1. Entrepreneurship Starting a company

2. Agenda  Entrepreneurship  Customer Discover Process/Customer Interaction  Financing  Development  Team  Testing  Intellectual Property  Partners  Standards  Departments - Internal Processes  Promotion  Market Research  Distribution  Business Models  Financial Ratios

3. Entrepreneurship

4. What is Entrepreneurship?  Why is there no easy way to define “entrepreneur?”  Do you believe that entrepreneurs are born with special characteristics, or is it possible to teach someone to be an entrepreneur?  Can creativity be taught or is it an inherent trait?  Creative destruction and innovation?

5. Innovation and Creativity  Innovation  Is the process of implementing something new, which is central to the entrepreneurial process.  Small entrepreneurial firms are responsible for over two-thirds of all innovations.  Creativity – making something new

6. What is Entrepreneurship?  Origin of the Word “Entrepreneur”  The word was originally used to describe people who “take on the risk” between buyers and sellers or “undertake” a task such as starting a new venture.  The “undertake” interpretation of the word has been central to its usage in English.  Difference Between an Inventor and an Entrepreneur  An inventor creates something new.  An entrepreneur puts together all the resources needed—the money, the people, the strategy, and the risk bearing ability to transform the invention into a viable business.

7. What is an Entrepreneur?  One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them.

8. What is Entrepreneurship?  Entrepreneurship Defined  Entrepreneurship is the process by which individuals pursue opportunities without regard to the resources they currently control.  The essence of entrepreneurial behavior is identifying opportunities and putting useful ideas into practice.  The set of tasks called for by this behavior can be accomplished by either an individual or a group and typically requires creativity, drive, and a willingness to take risks.

9. Corporate Entrepreneurship  Corporate Entrepreneurship  Is the conceptualization of entrepreneurship at the firm level.  All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial.

10. Customer Discovery Process/Customer Interaction Developed by Steve Blank

11.  Customer Discovery - validation of the problem, solution, product and market (and other aspects of the business model),  Customer Validation - further validation of the business model and proving the sales process is repeatable and scales,  Customer Creation - scaling the business by pumping customers into the proven sales funnel, and  Company Creation - transitioning from a startup to a executing business. Customer Development

12.  Central to Customer Development, is "getting out of the office" and talking to customers and others.  semi-structured interviews where the initial focus is on gaining insights about the customers (and others involved in the business model) rather than just statistics. These are not just surveys.  The founders job is then to validate assumptions via customer interviews or change them (pivot). Customer Development

13.  Customer Development is itself a highly iterative and incremental process that includes a number of pivot points.  Pivots represent a change in strategy (business model) without generally a change in the vision for the startup. Customer Development

14. Financing

15. Required Investment  Revenue and investment must cover expenses  Must cover the multitude of possible incomes

16. The Importance of Financing  The Nature of the Funding and Financing Process  Many entrepreneurs go about the task of raising capital haphazardly because they lack experience in this area.

17. Finance Life Cycle Financing tools Personal, Grants, Family Friends Personal, Grants, Family Friends Bank loans and other forms of debt Angels Venture Capital IPO Mezzanine Financing

18. Sources of Personal Financing  Personal Funds  The majority of founders contribute personal funds, along with sweat equity, to their ventures.  Sweat equity represents the value of the time and effort that a founder puts into a new venture.  Friends and Family  Friends and family are the second source of funds for many new ventures.  This type of contribution often comes in the form of loans or investments but can also involve outright gifts, forgone or delayed compensation (for a family member who works for the new firm), or reduced or free rent.

19. Sources of Personal Financing  Bootstrapping/lean startup  A source of seed money for a new venture is referred to as bootstrapping.  Bootstrapping is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary.  Because it is hard for new firms to get financing or funding early on, many entrepreneurs bootstrap out of necessity.

20. Examples of Bootstrapping Methods  Buying used instead of new equipment  Leasing equipment instead of buying  Minimizing personal expenses  Sharing office space with other businesses  Coordinating purchases with other businesses  Obtaining payments in advance from customers  Avoiding unnecessary expenses  Applying for and obtaining grants

21. Raise Debt or Equity Financing AlternativeExplanation Equity funding Debt financing Debt financing is getting a loan. The most common sources of debt financing are commercial banks and the Small Business Administration (through its guaranteed loan program). Equity funding means exchanging partial ownership in a firm, usually in the form of stock, for funding. Angel investors, private placement, venture capital, and initial public offerings are the most common sources of equity funding. Equity funding is not a loan—the money that is received is not paid back. Instead, equity investors become partial owners of a firm.

