Building a New Venture Team and Planning for the Next ... · Title: Essentials of Entrepreneurship and Small Business Management, Eighth Edition Author: Scarborough/Cornwall Subject:

Essentials of Entrepreneurship and Small

Business Management

Eighth Edition

Section 3: Launching the Business

Chapter 16

Building a New

Venture Team and

Planning for the

Next Generation

Copyright © 2016, 2014, 2011 Pearson Education, Inc. All Rights Reserved.


Learning Objectives

16.1 Explain the challenges involved in the entrepreneur’s role as

a leader and what it takes to be a successful leader.

16.2 Describe the importance of hiring the right employees and

how to avoid making hiring mistakes.

16.3 Explain how to create a company culture that encourages

employee retention.

16.4 Describe the steps in developing a management succession

plan for a growing business that allows a smooth transition of

leadership to the next generation.

16.5 Explain the exit strategies available to entrepreneurs.


Leadership

• Leadership:

– The process of influencing and inspiring others to work to

achieve a common goal and then giving them the power and

the freedom to achieve it.

• Entrepreneurs must take on many roles in their companies, but

none is more important than that of leader.


Business Leaders

• Business leaders should be:

– Innovative

– Passionate

– Willing to take risks

– Adaptable


Effective Leaders (1 of 4)

• Effective leaders:

– Create a set of values and beliefs for employees and

passionately pursue them.

– Establish a culture of ethics.

– Define and then constantly reinforce the vision they have for

the company.

– Develop a strategic plan that gives the company a

competitive advantage.



– Respect and support their employees.

– Set the example for their employees.

– Create a climate of trust in the organization.

– Build credibility with their employees.

– Are authentic.

– Focus employees’ efforts on challenging and driving toward

those goals.



– Provide the resources employees need to achieve their

goals.

– Communicate with their employees.

– Value the diversity of their workers.

– Celebrate their workers’ successes.

– Are willing to take risks.

– Encourage creativity among their workers.

– Maintain a sense of humor.



– Create an environment in which people have the motivation,

the training, and the freedom to achieve the goals they have

set.

– Create a work climate that encourages maximum

performance.

– Become a catalyst for change when change is needed.

– Develop leadership talent.

– Keep their eyes on the horizon.


Questions Every Leader Should

Address (1 of 3)

• Do we want to build a great company, and are we

committed to doing the things that are required to make

our company great?

• Do we have the right people on the bus and in the key

seats?

• What are the brutal facts?

• What are we best at, and what do we have an unbounded

passion for?

– Company hedgehog


Company Hedgehog



Address (2 of 3)

• What is our company’s 20-Mile March, and are we hitting

it?

• Where do empirical data tell is that we should be placing

our big bets?

• What are the core values and core purpose on which we

want to build this enterprise over the next 100 years?

• What is our 15-to25-year BHAG?



Address (3 of 3)

• What could kill our company, and how can we protect our

flanks?

• What should we stop doing to increase our discipline and

focus?

• How can we increase our luck?

• Are we becoming a Level 5 leadership and cultivating a

Level 5 management culture?


Servant Leadership

• There is no one single “best” style of leadership.

• Many workers respond well to servant leadership:

– A leader takes on the role of servant first and leader second.

▪ What do people need?

▪ How can I help them get it?

▪ What does my organization need to do?

▪ How can I help my organization do it?


Three Vital Tasks of a Leader

1. Add the right employees and constantly improve their

skills.

2. Create a culture for retaining employees.

3. Plan for “passing the torch” to the next generation of

leadership.


Building an Entrepreneurial Team

• Study: 80% of employee turnover is caused by bad hiring

decisions.

• Most common causes of poor hiring decisions:

– Relying on candidate’s description of themselves.

– Failing to follow a consistent, evidence-based selection

process.

– Failing to provide candidates with sufficient information

about the job.

– Succumbing to pressure to fill a job quickly.

– Failing to check candidates’ references.


Figure 16.1 Annual Growth Rate in

the U.S. Labor Force

Source: Bureau of Labor Statistics, 2012.


