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BPS 6370.OG1
Class Meeting: Online Office Hours: Mon/Wed 3:00 – 4:00 PM

Global MBA Online


Dr. Joseph C. Picken SOM 4.212 Email: Phone (UTD office): (972) 883-4986 Phone (McKinney office): (972) 562-5401

| Course Information | Course Access | Communications | Technical Requirements | Student Evaluation | Group Project | Discussion Questions | Course Outline | Peer Evaluation |

This course has been designed to provide an overview of the entrepreneurship process by focusing on new venture creation from idea generation and opportunity recognition to feasibility analysis and business formation. The course will require you to integrate your current knowledge of business functions and apply techniques of business analysis from other courses to the analysis of venture opportunities. The readings will provide a framework for understanding the entrepreneurial process and evaluating new venture opportunities, exploring the sources and processes of innovation, and developing an understanding of the various methods and techniques available for evaluating new business opportunities. Case studies will be used to explore the various steps involved in evaluating, creating and launching a new business venture, including assessing and acquiring the required resources, structuring the business, arranging financing, and managing the growing enterprise. We will also explore the identification, evaluation and acquisition of existing businesses, and the important activity of harvesting the value created by the entrepreneurial venture. The two most important economic issues to be addressed with respect to a new venture idea are: (a) what is it worth (today and at some future point in time)?; (b) how much cash will it take to get to that future point? The ability to analyze historical financial information, develop multi-year financial projections in MS Excel, and conduct various valuation analyses is essential to the case analysis process. Both group and individual assignments will be required, with individual assignments and class participation comprising approximately half of the final grade, and group activities accounting for the remainder. A group project focused on the identification and evaluation of a new business opportunity will comprise a major part of the course.

• • • • Stevenson, H.H.; Roberts, M.J.; Grousbeck, H.I. and Bhide, A.V. 1999. New Business Ventures & the Entrepreneur. IrwinMcGraw Hill, New York. ISBN 0-256-20477-2 Drucker, P.F. 1993. Innovation and Entrepreneurship. HarperBusiness, New York. ISBN 0-887-306-187. (paperback) Bhide, A. 1996. The Questions Every Entrepreneur Must Answer. Harvard Business Review Nov-Dec 1996 (HBR 96603) Zider, B. 1998. How Venture Capital Works (HBR Reprint 98611)

Textbooks and some other bookstore materials can be ordered online through MBS Direct Virtual Bookstore. They are also available at the UTD Bookstore and Off-Campus Books.

It is expected that students will have a reasonable understanding of financial accounting and financial analysis, and a working knowledge of Microsoft Excel. Many of the case analyses will require the analysis of financial statements, the development of financial projections (including income statements, balance sheets and statements of cash flow) and the preparation of valuation analyses using MS Excel. Session 2 and the first written assignment will focus on developing or enhancing your skills in this area.

Each student should post a brief self-introduction on the WebCT discussion board by 11:59 PM on January 13th (see example provided). This self-introduction will help to build a sense of community and will be utilized in the formation of groups.
© 2005 Joseph C. Picken Revised: December 22, 2004



Much of the work in this course will be performed in small groups (3-4 members). The group members will be collectively responsible for completing each of the group assignments, including the Business Opportunity and Analysis Project. The grades earned on group projects will be assigned equally to each group member, subject to adjustment based on the Peer Evaluation (see below). Students will have the opportunity to form their own groups during the first two weeks of the course, based on common interests and preferred group interaction times (see Self Introduction above). It is important that you select your groups to include a diverse set of skills and make sure that at least one member is proficient in accounting and spreadsheet analysis. A list of the members of each group (with name, email and telephone contact information) should be turned into the instructor by 11:59 PM on January 23rd. Anyone who has not joined a group prior to that time will be assigned to a group by the instructor.

