Transcript
French economist Jean Baptiste say described an entrepreneur as one who shifts economic resources out of an area of lower and into an area of higher productivity and yield
Phelps : entrepreneurship is lucrative
Yunus : The simple yet revolutionary idea of loaning tiny sums to poor people to start a business
Based on the research which was done by University of Louisiana said that Opportunity and Change are the two issues most important to be an entrepreneur.
Innovation◦ Thomas Edison
◦ Intel founder Gordon Moore
◦ Steve Job
Formation of new Industries :◦ as Joseph Schumpeter observed that the key to the
entrepreneurial renewal comes from the competition from the new commodity, the new technology, the new source of supply, the new type of organization
Example : ◦ Skype developed by Niklas Zennstrom and Janus
Friis from Denmark
◦ Cellular One in Eastern Massachusetts lack in size , financial but has the right strategy by opening service center outside the downtown area Vs NYNEX
◦ Rapid creation of large market : Jet Blue, Air Asia
Entrepreneurship is the new paradigm : entrepreneurial thinking and reasoning
Entrepreneurship has spawned a new education paradigm for learning and teaching
Entrepreneurship education is becoming dominant management model for running nonprofit organization and social ventures
Entrepreneurship education is transcending rapidly business school : engineering, science,
1. Entrepreneurship is the new paradigm
Ex : Marion Kaufman Three principle
a) Values and principle based management
b) Responsibility to community
c) Ethical highground
The use of Internet
The European Union‟s plan to make EU the most competitive Economy include :1. Fuelling Entrepreneur mindset
2. Encouraging more people to become entrepreneur
3. Gearing entrepreneur for growth and competitiveness
4. Improving the flow of finance
5. Creating a more entrepreneurial friendly regulatory and administrative framework
1994 – 1998 created 5 mill jobs in the US
Microsoft established in the late i970s in 1980 workforce 38 employees with sales $8 mill, by the end of 2004 sales were $21.8 mill with 31000 employees.
Common characteristic of successful entrepreneurs is their commitment to social issues
THE ENTREPRENEURIAL MIND
Internally : ◦ Motivated
◦ High energy leader
◦ Unique tolerance for ambiguity
The mind is both influenced by and influences the psychological, physical, emotional, spiritual elements of entrepreneur
Treat Others as you would want to be treated
Share the wealth that is created with all those who have contributed to it at all levels
Give back to the community
Philanthropy is good for business
Take philanthropy to the factory floor
Link it to your client base
Cast the charity net wide
Manage charity work on a professional basis
Decide charity priorities in advance
Understood the importance of well treated workforce
Shares in the company were offered to staff
A single psychological model of entrepreneurship :◦ Success of a new venture will depend upon talent
and behavior of the team or lead entrepreneur
◦ Consider recent research said that leadership is an extraordinary complex subject, depending on the interconnections among the leader, the task, the situation, and those being led than inborn or inherited characteristics
The need of achievement
The need of power
The need of affiliation
A study of 118 entrepreneur revealed that those who like to plan are much more likely to survive
Fundamentals of an entrepreneur in seizing opportunity:1. Responsiveness
2. Resilience
3. Adaptability
When assessing critical choices: ◦ Gut reaction
◦ Intuition
Similarly when faced with crippling business◦ Regain their faith to win at the same time calmly
consider options
The ability to respond positively to challenges
Personal initiative
Great perseverance and determination
Listening to gut feeling or intuition
People : a broad view of entrepreneurship as a
form of human action, pulling together the current state of the art in academic research with respect to cognitive, economic, social and institution which influence entrepreneurial behavior
Process : which followsIdea, opportunity, team building, resource
acquisition, managing growth and entering global market
Place refers to a wide and diverse range of contextual factors
Commitment and determination
Courage
