Lecture 1: Be an entrepreneur

What is Entrepreneurship… and Why Does it Matter?

• Going from 0-1, not 1-100

• Economic freedom

• Creates new forms of value (‘innovation’)

• Supplies significant numbers of jobs to our economy

Traits associated with entrepreneurism:

- accomplishment-oriented,
- inner locus of control (take personal responsibility for fixing problems or creating opportunities)
- self-confidence
- risk takers
- commonly prefer to spend their time and money on building their business
- desire to create, not just follow instructions given to them by others

New venture => going concern

How is an ‘Intra’preneur Different?

- More resources and capabilities

- Sell internally – diplomacy required
- Collaboration needed
- Provide extra monetary value on company’s terms – whether in existing or new market

Why the need for intrapreneurship?

- Shortening product life cycles

- Introduction of more complex products and services

Lecture 2: Environment for entrepreneurship and innovation

4 methods of analyzing the business environment:

1. Scanning – activities which provide surveillance for early detection. Sources: news, Internet,
blogs, people-to-people interaction
2. Monitoring – tracking evolution and development of critical events or changes. Sources: specific
periodicals, experts or focus groups
3. Forecasting – developing projections for the future. Examples: sales force estimates, customer
surveys, brainstorming
4. Assessing – performing analysis and interpretation
 Political & Governmental Analysis:

- Tariffs
- Political Risk
- Patent protection (utility patent, design
patent, plant patent)

Stakeholder Analysis: individual and groups that

can influence the survival and profitability of a
new venture

Macroeconomic Analysis:

- Structural change (Major, permanent shifts of resources and customers)

- Cyclical change (Periodic, repeated shifts of resources and customers)

Technological Analysis: change in operations and manufacturing techniques

- Pure invention: creation of something radically different from existing technology or products
- Process innovation: small changes in design, product formulation, materials and manufacturing
or service delivery to improve product or production

Innovation is the act or process of introducing new ideas, devices or methods - Types of innovation:

- Products/services
- New markets (customers)
- Processes
- New marketing methods
- Business model
- Partnerships

Resource & Capabilities model of Sustainable Competitive Advantage – Also known as the PROFIT model

- Physical: tangible assets

- Reputational
- Organizational
- Financial
- Intellectual
- Technological
R&Cs mentioned above may lead to sustainable competitive advantage if they meet all of the following
tests:

1. Are they valuable?

2. Are they rare?
3. Are they hard to copy?
4. Are they hard to substitute?

Experience plays an important role in innovation and entrepreneurship

Protecting your key R&Cs:

- First mover advantage (Move first vs Copy and Improve)

- Patent protection
- Distribution arrangements
- Partnerships

Lecture 3: Product Market Strategy

Concentric Circle Approach

- Begin with a hypothesis of what we might create and why, and it starts with the inner circle,
showing little new investment
- As we develop our hypothesis, we invest further, get feedback and update hypothesis
- As each circle expands, we focus on higher ROI and higher hypothesis confidence

Defining a product that matters to a person:

- Physical description
- Features
- Benefits
- Package of utility
- Target segments

Utility = usefulness of something – categories:

1. Form
2. Place
3. Time
4. Possession
5. Knowledge

Value proposition = specific motivations and/or utility that are satisfied in the use a specific good by a
user and may differ one good from another
Marketing research:

1. Define purposes and objective

2. Determine best data sources

3. Develop data collection instrument

4. Determine the sample

5. Data collection

6. Analyze data and interpret results

Data sources:

- Primary data: generated from scratch by research team – Primary data projects:
o Concept testing
o Product testing
o Market testing
- Secondary data: data, information and studies already completed and published by others

Market segmentation – identification of buying groups via various factors to implement appropriate
marketing for each group

Segment types: geographic, demographic, sociographic, psychologic, behavioral social brand loyal, other
brand loyal, new category user, brand switcher,….

