1. LAUNCHING NEW VENTURES – AN ENTREPRENEURIAL APPROACH, 7E Kathleen R. Allen – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. Designing an Entrepreneurial Company Chapter 11 – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3. Chapter Objectives Explain how your business works Discuss how entrepreneurs make the decision about the design of their company Explain how to identify the appropriate business site Discuss the most critical issues related to organizing people – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4. Designing an Entrepreneurial Company Superior company design begins with an understanding of how the business works – how information flows through the business Use design thinking; consider the entire organization and how the components are interconnected ◦ Its about doing, not talking ◦ Its about telling stories; making strategy real ◦ Its about flexibility and adaptability ◦ Its about people – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. Designing an Entrepreneurial Company Three components make up design of an entrepreneurial company: ◦ Processes  Planning system, control mechanisms, compensation & reward policies, other HR processes ◦ People  Need team-building skills & the ability to make decisions & implement them with little input from CEO ◦ Culture  A culture of collaboration, internally & externally – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

6. 11.1 Design: Understanding the Way the Business Works Today’s entrepreneurs must design their firms to adapt continually to an ever- changing global environment that presents the business world with complex problems These new types of problems must be solved in innovative ways using new heuristics rather than algorithms or formulas Think about design from the perspective of project workflows, not departments or personnel assignments – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7. Figure 11.1- The Distributed Form of Business – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

8. 11.1a Identifying Business Processes Eye-opening to identify all the processes (activities, tasks, etc.) that occur in your business, and create a process map or flowchart To create a map of business processes, take an imaginary tour of the business during a single day, listing all tasks, people, equipment, supplies and space required to run the business – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9. 11.1b Making Decisions: Doing it All or Outsourcing The Virtual Enterprise: Getting Traction Quickly ◦ A network of independent companies, suppliers, customers, etc. using information technology to share skills, costs; may use cloud computing Strategic Alliances ◦ Teams of businesses share resources and reduce costs; more like partnerships – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10. 11.1b Making Decisions: Doing it All or Outsourcing Keeping Distributed Employees and Strategic Partners Linked ◦ Management team  Online independent professional service providers ◦ Marketing  Online public relations, marketing, direct mail ◦ Supply chain management  Online firms will assemble, package, fulfill orders ◦ Virtual meetings  Citrix, Google Groups, Go to Meeting are examples – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11. 11.2 Location Strategy: Finding the Appropriate Business Site Business location affects success; determines ◦ Who will see the business ◦ How easily customers can find it, access it ◦ Whether people will want to access it Manufacturers will prefer a location near major sources of supply or transportation Site selection usually permanent, so consider carefully – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12. 11.2a Choosing the Region, State and Community What area is “best suited” for your business? ◦ Area where similar industries gather? ◦ State offering financial incentives? ◦ Near major suppliers? Communities are viewed as primarily industrial, agricultural or service-oriented What is the economic base of the community? You want a community with other businesses in your industry to tap a skilled talent pool – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13. 11.2b Population Demographics Is the population growing or shrinking? Aging or getting younger? Culturally diverse? Is there enough disposable income in the community to purchase what you are offering? Will the skill level of workers in the community meet your needs? Demographic data available from the local economic development agency, public library, Internet, post office, others – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14. 11.2c Choosing a Retail Site Need a site close to consumers with disposable income The trade area is the region from which you expect to draw customers, smaller for common goods, larger for specialty items Identify your location, draw a circle around it; within are both customers and competitors What routes will customers take to reach you? Is there transportation, parking? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15. Figure 11.2- Sample of a Trade Area – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16. 11.2d Choosing a Service/Wholesale Site You will need a site that offers the same attributes a retailer look for ◦ Accessibility ◦ Attractiveness ◦ A trade area of sufficient size No need for a more expensive commercial site because customer expectations lower for wholesale outlet Professional services require attractive spaces – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