22. Sources of Equity Funding Venture Capital Business Angels (Dragons) Initial Public Offerings

23. Business Angels/Dragons  Business Angels/Dragons  Are individuals who invest their personal capital directly in start-ups.  The prototypical business angel is about 50 years old, has high income and wealth, is well educated, has succeeded as an entrepreneur, and is interested in the start-up process.  The number of angel investors has increased dramatically over the past decade.

24. Business Angels  Business angels are valuable because of their willingness to make relatively small investments.  This gives access to equity funding to a start-up that needs just $50,000 rather than the $1 million minimum investment that most venture capitalists require.  Business angels are difficult to find. Most angels remain fairly anonymous and are matched up with entrepreneurs through referrals.

25. Venture Capital  Money that is invested by venture-capital firms in start-ups and small businesses with exceptional growth potential.  Venture-capital firms are limited partnerships of money managers who raise money in “funds” to invest in start-ups and growing firms.  The funds, or pool of money, are raised from wealthy individuals, pension plans, university endowments, foreign investors, and similar sources.  A typical fund is $75 million to $200 million and invests in 20 to 30 companies over a three- to five-year period.

26. Venture Capital  Venture capital firms fund very few entrepreneurial firms in comparison to business angels.  Many entrepreneurs get discouraged when they are repeatedly rejected for venture capital funding, even though they may have an excellent business plan.  Venture capitalists are looking for the “home run” and so reject the majority of the proposals they consider.  Still, for the firms that qualify, venture capital is a viable alternative for equity funding.

27. Venture Capital  An important part of obtaining venture capital funding is going through the due diligence process:  Venture capitalists invest money in start-ups in “stages,” meaning that not all the money that is invested is disbursed at the same time.  Some venture capitalists also specialize in certain “stages” of funding.  For example, some venture capital firms specialize in seed funding while others specialize in first-stage or second-stage funding.

28. Development

29.  Beginning with requirements perhaps derived from marketing research  Goals of the new product/service  Design  Research and Development  Testing

30. Team

31. New Venture Team  The group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm.  Usually, the team doesn’t come together all at once. Instead, it is built as the new firm can afford to hire additional personnel.  The team also involves more than paid employees.  Many firms have boards of directors, boards of advisers, and professionals on whom they rely for direction and advice.

32. Board of Advisers  A panel of experts who are asked by a firm’s managers to provide counsel and advice on an ongoing basis.  Unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives nonbinding advice.  An advisory board can be established for general purposes or can be set up to address a specific issue or need.  Some firms have special advisory boards, like a “customer advisory board” to advise the firm on customer-related issues.

33. Board of Advisers  Many people are more willing to serve on a company’s board of advisers than its board of directors because it requires less time and there is no potential legal liability involved.  Like the members of a board of directors, the members of a company’s board of advisers provide guidance and lend credibility to the firm.  Advisors can serve in mentorship role  A mentor is a trusted person to discuss issues and can unbiased and honest advice.

34. Board of Advisers  Guidelines to Organizing a Board of Advisers  Advisers will become disillusioned if they don’t play a meaningful role in the firm’s development and growth.  A firm should look for board members who are compatible and complement one another in terms of experience and expertise.  When inviting people to serve on its board of advisors, a company should carefully spell out to the individuals involved the rules in terms of access to confidential information.

35. Characteristics of Successful Managers  Managers skilled at teamwork and people management  Encourage innovation and calculated risk rather than by punishing or criticizing whatever is less than perfect  Expect and encourage others to find and correct their own errors and to solve their own problems  Make heroes out of other team members and contributors  Generate trust among colleges and subordinates  Perceived as honest and direct, open and spontaneous

36.  A management team can make all the difference in venture success.  There is a strong connection between the growth potential of a new venture (and its ability to attract capital beyond the founder’s resources from private and venture capital backers) and the quality of its management team.  The existence of a quality management team is one of the major differences between a firm that provides its founder simply a job substitute and the ability to employ perhaps a few family members and others, and a higher potential venture. Management Team

37. Team Philosophy and Attitudes  The most successful entrepreneurs seem to anchor their vision of the future in certain entrepreneurial philosophies and attitudes: attitudes about what a team is, what its mission is, and how it will be rewarded.  The capacity of the lead entrepreneur to craft a vision and then to lead, inspire, persuade, and cajole key people to sign up for and deliver the dream makes an enormous difference between success and failure, between loss and profit.

