Marshalling Resources MBAX 6100 Entrepreneurship & Small Business Management Marshalling Resources Frank Moyes Leeds College of Business University of Colorado Boulder, Colorado

Marshalling Resources Today’s Agenda  Live case study:  Confident Living  Terry Tierney, CEO of Confident Living  Strategic alliances  Marshalling resources  Bootstrapping

Marshalling Resources Next Week  Legal Issues  Intellectual property  Employee agreements  Stock options  Read BZ-9 & 10  Case: Mason and Sheppard  Jim Linfield, Cooley Godward

Marshalling Resources Strategic Alliances

Marshalling Resources Strategic Alliances  Over 75% of technology businesses are active in strategic alliances. 63% said critical or very important. (PricewaterhouseCoopers, Trendsetter Barometer 2001).  Most are informal  Joint venture – jointly owned entity  Speed to market  Access to markets, technology or knowledge  Access to capital  Spin-ins & spin-outs

Marshalling Resources Strategic Alliances Forms  Marketing – access to distribution e.g. Nestle in Europe  Technological – joint research, e.g. Celebrex for Pfizer  Manufacturing – subcontract operations, e.g. Jurismonitor  Investment – Intel had 220 active investments in 2004

Marshalling Resources Advantages to Strategic Alliances  Gain access to a resource, e.g. production, skills, capital  Economies of scale  Risk & cost sharing  Gain access to international market  Learning  Speed to market  Neutralizing or blocking competitors Barringer & Ireland, Entrepreneurship

Marshalling Resources Disadvantages of Strategic Alliances  Loss of proprietary information  Management complexities  High risk of failure  Become dependent on partner  Risk of opportunism  Non performance  Loss of decision autonomy  Clash of cultures  Precludes partnership with another firm or exit Barringer & Ireland, Entrepreneurship

Marshalling Resources

What Resources Do New Ventures Have?

Marshalling Resources People Resources?

Marshalling Resources Physical Assets?

Marshalling Resources Financial Resources?

Marshalling Resources Social Resources?

Marshalling Resources Own or Control Resources? Ask yourself where is the value added of my venture? R & D? Sales & Marketing? Manufacturing? Customer Service? “Key is not to own resources, but to have use of & be able to control or influence deployment”, Timmons

Marshalling Resources What is Bootstrapping?  “Launching ventures with modest personal funds”, Bhide  Using Other People’s Resources (OPR), Timmons  Scrooge mode

Marshalling Resources Bootstrapping Examples  Make vs. buy  Volume purchasing  Hiring employees vs. temps or subcontract  Employee benefits  Office and location  Used equipment  PR vs. advertising & promotion  Strategic alliances - Jurismonitor  Grants

Marshalling Resources Benefits of Bootstrapping - Enhances Funding  Need less capital  Reduces financial exposure  Reduces amount of money need to raise - less dilution  Reduces risk  Obsolescence  Lower sunk costs  Investor's love it  Proves concept and management team  Reduces risk

Marshalling Resources Benefits of Bootstrapping - Provides Flexibility  Fluctuating conditions and uncertainty  Difficulty in predicting what resources are needed  Make changes quickly  Permits strategic experiments  Cost of making a mistake is minimized  Mistakes less likely to be fatal  Inexperienced entrepreneurs can screw-up  Don’t have the pressure of high growth

Marshalling Resources Benefits of Bootstrapping - Improves Problem Solving  Like zero inventory in JIT  Reveals hidden problems  Forces management to solve them  Focus is on profits  Forces management to solve problems  Price for profitability  Reduces costs  Lower fixed costs  Higher variable costs, but high Gross Profit Margin solves  Lower break-even point

Marshalling Resources Benefits of Bootstrapping - Sets the Right Culture  Employees  Suppliers

Marshalling Resources Bootstrapping Summary  Requires less capital  Lowers risk  Improves decision making  Enhances flexibility  Focus on profitability  Investors love it  Establishes culture A Bhide, Bootstrap Finance, HBR

Marshalling Resources What Is the Greatest Source of Cash?

Marshalling Resources Marshaling Resources Conclusion  Control rather than own - OPR  Money is not the solution. May be the problem.  Bootstrapping is an attitude  What is a downside of focusing on resources?