How to Reduce Employee Turnover

Rates

• Provide rewarding, challenging work.

• Pay employees fairly.

• Provide training opportunities and mentoring relationships.

• Offer flexible work schedules.

• Provide simple (and inexpensive) rewards such as thank-

you notes for extra effort or “good job” notes for jobs well

done.

• Conduct exit interviews when employees leave to

determine areas that require improvement.


How to Hire Winners (1 of 2)

• Commit to hire the best talent.

• Elevate recruiting to a strategic position.


Strategic Recruiting (1 of 2)

• Look inside the company first.

• Look for employees with whom your customers can

identify.

• Make employment advertisements stand out.

• Use multiple channels to recruit talent.

• Encourage employee referrals.


Strategic Recruiting (2 of 2)

• Recruit on campus.

• Forge relationships with schools and other sources of

workers.

• Recruit “retired” workers.

• Consider using offbeat recruiting techniques.

• Offer what workers want.


Table 16.2 Affordable Alternative

BenefitsAlthough small companies typically cannot match their larger rivals on the employee benefits packages they

offer, with some creativity entrepreneurs can provide less expensive options that increase employee

retention, motivation, and morale.

Perhaps You Cannot Offer . . . But You Might . . .

Tuition reimbursement for college

classes

Implement a flex-time schedule that allows employees to attend classes at

a nearby college or university

Paid leave Use job sharing so that two part-time employees share one full-time job

Comprehensive health insurance Hold a wellness day in which a local health care provider performs basic health

screens for employees

An on-site fitness center Set up a basketball goal in a corner of the parking lot or a ping-pong table in the

office or negotiate a reduced fee for employees at the local YMCA

401(k) retirement plan with

employer match

Invite a local investment adviser to provide financial counseling and retirement

advice to employees

Counseling services Allow employees to bring their dogs to work; research shows that allowing pets in

the workplace reduces stress and increases job satisfaction

Child care subsidies Negotiate discounts at a local preschool for employees’ children or allow

employees to telecommute from home several days a week

Source: Based on Paula Andruss, “Affordable Alternatives,” Entrepreneur, May 2012, p. 57; “Pets at Work

Keep Workers Happy,” U.S. News and World Report, April 2, 2012, http://health.usnews.com/health

news/news/articles/2012/04/02/pets-at-work-keep-workers-happy

https://www.google.co.in/search?q=,+http://health.usnews.com/health+news/news/articles/2012/04/02/pets-at-work-keep-workers-happy&oq=,+http://health.usnews.com/health+news/news/articles/2012/04/02/pets-at-work-keep-workers-happy&aqs=chrome..69i57.1405j0j7&sourceid=chrome&ie=UTF-8





• Create practical job descriptions and job specifications.


Conducting a Job Analysis (1 of 2)

Step 1:

• Create a job description:

– A written statement of the duties, responsibilities, reporting

relationships, working conditions, and materials and

equipment used in a job.

▪ Handy tool: Dictionary of Occupational Titles


Sample Job Description

Worm Picker - gathers worms to be used as fish bait; walks

about grassy areas, such as gardens, parks, and golf

courses and picks up earthworms (commonly called dew

worms and nightcrawlers). Sprinkles chlorinated water on

lawn to cause worms to come to the surface and locates

worms by use of lantern or flashlight. Counts worms, sorts

them, and packs them into containers for shipment.

(# 413.687-014 in D.O.T)


Conducting a Job Analysis (2 of 2)

• Step 2:

– Create a job specification:

▪ Written statement of the qualifications and characteristics

needed for a job, stated in terms such as education, skills, and

experience.


Job Tasks & Necessary Traits

Table 16.4 Linking Tasks from a Job Description to the Traits

Necessary to Perform a Job Successfully

Job Task Trait or Characteristic

Generate and close new sales “Outgoing”; persuasive; friendly

Make 15 “cold calls” per week “Self-starter”; determined; optimistic;

independent; confident

Analyze customers’ needs and

recommend proper equipment

Good listener; patient; empathetic

Counsel customers about options

and features needed

Organized; polished speaker; “other

oriented”

Prepare and explain financing

methods

Honest; “numbers oriented”; comfortable

with computers and spreadsheets

Retain existing customers Customer oriented; relationship builder






• Plan an effective interview.