38. The Key to Growth  Team traits  Cohesion  Teamwork  Integrity  Commitment to the long haul  Commitment to value creation  Equal inequality  Fairness

39. Slicing the Founder’s Pie  How much stock ownership should go to whom?  Share the wealth with those who help to create the value and thus the wealth  Realize a harvest of at least 5 to 10 times the original investment  Make sure the company prospers and grows thus creating a huge, shared pie

40. The Reward System  The reward system of a new venture includes both the financial rewards of a venture—such as stock, salary, and fringe benefits, and the chance to:  realize personal growth and goals,  exercise autonomy,  and develop skills in particular venture roles.  The reward system established for a new venture team should facilitate the interface of the venture opportunity and the management team.

41.  The division of equity between the venture and external investors will affect how much equity is available to team members. Division of Equity

42. Testing

43.  Testing a new product or service typically follows stages  Starting with small units of measurement to a complete system  Testing usually involves both internal and external people, for example, customers

44. Intellectual Property

45. What is Intellectual Property (IP)?  Legal Definition  “Intellectual Property” (IP) refers to all materials, concepts, know-how, formulae, inventions, improvements, industrial designs, processes, patterns, machines, manufactures, compositions of matter, compilations of information, patents and patent applications, copyrights, trade secrets, technology, technical information, software, prototypes and specifications, including rights to apply for protections under statutory proceedings available for those purposes, provided they are capable of protection at law.

46. What is Intellectual Property (IP)?  Working Definition  Intellectual Property is any form of knowledge or expression created using (your) intellect. IP includes inventions, computer software, trademarks, literary, artistic musical or visual works and expertise or know-how. Some forms of IP can be legally protected.

47. The Importance of Intellectual Property  Intellectual Property  Is any product of human intellect that is intangible but has value in the marketplace.  It is called “intellectual” property because it is the product of human imagination, creativity, and inventiveness.  Importance  Traditionally, businesses have thought of their physical assets, such as land, buildings, and equipment as the most important.  Increasingly, however, a company’s intellectual assets are the most important.

48. 7 Major Forms of Legal IP Protection TypesAgent Granting Trade SecretsCorporation Industrial DesignsGovernment Integrated Circuit TopographiesGovernment Plant Breeder’s RightsGovernment PatentsGovernment Trade MarksGovernment CopyrightsGovernment

49. Commercial purpose of Intellectual Property? 1.IP establishes a right and identifies ownership of the intellectual creativity which enables its owner to profit from the creative endeavor and to exclude others from making, selling or using the same without the necessary authorization. 2.IP instills trust, confidence and loyalty to the consumers it markets through a distinct identity, image and reputation.

50. Patents  A patent is a grant from the federal government conferring the rights to exclude others from making, selling, or using an invention for the term of the patent.  Increasing Interest in Patents  There is increasing interest in patents  Since Patent #1 was granted in 1790, the U.S. Patent & Trademark Office has granted over six million patents.  The patent office is strained. It now takes an average of 27.7 months from the date of first filing to receive a U.S. patent.

51. Trademarks  A trademark is any word, name, symbol, or device used to identify the source or origin of products or services and to distinguish those products or services from others.  Trademarks also provide consumers with useful information.  For example, consumers know what to expect when they log onto Yahoo!  Think how confusing it would be if any Internet site was allowed to call itself Yahoo!

52. Copyrights  A copyright is a form of intellectual property protection that grants to the owner of a work of authorship the legal right to determine how the work is used and to obtain economic benefits from the work.  A work does not have to have artistic merit to be eligible for copyright protection.  As a result, things such as operating manuals are eligible for copyright protection.

53. Trade Secrets  A trade secret is any formula, pattern, physical device, idea, process, or other information that provides the owner of the information with a competitive advantage in the marketplace.  Trade secrets include marketing plans, product formulas, financial forecasts, employee rosters, logs of sales calls, and similar types of proprietary information.