This course is developed using a web course tool called WebCT. It is to be delivered entirely online. You will be notified by email about the course access information at the start of the course. You’ll need to have a UTD NetID and password (your UTD Unix/Email ID and password) to access the course. If you have not used a UTD NetID account yet, you can go to to initiate your account shortly before or at the start of the semester. Your UTD NetID is your WebCT ID to be used to log on to the UTD WebCT courses. For more information, please check out this NetID FAQs page. The URL for the course login page is: You can login to the course whenever you want. You are required to meet any deadlines for the assignments and exams and also any schedules for class activities or tasks the course requires. You should login to the course site regularly to check course updates, discussion board messages and so on. You’ll access “My WebCT” page after you login. The page lists all the courses in which you are registered. You can click the course title to access the course Home page which displays several icon links. Clicking each icon link will take you to different subsidiary pages containing the course content elements or built-in course tools. Some navigation components such as the Navigation Bar with Course Menu on the left side, the Menu Bar and the path link on the top and the Action Menu on the content page can help you navigate within the course site. To get started with a WebCT course, please see Getting started: Student WebCT Orientation. For more information about WebCT tool usage, please see the WebCT’s Student Help Index. Within the course site, you can always click HELP on the WebCT Menu Bar to find information and answers. You can also check out the Orientation Center to Online Learning and WebCT provided on the WebCT site. For more WebCT information and its learning resources, visit If you have any problem with your UTD account or connection to the UTD WebCT server, you may email to: or call UTD computer help call center at: 972-883-2911. If you encounter any technical difficulties with the course, you can send an email to

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WebCT built-in communication tools: There are four built-in communication tools to facilitate learning, communication and collaboration. A course conferencing system, the Discussion, allows the communications among all course participants. Discussion topics or groups can be set up for topic discussions and homework assignments. You can use course Mail tool to communicate privately with instructor and classmates. The Chat tool can be used for real time communication among course participants. Please see specific information for accessing Chat tool: Finally there is a Whiteboard tool also allows real-time interaction among course participants using a graphical interface. Instructor may schedule times to use the Chat and/or Whiteboard tools for office hours and/or class discussion sessions. Small groups may also use Chat for group discussions. Interaction with Instructor: Instructor will communicate with students mainly using course Discussion board. Students may send personal concerns or questions to the instructor using course Email tool. Instructor will reply to student emails or Discussion board messages within 3 working days under normal circumstances. MeetingPlace Conference System: UTD maintains a telephone conferencing system from Latitude Communications. Online instructors can use the system for class teleconference sessions during the semester. Participants can access a meeting by dialing a “972” area code number using any touch tone phone and entering a meeting code. If any
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teleconference is scheduled for the course, students will be posted for times and access instructions. A class teleconference is usually recorded and can be reviewed over the phone after the conference. Please see TeleConference Guide for general conference participation and review instructions. While the online programs of the School of Management make regular use of the system for class discussions, conferencing is also available for smaller groups of students for group discussions. If a group wants to reserve a time slot during the workweek of Monday through Friday, please send an email one week in advance to with course name, student names and email addresses, choice of date, and start and end times. Once a reservation has been made, students will receive a confirmation and participation instructions. You can check your grades by accessing “My Grade” icon on Student Tools page after the grade for each assessment task is released.

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In addition to a confident level of computer and Internet literacy, certain minimum technical requirements must be met to enable a successful learning experience. Technical requirements include but not limited to: Hardware • A Pentium processor or equivalent Mac system; Windows 98/Me/2000/XP or Mac OS 9.x or OS X 10.1. • Internet access with modem or preferably with other faster connections. • 32 MB system Ram; 200 MB free disk space or sufficient storage • Sound card • CD-ROM capabilities Software • Netscape Navigator 4.7x or higher (but 4.78, 4.79 and 6.0-6.1 not supported), or Internet Explorer 5.0 to 6.0 (but 5.5 SP1 not supported). See browser configuration info below. • MS Office 97/98 is the minimum standard. (Microsoft software is available at a nominal cost from UTD Microsoft Program. For more information, visit Global MBA Online Student Service web page at: • Virus detection/protection software such as McAfee • “Plug-ins” tools such as current version of RealPlayer/RealOne Player (available at: and Adobe Acrobat Reader (available at: • A zip file expansion tool such as WinZip or Stuffit Expander (available at: Web Browser Configuration For the WebCT courses to work properly, you need one of the WebCT supported browsers listed above with JavaScript enabled and cookie enabled. It is also important that you set the cache settings of your browser to verify web documents “Every Time”. The methods for configuring these settings vary among browsers. Please follow this web link provided by WebCT to tune-up your browser:

