Organizational Feasibility Analysis Day #2 Chapter 6: The Business Model, Firm Resources, and Sustaining a Competitive Advantage in the Marketplace Modified from Barringer and Ireland (2008)

Fatal Flaws To Avoid in Business Models Fatal Flaws –Two fatal flaws can render a business model untenable from the beginning: 1.A complete misread of the customer –Examples: WebHouse and Pets.com 2.Utterly unsound economics –Examples: Iridium and MobileStar The Lieutenant Commander Geordi La Forge got sad because Pets.com didn’t deliver his food expeditiously. As a result, he’s decided to shop exclusively at PetSmart for all of his dietary needs. Pets.com sported an unsound business model, and failed

Four Components of a Business Model

Business Model: Strategic Resources Strategic Resources –The resources firm has substantially affects business model New ventures’ resources often limited to competencies of founders, opportunity identified, unique way they serve the market –2 most important strategic resources are: Strategic assets: anything rare and valuable that firm owns –Brands, patents, customer data, distinctive partnerships, HR, etc. –Example: Starbucks’ brand name in coffee retailing Core competencies: resource/capability that serve as source of competitive advantage over rivals –Deals with how strategic assets are used –Identify skills that are unique, valuable to customers, difficult to imitate, and transferable to other opportunities –Examples: Sony and miniaturization, Dell’s supply chain management

Examples of Resources to Consider Tangible Resources—can be sources of strategic assets Financial Cash and equivalents; capacity to raise equity; borrowing capacity Physical Modern plant and facilities; favorable manufacturing locations; machinery & equipment Technological Trade secrets; innovative production processes; patents, copyrights, trademarks Organizational Effective strategic planning processes, evaluation and control systems Intangible Resources—can be sources of strategic assets Human Employee experience and skills; trust; firm procedures Innovation & Creativity Technical and scientific skills; innovation capacities Reputation Brand name; quality and reliability reputation; supplier relations

Business Model: The Importance of Strategic Resources Core competencies & strategic assets can  sustainable competitive advantage Investors pay attention to this when evaluating a business A sustainable competitive advantage is achieved by VRIO Having Valuable, Rare, and Inimitable strategic resources that the founder has the ability to use (e.g., can Organize/implement them effectively). –Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? –Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/ services themselves rare?] –Imitability: Do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] –Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?”

Summary of VRIO, Competitive Implications, and Economic Implications Valuable?Rare? Costly to Imitate? Organized Properly? Competitive Implications Economic Implications NoDisadvantageBelow Normal YesNoParityNormal Yes No Temporary Advantage Above Normal (at least for some amount of time) Yes Sustained Advantage Above Normal Business Model: The Importance of Strategic Resources According to VRIO, a supportive answer to each question would indicate the firm can sustain a competitive advantage. Below is how to apply VRIO and the likely outcome for the venture under varying situations

Organizational Feasibility Analysis Day #2: VRIO Assignment Requirements Describe your Venture’s Resources –Describe the tangible resources and intangible resources you firm needs to execute its business model –List these resources and comment on how likely your firm will be to acquire these resources –If there are resource gaps describe how they might be closed Conduct a VRIO Analysis on the Venture’s Resources –Evaluate the venture’s resources (e.g., each tangible and intangible resource identified above) using the VRIO model –What are the likely competitive and economic outcomes that your firm will achieve as a result of the resources that it possesses and this analysis? –Describe what the results of this analysis tells you about the venture’s likely success in the long run

Entrepreneurship: Successfully Launching New Ventures Modified from Barringer and Ireland (2008) Organizational Feasibility Analysis Day #3 Chapter 9: Building a New Venture Team

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 via a talented and experienced new venture team because they: –They have a track record (e.g., via their experience) –They can provide legitimacy for external others

What is a New Venture Team? 1.Group of founders 2.Key employees 3.Boards of directors 4.Boards of advisers 5.Lenders and Investors a)VCs (institutionalized, angels) and Bankers 6.Others (e.g., accountants, attorneys, etc.)

