Resources Needed For New Ventures - Human Resource

Resources needed for the New Venture
-The Team
Prof. R.S.Mathur
The Entrepreneurial Team
• The success of an enterprise is often determined by the
individuals who lead it forward rather than by its products
or services.
• The Team transforms creative ideas into commercial
realities through intelligent hard work and determination.
• VCs prefer a grade ‘A’ Entrepreneurial Team with grade
‘B’ idea rather than the other way round.
• The implication is clear; entrepreneurs must provide:
1. Inspiration,
2. Clear direction and guidelines and
3. Create organisations to sustain growth
cont…
Wednesday, December Prof. R.S.Mathur 2

8, 2021
The Entrepreneurial Team
cont..
• For independent small businesses the owner must
wear several hats at once; leading, and managing,
• For the corporate venture, a company ‘champion’
must assemble a team of like minded people
capable of breathing life into an innovation.
• For the high-growth new venture an entrepreneur
must have the foresight to find partners or hire
people with complementary skills to race the
enterprise toward success.

8, 2021
Firm’s Structure
• Business ventures must be legally structured to reflect a logical
organisation consistent with the firm’s purpose.
• For example: a small tailor shop is unlikely to establish a
corporation with a complex board of directors, and an
aerospace manufacturer is unlikely to have sole proprietorship
with unlimited accountability vested in one person.
• The choice of a legal form of a business, its organisational
structure and the composition of the entrepreneurial team
relies on a complex set of conditions.
• The issue can be divided into two general parts:
1. Dealing with the element of creating an entrepreneurial team
and,
2. Addressing the legal formation of new venture
8, 2021
The Founder’s Role
• An exceptional founder may be a very versatile person with
expertise in many areas.
• More likely, he/she may be strong in some areas while not so
in many others.
• Entrepreneurs must understand that they do need help to
move forward
• The founders must be aware of their own skills, and
limitations.
• Examples: Inventor –Dentist, and Skilled marketer.
• Together, they may form a good team but more importantly
they need to demonstrate their conceptual ability to
1. Lead the enterprise,
2. Be financially responsible,
3. Organise and lead the team and
4. Focus their
Wednesday, efforts on fulfilling
December the venture’s objectives.
Prof. R.S.Mathur 5
8, 2021
Matching Human Resource
Needs and Skills- Founder’s Role
• An exceptional new product positioned in the best
possible market has no life of its own without a capable
founder.
• The founder’s capability in terms of:
1. Personal skill and commitment to head the venture.
2. Putting together team needed to launch a venture.
3. Making the team members active stakeholders (rather
than hiring ‘nine-to-fivers’ in which case the employee
contribution will be limited to their willingness to work
for wages.)
• Founding entrepreneurs are responsible for defining
their business and identifying HR needs.

8, 2021
The Founder’s Role cont…
• During the pre-start stage, entrepreneurs should be able to
define in the business plan the skills needed.
• When possible, these team members should be specifically
identified.
• Founding members are expected to fulfill leadership roles.
• Some times they may be more effective in the background.
• For example the dentist- inventor may be more valuable in
the role of a technical advisor rather than in a management
position.
• When the new venture is an independent small business, the
founder may have to assume responsibility for all roles.

8, 2021
Composition of Entrepreneurial
Team
Sole General Corporate
Proprietorship Partnership Enterprise
Owner Partner-Sales Champion or

Innovator
Partner-Finance Designer Marketer
Partner-Technical Engineer Planner
Advisor, Mentors, Partner’s network of Team network alliances,

Family Friends, associates, Sponsors,
Supporters advisors, mentors, and Professional staff, and
Family supporters. Co-workers

8, 2021
Role of Team Members
1. The team members are partners in the ‘emotional’
sense, in that they have joined together to pursue
a dream.
2. They are adventurers bound together by a
common purpose.
3. In most cases team members have a stake in in
the venture as partners, stockholders or
employees who expect to share in success thru’
stock options or bonuses.
4. VCs often become active team players through
board positions and operational consulting.
5. In corporate environment, employee teams often
come together thru’ casual friendship, cont…
8, 2021
Role of Team Members cont…
6. Yet, they become united through their mutual
commitment to achieve their goals.
7. While each team member is responsible for
their functional specialisation, they must also
be part of ‘general management’ process of
planning and problem solving.
8. They contribute to the venture enthusiastically
and are responsible for building the
organisational culture.
9. They cannot be ‘nine-to-fivers’
10. They face crisis together as well as enjoy the
fruits of success.
8, 2021
Team Members’ Change
of Roles
• As the organisation gets established
and begins to grow the roles of team
members too evolves.
• A look at the change is seen in the
comparison on the next slide