Leadership
Opportunity obsession => Obsessed first with opportunity then money
Tolerance of risk, ambiguity, and uncertainty
Creativity, self reliance, and adaptability
Motivation to excel
Intuitive
Tenacious and decisive
Intensely competitive in achieving goals
Persistent in solving problems
Willing to undertake personal sacrifice
Immersed In the mission
Moral strength
Fearless experimentation
Not afraid of conflicts, failure
Intense curiosity in the face of risk
Self starter; high standard but not perfectionist
Team builder and hero maker; inspire others Treats others as you want to be treated Shares the wealth with people who helped
create it Superior learner Patient and urgent Work by Dr.Allan Grant : lead
entrepreneur, venture team, external environment influences
Leadership in shaping the opportunity
Has knowledge of customer‟s needs
Market driven
Believe in themselves
Lead entrepreneur◦ Self concept
◦ Intellectually honest = admits when he doesn‟t know
◦ Pace maker =Displays a high energy and a sense of urgency
◦ Courage = capable of making hard decision
◦ Communication skills = Maintains an effective dialogue
◦ Team player = Competent in people Management and team building skills
The venture team ◦ Organizational style
◦ Ethical behavior
◦ Faithfulness
◦ Focus
◦ Performance / reward = fairly and equally
◦ Adaptability
External environmental influences◦ Constituent needs= Organization‟s needs are
satisfied
◦ Prior experience
◦ Mentoring
◦ Problem resolution
◦ Value creation
◦ Skill emphasis
Obsessed with value creation and enhancement
Calculated risk taker Risk minimizer Risk sharer Manages paradox and contradictions Tolerates uncertainty and lack of structure Tolerate stress and conflict Able to resolve problem and integrate
solution
Open minded
Restless with status quo
Able to adapt
Quick learner
No fear of failure
Able to conceptualize and details
Goal and result oriented
Drive to achieve goals and grow
Low need for status and power
Interpersonally supporting not competing
Aware of weakness and strength
Has perspective and sense of humor
Passionately committed
Detects meaningful patterns
Thinks holistically
Senses gut type feelings
Processes non local information
The lead entrepreneur
The venture team
The external environment influences
Successful Entrepreneur :
1. They know when to use logic and when to persuade
2. Interpersonally supporting not competing
Self concept
Intellectuality honest
Pace maker
Courage
Communication skills
Team Player
Organizational Style
Ethical behavior
Faithfulness
Focus
Performance/Reward
Adaptability
Constituent needs
Prior experience
Mentoring
Problem resolution
Value creation
Skill emphasis
INVENTOR ENTREPRENEUR
Promoter Manager, Administrator
High
LowHigh
General management skills, business knowhow and networks
CreativityandInnovation
Shaping and Managing an apprenticeship◦ They have all 10 years of experience◦ Built contacts◦ Garnered the know how◦ Established a track record in the industry◦ Knowledge of customers◦ Distribution channels◦ The more successful ones have made money for
their employer before doing it themselves◦ Adaptive and resilience◦ Not afraid of failing◦ Learn from failure experience
MOTIVATION TO EXCELL◦ Successful entrepreneur are motivated to excel
◦ Have a low need for status and power
◦ Setting high but attainable goals
◦ Insist on the highest standards of integrity and reliability ( the do what they say)
◦ They believe they personally can affect the outcome( they don‟t believe in luck, fate)
◦ Self confidence and desire to take personal responsibility
INTUITION IN DECISION MAKING◦ Entrepreneur rely on intuitive abilities than rational
analytic when identifying new business opportunity
◦ Intuition is the ability of an individual to access their subconscious mind
The role of experience and know how is the central in successful venture creation
Most successful entrepreneurs follows a pattern of apprenticeship where they prepare for becoming entrepreneurs by gaining the relevant business experiences from parents who are self employed
Numerous studies show a strong connection between the presence of role models and the emergence of entrepreneurs.
Studies have indicated that 90 per cent or more founders start their companies in the same market place technology or industry they have been working in.