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The course requirements are summarized in the Course Outline section. Supplemental materials may be provided or posted electronically. The course has been designed to allow flexible management of your time. There will be no quizzes or exams. Your grade will be based on group and individual written assignments, your contributions to Discussion Board and Teleconference discussions, and a major group project. Teleconferences will be scheduled at appropriate intervals during the course to facilitate an interactive dialogue among the members of the class. Discussion boards will be scheduled throughout the semester to provide for an interactive dialogue simulating class discussions. Discussion questions will be posted on Web CT by the Instructor at the beginning of each discussion period. Responses are due as indicated below. Student responses will be posted on WebCT and available for viewing by

© 2005 Joseph C. Picken Revised: December 22, 2004



the entire class. Participation will be monitored and reflected in the Class Participation grade. Students are encouraged to pose additional questions for discussion as part of the weekly dialogue. The assignments, their due dates and page limits, and their relative weights in determining your final grade are summarized in the table below. The evaluation forms that will be used for each assignment are posted on WebCT. Assignment
Discussion Board #1 – Self Introduction (see template on WebCT) Teleconference #1 – Financial Analysis & Projections Written Assignment # 1 – Case Analysis: SplatterMatter Paintguns, Inc. Discussion Board #2: The DAG Group case Written Assignment # 2 – Opportunities for Innovation Teleconference #2 - Opportunities for Innovation Written Assignment # 3 – Case Analysis: Ice Delights Written Assignment #4 – Case Analysis: Commercial Fixtures, Inc. Written Assignment # 5 – Business Opportunity Identification Teleconference #3 - Business Opportunity Analysis Discussion Board #3: Heather Evans case Written Assignment # 6 – Case Analysis: Onset Ventures Discussion Board #4: ArthroCare case Written Assignment #7 – Case Analysis: Allen Lane Teleconference #4 - Onset Ventures, Arthrocare, Allen Lane cases Discussion Board #5: Grand Junction case Written Assignment #8 – New Venture Business Plan Written Assignment #9 - Peer Evaluation Form –
Submit using the WebCT assignment tool.

Due Date
11:59 PM Jan 13, 2005 7:00–8:30 PM Jan 20, 2005 11:59 PM Jan 23, 2005 11:59 PM Jan 30, 2005 11:59 PM Feb 6, 2005 7:00–8:30 PM Feb 10, 2005 11:59 PM Feb 13, 2005 11:59 PM Feb 20, 2005 11:59 PM Feb 27, 2005 7:00–8:30 PM Mar 3, 2005 11:59 PM Mar 7, 2005 11:59 PM Mar 20, 2005 11:59 PM Mar 27, 2005 11:59 PM April 3, 2005 7:00–8:30 PM April 7, 2005 11:59 PM April 17, 2005 11:59 PM April 24, 2004 11:59 PM April 24, 2005 7:00–9:30 PM April 28, 2005

Web CT Discussion Post Teleconference 972-231-5379 Individual (outline form) Web CT Discussion Post Individual (essay form) Teleconference 972-231-5379 Group Project (outline form) Individual (outline form) Group Project (essay form) Teleconference 972-231-5379 Web CT Discussion Post Group Project (outline form) Web CT Discussion Post Individual (outline form) Teleconference 972-231-5379 Web CT Discussion Post Group Project (essay form) Individual Teleconference 972-231-5379 Individual

Length (pages)
1 N/A 3-4 + Excel Worksheet N/A 4-5 N/A 5-7 3-4 + Excel Worksheet 7-10 N/A N/A 5-7 N/A 5-7 N/A N/A 25-30 1 N/A

Class Participation Class Participation

Class Participation

Class Participation

10% 10% 5%
Class Participation Class Participation

Class Participation

Class Participation Class Participation

Class Participation Included in WA#8

Teleconference #5 - New Venture Business Plan Presentation Class Participation (Discussion Boards & Teleconferences)

15% 100%

Overall Course Grade

Peer Evaluation Process A peer evaluation process will be utilized to adjust individual grades on all group assignments. The peer evaluation form (form provided on WebCT course site under the Peer Evaluation assignment link and also linked at the end of this syllabus) will be completed individually and turned in as WA#9 on April 24th.