8, 2021
Team Members’ Change of Roles
• The team during • The team in the
founding days : growing/grown phase:
1. Prominent as founders. 1. Ability to build and grow
2. Entrepreneurs the organisation,
accepting risks, 2. Managers capable of
3. Being innovative, building and leading a
capable staff.
4. Mavericks
5. Focus on operational 3. Being even more
innovative,
issues and immediate
problems 4. Professional managers
5. Focus on long-range
strategic issues.
8, 2021
Team Members’ Change
of Roles cont…
• The founding entrepreneur ultimately has
the responsibility of identifying roles for
guiding the enterprise through change.
• Yet assistance in these matters can be
found from external sources like the
1. Board of directors
2. Personal Networks and
3. Social Networks

8, 2021
The Board of Directors
• A formal board of directors is mandatory
for incorporated companies and regulated
by Company Law Board
• When the company is publicly traded the
SEBI regulates the board activities and
hold directors responsible for corporate
conduct.
• Optional for proprietary or partnership
firms.
8, 2021
Board Composition
• Boards of smaller companies are usually
limited to five or seven.
• The board may comprise of insider
members (the founder, family members,
friends and active investors) and outsiders
(experts in various areas and statutory
nominees but having no internal position
or investment)
cont…
8, 2021
Board Composition cont…
• Boards comprising mainly of insiders tend to focus on
short term budget and operational problems.
• Boards dominated by outsiders tend to focus on external
relations that augment social and professional networks to
attract capital, clientele and management talent.
• Apparently lopsided boards- either too internally or too
externally focused- may be less effective than balanced
boards
• Though there is no ideal composition but a balanced board
tends to provide:
1. Capability to address operational problems,
2. Draw on external expertise and experience and
3. Strengthen external relations
8, 2021
Poorly Conceived Board
• Entrepreneur/ • ‘Passive’ decision making

CEO bodies,
• Secretive,
• Tend to focus on short-
• DIRECTORS: term budgets and
• Investor, operational problems,
Family • Lack vision and wider
Members, horizon
Friends

8, 2021
A Well- Conceived Board
• Enlightened entrepreneurs select board
members who can help the venture succeed
• Entrepreneur/CEO
• Have executive decision making skills,
• Contacts outside the enterprise,
• Specialised knowledge and skills,
• DIRECTORS:
• Insiders as operating- team members and
investors selected for their potential
• Operating Team contribution to strategic decisions
Members, • Outsider directors (having no internal
• Experts in position or investment) provide access to
Professional Areas, customers, professional bodies, govt.
• Attorney, agencies and financial institutions.
• Investor, • Those with related experience are aware of
• Mentor industry processes, strategies, industry
competition and suppliers.
• Statutory nominees
• Regardless of their connections, they
should be active decision makers
8, 2021
Role of Directors
• Directors are legally responsible for the conduct of business.
• Ultimately, board directors are accountable for the performance
and professional behaviour of board-appointed officers.
• Exactly how this responsibility is translated into board-room
level decisions depends on company circumstances and is left
to the courts to interpret.
• The board must often face the unpleasant prospect of
removing the CEO and key officers.
• Such an action can be traumatic for the founding entrepreneur,
who was initially instrumental in appointing the board
members, can be fired by them.
• The founder’s equity will not be at risk but his operating
authority can be stripped.
• Unfortunately such actions take place at sickening regularity
when entrepreneurs cannot adapt to new roles in growing
companies.
Wednesday, December Prof. R.S.Mathur
Cont…. 19
8, 2021
Role of Directors cont…
• Though legal responsibilities and governance are
important, it is the board -level assistance that is
valuable to the entrepreneur.
• Board members assist in :
1. Determining objectives,
2. Formulating Strategies,
3. Unraveling complex problems,
4. Arbitrating executive conflicts,
5. Monitoring budgets, and
6. Providing expertise in legal, financial, and ethical
decisions.
• Cont…
8, 2021
Role of Directors cont…
• From the entrepreneur’s viewpoint, board members are
‘mentors’ and consultants who not only perform the legal duties
but also provide valuable insights into business operations.
• In this sense, directors are members of the entrepreneurial team
who do not ‘rubber-stamp’ decisions but actively participate in
directing the company.
• Interaction between the founders and the board members
depends on how their personalities mesh.
• If the entrepreneur is reluctant to share decision-making
authority, the board may exist as an advisory body.
• At the other extreme, the board may behave as if it is in
partnership with the founders.
• For unincorporated proprietorships or partnerships, boards do
not have a legal status and are limited to advisory roles.
• Nevertheless they render yeoman’s service by solving problems
and building social and professional networks
8, 2021
Networking –Extending Human
Relations
• Networking is the process of creating alliances with
people and organisations beyond the immediate
boundaries of the venture.
• It is the process of linking with the right people to get
things done,
• The difference between success and failure often rests
with ‘ knowing the right people in the right places’.
• Outside directors better placed to provide this linkage.
• Regardless of board activities, the entrepreneur must
constantly explore ways to develop effective networks
that open channels to resources, markets and
expertise.
• Simply speaking they must establish right
connections.
8, 2021
Personal Network
Entrepreneur
Spouse Co-Workers
Co-Workers Friends Acquaintance
Friends
Family Members
In-Laws Co-Workers
Family Attorney Accountant/CA Family Doctor
Acquaintance
Acquaintance
Wednesday, December Friends
Prof. R.S.Mathur 23
8, 2021
Attorneys
potential
Consultants Accountants
Investors
Social Network
Suppliers Entrepreneur Board Members
Other Potential
Friends Investors
Suppliers
Club Members
Distributors
Potential
Potential
Investors/
Customers
Customers
Customers Investors Lenders
Potential
Friends/ Potential
Friends
Wednesday, December Customers/
Prof. R.S.Mathur 24
8, 2021 Acquaintances Investors
Investors
Legal Forms of Business in
Perspective