1. Entrepreneur are born, not made
2. Entrepreneurs are gamblers
3. Entrepreneurs want the whole show to themselves
4. Entrepreneurs work longer and harder than managers in big companies
5. Entrepreneurs experience a great deal of stress and pay a high price
6. Money is the most important startup ingredients
Leadership skills
Interpersonal skills
Team Building
Creativity and ingenuity
Motivation
Learning skills
Persistence and determination
Values, Ethics, honesty
Goal setting orientation
Self Discipline
Sense of humor
Do what gives you energy
Figure out what can go right and make it
Say” can do” rather than” cannot” or maybe
The cup is half full not half empty
Making money is more fun than spending it
Accept responsibility
Never give up
Make heroes out of others a team builds a business, individual makes a living
Profiling the present Entrepreneurial attitude & behavior
Various role demands result from pursuit of opportunities
Getting constructive feedback◦ From those who can be trusted◦ Feedback Should be actionable◦ Need to be honest◦ Answering, debating and rationalizing should be
avoided◦ Reaching final conclusion or decisions needs to be
left later time
Putting it all together◦ The process is cumulative , and what an
entrepreneur does about weakness,
THE ENTREPRENEURIAL PROCESS
Entrepreneurship is a way of thinking, reasoning, and acting that is opportunity obsessed, holistic in approach, and leadership balanced for the purpose of value creation and capture
Today entrepreneurship has evolved beyond the classic start up notion to include companies and organizations of all types, in all stages
An innovative idea that develops into a high growth company
Success in addition to the strong leadership of the main entrepreneur
Involves building team and complementary talents
Requires skill to control resources Most highly successful entrepreneurs have
held together a team and acquired financial Backing in order to chase opportunity others may not see
Venture backed companies 90 %
Private sector 8 %
Leaders : set aspirations and continually work at success
Giant firms tend to be hierarchical in structure, with many layers of review, approvals and vetoes managing and administering from Top to Bottom
Improvisational, quick, clever, resourceful, and inventive all describe good entrepreneur
An opportunity with no or very low potential can be an enormously big opportunity◦ Steve Job and Steve Wozniak Personal Computer
To make money you have to first loose money
To create and build wealth one must relinquish wealth
To success one first has to experience failure
Entrepreneurship requires considerable thought, preparation, and planning
For creativity and innovativeness to prosper discipline must accompany the process
Entrepreneurship requires a bias toward action and a sense of urgency, but also demands patience and perseverance.
Remember, entrepreneurshipIs a full contact sport. The
value comes in the collision
SpontaneityOpportunism
Discipline,processes
DOLLARS
THINK BIG ENOUGH = the biggest mistakes aspiring entrepreneurs make is strategic
As one founder of numerous business put it = unless the business can pay you at least fives times your present salary
Arthur Rock => said that opportunity simply : look for business concepts that will change the way people live or work
Failure rates are high
Failure occur in the first two to five years
70% of failure is in the areas of retail trade, construction, and small service business
Most smaller enterprises that cease operation simply do not meet our notion of entrepreneurship, they do no create, or pursue opportunities that realize value
Who are the survivors?
Higher level of success change dramatically if the venture reaches a critical mass of at least 10 to 20 people with $2 million to $3 million revenue
Driving process dominate entrepreneurial process:1. It is opportunity driven
2. It is driven by a lead entrepreneur and an entrepreneurial team
3. It is resource parsimonious and creative
4. It depends on the fit and balance among these
5. It is integrated and holistic
6. It is sustainable
Opportunity
Strategy
Network
Team or business plan
Communication
OPPORTUNITY
RESOURCES
TEAM
LEADERSHIPCREATIVITY
Business plan
We build our understanding of opportunity by first focusing on market readiness:
1.The consumer trend
2. Behavior
That seek new products or services
Thinking money first is a big mistake
Successful entrepreneurs devise ingeniously creative and stingy strategies to gain control of resources
Team is a key ingredient in the higher potential team
1. Entrepreneur leader◦ Learns and teaches – faster, better
◦ Deals with adversity, is resilient
◦ Exhibit integrity, dependability, honesty
◦ Builds entrepreneurial culture organization
2. Quality of the team
2. Quality of the team◦ Relevant experience and track record
◦ Motivation to excel
◦ Commitment, determination and persistence
◦ Tolerance of risk, ambiguity and uncertainty
◦ Team locus of control
◦ Adaptability
◦ Opportunity obsession
◦ Leadership and courage
◦ communication
Building a sustainable venture means achieving economic , environmental and social without compromising the same opportunity for future generations
THE OPPORTUNITY : CREATING, SHAPING, RECOGNISING, SEIZING
Think big enough◦ Idea : is basically a neuron interaction in the brain
◦ Opportunity :
They create or add value to end user
They do by solving a significant problem, meeting significant want
They have robust market
They are a good fit with the founder(s) and management team at the time and marketplace – along with an attractive risk – reward balance
To summarize : A superior opportunity has the qualities of being attractive , durable and timely and is anchored in a product or service that creates or adds value for its buyer or end user.