© 2005 Joseph C. Picken Revised: December 22, 2004



Guidelines for Written Assignments
• Evaluation: Eighty-five percent (85%) of your grade will be based on group and individual written assignments. Fifteen percent (15%) of your grade will be based on participation in scheduled teleconferences and discussion board postings. Particular care should be taken to fully address the requirements for each paper detailed in the assignment. A written evaluation and critique will be provided on all graded papers. Written assignments will be evaluated on multiple factors, including (a) clear and direct response to the case questions provided; (b) critical evaluation and effective insights into the case situation; (c) demonstrated ability to apply the course concepts and frameworks in your analysis; (d) logical conclusions and effective recommendations as required; and (e) effective communications. Identification of Assignments. All submitted assignments should be identified as follows: (a) a header on each page of the paper or spreadsheet should include your name and/or Group ID; (b) the file name should identify the course, assignment number and your name and/or Group ID. For example, “BPS 6370_2_JSmith.doc” would identify John Smith’s Written Assignment #2. Failure to properly identify your work will impact your grade. Format. Written assignments will be submitted in MS Word, MS Excel or MS Powerpoint format, as appropriate. Each assignment should comply with the specified page length guidelines specified. The use of charts and exhibits is encouraged, to the extent that they help you make your points. Cover pages, charts or exhibits, and lists of references will not be included in the page count. Charts and exhibits should be numbered and appropriately referenced in the body of the document. A list of references should be attached as required. The manuscript should use 11-12 point type, double-spaced, with 1” margins all around. Appropriate titles and section headings should be used. Number the pages and put the course number and your name(s) and group ID in a header at the top of each page. Outline Form Response. Some assignments specify an outline form response. I will expect a statement of the question followed by a bulleted or numbered list of the key items in your response. Essay Form Response. Some assignments specify an essay form response. I will expect a well organized paper that addresses the case questions and uses section headings, bulleted lists, charts and exhibits as appropriate to clearly communicate your message. Assignment Submission Instructions: Individual and Group Assignments will be submitted by using the Assignment Drop Box tool on the course site. Please see the Assignments icon on the designated page. You can click each assignment name link and follow the on-screen instructions to upload your file(s) and submit it. Please refer to the Help menu or the WebCT Student Guide for more information on using this tool. PLEASE NOTE: each assignment link can only be used for submission for one time and will be deactivated after the assignment due time. A Late Assignment drop box will be provided for late assignments. Group assignments are to be submitted only by one member of the group. This group member will receive the results and feedback on the assignment and will be responsible for sharing them with the other members of the group. Due Dates and Late Paper Policy: Written assignments are due on or before the scheduled time on the date assigned. Group assignments will not be accepted late. Individual late papers turned in within one week after the due date will be graded, but 10 points will be deducted; papers turned in within two weeks will be graded, but 15 points will be deducted. Late papers received more than two weeks after the due date will receive a zero. Exceptions may be made if prior arrangements are made and circumstances warrant.

• •

Case Analysis Guidelines
Many of the written assignments and class discussions will require the analysis of case situations. Case analysis assignments are designed to evaluate and develop your skills in: • identifying key strategic or operational issues (decisions or actions required in a given situation) • analyzing business situations (understanding the organizational and environmental context, identifying and analyzing
situations, opportunities, risks and constraints; and identifying and evaluating options)

recommending specific strategies and actions (to address the identified issues).

Discussion questions for each case are provided below to help you to focus your analysis. You are encouraged to work together in your study groups to discuss the cases, including the individual written assignment cases, with the understanding that individual assignments (including tables and figures) are to be prepared and written by yourself. The following general approach to case analysis is recommended:
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• • • • • •

Read the case quickly. Identify the key issues and decisions/actions required (the case preparation questions will help you to focus on the key issues). Prioritize the issues in terms of urgency and importance. Decide what kind of recommendations should be made (and to whom) Choose appropriate analytical tools/frameworks from those introduced in the course Analyze the situation thoroughly using the frameworks and theoretical frameworks provided in the readings Draw logical conclusions based on your analysis Make specific recommendations for action in response to the questions posed in the case or the preparation questions (what should be done, who should do it, when and in what sequence).

In general, there are no “right” or “wrong” answers for a specific case – different approaches and insights are possible, depending on your individual perspective and approach. Regardless, I will expect you to draw logical conclusions and (if appropriate) make recommendations that: (a) address the identified strategic issues; (b) follow logically from your analysis and conclusions; and (c) make sense (are feasible) in the context of the case situation.

Class Participation
Fifteen percent (15%) of your grade will be based on the quality of your preparation and active participation in teleconferences and discussion forums. If participation becomes an issue, your grade will be impacted.

