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Venture PlanningVenture Planning

Chapter TwoChapter TwoDowlingDowling

BA 560BA 560Fall Term 2005Fall Term 2005

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The Entrepreneurial ProcessThe Entrepreneurial Process

en·tre·pre·neuren·tre·pre·neur n.n.

A person who organizes,A person who organizes,

operates, and assumesoperates, and assumes

the risk for a businessthe risk for a business

venture.venture.

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

American Heritage American Heritage

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

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EntrepreneurshipEnt

repreneurship

Entrepreneurship is a way of thinking,Entrepreneurship is a way of thinking,

reasoning and acting that isreasoning and acting that is

opportunity obsessed, holistic inopportunity obsessed, holistic in

approach, andapproach, andleadership balanced.leadership balanced.

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


It isIt is opportunityopportunity drivendriven

It is driven by aIt is driven by a lead entrepreneur lead entrepreneur and anand an

entrepreneurial teamentrepreneurial teamIt is resourceIt is resource parsimonious parsimonious andand creativecreative

It depends on theIt depends on the fit fit andand balancebalance among theseamong these

It isIt is integrated integrated andand holisticholistic

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BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 66

The Entrepreneurial Leader The 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 andBuilds entrepreneurial culture and

organizationorganization

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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

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Myths about EntrepreneursM yths about Entrepreneurs

•Entrepreneurs areEntrepreneurs are

born, not madeborn, not made•Anyone can start aAnyone can start a

businessbusiness•Entrepreneurs areEntrepreneurs are

gamblersgamblers•Entrepreneurs want toEntrepreneurs want to

run the showrun the show

themselvesthemselves

•Entrepreneurs workEntrepreneurs work

longer hours than otherslonger hours than others•Entrepreneurs shouldEntrepreneurs should

be young and energeticbe young and energetic•Entrepreneurs seekEntrepreneurs seek

control over otherscontrol over others•Any entrepreneur with aAny entrepreneur with a

good idea can raise VCgood idea can raise VC

$$

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The OpportunityThe Opportunity

Market demand is a key ingredientMarket demand is a key ingredient

to measuring an opportunity.to measuring an opportunity.

Market Structure & SizeMarket Structure & Size

Margin Analysis helps differentiateMargin Analysis helps differentiatean opportunity from an idea.an opportunity from an idea.

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BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling !0!0

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, andCommitment, determination, and

persistencepersistence

–Tolerance of risk, ambiguity, andTolerance of risk, ambiguity, and

uncertaintyuncertainty

– CreativityCreativity

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BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling !!!!

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

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…………………………....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 Resources

AssetsAssets

PeoplePeopleYour Business PlanYour Business Plan

Think Cash Last!Think Cash Last!

Understand and Marshall ResourcesUnderstand and Marshall Resources

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Paradox # 1Paradox # 1

An opportunity with no or very low potential can be anAn opportunity with no or very low potential can be anenormously 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 #3

In order to create and build wealth, one must relinquishIn order to create and build wealth, one must relinquish

wealth.wealth.

Paradox #4Paradox #4

In order to succeed, one first has to experience failure.In order to succeed, one first has to experience failure.

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Paradox # 9Paradox # 9Adhering to management best practice, especially staying close to theAdhering to management best practice, especially staying close to thecustomer that created industry leaders in the 1980’s, became acustomer that created industry leaders in the 1980’s, became aseed of self-destruction and loss of leadership to upstartseed of self-destruction and loss of leadership to upstartcompetitors.competitors.

Paradox # 10Paradox # 10

To realize long-term equity value, you have to forgo the temptations ofTo realize long-term equity value, you have to forgo the temptations ofshort-term profitability.short-term profitability.

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Leading PracticesLeadin g 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-growthLeading management practices of fast-growth

firmsfirms

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

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Marketing PracticesMarketin g Practices

Deliver products and services that are perceivedDeliver products and services that are perceived

as highest quality to expanding segmentsas highest quality to expanding segments

Cultivate pace-setting new products andCultivate 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 thatDeliver product and service benefits thatdemand average market or higher pricingdemand average market or higher pricing

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Financial PracticesFinancial Practices

Anticipate multiple rounds of financing (onAnticipate multiple rounds of financing (on

average, every 2.5 years)average, every 2.5 years)Secure funding sources capable of significantlySecure funding sources capable of significantly

expanding their participation amountsexpanding their participation amounts

Utilize financing vehicles that retain theUtilize financing vehicles that retain the

entrepreneur’s voting controlentrepreneur’s voting controlMaintain control by selective granting of employeeMaintain control by selective granting of employee

stock ownershipstock ownership

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Management PracticesManagement Practices

Use a collaborative decision-making style withUse a collaborative decision-making style with

the top management team.the top management team.

Assemble a balanced board of directorsAssemble 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 meetingsInvolve the board of directors heavily at strategicInvolve the board of directors heavily at strategic

inflection pointsinflection points

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Planning PracticesPlannin g Practices

Prepare detailed plans for each of the next 12 toPrepare 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 yearsPeriodically share actual performance w/staffPeriodically share actual performance w/staff

Link job performance standards that have beenLink 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 onProspectively model the firm based on

benchmarksbenchmarks

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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.


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


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One-Year Survival RatesOne-Year Survival Rates


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IndustryIndustry AllAll

(%)(%)

ZeroZero

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


Documents

Timmons Ch 02 Fall 2005