Regulatory changes
Reconstruction of value chain and channel of distribution
Existing management = new capital structure
Entrepreneurial leadership = new vision and strategy
Market leaders are customer obsessed or customer blind
Higher potential business◦ Can identify a market niche for a product to satisfy
customer‟s needs◦ Serves as problem solver for which customers are
willing to pay◦ The potential payback period is one year or less
Lower potential opportunities :◦ Unfocussed on customers‟ needs◦ Customers are unreachable/ other loyalties to
others◦ Payback period more than three years◦ Low value added
Market structure :◦ A fragmented, imperfect market or emerging
industry often contains vacuum that create unfilled market niche
Market Size Growth rate= an attractive market is large
and growing Market capacity Market share attainable Cost structure= a firm that can become the
low cost provider is attractive
Profit after tax : High and durable gross margins usually translate into strong and durable after tax profits
BEP = Break even and positive cash flow are possible within two years
ROI Potential = Very attractive opportunities have the potential to yield a return on investment of 25 % or more per year
Capital requirements : Venture that can be funded at low and moderate capital are attractive
IRR (Internal Rate of return) = of 25% in 5 to years is considered very healthy
Gross margin
Value added potential such as technology
Valuation multiples
Exit mechanism strategy
Capital market context : the context in which the sale or acquisition of the company occurs is largely driven by the capital markets at that particular time. Timing can be crucial
Variable and fixed cost= low cost attractive
Degree of control strong control over prices attractive
Entry Barrier being able to gain proprietary protection, regulatory attractive
Entrepreneurial team having a strong team
Industry and technical experience : a management track record of significant accomplishment in the industry
Integrity
Intellectual honesty
Fatal flaw issue basically , attractive ventures have no fatal flaws :an opportunity is rendered unattractive if it suffers from one or more fatal flaws
Goals and fit : Is there a good match between the requirements and what the founders want
Upside down issues : an attractive opportunity does not have excessive downside risk
Opportunity cost
Desirability
Risk/ reward tolerance
Stress tolerance
Degree of fit
Service management
Timing
Technology
Flexibility
Opportunity orientation
Pricing
Distribution channels
Room for error
EXISTING BUSINESS
FRANCHISES
PATENTS
PRODUCT LICENSING
CORPORATIONS
NOT FOR PROFIT RESEARCH INSTITUTE
UNIVERSITIES
Trade shows and association meetings
Customers
Distributors and whole sellers
Competitors
Former employers
Professional contacts
Consulting
Networking
You will need to invest in thorough research to shape your idea into an opportunity. Data available about market, competitors and so on are frequently inversely related to the real potential of an opportunity
SCREENING VENTURE OPPORTUNITIES
Quick screen1. Focus on a few superior ideas
2. Quickly and efficiently reject ideas
Venture Opportunity Screening Exercise(VOSE)1. Are designed to segment the screening ideas into
manageable pieces
2. Provide an audit trail of your opportunity - shaping activity
3. It is important to have realistic view of the vulnerabilities and realities as well as the opportunity‟s compelling strength
The iterative process of carefully examining different ideas often :◦ Trigger creative ideas and insight
◦ How strategy can be altered to enhance the value chain, risk reward relationship and free cash flow relationship
OPPORTUNIES FOR SOCIAL ENTREPRENEURSHIP
What is social entrepreneurship :
A movement with a goal to effect positive social change
Traditional Social purpose
Social consequences
Enterprising non profits
Econom
icSocia
l
PrimaryMarket Impact
Venture Mission
Economic Social
III
III IV
Are founded on the premise that a social problem will be solved
The venture is for profit
The impact on the market is economic
There are two types
1. Utilizes earned income activities
2. Focus on growth and economic sustainability
For Profit – achieving economic goals For profit – primarily achieving social goals For profit – equally emphasizing social and
economic goals Not for profit, serving a social mission
The primary difference between social entrepreneurship and traditional commercial views of entrepreneurship is THE INTENDED MISSION
Corporate with CSR practices impact communities but CSR is not the core component of their business model, align best with Social consequence ventures Starbuck
The three major components of Timmons Model certainly apply to social entrepreneurship.