Usage scenarios:

- Showcase value and utility

- Develop language for promotions
- Visualize life with product
- Shows gap between current state and ideal state with product

Diffusion process of an innovation, whether a product, service, or idea:

1. Knowledge stage
2. Persuasion stage
3. Decision stage
4. Implementation stage
5. Confirmation stage

4Ps of Marketing Strategy:

- Product
o Product Mix - the total range of products (or services) a firm offers
o Product Width - how many different product lines a firm offers
o Product Depth - the average number of items within each product line a firm offers
o Product Consistency - how closely related are the various products a firm offers
o Service-related Decisions
  Service Intensity - degree of depth and development customer experiences
 Service Extensiveness - range of services provided
 Service Time - when will service be available and how long will it take?
- Price
- Promotion
o Pull vs Push System
o Promotional Mix:
 Advertising, Personal selling, Public Relations, Sales promotions
 Word of mouth vs Viral marketing promotion
- Placement (Distribution)
o Consumer Goods Channels: may involve as many as 3 intermediaries (retailer,
wholesaler, and agent/broker)
o Business Goods/ Industrial Channels: may involve as many as 3 intermediaries (industrial
supply company, regional distributor and import-export agent/broker)
o Institutional Market: schools and universities, hospitals, nursing home, prisons, and
other institutions where an organization provides care
o Government Market: municipal, county, state, federal bureaucracies, and foreign
countries

Two categories of Goods and Services:

- Consumer Goods: convenience goods, shopping goods, specialty goods, and avoidance products
- Industrial Goods: direct materials, indirect materials, capital assets, contracted services, and
maintenance, repair, and operating products

Your competition and market maps – ex: market positioning, perceptual mapping,….
Lecture 4: Business Plan

Formal written expression of the entrepreneurial vision, describing the strategy and operations of the
proposed venture

Written to be read by:

• Outside investors

• Internal audiences (executives, managers and employees)

• External audiences (customers, vendors, landlord, suppliers)

Who writes a venture’s business plan? Founder or initial top management team to ensure they are
familiar with all the details

Firms that plan perform better and are more likely to succeed because:

• Helps them develop a comprehensive approach

• Improves communication

• Plan provides guidance over time

• Benefit from planning process experience

Business plan template:

• Cover page

• company name and contact info

• logo - design, picture or ideograph which represents company

• tag line: short, easy-to-remember phrase that describes the company

• Copy X of XXX copies

• Table of contents

• List each major section, subdivided, and numbered

• Executive summary: - Most important part of the plan and 1-3 pages; should be written last

• Business Model (background and purpose, product/service, value proposition, target

audience, sales & revenue streams, KPI measurements)

• Market analysis (market, audience segments, competition, and environmental

influences)

• Development and Production (Production processes, Resource requirements, Quality

assurance)

• Marketing plan (marketing strategies and sales forecasts)

 • Financial plan (statements, resources, and strategy)

• Organization and Management (firm’s resources, people, HRM strategies, objectives,

milestones, Ownership)

• Potential Risks and Contingencies (potential failures, problems, unforeseen events and
trends)

Business plan critiquing - Is the plan:

 Comprehensive?

 Analytical?

 Reasonable?

 Well written and presented?

Leonardo from MiraclePlus:

Essence of a startup:

- Increasing return is disruptive

- Diminishing return is the norm
- High profit attracts competition
- Positive feedback loops are rare

Three Stages of a startup:

- Exploratory stage (0 to 1)
- Expansion/scaling stage (1 to N) – disruption and
positive feedback loop
- Bottleneck stage (competition)

How to best prepare for a startup:

- “Just do it” – no need for motivation

- Learning is fastest when you do it
- Prep while in college (discover need, form team, experiment)
- Be curious and ask questions
Lecture 5: Strategy and New Venture

Starting point:

- Idea
- Enthusiasm
- Experience
- Personality
- Resources

What New Ventures Need:

- Clearer sense of value proposition

- Financial runway
- Access to additional resources
- Strategies

Generic Competitive Strategies:

- Cost Leadership
- Differentiation
- Focus/Service - Targeting a specific market
segment
Entry Strategies:

New Product Introduction

• Disruptive innovation: providing both current and new value through different means

• Product Extension: adding new elements to current product, requires domain knowledge

• Isolating mechanism: speed, agility (and sometimes patents) to maintain and enhance first
mover advantage

