Transcript Timmons Ch 2 PPT

Venture Planning
Chapter Two
Dowling
BA 560
Fall Term 2005
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.
The Entrepreneurial Process
Entrepreneurship
Entrepreneurship is a way of thinking,
reasoning and acting that is
opportunity obsessed, holistic in
approach, and leadership balanced.
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
BA560 Venture Planning Prof. Dowling
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The Timmons Model of the
Entrepreneurial Process
Communication
Opportunity
(2)
Ambiguity
Creativity
Resources
(4)
Business Plan
Fits and gaps
Exogenous forces
Leadership
Team
(3)
Uncertainty
Capital market context
Founder (1)
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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
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The Entrepreneurial Process
HIGH
Inventor
Entrepreneur
Creativity
&
Innovation
Promoter
LOW
Manager,
Administrator
General management skills, business know-how, and networks
HIGH
The Entrepreneurial Process
Myths about Entrepreneurs
•Entrepreneurs are
born, not made
•Anyone can start a
business
•Entrepreneurs are
gamblers
•Entrepreneurs want
to run the show
themselves
•Entrepreneurs work
longer hours than others
•Entrepreneurs should
be young and energetic
•Entrepreneurs seek
control over others
•Any entrepreneur with a
good idea can raise VC
$
The Opportunity
 Market demand is a key ingredient
to measuring an opportunity.
 Market Structure & Size
 Margin Analysis helps differentiate
an opportunity from an idea.
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
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The Entrepreneurial Team
Quality of the Team:
– Team focus of control
– Adaptability
– Opportunity obsession
– Leadership
– Communication
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Understand and Marshall Resources
……………..Don’t
be driven by them.
 Minimize & Control, versus
Maximize & Own.
 Unleashing creativity:
Financial Resources
Assets
People
Your Business Plan
Think Cash Last!
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.
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.
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.
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
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
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
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
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
The Entrepreneurial Process
Time to Fail
The following percentages of small businesses
Are dissolved within two, four and six years.
Within 2
Years
23.7%
Within 4
Years
51.7%
Within 6
Years
62.7%
0
20
40
60
80
The Entrepreneurial Process
Reasons for Failure
A breakdown of why businesses fail.
47.4%
Economic Factors
38.4%
Financial Troubles
7.1%
Inexperience
Owner Neglect
3.4%
Other
3.7%
0
10
20
30
40
50
The Entrepreneurial Process
One-Year Survival Rates
77.8%
0 to 9
85.5%
10 to 19
95.3%
20-99
95.2%
100-249
100.0%
250+
0
20
40
60
80
100
The Entrepreneurial Process
Six-Year Survival Rates
Industry
All
(%)
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/Fishing
43.1
35.0
74.7
80.7
82.8
Mining
39.1
27.1
67.8
61.5
57.0
Construction
35.3
24.1
65
72.2
74.3
Manufacturing
46.9
27.0
66.9
73.5
76.0
Transport/Utils.
39.7
25.7
68.5
72.4
75.6
Wholesale Trade
44.3
28.3
66.5
74.9
77.2
Retail Trade
38.4
27.1
62.7
74.4
76.8
Finance,
Insurance
38.6
28.7
68.7
76.4
78.5
Services
40.9
28.7
69.1
79.4
83.5