8, 2021
HR Issues at Hand
• Organizational chart and reporting
• Selection and recruitment
• Induction, grooming and mentoring
• Setting goals and KRAs
• Appraisal and performance measurement
• Growth, promotion, compensation
• Impact of employee turnover
• Contracts and IP protection
8, 2021
Organizational Chart and
Reporting

8, 2021
Selection and Recruitment
• Referrals, advertisements, head hunters,
campus placement
• Technical test, aptitude test and interviews
• Background checks
• Cultural compatibility -- age, background,
previous jobs
• Other issues -- relocation, time to join,
competing offers
8, 2021
Selection and Recruitment
-- Issues
• Fast team ramp up (in ratio terms)
• No separate HR function
• Team hard pressed for time
• Financial bottlenecks
• Asymmetrical information
• Recruitment in booms and glooms

8, 2021
Induction, Grooming and
Mentoring
• It is good to have the “Employee Handbook” ready
• Prepare some induction material – corporate
information, product information
• Formal introduction to all team members
• Assign a personal mentor
• Technical jobs – small projects / assignments
• Evaluation of hands-on capabilities before
assigning responsibilities

8, 2021
Setting Goals and KRAs
• Individual goals and KRAs
• Group goals and KRAs
• Clear understanding of how to handle
“attribution” issues
• Fairness and transparency
• Technical and non-technical goals
• “Extra-curricular” goals
• Genuineness of the whole process
8, 2021
Appraisal and Performance
Measurement
• Productivity of knowledge workers very difficult
to measure – intangible
• Quarterly appraisal
• Bosses evaluate subordinates and vice versa
• Best to quantify – sales per quarter, training
programs per month, lines of code per month
• Convey the findings of appraisal immediately
and have a debriefing session
8, 2021
Growth, Promotion,
Compensation
• Career growth – training, skill development
• Lateral movements in the organization
• Compensation -- base + benefits + bonus
• Stock options -- ESPO pool
• Exercise Price (usually higher than face value)
• Vesting schedule
• Lock-in period

8, 2021
Impact of Employee Turnover
• Position remains vacant for a while and so the
schedule suffers
• Affects morale of other people
• Competitors may get a part of the technology
• Costs of new recruitment, induction, and cultural
fitting-in
• If the employee was a key person, the entire product
line will be affected
• Typical turnover rates in software companies: 20-25
percent
8, 2021
Contracts and IP Protection
• Appointment letter is replaced by the
“employee contract”
• ESOP, vesting schedule
• Notice period
• Non-compete clause
• Confidentiality / non-disclosure agreement
• Possession of the company IP

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Resources Needed For New Ventures - Human Resource

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Resources needed for the New Venture

Wednesday, December Prof. R.S.Mathur 2

Wednesday, December Prof. R.S.Mathur 3

Wednesday, December Prof. R.S.Mathur 6

Wednesday, December Prof. R.S.Mathur 7

Owner Partner-Sales Champion or

Partner-Finance Designer Marketer

Partner-Technical Engineer Planner

Advisor, Mentors, Partner’s network of Team network alliances,

Wednesday, December Prof. R.S.Mathur 8

Wednesday, December Prof. R.S.Mathur 11

Wednesday, December Prof. R.S.Mathur 13

• Entrepreneur/ • ‘Passive’ decision making

Wednesday, December Prof. R.S.Mathur 17

Co-Workers Friends Acquaintance

Family Attorney Accountant/CA Family Doctor

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