Parallel Competition/Creative Imitation

• Understand and supply the core value

• Adapt to better suit emerging needs or unique segment requirements

• Isolating mechanism: market knowledge, organizational effectiveness

Minor Entry Wedges (partial and temporary)

• Sponsorship (gov’t, company, customer)

• Rule change

• Exploiting partial momentum:

– A new geography

– A supply shortage

– An underutilized resource
Supply chain partner considerations:

- Price
- Quality
- Availability
- Location
- Flexibility
- Integrity
- Culture
- Goal Alignment
- Strategic growth opportunities

Supplier search process:

- Develop criteria for selection

- List of possible suppliers
- Short list candidates
- Visit candidates
- Make a decision

Delivery mechanisms – know your distribution channels

 Second half notes – final preparation

Lecture 6: Finance and New Venture

Financing is usually required

- The costs related to a new venture are usually underestimated

- Timing of cash inflows is usually delayed due to the pre-revenue phase and growth required
- Ex: Funding (cash in) before Spending (cash out) before Earning Revenue (cash in)
- Most new ventures need financing until cash from operations is sufficient
- Securing sufficient seed capital is one thing and effective use of cash is another – many firms
with a good idea and team die due to lack of cash to stay afloat

Start-up involves most risk

- Startups are cash absorbing

- Cash needed for: incorporation, equipment, rent, salaries, product development, market
research, marketing, …
- Create pro forma cash flow statements for startup better understand cash requirements
o Advisors can support with classic issues: missing expenses, forgotten personal costs,
overconfidence in timing and size of cash inflows
- Risk-reward curve of investment:
Learn how to establish an equity structure, involving the following considerations:
- Future equity sales for growth stages of the company
- Maximum share of company equity being given up attracting and keep top talent
- Employee stock option program (ESOP) as part of compensation strategy

Banks don’t provide startup $$

- For loans, banks require

o track record of audited financial statements
o security collateral (raw materials, inventory, receivables) – assets that are forego if
repayment is unsuccessful
o sufficient cash flow to service/repay debt
- Startups have none of the above options – debt is not an option
- Equity is the most likely of startup finance

Personal equity

- Main source of financing, although limited

- You want to retain ownership because you’re committed to your own project
 - Personal guarantees required (ex: mortgage on house) – individual’s legal promise to repay
through salary or dividends

“Love” money

- Get financial support from people who like and trust you the most
- Ex: friends, relatives, in-laws, parents, siblings, …
- Industry contacts could also provide investment along with an employment invitation

Business Angels

- Who?
o Retired business executives – looking to make good returns
o Wealthy dabbles (doctors, dentists) – looking for tax write-offs
o Company directors (BODs) – enjoy the process, mentoring
- How to find them?
o Private individuals, hence, tough to find and aren’t always accessible
o Maybe through lawyers, accountants, personal networks
o More recently, online intermediaries

Venture capital

- VC and monetary supply

o Exchange capital and guidance for equity
o Most won’t invest less than $5 million, hence, also in pre-revenue startups
o Money is supplied institutions such as banks, pension funds, insurance companies
- VC is hard to get: 100 plans -> after multiple reads, meetings, discussions, negotiation -> only 2
or 3 receive investments
- VC is hands on
o New ventures are high risk – they need management help as teams may lack skills
o VC investors will nominate directors
- VC seeks high return
o Very high!!
o 300% in 3 years and even 500% in 5 years
o 40% ROI minimum
- Rule of 2:6:2
o VCs try to pick winners and don’t always succeed
o 20% “dogs” = go bust in year 1
o 60% “problem children” = inadequate or labor-intensive returns
o 20% “stars” = meet or surpass forecasts
o Result: portfolio return of 20%

Lecture 7: Promote your products and services – Promotion within 4Ps

Brand equity = Degree of Brand awareness + attitude that affect purchasing motivation and decisions

- More than just a product or/and service being sold, it’s a brand which represents a relationship
between a company and customers
 - Ex: Marvel comics -> merchandise -> movies
- Upon building great brand equity, take advantage of it for further company growth and
communicate your core values or in another word, “know why you’re winning”