Scholastic Dishonesty
The University has policies and discipline procedures regarding scholastic dishonesty. Detailed information is available on Scholastic Dishonesty web page. All students are expected to maintain a high level of responsibility with respect to academic honesty. Students who violate University rules on scholastic dishonesty are subject to disciplinary penalties, including the possibility of failure in the course and/or dismissal from the University. Since such dishonesty harms the individual, all students and the integrity of the University, policies on scholastic dishonesty will be strictly enforced.

Course Evaluation
As required by UTD academic regulations, every student needs to do an evaluation for each enrolled course at the end of the semester. An online instructional assessment form will be made available for your confidential use. Please look for the course evaluation link on the course Homepage towards the finishing of the course. Your feedback and comments are greatly appreciated.

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GROUP PROJECT: Business Opportunity Identification and Analysis
A group project focused on the identification and analysis of a new business opportunity will comprise a major part of the course. This project will have three major deliverables: (a) a preliminary report (WA#4 - February 27th); (b) a final report (WA#8 - April 24th) providing a thorough analysis; and (c) a brief (10-15 minute) presentation during a teleconference (April 28th) highlighting the key points of the business opportunity.

This project is designed to challenge you:
• • • • • • To explore where business ideas come from and learn how to determine when a “good idea” is also a bona fide business opportunity To investigate how business analysis techniques can supplement the creative process in contributing to opportunity recognition and identification To research an industry, using information about industry trends and innovations to identify opportunities that exist in the industry and to evaluate the industry-level forces that drive the new business development process To research industry competitors to understand how their strategic position and competitive actions might influence the success of a specific product or service idea or concept To design and conduct market analysis to evaluate the business potential of your product or service idea or concept, including investigating how market conditions and customer preferences influence opportunity analysis To use financial analysis to investigate the business potential of your product or service idea or concept, including exploring methods of financing new ventures and examining how the issues of cost, pricing and profit margins impact on opportunity analysis

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To consider other potentially important information such as location, seasonality, human resource requirements, knowledge and organizational management issues, and hidden costs that may affect the evaluation of your entrepreneurial product or service idea or concept.

Preliminary Report: Business Opportunity Identification (Written Assignment #4 due 2/27/05)
• • • Select an industry and identify a specific business idea or opportunity to research. Conduct a preliminary evaluation of the business opportunity following the Checklist for Opportunity Evaluation (download from WebCT). Address items 1-8 in your preliminary report. Summarize your business opportunity in the context of the market and competitive environment in a 5-7 page paper (to be submitted to instructor and posted on the discussion board)

New Venture Business Plan (Written Assignment #8 due 4/24/05)
• • Prepare a Business Plan for a new venture based on the Business Opportunity you identified in your preliminary report, following the guidelines provided in Stevenson et al. (Chapters 4 and 11 and Exhibit 11-1). Thoroughly evaluate the feasibility and attractiveness of the business idea or concept using the Checklist for Opportunity Evaluation (all items) and the concepts and frameworks provided in the text and lectures. Primary market research (talking to prospective customers) may be an important part of this process. Particular emphasis should be placed on the sources and sustainability of competitive advantage for your new venture. Use analytical techniques from other disciplines (marketing, finance, technology) to evaluate the strength of the business idea or concept. Market analysis and financial analysis techniques can be used to uncover weaknesses and identify the strengths of your specific idea or concept. Identify the critical competencies that must be mastered in order to ensure the success of the proposed venture and explain how these will be acquired or developed. Prepare pro forma financial projections for the venture (monthly for first year; quarterly for years 2-3; annual for years 4-5) including a statement of assumptions, income statements, balance sheets and cash flow projections. Prepare a Business Plan for your venture, following the outline provided in Exhibit 11-1. (Written Assignment #8 due on or before 11:59 PM on April 24, 2005). The Business Plan should not exceed 25-30 pages, not including exhibits or appendices. Thoroughly document your assumptions and analyses in exhibits or appendices and provide a list of the references and information sources utilized in your research. Present your business opportunity and findings in a 10-15 minute presentation to the class during a teleconference on April 28, 2005

