1. Entrepreneurial Growth Companies: A Working Definition of Entrepreneurship Patrick Von Bargen Executive Director November 15, 2000

2. Accelerating Change in Global Economy Technological change, demographic change, cultural change, and business model responses (pyramid to web models) In 1960, it takes 20 years to replace 35% of Fortune 500; in 1999, it only takes 3-4 years Huge Interest in Start-ups in the US –600,000 to 800,000 new firms each year 14-16 startups for every 100 existing firms

3. Accelerating Change and the Internet Internet reinforces/accelerates structural change. It does not cause it. But, its effects are profound. And permanent? –Lowered Barriers to Entry –Intensified Competition

4. Entrepreneurial Growth Companies Transform Change into Opportunity Jobs! 5-10% of U.S. firms (“EGCs”) create 2/3 of 240,000 new jobs every month. Innovation. Entrepreneurs account for at least 2/3 of all technological innovation. Prosperity. 1/3 to 2/3 of difference in national growth rates is due to high growth companies

5. Trying to focus... Isn’t the term “entrepreneurial growth company (EGC)” just a fancy name for a small business?

6. Small Businesses & EGCs Very Similar at the Start: Both start small and require tremendous energy from their founders Both serve important economic functions, meeting market needs and creating jobs Both start with limited means

7. Small Businesses & EGCs The Questions: Which small businesses will stay small (and later be a supplier to the EGCs)? Answer: Most small businesses Which will emerge as EGCs (the eventual customer for small business suppliers?) Answer: Very few

8. Small Businesses & EGCs Why do some small businesses emerge as EGCs? Example: Ewing Marion Kauffman Answer: The entrepreneur heading the small business sees (1) an opportunity (2) to build a big company. The goal morphs from independence/ economic well-being for the family to building a big company for the nation and even the world

9. Small Businesses & EGCs Intention to build a large, high-growth business leads to other differences: EGCs tend to emerge in newly deregulated or emerging industries; small businesses populate traditional industry sectors (construction, retail, personal service) EGCs face more uncertainty -- fewer proven business models and support nets EGCs: “small business with a lottery ticket attached”?

10. Trying to focus... Isn’t the term “entrepreneurial growth company (EGC)” just a fancy name for a small business? So EGCs are just the high-flying technology companies that start out with millions of dollars in venture capital, world-class managers with years of experience in their industries, a proven business strategy -- none of which exist in my state, right?

11. 5 Myths about Entrepreneurship Yes, some companies fit that description -- these companies are in industries where “get big, get niche, or get out” applies from the very start: Biotechnology example Internet example But given that generalizations here are risky Most EGCs evolve over time, through rough stages of development

12. Rough Stages in the Entrepreneurial Period of a High-Growth Company

15. 5 Myths about Entrepreneurship “Most successful entrepreneurs take wild financial and other risks!” Earliest stages: Not much money, and even then … Not much experience in the industry … Persuading others to take on risk: employees, suppliers, customers

16. 5 Myths about Entrepreneurship “Most successful entrepreneurs take wild financial and other risks!” Later Stages: Value created that might be lost … To grow, the tasks are more difficult (management, strategy, sound investment) If the entrepreneur fails, he may lose his company, or lose control, or lose his share

18. 5 Myths about Entrepreneurship “EGCs are all built on some radical technology breakthrough!” Earliest Stages: Interferon vs. Jiffy Lube: exceptional execution of an ordinary idea … Minor improvements, slight variations: WalMart, Schwab, McDonald’s

19. 5 Myths about Entrepreneurship “EGCs are all built on some radical technology breakthrough!” Later Stages: Distinctions leading to dominance -- WordPerfect vs. Wang, Wordstar Protecting the distinctions (And remember the “get big, get niche, or get out” industries)

21. 5 Myths about Entrepreneurship “Entrepreneurs have well-researched ideas built into a proven business plan!” Earliest Stages: Research = 4%; business plan = 33%; just consulted a lawyer = 50% Jumping from rock to rock vs. plans for the Golden Gate Bridge Adaptiveness, open-mindedness, deciding quickly, face-to-face selling

22. 5 Myths about Entrepreneurship “Entrepreneurs have well-researched ideas built into a proven business plan!” Later Stages: Growth demands strategic planning, strategic decisions Growth demands coordinated management Growth demands investment which demands accountability (And remember the “get big, get niche, or get out” industries)

24. 5 Myths about Entrepreneurship “Most entrepreneurs have world-class expertise and experience in their industries!” Earliest Stages: 40% = no industry experience; 33% = no job Jann Wenner; Steve Wozniack; John Katzman High opportunity costs vs. bootstrapped corps Instead: intelligence, desire, adaptability, sales skills, willingness to provide specialized products

25. 5 Myths about Entrepreneurship “Most entrepreneurs have world-class expertise and experience in their industries!” Later Stages: Growth requires “upgrading resources” Skilled, experienced, specialized training Steve Ballmer at Microsoft; Starbucks (And remember the “get big, get niche, or get out” industries)

27. 5 Myths about Entrepreneurship “Most entrepreneurs with a decent idea get millions of dollars in venture capital!” Earliest Stages: 66% = less than $50,000; average = $25k; not 1, or 3, or 13 million dollars Rolling Stone, Waste Management, Hotmail, Microsoft, Dell Computers Personal savings, friends & family, credit cards … and then angels?

28. 5 Myths about Entrepreneurship “Most entrepreneurs with a decent idea get millions of dollars in venture capital!” Later Stages: Growth requires investment, and that requires money Remember the “get big, get niche, or get out” industries Venture capital participation may be critical to successful transitions to later stages

29. Transition through growth stages requires “comprehensive” changes in the entrepreneur and her company From start to finish, new attitudes and new skills and roles -- sometimes opposites

30. The difficulties of the “comprehensive” changes required explain in part the relatively few number of EGCs that make to the pinnacle of growth

31. Policy Implications: Past 30 Years in U.S. For first time, created a vibrant capital market to finance EGCs: credit, angel capital, venture capital, acquisition system, and IPOs and NASDAQ Huge investment in technology, intellectual property protection, tech transfer regime Moved tech and management expertise to EGCs: stock options, relaxed employment covenants, little stigma for failure, bankruptcy

32. Policy Implications: Past 30 Years in U.S. Opened significant new market opportunities: trade; and deregulation of industries: package delivery, transportation, telecommunications, and now finance and even electricity Invested in stable, dependable, and ubiquitous legal & physical infrastructure: rule of law, securities regulation, transportation and telecommunications, and universities