17. 11.2e Choosing the Manufacturing Site Costly to set up a manufacturing operation, but sometimes, the only option Zoning laws limit manufacturing firms to certain areas away from residential, retail and office sites to reduce noise, odor, pollutants ◦ Industrial parks ◦ Enterprise zones If an existing building, lease or buy? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18. Table 11.1- The Lease-Buy Decision – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19. 11.2f Alternatives to Conventional Facilities Incubators ◦ Lower rent, share common support functions Shared space ◦ Locate within a larger facility, or sublease to another firm Mobile locations ◦ Pushcarts & kiosks in airports, malls Temporary tenant agreements ◦ Some landlords will lease on temporary basis – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20. 11.3 People Strategy: Organizing Human Resources At startup, the founding team performs all functions To build an effective organization, avoid: ◦ Isolating yourself from the rest of the team ◦ Always having the one “right” answer ◦ Keeping people on who don’t meet needs ◦ Taking on too much too soon ◦ Setting unrealistic expectations ◦ Not building support networks – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21. Figure 11.3- Traditional Org Chart for a Growing Business – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

22. 11.3a Creating the Company Culture Organizational culture is the personality of the firm, the intangible set of values, the attitudes and actions of the firm’s people as they interact on a daily basis Entrepreneurial firms may have a different culture from that of large corporations Easier to create a culture in a startup than change the culture of an existing firm – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23. Figure 11.4- Aligning Culture and Strategy – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

24. 11.3a Creating the Company Culture To create your firm’s culture, ask: ◦ 1. Do the organization’s people work in teams or individually? ◦ 2. How does the organization deal with change? ◦ 3. How does the company deal with failure? ◦ 4. How are decisions made? Who makes the critical decisions? ◦ 5. How is work prioritized? ◦ 6. How is information shared within and outside the organization? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

25. 11.3a Creating the Company Culture To create your firm’s culture, ask: (cont.) ◦ 7.Does the company take a long-term or short- term focus on decision making? ◦ 8. How does the company ensure employee competence? ◦ 9. Does the company encourage diversity? ◦ 10. How are employees treated, and what is their role in the company’s vision? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

26. 11.3b Hiring the Right People First, determine what positions are needed for the required tasks of the business ◦ Develop job descriptions; include not only duties and responsibilities, but also behavioral profiles To find people, look among current employees, subcontractors or professional advisors Check references before an interview In an interview, ask open-ended questions ◦ Avoid discriminatory questions – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

27. 11.3b Hiring the Right People Human Resource Leasing ◦ Consider leasing employees or using temporary services; professional employer org (PEOs) ◦ A leased employee is legally the employee of the lessor organization, and not yours ◦ That firm is responsible for all employment taxes and benefits, and labor law compliance ◦ You receive a bill for services – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

28. 11.3c Managing Employee Risk Risk management is a set of policies and their associated decision-making processes that reduce or eliminate risks associated with having employees ◦ Financial risk is one type of employee risk The law affects the way employees are treated ◦ Protect employees from dangerous work environments ◦ See Table 11.2 for major employment laws – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

29. Table 11.2- Important Employment Laws – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

30. 11.3d Planning for Ownership and Compensation Two perplexing questions: ◦ How much of the firm should we sell to potential stockholders? ◦ How much should we pay key managers? Prevailing wisdom is that providing stock in the new firm will increase commitment, but doesn’t always work ◦ Use a stock-vesting agreement ◦ Use a buyback provision in the stockholders agreement – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

31. 11.3e Founder’s Stock and Dilution Founder’s stock (144 stock) is stock issued to the first shareholders of the corporation or assigned to key managers as part of a compensation package at startup Payoff comes when the company experiences a liquidity event (IPO, or acquisition by another firm) If the firm is successful, founder’s stock at issuance is valued at the lowest it will ever be, and a tax problem can arise – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

32. 11.3f Alternatives to Equity Incentives Deferred Compensation Plans ◦ Specify that awards and bonuses be linked to profits and performance Bonus Plans ◦ Bonus given on reaching goals Capital Appreciation Rights ◦ Gives employees the right to participate in the profits of the firm at a specified percentage Profit-Sharing Plans ◦ Apply to all employees; governed by ERISA – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

33. New Venture Action Plan Identify the processes and information flow in your business Identify potential ways to operate like a virtual enterprise or at lest to outsource some aspects of the business Locate a site for the business, if required Decide whether to lease, buy, or build a facility – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

34. New Venture Action Plan Create job profiles for positions in the business Determine the ownership and compensation requirements of the business. Formulate a plan to find the best candidates for positions in the company. – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.