3 Elements of consumer behavior:

- Motivation: inner state of arousal focused on achieving a goal

- Ability: the resources available to you that are needed to make a particular outcome happen
- Opportunity: The time, lack of distraction, information needed to accomplish something
Consumer decision making process:
- Problem recognition
- Information search
- Evaluation of alternatives
- Purchase and Consumption
- Post Purchase Evaluation

Trade association – organization created and run by many industry organizations with benefits offered to
member organizations
- Regular meet n greets
- Guest speaker events
- Newsletters or magazines of relevant topic discussions
- Trade shows
Benefits of trade shows:
- Sales & brand development
- Customer relations
- Product feedback
- Competitive intelligence
Personally selling, a form of business development, is often required for most new startups to get off the
ground as they develop a reputation for their brand and enter new markets

Promotional process: Goals -> strategy -> timeline -> execution -> results

Why is social media effective?

- Recommendations – consumers seek information via platforms and winning products will win
- Brand authority – social media marketing increases brand authority
- Targeting – social media ad platforms allow you to target niche audiences
- Awareness – Appropriate social media strategies help increase brand awareness
 - Conversions – social media marketing increases a brand’s chances of earning brand loyalty

Social media makes a consumer journey more meaningful and easier

- Awareness – consideration – influence – purchase – advocacy

Why influencers?

- Modern consumers expect authentic brand relationships - Influencer marketing is based on the
trust and respect consumers have built with an influencer
- The future evolution of endorsements lies within influencers - 92% of consumers trust an
influencer more than an ad or traditional celebrity endorsement
- Despite authentic connections with audiences, influencers hold the power to drive much more
in terms of content, relatability sales and ROI
- Influencers affect purchasing decisions, purchasing amounts and product discovery

Lecture 8: Creating and managing your entrepreneurial organization

Entrepreneur:

- Architect of organizational purpose – analyst and strategist

- Organizational leader – decide management team and blend their skills/experiences
- Personal leader – motivating, providing guidance, and setting standards of conduct

Management team:

- Small group of responsible people with complimentary skills who are committed to the mission
- Key component of new venture’s success or failure
- Possess resources that are valuable, rare, imperfectly imitable and non-substitutable, or are able
to help firm acquire resources with these qualities

Recruitment:

- Sources:
o Familiars (family, friends, current or former colleagues): venture benefits from
established relationships
o Unfamiliar (people not already known): venture benefits from diversity – new views,
expertise and experiences
- Recruiting implications:
o Good personal chemistry is key
o Investors or connected to investors
o Other connections (business, social and technological)
- Inducements to joining:
o Material rewards – equity, salary, perquisites, benefits
o Nonmaterial rewards – preparation for own startup journey, distinction, prestige,
power, sign of upward mobility

Maintaining the team – behavior norms and values:

 - Cohesion
- Teamwork
- Fairness
- Integrity
- Tolerance for risk and failure
- Long-term commitment
- Commitment to value creation

Team-related risks

- Groupthink: group process that follows the crowd with a preferred decision rather than a
reasonable and effective decision
- Group shift: phenomenon which individual decisions make way for exaggerated group decisions
(fan celebration turning into destruction of properties)

Board of Directors:

- Advisory board – experienced professionals who provide advice and contacts

- Fiduciary board – legally constituted group whose primary responsibility is to represent the new
venture’s stockholders – made up of insiders and outsiders
- Excises power regarding:
o Shareholder interests
o Long-term plans
o Organizational issues & employee relations
o Financial management and control
o Operational controls
o Board Internal Operations

Networking – process of enlarging entrepreneur’s circle of trust

- Informal network: “connections” to obtain resources and opportunities for the firm
- Formal network: participation in a joint venture
- Personal network: face-to-face contacts

Alliances: agreement between businesses to share benefits

- Confederate alliance: involve direct contact with competitors, risk collusion, source of
economies for smaller firms
- Conjugate alliance: involve direct contact with non-competitors, long term relationships with
customers and suppliers, joint development initiatives
- Agglomerate network: Set of indirect relationships between competing firms, provide
information that’s critical for success (trade association)
- Organic network: Indirect relationships between non-competing organizations, chamber of
commerce

