The Entrepreneurial Manager Introduction - Welcome to the Territory 5 Classes Fundamentals for the Entrepreneur 12 Classes • Recognizing Opportunity • Forecasting Cash Flow • A Venture as a Series of Experiments • Sources of Startup Funding Building the Successful Venture 9 Classes • Starting Right • Building and Developing the Team • Managing Relationships Alternatives for the Successful Venture 4 Classes • Achieving Liquidity &Sustaining Enterprise Summary - Pulling it all Together 2 Classes
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The Entrepreneurial Manager u Introduction - Welcome to the Territory5 Classes u Fundamentals for the Entrepreneur 12 Classes Recognizing Opportunity Forecasting.
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The Entrepreneurial Manager Introduction - Welcome to the Territory 5 Classes Fundamentals for the Entrepreneur 12 Classes
• Recognizing Opportunity• Forecasting Cash Flow• A Venture as a Series of Experiments• Sources of Startup Funding
Building the Successful Venture 9 Classes• Starting Right• Building and Developing the Team• Managing Relationships
Alternatives for the Successful Venture 4 Classes• Achieving Liquidity &Sustaining Enterprise
Summary - Pulling it all Together 2 Classes
The Entrepreneurial Manager
Harvard Business School
28 March 2001
Entrepreneurial Manager Tool Kit
Designing Entrepreneurial Experiments& Sources of Financing
What is an Experiment? Experiment - A test made to demonstrate a known
truth, to examine the validity of an hypothesis, or to determine the efficacy of something previously untried.
An Entrepreneurial Experiment is a low-cost test designed to reduce a critical source of uncertainty prior to committing more resources:• Cost of Test < Full Investment
• Test Precedes Investment
• Test Need Not be 100% Accurate
Examples of Experiments Venture capitalists invest small amount before
investing larger amount. Customer research before introducing product. Product trial before full launch. Develop prototype before final product. Conduct due diligence before investing. Interview candidate before hiring.
Benefits of Staged Experimentation Staged Experimentation is an Entrepreneurial
Approach that Allows for:• Reduction of Risk over Time
Start-UpSeed MezzanineExpansionReducing Risk over Time
Raising Capital to Run Experiments Think of the amount of capital you raise in terms of paying
for experiments and the time to obtain experimental results. Think about the experiments and time as means of
obtaining the information you need to uncover the opportunity or the trap before you.
Experiments are incomplete, inaccurate and controversial - yet they must drive action.
How Do I Design Experiments? Step 1: Translate key risks into milestones and actions
• Identify key uncertainties.
• Determine milestones that would signify that uncertainties had been reduced to an acceptable level to move on to the next stage.
• Develop action plan to hit these milestones.
Step 2: Clearly cap the experiment’s cost and duration• Money invested and Time spent
Step 3: Design in external validation• Potential investors: ONSET’s “projection and reflection”
• Potential employees: attract and hire key management members
• Potential customers: letters of intent
Structuring Experiments to Test How can we structure experiments to assess the possible risks and
rewards? How long should we run the experiment? Can we do it quicker? At what cost? Can we do it cheaper? Who should we talk to? Who should we listen to? How do we structure
the conversations? What combination of resources do we need to run a fair experiment? What end products do we expect to have at the end of this stage? What information will we gather to evaluate the experiment? What criteria will we use to determine whether or not to move to next
level of commitment? How will we (or the market?) determine the magnitude of next level of
commitment? How will we morph our business model in light of new information?
The Entrepreneur Runs an Experiment
SUCCESSPayoff - Investment
INVEST NOW
- InvestmentFAILURE
SUCCESSPayoff - Investment - Cost of Test
INVEST
GOOD RESULTS - Investment - Cost of Test1 FAILURE
ABANDON- Cost of Test
1RUN A TEST
SUCCESSPayoff - Investment - Cost of Test
INVEST
- Investment - Cost of Test1 FAILURE
BAD RESULTS
ABANDON- Cost of Test
ABANDON0
P S|G
(1-P S|G )
P S|B
(1-P S|B )
P S
(1-P S)
(1-P G )
P G
Value of the Experiment Generally, Value of the Experiment is Greatest when:
• There is a Significant Cost of Failure.• There is a Significant Probability of Failure.• Cost of Test is Low Relative to the Investment.• The Experiment Yields Fairly Accurate Results.
Value of Information Depends on Your Alternatives• If Alternative is to Abandon
– Value goes up as Probability of Success goes up.
• If Alternative is to Invest– Value goes down as Probability of Success goes up.
Value as a Function of Probability of Success
Probability ofSuccess Range
Decision Strategy Valueof theTest
Low Abandon Venture 0
Low to MiddleRun the Experiment, but the second best
decision is to AbandonVT
Middle to HighRun the Experiment, but the second best
decision is to Invest.VT-VI
High Invest 0
Staged Capital Commitment, Risk and Marketplace Information
Objectives: To improve the practice of finance in entrepreneurial settings to enhance students' understanding of the relationships between the investment, financing, and organizational decisions confronting managers. Instructors: Professor William Sahlman, Professor Paul Gompers, Senior Lecturer G. Felda Hardymon
Venture Capital & Private Equity: (20 sessions & paper)Objectives: Seeks to help students understand how:1) Venture capital and private equity organizations work; 2) Why they take the forms that they do; and, 3) Where crucial problems and opportunities for innovation exist. Instructors: Professor Josh Lerner <<http://www.people.hbs.edu/jlerner/vcpe.html. >>
Senior Lecturer G. Felda Hardymon
International Entrepreneurial Finance: (30 Sessions & Exam)Objectives: 1) To enhance the understanding of the relationship between finance and entrepreneurship in an
international and cross-border context; 2) To improve the practice of finance in entrepreneurial firms and in private equity firms; and,3) To enhance the understanding of the relationships between investment, financing and
organizational decisions confronting owners and managers in fast-growing firms.Instructor: Assistant Professor Walter Kuemmerle