Planning an Effective Interview (1 of 2)

• Involve others in the interview process.

• Develop a series of core questions and ask them of every job

candidate.

• Ask open-ended questions rather than questions calling for “yes

or no” answers.

• Create hypothetical situations candidates would encounter on

the job and ask how they would handle them.

– Situational interviews


Planning an Effective Interview (2 of 2)

• Probe for specific examples in the candidate’s work history

that demonstrate the necessary traits and characteristics.

• Ask candidates to describe a recent success and a recent

failure and how they dealt with them.

• Arrange a “non-interview” setting that allows others to

observe the candidate in an informal setting.


Sample Interview Questions

Table 16.5 Interview Questions for Candidates for a Sales Representative Position

Trait or Characteristic Question

Outgoing; persuasive; friendly;

self-starter; determined;

optimistic; independent; confident

How do you persuade reluctant prospects to buy?

Good listener; patient;

empathetic; organized; polished

speaker; “other” oriented

What would you say to a fellow salesperson who

was getting more than his share of rejections and

was having difficulty getting appointments?

Honest; customer oriented;

relationship builder

How do you feel when someone questions the truth

of what you say? What do you do in such situations?

Other questions: If you owned a company, why would you hire

yourself? If you were head of your department, what

would you do differently? How do you recognize the

contributions of others in your department? If you

weren’t in sales, what other job would you be in?







• Conduct the interview.


Conducting an Effective Interview

• Break the ice.

– Goal: diffuse nervous tension.

• Ask questions.

– Puzzle interviews.

– Remember the 25/75 Rule.

– Be respectful and keep it legal!

• Sell the candidate on the company.

– The best candidate will have other job offers.

– Convince the best candidate that your company is a great

place to work.







• Conduct the interview.

• Contact references and conduct a background check.


Checking References

• Checking an applicant’s references is an important part of

protecting a company against making a “bad hire.”

• Is it really necessary? Yes!

• According to a CareerBuilder survey, 53% of all candidates

either exaggerate or falsify information about their previous

employment on their résumés.


Why Hiring Managers Check Job

Candidates’ Social Networking Sites

Figure 16.2 Why Hiring Managers Rejected Job Candidates’ after Checking Their Social Media Profiles

Source: Based on “More Employers Finding Reasons Not to Hire Candidates on Social Media, Finds

CareerBuilder Survey,” CareerBuilder, 0% June 27, 2013.


Company Culture

• Culture:

– Distinctive, unwritten, informal code of conduct that governs

the behavior, attitudes, relationships, and style of an

organization.

– “The way we do things around here.”

• In small companies, culture plays as important a part in gaining

a competitive edge as strategy does.


Characteristics of a Positive Culture (1 of 3)

• Respect for work and life balance

• Sense of purpose

• Sense of fun

• Engagement


Figure 16.3 Drivers of Employee

Engagement

Source: From Trends in Global Employee Engagement, 2011, p. 7. Copyright © 2011 by

Aon-Hewitt Associates. Reprinted with permission from Aon-Hewitt.





• Sense of fun

• Engagement

• Diversity


Figure 16.4 Composition of U.S.

Workforce

Source: Based on Crosby Burns, Kimberly Barton, and Sophia Kerby, “The State of Diversity in Today’s

Workforce,” Center for American Progress, July 12, 2012, p. 4; Steve H. Murdock, “Population Change in

the United States: Implications for Education, the Labor Force, and Economic Development,” Hobby

Center for the Study of Texas at Rice University, November 10, 2011, p. 59.





• Sense of fun

• Engagement

• Diversity

• Integrity

• Participative management

• Learning environment


Job Design Strategies (1 of 4)

• Job simplification:

– Breaks work down into its simplest form and

standardizes each task.

• Job enlargement (horizontal job loading):

– Adds more tasks to a job to broaden its scope.