Element 1: Founder(s) of the Firm The individual(s) who initiate and have equity stakes in the venture Important factors about founder(s): –Founder characteristics & early decisions impact new venture team development 1.Higher education 2.Prior entrepreneurial experience 3.Relevant industry experience 4.The ability to “network” effectively –Should you found a Solo- or Team-based Venture? 50% to 70% of all new ventures started by more than one person New ventures started by a team have an advantage (especially growth oriented) –More talent, more ideas, psychological support, faster firm growth, better network quality Teams more successful if 1) have previously worked together & 2) are heterogeneous 2 potential problems with teams –Members may not get along –As firm grows, if need to establish a formal structure with a hierarchy, may cause problems

Element 2: Recruiting Key Employees New venture operations are usually very lean –For most (e.g., high growth firms), there is a “breaking point” where to remain competitive and prosperous, employees must be hired When and why should you hire employees?...it depends –Startups vary in how quickly they need to add personnel Decisions based on necessity, financial abilities, knowledge needs, time, hierarchy needed, etc. Requires founder(s) to evaluate their skills for shortcomings High growth firms: usually based on need and knowledge specialization –eBay needed a CEO, Starbucks needed an operations manager Salary Substitutes and lifestyles: primarily time issues, necessity, and financial abilities How to you identify appropriate hires?...depends on type of personnel needed –Networks almost always appropriate for any type of position and venture type –Executive search firms appropriate for high-growth ventures seeking TMT members –Placement offices (e.g., colleges)—good for a variety of positions and firms

Element 3: Board of Directors (BODs) What is a BOD? –Panel 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 –Gain legitimacy and reduce liabilities of newness if BOD has well-known, respected people –Most useful role is to provide guidance and support the firm’s managers Sambazon, Inc. increased legitimacy and benefited from guidance from the founder of Silk Soymilk What do BODs Do? –BODs have three formal and fiduciary responsibilities Appoint the officers of the firm Declare dividends Oversee the affairs of the corporation

Element 4: Board of Advisors (BOAs) 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 Often geographically dispersed and meet online or via telephones Why have a BOA? –For general guidance purposes or to address a specific issues –Lends credibility/legitimacy Guidelines to Consider when Organizing a BOA –Make sure they play a meaningful role in the firm’s development and growth –Members compatible and complementary (heterogeneous) in experience –When inviting people to be on BOA, carefully spell out the “rules” What their role is How to handle access to confidential information

Element 5: Lenders & Investors Lenders (e.g., banks) provide debt financing –Can be useful for finding customers, providing support, etc. Investors provide equity financing (e.g., they acquire equity stake in venture) –Two main types of investors: 1) institutionalized venture capitalists and 2) angel investors –How do investors add value to a new venture (see Table 9.3 for more)? With a vested interest in the companies they finance, causes them to become involved They provide guidance & lending advice Assume the natural role of providing financial oversight 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 require substantial controlling power and profit percentages

Element 6: Other Professional Advisors Many other professionals can make up a firm’s new venture team –Attorneys for legal issues –Accountants for financial issues –Business consultants Business Consultants –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: »Columbus SBA: –Small Business Development Centers (SBDC) »At UD: »At Wright State U: »In Springfield: –Business Incubators –University Entrepreneurship Centers

Organizational Feasibility Analysis: New Venture Team Assignment Requirements Describe the founding Management Team (e.g., the people in your group) –Describe the qualifications of each member of the team as well as if and how your team is uniquely qualified to make this business a success. –Discuss if your qualifications are lacking, what must you do to improve your abilities? If you are not qualified and cannot acquire the necessary skills within the team, how will you handle these shortcomings? Describe any Anticipated Future Human Resource Needs –As your firm grows, you will likely need to hire on additional employees. –Describe 2-3 additional people that should be added to the venture’s employee roster (not the name of a person –the profile of the type of person you’d want). Describe the unique contribution each of these individuals could bring to the team. Include the appendices of your deliverables, a copy of each team member’s current resume.