Introduction to Entrepreneurship and New Venture Creation Rui Baptista Masters in Engineering and Management of Technology Masters in engineering Design Introduction to Entrepreneurship and New Venture Creation Rui Baptista

The New Venture Team

The Entrepreneurial Team Team: a few people with complementary capabilities who are committed to a common objective, goals, and approach for which they hold themselves mutually accountable. Early in the development of a firm, a leadership team is created to build a business plan and organizational plan The organizational plan is structured to align the culture of the firm with the leadership team’s goals and values Entrepreneurship - Rui Baptista

Key Venture Team Traits Cohesion Teamwork Integrity Complementary competencies Commitment to the long haul Commitment to value creation Fairness Sharing of the harvest Entrepreneurship - Rui Baptista

Organizational Culture and Leadership Organizational culture is the bundle of values, norms, and rituals that are shared by people in an organization and govern the way they interact with each other and with other stakeholders Leadership is the process of influencing and motivating people to work together to achieve a common goal by helping them secure the knowledge, power, tools, and processes to do so Effective leaders coupled with a good organizational plan, a collaborative performance-based culture, and a sound compensation scheme can help align every participant with the goals and objectives of the new firm Entrepreneurship - Rui Baptista

Leadership in New Ventures A Leader's Role in: Routine Issues Challenging and Adaptive Work Direction Define problems and possible solutions Define the challenges and the issues Team and Individual Responsibilities Clarify and define roles and responsibilities Define and discuss the necessity to adapt roles and responsibilities to changing needs Conflict Restore order and reduce conflict Accept useful conflict and use it to define new approaches and strategies Norms and Values Reinforce norms and values Reshape norms and values Teaching and Coaching Training and skill learning for existing employees Teaching and coaching new people Entrepreneurship - Rui Baptista

Characteristics of Good Leaders Authenticity: consistent actions and words Decisiveness: willing to act on limited, imperfect information Focus: create a priority list and stick to it Care: build relationships and social capital People Skills: offer helpful feedback and good coaching to all team members Communication: stimulate conversation and communicate vision Continuous Improvement: keep learning and energy flowing in the firm, retain optimism Entrepreneurship - Rui Baptista

Key Questions for the Lead Entrepreneur/Founder Is formation of a team desirable or necessary? What kind of idea is being pursued? What talents, know-how, skills, track record, contacts, and resources are currently available? What talents, know-how, skills, track record, contacts, and resources are needed to succeed? Who is needed to complement me? Do I want to grow a higher potential company? Can more quality human resources be easily added? Entrepreneurship - Rui Baptista

Forming and Building a Team Three issues for consideration: Values, goals and commitment Definition of roles Peer groups Entrepreneurship - Rui Baptista

Assessing the Initial Value of the Team Source of the new venture idea (or ideas) Contribution to screening and business plan preparation Commitment and risk taken – opportunity costs of time and start-up money Technical skills, experience, track record, or contacts Responsibility Entrepreneurship - Rui Baptista

Entrepreneurship - Rui Baptista Common Pitfalls (I) Not using the “honeymoon” period of start-up advantageously Not addressing the questions: who is in charge? who makes the final decisions with regard to each field? how differences of opinion should be resolved Do not address or recognize the deficiencies of the lead entrepreneur or the management team Entrepreneurship - Rui Baptista

Entrepreneurship - Rui Baptista Common Pitfalls (II) Not recognizing that creating and building a new venture is a learning, dynamic process Not identifying and defusing destructive motivations coming from investors, prospective team members, or the lead entrepreneur Not valuing trust and integrity as much as other competencies Entrepreneurship - Rui Baptista

Entrepreneurship - Rui Baptista “Slicing the Pie” How much stock ownership should go to whom? Share the wealth with those who helped generate it – i.e. create the value Project a harvest of at least 5 to 10 times the original investment in order to motivate key team members Make sure the company prospers and grows, thus creating a large, shared “pie” Entrepreneurship - Rui Baptista

Entrepreneurship - Rui Baptista Distribution Issues Differentiation Implement a reward system that recognizes differences in contributions to value creation among team members Performance Reward is a function of performance/result (as opposed to effort) Flexibility Acknowledge and reward positive changes in contributions of team members Entrepreneurship - Rui Baptista

Stock-Vesting Agreements Agreement between venture and team members used to guard against the event that some portion of the stock has been earned and some portion will remain unearned, as when a team member quits or dies; the venture keeps the stock belonging to each team member as a reserve that will be released over an extended (at least three years) period in order to assure that the initial investment is rewarded by future earnings Entrepreneurship - Rui Baptista

Advantages of Stock-Vesting Agreements Foster longer-term commitment to the success of the venture Provides a method for a civilized, no-fault corporate divorce if things do not work out Establishes a period of years, often four or more, where founding stockholders can “earn out” their shares Entrepreneurship - Rui Baptista