54. Trade Secrets  It is important for a company’s employees to know that it is their duty to keep trade secrets and other forms of confidential information secret. For the best protection, a firm should ask its employees to sign nondisclosure and noncompete agreements

55. Summary: Forms of Legal Protection for IP  Trade Secrets – Some know-how, expertise, techniques and formulas are protected by being kept as trade secrets – this requires Confidentiality agreements with employees etc. Perhaps most famous corporate examples are formulas “Secret Recipes” for Coca- cola and Kentucky Fried Chicken

56. Summary: Forms of Legal Protection for IP  Patents cover new inventions (process, machine, manufacture, composition of matter), or any new and useful improvement of an existing invention;  Trade-marks are words, symbols or designs (or any combination of these features), used to distinguish the wares or services of one person or organization from those of others in the marketplace;  Copyrights provide protection for literary (including software), artistic, dramatic or musical works and performance, sound recording and communication signal

57. Partners

58.  Many partners have a standardized partnership arrangements which a start- up can apply for.  Strategic partners usually invest considerable time and resources in an arrangement and might want shares

59. Standards  Standards demonstrate the quality or compatibility ot the product or service to known metrics  In some cases, for example, Apple, a company can become the standard in the perception of customers.

60. Departments – Internal Processes

61. Management  The management team must develop repeatable, scalable processes

62. Promotion/Business development  In the startup phase, promotion is often done in a business development fashion with a formalized marketing and sells effort.  Tends to begin with personal contacts developed through networking and other interactions. Typically entrepreneurs start by promoting their product/service throughout their contacts.  Social media can be used to have discussions with potential customers. Includes blogs, Twitter, Facebook, Youtube, Google+, etc  Advertising including search engine placement, tradeshows, media placements, etc

63. Market Research To gain understanding of what the market is saying about the company  Social media  Secondary research  Use available information  Less expensive but may not be obtain information as specific as the company requires  Primary research  Conduct research to generate information  More expensive and can take longer but can be designed to specifically answer questions that the company has.

64. Distribution  Typically want to distribute the product or service to where the customers can access it.

65. Business Models

66. What is a Business Model?  Model  A model is a plan or diagram that is used to make or describe something.  Business Model  A firm’s business model is its plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates.  The term “business model” is used to include all the activities that define how a firm competes in the marketplace.  (a) what the business does, and (b) how the business makes money doing these things.

67. Business Models  Business models describe the revenue stream and profit engines of the firm.  A summation of the core business decisions and trade-offs employed to earn a profit.  Your challenge: to understand the nature of the ‘profit engine’ of your start-up idea – an engine that is often obscured by financial and market projections!

68.  A one page pictogram (flowchart) showing the whole business ecosystem (your enterprise embedded in a network of relationships with clients, clients’ clients, suppliers and suppliers’ suppliers with an orthogonal marketing dimension showing how the enterprise will acquire customer and clients in a cost effective manner.)  Inflows and outflows of money Business Models

69. It is the engine of the business-- it is where the rubber meets the road 1. Where and how the business acquires cash from clients, 2. How it uses its cash (tracks cash streams from clients and customers to the business and through the business to its suppliers), 3. How products and services flow from suppliers and the business to clients and customers in the reverse direction and, finally, 4. There is an orthogonal dimension that shows how the business connects (through sales and marketing channels) with its clients and customers Business Models

70. 1.Will there be an hourly charge for your time? 2.Are you actually selling any products? 3.Are there any on-going supplies that you can resell? 4.Are there any other value added services you can sell? 5.Is there something you can provide a free? Clients and customers love the word 'free'. Can you provide free quotes for example? 6.Are there any other corollary services that you can hook your clients up with and take a percentage of the fees? 7.Are there any updates or on going revenues to be had from providing an ASP-like service? 8.Can you reverse out some of the work to clients and customers through a self serve web site? 9.Can you get closer to producing Custom Results from Standard Inputs and Processes? How The Company Makes Money

71. Importance of a Business Model  Serves as an ongoing extension of feasibility analysis. A business model continually asks the question, “Does this business make sense?”  Focuses attention on how all the elements of a business fit together and constitute a working whole.  Describes why the network of participants needed to make a business idea viable are willing to work together.  Articulates a company’s core logic to all stakeholders, including the firm’s employees.