Ex : Social opportunities are driven not only by markets but also mission and social needs.
External stake holders are important
Characteristics of wicked problems Characteristics of Tame problems
1. You do not understand the problem until you have developed the solution
1.Have well defined and stable problem statements
2. Wicked problems have no stopping rule
2. Have definite stopping points –when a solution is reached
3.There are no right or wrong 3.Have solution that can be objectively evaluated as right or wrong.
4.Every wicked problem is unique 4.Belong to a class of similar problems that are all solved in a similar way
5. Every solution to wicked problem is one shot operation
5.Have solutions that can be easily tried and abandoned.
6. Wicked problems have no given alternative solutions infinite set
6. Come with a limited set of alternative solutions
Resources acquisition is critical to the success of social ventures, enterprising non profits and even hybrid forms.
Social venture capital seek to invest in profit ventures both financial return as well as environmental return this is also known as the double bottom line or triple bottom line
Social venture capital has three types of funds :
1. Focused fund : a company invests in expansion – stage clean technology, business related to energy, water
2. Community fund : its purpose is typically economic development and job creation
3. VC with a conscience : This fund stipulated that certain percentage will be invested in socially responsible businesses related to their target investment area
Include : the community, investors, the government, customers, suppliers, manufacturers.
Business Plan is more of a process and work in progress than an end itself.
The Business plan is blueprint and flight plan for a journey that converts ideas into opportunities, articulate and the likely flight and timing for a venture.
the numbers in a business plan do not matter, but the economics of the business model value proposition matter enormously
Runs from four to ten pages, essentially covers analysis of and information about the heart of the business opportunity, competitive advantages the company will enjoy and creative insights that entrepreneur often has.
Entrepreneur himself is recommended to write the business plan itself because it involves the consequences of strategy, tactics, the human and financial requirements for launching and building the venture.
Business plan – a written summary of:◦ An entrepreneur‟s proposed business venture
◦ Its operational and financial details
◦ Its marketing opportunities and strategy
◦ Its managers‟ skills and abilities
It serves two essential functions:◦ Guiding the company by charting its future course
and defining its strategy for following it
◦ Attracting lenders and investors who will provide needed capital
Purposes of a Business
Plan
Development tool for organizational founders
Vision and mission clarification
Planning and evaluation guidelines
Tool for securing financial resources
Tool for guiding growth
Although building a plan does not guarantee success, it does increase your chances of succeeding in business.
A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don‟t attempt the trip without a map!
Executive Summary
Mission Statement
Company History
Business and Industry Profile
Business Strategy
Description of Products/Services
Marketing Strategy Competitor Analysis Description of Management
Team Plan of Operation Forecasted Financial
Statements Loan or Investment Proposal
(continued)
Remember: No one can create your plan foryou.
Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections.
Show how you plan to set your business apart from competitors; don't fall into the “me too” trap.
Identify your target market, and offer evidence that customers for your product or service exist.
Make sure your plan has an attractive cover. (First impressions are crucial.)
Rid your plan of all spelling and grammatical errors.
Make your plan visually appealing.
Include a table of contents to allow readers to navigate your plan easily.
Make it interesting.
(continued)
Your plan must prove that the business will make money (not necessarily immediately, but eventually).
Use spreadsheets to generate financial forecasts.
Always include cash flow projections.
Keep your plan “crisp” – between 25 and 50 pages long.
Tell the truth – always.
(continued)
Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”).
Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”).
The Reality Test - proving that:◦ a market really does exist for your product or
service. ◦ you can actually build or provide it for the cost
estimates in the plan.
The Competitive Test - evaluates: ◦ a company‟s position relative to its customers.◦ management‟s ability to create a company that will
gain an edge over its rivals.
The Value Test – proving that:◦ a venture offers investors or lenders an attractive
rate of return or a high probability of repayment.