• Job rotation:

– Cross-trains workers so they can move from one job in

a company to others, giving them a greater number

and variety of tasks to perform. Often used with a skill-

based pay system.



• Job enrichment (vertical job loading):

– Builds motivators into a job by increasing the planning,

decision making, organizing and controlling functions

(traditional managerial tasks).

– Five core characteristics:

▪ Skill variety

▪ Task identity

▪ Task significance

▪ Autonomy

▪ Feedback



• Flextime:

– An arrangement under which employees build their

work schedules around a set of “core hours” - such as

11 a.m. to 2 p.m. - but have flexibility about when they

start and stop work.

• Job sharing:

– A work arrangement in which two or more people share

a single full-time job.



• Flex place:

– A work arrangement in which employees work at a

place other than the traditional office, such as a

satellite branch closer to their homes or, in some

cases, at home.

• Telecommuting:

– An arrangement in which employees have employees

working from their homes use modern communications

equipment to hook up to their workplaces.


Rewards and Compensation

• The key to using rewards to motivate workers is tailoring

them to the needs and characteristics of individual

workers.

• Money is an effective motivator …up to a point.

– Pay-for-performance systems

– Profit-sharing plans

– Open book management

– Cafeteria benefit plan


Intangible Rewards

• Intangible rewards can be powerful, yet inexpensive,

motivators.

– Praise

– Recognition

– Celebrations

• Entrepreneurs tend to rely on non-monetary rewards.


Family Businesses

• Family businesses:

– Account for 90% of all U.S. businesses.

– Account for 64% of U.S. GDP.

– Employ 62% of private sector work force.

– Comprise 33% of the Fortune 500 companies.

– Created 78% of the U.S. economy’s net new jobs over

the last two decades.


Passing the Torch

• Unfortunately, only 30% of first-generation businesses

survive into the second generation.

• Of those that do survive to the second generation, only

12% make it to the third generation.

• Only 3% make it to the fourth generation and beyond.


Why Is Management Succession So

Difficult?

• Primary causes of lack of continuity among family

businesses:

– Inadequate estate planning.

– Failure to create a management succession plan.

– Lack of funds to pay estate taxes.

– Sibling rivalries and personality conflicts.


Business Owners Who Have

Succession PlansFigure 16.5 Percentage of Business Owners Who Have Succession Plans in Place, by Age

Source: Small Business Owner Report, Spring 2014, Bank of America, p. 8.


Developing a Management Succession

Plan

Step 1: Select the successor.

Step 2: Create a survival kit for the successor.

Step 3: Groom the successor.

Step 4: Promote an environment of trust and respect.

Step 5: Cope with the financial realities of estate and gift

taxes.


Table 16.8 Changes in the Estate and

Gift Taxes

Source: Based on data from the Internal Revenue Service, United States Government.

Year Estate Tax Exemption Gift Tax Exemption Maximum Tax Rate

2001 $675,000 $675,000 55%

2002 $1 million $1 million 50%


2004 $1.5 million $1 million 48%






2010 Tax repealed $1 million 35% (gifts only)


2012 $5.12 million $5.12 million 35%

2013 $5.25 million $5.25 million 40%

2014 $5.34 million $5.34 million 40%


Coping with Estate Taxes

• Buy/Sell agreement

• Lifetime gifting

• Setting up a trust

– Irrevocable life insurance trust

– Irrevocable asset trust

– Grantor Retained Annuity Trust (GRAT)

• Estate freeze

• Family Limited Partnership (FLP)


Exit Strategies

• Entrepreneurs planning to retire often use two exit

strategies:

– Sell to outsiders

– Sell to insiders

▪ Leveraged buyout (LBO)

▪ Employee Stock Ownership Plan (ESOP)


Conclusion

• Leadership is the process of influencing and inspiring

others.

• Leadership shapes company culture.

• A succession plan is a crucial element in transferring

leadership.

• An exit plan allows entrepreneurs to step down and benefit

most from the sale of the company.


Copyright

Building a New Venture Team and Planning for the Next ... · Title: Essentials of Entrepreneurship and Small Business Management, Eighth Edition Author: Scarborough/Cornwall Subject:

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