Partner selection criteria:

1. Potential partner must have a strong commitment to the joint venture

 2. Management of both firms must be compatible (not conflicting and pose risks)
3. History of previous successful joint ventures is a good indicator

Managing an entrepreneurial organization – management approaches:

- Modeling:
o Create a model (strategic plan) for major decisions
o Break issue down into components and see how they relate to each other and goals
o Use model to test hypotheses
- Feedback:
o Design the culture and system to encourage constant feedback
o Develop ability to take feedback and adjust plan efficiently
- Risk:
o Not about avoiding risk, taking irrelevant risks, gambling and snap decisions
o It’s about managing risks that are relevant to goals of the business
 Define risk
 Assess connection to goals
 Evaluate degree of risk, size of impact, likelihood of occurrence
 Develop risk management plan
 Reduce probability
 Reduce impact
 Develop ‘mop up” plan in the case of an occurrence
- Honesty:
o Must be a habit – core to the culture of the business
o Takes practice, to develop the language and the trust required
o Leads to much more efficient and satisfying organization

- Flexibility
o A small venture will likely re-invent itself in many ways over the first few years
o This requires that people and systems be flexible so they can adapt with the changing
needs of the business
- Planning:
o Helps in almost anything we do – better understand objectives, better evaluate results,
better improve plans
o Cycle: Plan -> execute -> measure -> analyze -> adjust
- Learning:
o Control vs Learning
o Learning businesses are more likely to flourish with better longevity and breadth =>
better teamwork and growth
o Requires explicit serious of efforts and discussions to form a learning organization
(according to Peter Senge)
 Create tools that foster aspiration, encourage personal mastery, build shared
vision
  Create guiding principles and philosophy that reflect commitment to learning
 Create a learning infrastructure: time for reflections, bring people together and
provide resources
o Companies that learn well can better tool themselves for rapid market changes and
competitive threats
o An engine for creation of new products rather than a collection of existing products

Lecture 9: Franchising

Marketing system by which the owner of a service, trademarked product or business format grants
exclusive rights to an individual for the local distribution and/or sale of such goods

- In return, the owner receives payment of a franchise fee, royalties, and the promise of
conformance (keeping up) to quality standards
- Franchisor = seller of franchise
- Franchisee = buyer of franchise

Franchising is a growth strategy – enables the franchisor to:

- Multiply the rents collected through the franchise agreement

- Enjoy increasing economies of scale in purchasing, building development and improvements,
and marketing
- Grow, using the franchisee’s money, local knowledge and human resources
- Enjoy 2 strategic advantages at once – local control of costs through supervision of the
franchisee and service differentiation nationally (or internationally)

Franchising sets the boundaries for the parent organization, through the franchising agreement, that
explains the organizational and financial constraints of the franchisor

Franchisors can open company-owned units to conduct market experiments, gain customer knowledge
and maintain a solid understanding of procurement and operating costs

The Agency Problem

- When ownership and control are separated, the agent/manager substitutes their own goals for
those of the owner.
- If the owner is the manager, the agency problems are great diminished
- Problems won’t be completely solved as the franchisee often hires managers to run their unit

Prior to franchising, the franchiser should open a series of pilot stores, so they bear the costs of
developing the formula for success, such as accurate site selection, efficient operations, financial keys
and training

- The franchisor must also determine how much to charge for the franchise to allow the
franchisee to make a fair profit

Franchisee requirements – franchisees should look for:

- Proven operating locations to serve as a prototype and prove the business potential
- Credible, supportive and experienced top management team
 - Skilled field support staff members
- Distinct and protected trade identity (trademarks, slogans, overall image,…)
- Proprietary operations manual
- Disclosures and documents that meet all regulations and laws
- Training programs for the franchisee and its management
- Communications system with ongoing dialogue between the franchisor, franchisees and the
entire network of units
- Marketing plans, resources and support that are prepared and available
- Sufficient capital to get the franchise off the ground

Lecture 10: Intrapreneurship

Development, within a large corporation, of internal markets and relatively small business units,
producing improved products, services or technologies that employ the firm’s resources in a unique way

- Intrapreneurship is not line extensions or brand extensions

Need for intrapreneurship

- Develop innovative solutions to jumpstart growth and earnings

- Opportunity to adapt to the increasingly dynamic and hostile business environment
- Conduct market experiments
- Diversify core business internally
- Training ground for new managers
- Open new channels of distribution or communication
- Augment bottom line/ Maximize on ultimate outcomes

How are intrapreneurs different from entrepreneurs?