Demonstrate enthusiasm, but don‟t be overemotional.
Know your audience thoroughly. “Hook” investors quickly with an up-front
explanation of the venture, its opportunities, and its benefits to them.
Hit the highlights; focus on the details later.
Keep your presentation simple – 2 or 3 major points.
Avoid overloading your audience with technological jargon.
Use visual aids. Close by reinforcing the nature of the
opportunity. Be prepared (with details) for potential
investors‟ questions. Follow up with every investor to whom
you make your presentation.
(continued)
Writing a Successful
Business Plan
10 Characteristics:
1. Clear, realistic financial projections
2. Detailed market research
3. Detailed competitor research
4. Descriptions of key decision makers
5. Thorough summary
6. Proof of vision
7. Good formatting and clear writing
8. Brief and concise
9. Writing that demonstrates the importance of the bottom line
10. A plan that captures “you”
VALUATION, STRUCTURE AND NEGOTIATION
Cash
Liquidity and timing
Unavoidable conflicts between users and suppliers of capital
WHAT IS BUSINESS WORTH ?◦ A=OE +L
Cash
Time
Risk
PSYCHOLOGICAL FACTORS DETERMINING VALUE◦ P/E Ratio can be thought as the number of years
that it will take the company to accumulate sufficient profit to earn back the price of its share
In reviewing a range of investment options, most investors will choose the one that provides the greatest return, with the lower risk, in the shortest time.
Exit value
Expectation of future
Time Horizon
Tolerances for risk
Investors expectation as an annual percentage. It reflects the perceived risk of the investment
1. DISCOUNTED CASH FLOW defines as the value of the company as simply the present value of its future earning
2. THE VENTURE CAPITAL METHOD concerns of the cash flow received at the exit The expected price of the venture at time of exit
The amount of time until the exit
The discount rate to be applied
3. INVESTOR‟S REQUIRED OF OWNERSHIP Investor‟s required share = Amount invested: total
present value
4. THE FIRST CHICAGO METHOD usually focus on later stage (growth equity, consolidation and leveraged buyout)
5. OTHER RULE OF THUMB VALUATION METHODS EBIT, EBITDA
6. OWNERSHIP DILUTION
Under this approach early stage ventures are grouped by the stage of development
1. Pre – seed
2. Seed
3. First institutional round (C) round intended to fund the development of the structure and processes expected of a public company
THE DOWN (CRAM DOWN) those ventures that are able to secure funding tend to find that valuations have declined precipitously sometimes become uneconomic for shareholders
DIFFERENT PERCEPTION between entrepreneur and investor in length of time of financing
STAGED CAPITAL COMMITMENTS Increase capital dilute management‟s equity
Enable venture capital firms to control/ shut down operations
SPECIFIC ISSUES◦ Right of first refusal
◦ Ratchet anti dilution protection
◦ Washout financing
◦ Forced buyout
◦ Demand registration rights
◦ Key person insurance
Strategic Circumference
Legal circumference
Attraction to status and size
Unknown territory
Opportunity cost
Underestimation of other costs
Greed
The fundraising treadmill
Being too anxious
Impatience
Make the money and run myopia
THE FAMILY AS ENTREPRENEUR
Tran generational entrepreneurship and wealth creation : families who are enterprising generate economic activity and build long term value across generation
In Australia family firms comprise two – third of the small and medium sector
1. Family – influenced startups> who formally launches a new business with family
2. Family corporate venturing >family holding business that have formal new venture creation, strategies, plans, departments, or capabilities.
3. Family corporate renewal > focus on creating new streams of value through innovation, transformational change activities.
4. Family private cash >start up money from family member or business with a formal written agreement for market based ROI and or repayment.
5. Family investment fund >Stand alone professional private equity or venture capital controlled by family and/or using family generated capital
Develop communication skills
Make sure to have the same view of future of working together / common goals
1. Leadership
2. Relationship
3. Vision
4. Strategy
5. Governance
6. Performance
Distinctive familiness or „f+‟ refers to when these families resources and capabilities f+ lead to a competitive advantage for the family
Constrictive familiness or „f-‟ refers to when they constraint the competitive enterprising ability of the family
top related