Chapter 6 Successfully Building a New Venture Team Entrepreneurship: Successfully Launching New Ventures Modified from Barringer and Ireland (2006)

What is a New Venture Team? Group of founders Key employees Advisers They move new venture from an idea  functioning firm The team is built as the firm can afford to hire people The team involves more than employees Also can include: Boards of directors Boards of advisers Other professionals who provide direction and advice

Why is a New Venture Team Important? Fundamental Problem for New Firms: Liabilities of Newness The basic concept: New ventures have a high likelihood of failing because the people who start the firm can’t adjust quickly enough to their new roles and because the firm lacks a “track record” with those in external environment One way to overcome liabilities of newness is assembling a talented and experienced new venture team They have a track record (e.g., via their experience) They can provide legitimacy for external others

7 Elements of a New Venture Team

Element 1: Founder(s) of the Firm

Element 1: Founder(s) of the Firm Founders are the individual or team of individuals who initiate the start of the firm and who have equity stakes in the venture Important factors about founder(s): Founder(s) characteristics: Characteristics (e.g., experience, background, personality, etc.) and early decisions have major impact on how new venture team takes shape Issues associated with founding team size: 50% to 70% of all new ventures started by more than one person Research suggests that new ventures started by a team have an advantage More talent More ideas Psychological support Faster firm growth Better network quality

Element 1: Founder(s) of the Firm Qualities of Successful Founders: Higher education: important entrepreneurial skills enhanced via education Prior entrepreneurial experience: helps to avoid costly mistakes; the corridor principle Relevant industry experience: have more well established and appropriate network contacts; more applicable management and marketing expertise The ability to “network” effectively: aids in gaining know-how; access to capital; more customer referrals

Element 2: Key Employees

Element 2: Key Employees Recruiting Key Employees: When, how, why? When and why?...it depends Startups vary in how quickly they need to add personnel Sometimes, founders work alone for a while and other times employees are hired immediately These decisions are based on necessity, financial abilities, knowledge specialization, time issues How?...depends on type of personnel needed Networks Placement offices (e.g., college placement) Executive search firms (e.g., head-hunting firms) Advertising the position

Element 3: BODs

Element 3: BODs What is a BOD? Why have a BOD? Panel of individuals who are elected by a corporation’s shareholders to oversee the management of the firm Why have a BOD? Legally, if new venture is a corporation, it is required to have a BOD The firm can gain legitimacy (and lessen the likelihood of succumbing to liabilities of newness) if the BOD consists of well-known and respected people Most useful role is to provide guidance and support the firm’s managers Who in on a BOD?...it depends Typically made up of insiders and outsiders An inside director is a person who is also an officer of the firm An outside director is someone who is not employed by the firm Often prior corporate officers Corporate officers from other firms (which can sometimes become an interlock) Community members Much research suggests certain mixes of BODs is important for venture development

Element 3: BODs What do BODs Do? BODs have three formal responsibilities. Appoint the officers of the firm Declare dividends Oversee the affairs of the corporation When do they meet and how are they paid? How frequently? Most BODs meet 3-4 times a year How are they compensated? More likely to pay BODs in company stock or ask them to serve voluntarily versus paying a cash honorarium Why do you think that is?

Element 4: Other Professional Advisors—Board of Advisors

Element 4: Other Professional Advisors—Board of Advisors What is a BOA? Panel of experts who provide counsel and advice on an ongoing basis Informal group with no legal responsibility for the firm and their advice is nonbinding Easier to recruit due to fewer time requirements and no legal liability Why have a BOA? Can be for general purposes or to address a specific issues Provide guidance Lends credibility/legitimacy Crotty Advisory Council Black Inventor’s Club

Element 4: Other Professional Advisors—Board of Advisors Guidelines to Consider when Organizing a BOA Make sure they play a meaningful role in the firm’s development and growth Without a meaningful role, advisors will become disillusioned Look for BOA members who are compatible and complementary in terms of experience and expertise When inviting people to be on BOA, be sure to carefully spell out the “rules” What their role is How to handle access to confidential information

Element 4: Other Professional Advisors—Lenders & Investors

Element 4: Other Professional Advisors—Lenders & Investors Why do Lenders & Investors Act as Advisors? They have a vested interest in the companies they finance, often causing them to become involved in helping They help new firms by providing guidance & lending advice They assume the natural role of providing financial oversight Because of their financial interest, they are very helpful for recruiting customers Important Considerations with Lenders & Investors Their goals are sometimes not inline with entrepreneurs’ They often want a liquidity event Often they require substantial controlling power and profit percentages per the lending/investment agreement

Element 4: Other Professional Advisors—Other Professionals

Element 4: Other Professional Advisors—Other Professionals There are hosts of other professionals that can make up a firm’s new venture team Attorneys for legal issues (in Chapter 8) Accountants for financial issues (in Chapter 7 and in Dr. Janney’s class) Business consultants Business Consultants A business consultant is an individual who gives professional or expert advice. Business consultants fall into two categories: Paid consultants Consultants available for free or at a reduced rate via nonprofit or governmental agency Small Business Administration (SBA) at national and local levels National SBA: www.sba.gov Columbus SBA: http://www.sba.gov/oh/columbus/index.html Small Business Development Centers (SBDC) At UD: http://www.emtec.org/SBDC/Univ_of_Day_SBDC.htm At Wright State U: http://www.sbdcwsu.org/ In Springfield: http://www.smbusdev.org/ Business Incubators University Entrepreneurship Centers