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The following discussion questions are provided to help you complete a structured analysis focusing on the key issues in each case. It is important, in written assignments, to address each of these points. An MS Excel Template and a Teaching Note is provided on WebCT for each assignment (except WA#1) to assist you in your analysis. Case solutions will be posted after the due date for submission of assignments (one day after for Discussion Boards; two weeks after for Written Assignments).
Written Assignment # 1: SplatterMatter Paintguns, Inc. (Session 02) 1. Download case from WebCT. Complete financial analysis problems and develop spreadsheet analyses based on instructions provided with the case. The DAG Group (Stevenson: 143-155) (Session 03) 1. Based on the information in the case, does the DAG Group’s “rollup” strategy make sense? Can they create a sustainable competitive advantage in a fragmented industry? If “yes”, how. If “no”, why not? 2. What kinds of risks and contingencies should they consider? 3. Should they (a) make an offer to buy Superb Cleaners; (b) build a business from scratch based on their business model; or (c) throw in the towel and get a job. Justify your decision based on an economic analysis using the data available in the case. 4. What additional information would have been helpful in reaching and supporting your recommendation? Written Assignment # 2: Opportunities for Innovation (Session 04) 1. Select an industry that you would like to explore for entrepreneurial opportunities. Briefly describe the industry and competitive environment. 2. Systematically analyze the industry to identify opportunities for innovation (purposeful innovation) following the approach outlined in Drucker’s Chapter 2 and detailed in Chapters 3-10. Identify and describe three unique
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and different opportunities for potential innovation in the industry. Support your findings with reference to Drucker’s “seven sources” and appropriate research and analysis.

Written Assignment # 3: Icedelights (Stevenson: 78-103) (Session 05) 1. Based on the information in the case, address the following questions from the Company’s (Mark, Paul and Eric’s) perspective: (a) is there real potential for this business in the Florida market? (b) do the option and franchise agreements make good sense? (c) what are the major risks involved? (d) do the returns justify the risks? If the answers to any of these are negative, what actions or changes would you recommend? 2. Assume that you have been approached as a potential investor by Mark, Paul and Eric. You have had an opportunity to review the materials in the case and the deal structure outlined in Exhibit 9. List, in priority order, the top five issues or questions that must be answered or resolved to your satisfaction before you would commit to investing in the Company. Would the deal structure be attractive to you? Written Assignment #4: Commercial Fixtures, Inc. (Stevenson: 104-122) (Session 06) 1. Based on the information in the case, and assuming a third party buyer, how would you assess the value of Commercial Fixtures, Inc.? Consider the merits of the different valuation techniques and justify your approach and methodology. 2. Develop a spreadsheet model to assess the present and future value of CFI. Begin with the template provided on WebCT (Exhibit 4 reformatted). Accept the numbers in the historical statements and the banker’s forecast as “givens” and extend the model through 2002. Based in the information provided in Exhibits 1, 3 and 4 of the case:
a. Analyze the income statements for 1995-1997. Prepare an actual/projected income statement for CFI covering the period 1994-2002, using the format provided in the template (WebCT: Template-Commercial Fixtures, Inc.) b. Analyze the balance sheets for 1995-1997. Prepare an actual/projected balance sheet for CFI covering the period 19952002 using the format provided in the template. c. Calculate the net asset value of CFI at December 31, 1997, before and after making appropriate adjustments, if any, to the carrying value of the CFI assets (see section 7.2.1 of the Teaching Note). Make only the adjustments suggested in the case. d. Calculate the available Borrowing Capacity, if any, under CFI’s current banking arrangements, based on the December 31, 1997 financial statements. e. Prepare a valuation analysis for CFI based on its historical performance (1995-1997), using valuation multiples of 5, 7.5 and 10 times net income (see section 7.2.2 of the Teaching Note). f. Prepare a post-buyout valuation analysis for CFI based on its historical and projected performance, after adjustment for the elimination of all buyout-related financing and payments, using valuation multiples as above (see section 7.2.2 of the Teaching Note). g. Calculate the net present value of the future net income stream (1998-2002) after the adjustments for buyout-related items (do not adjust for depreciation). Consider the residual value in 2002 based on a 7.5X multiple of net income (see section 7.2.3 of the Teaching Note). Use a 15% discount rate. h. Consider a pro forma bid of $600,000 up front and $10,000 in annual non-compete payments. Adjust your financial projections (from (g) above) to include the buyout-related debt (amortize over 10 years with interest at 10%) and noncompete payments (5 years). Modify your financial projects to include these elements. Is a bid of this magnitude feasible from a cash flow perspective? What impact does this have on the valuations calculated in items (c), (f) and (g) above? i. Adjust your financial projections (from (h) above) for the higher sales levels Gordon believes are possible. What impact does this have on the valuations calculated in items (c), (f) and (g) above? j. Estimate a range of possible bid prices for Gordon, following the assumptions used in (h) and (i) above, using three valuation methods: (a) current valuation based on earnings multiples; (b) adjusted net asset values; and (c) net present value of future income streams and residual values. Remember that Gordon is buying only a 50% interest, but consider that his partner will not share in the future income streams. k. Analyze the financial tradeoffs between money up front or money over time in non-compete payments. Consider the aggregate amount and cost of borrowing required, tax implications and the time value of money. l. Analyze a range of potential bid scenarios, taking into account the value of the firm, available resources (assume either partner can borrow up to $650,000, amortized over 10 years at 10% interest) and after financing, after tax cash flows. Update your projected financial statements to reflect the additional borrowing required. What kinds of constraints will affect the bid price?



