Venture Planning

Chapter Two
Dowling

BA 560
Fall Term 2005

The Entrepreneurial Process

entrepreneur 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

Itisopportunitydriven
Itisdrivenbyaleadentrepreneurandan
entrepreneurialteam
Itisresourceparsimoniousandcreative
Itdependsonthefitandbalanceamongthese
Itisintegratedandholistic

BA560 Venture Planning Prof. Dowling

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)
BA560 Venture Planning Prof. Dowling

The Entrepreneurial Leader

Anentrepreneurialleader:
Learnsandteachesfaster,better
Dealswithadversity,isresilient
Exhibitsintegrity,dependability,honesty
Buildsentrepreneurialcultureand
organization

BA560 Venture Planning Prof. Dowling

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

QualityoftheTeam:

Relevantexperienceandtrackrecord
Motivationtoexcel
Commitment,determination,and
persistence
Toleranceofrisk,ambiguity,and
uncertainty
Creativity
BA560 Venture Planning Prof. Dowling

10

The Entrepreneurial Team

QualityoftheTeam:
Teamfocusofcontrol
Adaptability
Opportunityobsession
Leadership
Communication

BA560 Venture Planning Prof. Dowling

11

Understand and Marshall Resources

..Dont 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 1980s, 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
entrepreneurs 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.

The Entrepreneurial Process

Reasons for Failure

A breakdown of why businesses fail.

The Entrepreneurial Process

One-Year Survival Rates

The Entrepreneurial Process

Six-Year Survival Rates
Industry

All

All Industries

(%)
39.8%

Ag/Fishing

Zero
Growth

Lo Growth

Med Grth

Hi Growth

27.5%

1-4%
66.3%

5-9%
75.5%

10%+
78.4%

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
Services

38.6

28.7

68.7

76.4

78.5

40.9

28.7

69.1

79.4

83.5