperience

Financial Troubles

Economic Factors

Reasons for FailureReasons for FailureA breakdown of why businesses fail.A breakdown of why businesses fail.


100.0%

95.2%

95.3%

85.5%

77.8%

0 20 40 60 80 100

250+

100-249

20-99

10 to 19

0 to 9

One-Year Survival RatesOne-Year Survival Rates


IndustryIndustry AllAll

(%)(%)

Zero Zero GrowthGrowth

Lo GrowthLo Growth

1-4%1-4%

Med GrthMed Grth

5-9%5-9%

Hi GrowthHi Growth

10%+10%+

All IndustriesAll Industries 39.8%39.8% 27.5%27.5% 66.3%66.3% 75.5%75.5% 78.4%78.4%

Ag/FishingAg/Fishing 43.143.1 35.035.0 74.774.7 80.780.7 82.882.8

MiningMining 39.139.1 27.127.1 67.867.8 61.561.5 57.057.0

ConstructionConstruction 35.335.3 24.124.1 6565 72.272.2 74.374.3

ManufacturingManufacturing 46.946.9 27.027.0 66.966.9 73.573.5 76.076.0

Transport/Utils.Transport/Utils. 39.739.7 25.725.7 68.568.5 72.472.4 75.675.6

Wholesale TradeWholesale Trade 44.344.3 28.328.3 66.566.5 74.974.9 77.277.2

Retail TradeRetail Trade 38.438.4 27.127.1 62.762.7 74.474.4 76.876.8

Finance, Finance, InsuranceInsurance

38.638.6 28.728.7 68.768.7 76.476.4 78.578.5

ServicesServices 40.940.9 28.728.7 69.169.1 79.479.4 83.583.5

Six-Year Survival RatesSix-Year Survival Rates


venture planning chapter two dowling ba 560 fall term 2005

Documents

entrepreneurial leader

holistic slide

entrepreneurial team

entrepreneurial culture

entrepreneurial process

entrepreneurs entrepreneurs

organization slide

business entrepreneurs