- Have in-house “support system” and resources

- Must be concerned with corporate culture and hierarchy
- Less independent decision making
- Agency problem (goal differences) – less control because they’re not the business owner

Intrapreneurial advantages

- Financial resources
- Support systems already in place across business units: marketing, engineering, legal,
accounting, personnel
- Visibility and reputation of the existing business, which extend to the new venture

Corporate barriers to intrapreneurship

- Corporate bureaucracy
- No access to venture capital and benefits for contribution
- Existing corporate products and managers
- Inefficient reward and risk structure
- Lack of supportive environment

Forms of Corporate Innovation

 1. Sustaining innovation – helps existing products grow and maintain their market position
2. Disruptive innovation – destroys current market norms & positions and technological
competence by changing the way customers behave and relate to products

5 Stage Process Model for Corporate Innovation

1. Problem definition
2. Coalition building – gather support for the new venture or innovation
3. Resource mobilization for skunk works
4. Project execution
5. Venture completion – sometimes employees will buy an ICV (internal corporate venture” from
the company through leveraged buyout (forego little equity and borrow most of the money for
the deal)

Technological innovation: art of introducing a new device, methods or material for application to
commercial/practical objectives – types of practices involved:

- Basic research: pursuit of scientific knowledge (facts & insights)

- Applied research sets out to solve a problem or develop an application (problem exploration)
- Development research: leads directly to commercialization (solution exploration)
- Technology clusters: groups of firms that do inter-related research and locate close to each
other geographically
- Technology spillovers: innovations that can be used in multiple situations, serving multiple
markets
- Technology funnel: successive rounds of screening and elimination (raw ideas -> proposals ->
demonstration projects -> product launches -> winning product)

Suggestions for corporate innovators:

- Separate innovative venture from main corporation as a standalone entity

- Take an equity position and find partners to kickstart an idea
- Corporations should always aim for new innovations and must be skilled for such change
management
- Avoid the innovator title and use a buddy system to encourage teamwork
- Set metrics, aim for early successes and analyze data to prove decisions

Lecture 11: Exit strategies

Entrepreneurs make sacrifices throughout their lives and sometimes, an exit move is the right thing to
do to focus on better projects or focus on everyday health.

Whatever the decision is, make sure the company is in the right hands of the best leaders with the best
intentions for the venture’s future and employees

Over time, exit decisions will need to be made:

- Stay on with a limited role

- Add another business – created a business of businesses
- Exit the business entirely
 Prior to leave thoughts, develop a blueprint for the equity structure to ensure business sustainability
that includes the following considerations:

- Cash requirements at each stage of the business from startup to growth

- Dilution level of future equity sales be, and minimum degree of ownership for the founders
- Debt financing possibility
- Shareholding options for top performing employees to keep them for the long-term within the
venture

Types of exits:

- Capital cow
o Rely on cash from current operations to fund the move into new venture
o Can maintain the influence on original venture, split time between firms
o Need strong management team
- Employee stock option plan
o Slowly sell company to employees
o Keep critical people within the firm
o Give incentives for achievement
- Management buyout
o Senior management team puts together an offer to buy all or most of the firm
o If well-groomed team, entrepreneur can be confident of future success after gone
- Initial Public Offering
o Float all or some of the equity in public market
o Requires prospectus, diligence, legals
o Can have positive and negative impact on employees
- Merger/Acquisition
o Sell firm outright or merge it with another to create an entirely new entity
o Can reduce costs if large overlap of non-critical services
o Risk of cultural and R&C incompatibility
o Challenge deciding who stays and who runs the firm