1. Venture Planning Chapter Two Dowling BA 560 Fall Term 2005

2. The Entrepreneurial Process en·tre·pre·neur n. A person who organizes, operates, and assumes the risk for a business venture. [French, from Old French, from entreprendre, ‘to undertake.’] American Heritage Dictionary, 4th Ed.

3. The Entrepreneurial Process Entrepreneurship Entrepreneurship is a way of thinking, reasoning and acting that is opportunity obsessed, holistic in approach, and leadership balanced.

4. BA560 Venture Planning Prof. Dowling 4 The Entrepreneurial Process It is opportunity driven It is driven by a lead entrepreneur and an entrepreneurial team It is resource parsimonious and creative It depends on the fit and balance among these It is integrated and holistic

5. BA560 Venture Planning Prof. Dowling 5 The Timmons Model of the Entrepreneurial Process Opportunity (2) Resources (4) Team (3) CreativityLeadership Communication Business Plan Fits and gaps AmbiguityExogenous forces Capital market contextUncertainty Founder (1)

6. BA560 Venture Planning Prof. Dowling 6 The Entrepreneurial Leader An entrepreneurial leader: –Learns and teaches—faster, better –Deals with adversity, is resilient –Exhibits integrity, dependability, honesty –Builds entrepreneurial culture and organization

7. The Entrepreneurial Process Creativity&Innovation HIGH LOW General management skills, business know-how, and networks HIGH Inventor Promoter Entrepreneur Manager,Administrator

8. The Entrepreneurial Process Myths about Entrepreneurs Entrepreneurs are born, not madeEntrepreneurs are born, not made Anyone can start a businessAnyone can start a business Entrepreneurs are gamblersEntrepreneurs are gamblers Entrepreneurs want to run the show themselvesEntrepreneurs want to run the show themselves Entrepreneurs work longer hours than othersEntrepreneurs work longer hours than others Entrepreneurs should be young and energeticEntrepreneurs should be young and energetic Entrepreneurs seek control over othersEntrepreneurs seek control over others Any entrepreneur with a good idea can raise VC $Any entrepreneur with a good idea can raise VC $

9. The Opportunity  Market demand is a key ingredient to measuring an opportunity.  Market Structure & Size  Margin Analysis helps differentiate an opportunity from an idea. an opportunity from an idea.

10. BA560 Venture Planning Prof. Dowling 10 The Entrepreneurial Team Quality of the Team: –Relevant experience and track record –Motivation to excel –Commitment, determination, and persistence –Tolerance of risk, ambiguity, and uncertainty –Creativity

11. BA560 Venture Planning Prof. Dowling 11 The Entrepreneurial Team Quality of the Team: –Team focus of control –Adaptability –Opportunity obsession –Leadership –Communication

12. …………….. Don’t be driven by them.  Minimize & Control, versus Maximize & Own.  Unleashing creativity: Financial Resources AssetsPeople Your Business Plan Think Cash Last! Understand and Marshall Resources

13. The Entrepreneurial Process Paradox # 1 An opportunity with no or very low potential can be an enormously big opportunity. Paradox # 2 In order to make money you have to first lose money. Paradox #3 In order to create and build wealth, one must relinquish wealth. Paradox #4 In order to succeed, one first has to experience failure.

14. The Entrepreneurial Process Paradox # 5 Entrepreneurship requires considerable thought, preparation and planning, yet is basically an unplannable event. Paradox # 6 In order for creativity and innovativeness to prosper, rigor and discipline must accompany the process. Paradox #7 Entrepreneurship requires a bias toward action and a sense of urgency, but also demands patience and perseverance. Paradox #8 The greater the organization, orderliness, discipline, and control, the less you will control your ultimate destiny.

15. The Entrepreneurial Process Paradox # 9 Adhering to management best practice, especially staying close to the customer that created industry leaders in the 1980’s, became a seed of self-destruction and loss of leadership to upstart competitors. Paradox # 10 To realize long-term equity value, you have to forgo the temptations of short-term profitability.

16. The Entrepreneurial Process Leading Practices  Leading marketing practices of fast-growth firms  Leading financial practices of fast-growth firms  Leading management practices of fast-growth firms  Leading planning practices of fast-growth firms

17. The Entrepreneurial Process Marketing Practices  Deliver products and services that are perceived as highest quality to expanding segments  Cultivate pace-setting new products and services that stand out in the market as the best.  Deliver product and service benefits that demand average market or higher pricing

18. The Entrepreneurial Process Financial Practices  Anticipate multiple rounds of financing (on average, every 2.5 years)  Secure funding sources capable of significantly expanding their participation amounts  Utilize financing vehicles that retain the entrepreneur’s voting control  Maintain control by selective granting of employee stock ownership

19. The Entrepreneurial Process Management Practices  Use a collaborative decision-making style with the top management team.  Assemble a balanced board of directors comprised of both internal & external directors  Calibrate strategies constantly w/board meetings  Involve the board of directors heavily at strategic inflection points

20. The Entrepreneurial Process Planning Practices  Prepare detailed plans for each of the next 12 to 24 months; annual plans for 3 or more years  Periodically share actual performance w/staff  Link job performance standards that have been jointly set by management and employees to the business plan  Prospectively model the firm based on benchmarks

21. Time to Fail The following percentages of small businesses Are dissolved within two, four and six years. The Entrepreneurial Process

22. Reasons for Failure A breakdown of why businesses fail. The Entrepreneurial Process

23. One-Year Survival Rates The Entrepreneurial Process

24. IndustryAll(%) Zero Growth Lo Growth 1-4% Med Grth 5-9% Hi Growth 10%+ All Industries 39.8%27.5%66.3%75.5%78.4% Ag/Fishing43.135.074.780.782.8 Mining39.127.167.861.557.0 Construction35.324.16572.274.3 Manufacturing46.927.066.973.576.0 Transport/Utils.39.725.768.572.475.6 Wholesale Trade 44.328.366.574.977.2 Retail Trade 38.427.162.774.476.8 Finance, Insurance 38.628.768.776.478.5 Services40.928.769.179.483.5 Six-Year Survival Rates The Entrepreneurial Process