72. Business Models Examples  Price line  Customers name own price  Hotel doesn’t have its name publicly linked to discounts.  Offer Aggregation: Kayak, eBay, Amazon  Take profit by mass purchasing  One Day, One Deal: Woot, Groupon, LivingSocial, Moolala  Need predetermined number of customers before deal happens  Just In Time: Dell  No inventory, build to order, pay suppliers later than customers pay

73. Business Models Examples  Customer Experience: Amazon.com  Quick, easy, convenient  The Modern Franchise: McDonald's Corporation  Use franchise to finance the purchase of asset such as land  Platform: Microsoft  Build a platform that others can add to ie windows operating system  Selling data: Google  Build a community, collect data and sell it  The P2P Revolution: Paypal, Craigslist  Bringing people together

74. How Business Models Emerge  The Value Chain  The value chain is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user.  By studying a product or service’s value chain, an organization can identify ways to create additional value and assess whether it has the means to do so.  Value chain analysis is also helpful in identifying opportunities for new businesses and in understanding how business models emerge.

75. Potential Fatal Flaws in Business Models  Fatal Flaws  Two fatal flaws can render a business model untenable from the beginning:  A complete misread of the customer.  Utterly unsound economics. Pets.com sported an unsound business model, and failed.

76. Recap: The Importance of Business Models  Business Models  It is very useful for a new venture to look at itself in a holistic manner and understand that it must construct an effective “business model” to be successful.  Everyone that does business with a firm, from its customers to its partners, does so on a voluntary basis. As a result, a firm must motivate its customers and its partners to play along.  Close attention to each of the primary elements of a firm’s business model is essential for a new venture’s success.

77. Roger’s Diffusion of Innovation Adopter Category Definition InnovatorsInnovators are the first individuals to adopt an innovation. Innovators are willing to take risks, have the highest social class, have great financial liquidity, are very social and have closest contact to scientific sources and interaction with other innovators. Risk tolerance has them adopting technologies which may ultimately fail. Financial resources help absorb these failures. (Rogers 1962 5th ed, p. 282) Early AdoptersThis is the second fastest category of individuals who adopt an innovation. These individuals have the highest degree of opinion leadership among the other adopter categories. Early adopters have a higher social status, have more financial liquidity, advanced education, and are more socially forward than late adopters. More discrete in adoption choices than innovators. Realize judicious choice of adoption will help them maintain central communication position (Rogers 1962 5th ed, p. 283). Early MajorityIndividuals in this category adopt an innovation after a varying degree of time. This time of adoption is significantly longer than the innovators and early adopters. Early Majority tend to be slower in the adoption process, have above average social status, contact with early adopters, and seldom hold positions of opinion leadership in a system (Rogers 1962 5th ed, p. 283)

78. Adopter Category Definition Late Majority Individuals in this category will adopt an innovation after the average member of the society. These individuals approach an innovation with a high degree of skepticism and after the majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation, have below average social status, very little financial liquidity, in contact with others in late majority and early majority, very little opinion leadership. Laggards Individuals in this category are the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change-agents. Laggards typically tend to be focused on "traditions", likely to have lowest social status, lowest financial liquidity, be oldest of all other adopters, in contact with only family and close friends. Leap Froggers The phenomenon when resistors upgrade they will often need to skip several generations in order to reach the most recent technologies. Roger’s Diffusion of Innovation

79. FactorDefinition Relative Advantage How improved an innovation is over the previous generation. Compatibility The level of compatibility that an innovation has to be assimilated into an individual ’ s life. Complexity or Simplicity If the innovation is perceived as complicated or difficult to use, an individual is unlikely to adopt it. Trialability How easily an innovation may be experimented. If a user is able to test an innovation, the individual will be more likely to adopt it. Observability The extent that an innovation is visible to others. An innovation that is more visible will drive communication among the individual ’ s peers and personal networks and will, in turn, create more positive or negative reactions Using the Diffusion of Innovation (Adoption Cycle) Theory

80. Financial Ratios  EPS calculates the earnings per share.  Profit Margin is the net profit/sales.  Efficiency Ratio = Expenses/Revenue The efficiency ratio is a quick and easy measure of a company’s ability to turn resources into revenue. The lower the ratio, the better (50% is generally regarded as the maximum optimal ratio). An increase in the efficiency ratio indicates either increasing costs or decreasing revenues.  P/E Ratio - Price-Earnings Ratio is a valuation ratio of a company's current valuation compared to its per-share earnings.