What risks and uncertainties should be considered in valuing the company (consider economic, operating and financial risks)? Use your spreadsheet model to evaluate each (sensitivity analysis). Would your assessment of risks affect your recommended valuation? If you were in Gordon’s position, how much would you be willing to offer Albert for his share of the company? How much do you think Albert would be willing to offer? How would you structure the deal to minimize your risk? What economic constraints or non-financial considerations would you take into account? How would these influence your bid?

© 2005 Joseph C. Picken Revised: December 22, 2004



Written Assignment # 5 Business Opportunity Identification (Session 07) See Group Project instructions above. Heather Evans (Stevenson: 245-280) (Session 08) 1. Assume that you have been approached by Heather Evans as a prospective investor (VC or individual) and have been provided with all of the material in the case. Would you be willing to invest under the terms and conditions outlined on page 251 of the case? If not, what changes would you propose? What value would you place on this company? 2. Analyze the Liz Claiborne prospectus to determine the multiples of net income and annual sales used to price the company’s shares in its initial public offering. Can these ratios be used to value Heather Evans’ business or do they need to be adjusted? 3. Analyze Heather Evans’ financial projections and use this analysis and the assumptions in Exhibit IV to project the company’s financial performance and condition over a five year period:
a. Design an interactive spreadsheet so that you can vary the annual (year over year) growth rate assumptions to test the sensitivity of the projections to the assumed growth rate. b. Develop income statement and balance sheet projections over a five year period (you may condense the detail provided in the income statement as appropriate). You will need to design the spreadsheet so that the analysis will “flex” depending on the level of annual revenue. c. Analyze the “base case” scenario using the growth rates implicit in the case for the first two years, followed by year over year growth of 100%, 50% and 50% in the next three years. Value the company at the end of the fifth year using (a) net asset value; (b) multiples of sales; (c) multiples of net income; (d) discounted five year cash flows; and (e) discounted five year cash flows with residual value. Based on these analyses, estimate the value of the company at the end of the fifth year. d. Repeat the analysis in c. above using growth rates half as much as those in the previous analysis. e. Repeat the analysis in c. above using annual year-over-year growth rates of 15%. f. Assume that an outside investor is looking for a 50% return on investment. What percentage of the equity should Heather expect to give up to attract an investor under each of the scenarios c-e?

4. List, in priority order, the top five issues or questions that must be answered or resolved to your satisfaction before you would commit to investing in the Company. 5. Given the responses to these questions as an indication of investor interest, if you were Heather Evans, how would you evaluate the proposed joint venture with Helen Neil Fashions as a financing option? Written Assignment #6: Onset Ventures (Stevenson: 281-310) (Session 09) 1. Focus on the TallyUp decision from the perspective of ONSET Ventures: (a) should ONSET invest an additional $1 million to develop a beta product, or go to the market now to raise $3-4 million and use the money for both product development and marketing; (b) should the “step-up” assumptions be the same under each scenario?; and (c) if they decide to go to the market, what is an appropriate valuation for TallyUp? 2. Develop a spreadsheet analysis that reflects the ONSET business model and use it to evaluate the various alternatives. The model should reflect the pre-and post-money valuations of Tally-up, and the investments and percentage ownership held by ONSET, its venture capital partners, and Tally-up’s management team as they progress through the various funding stages projected out through the seed and first two rounds of venture capital financing. Assume a terminal value equal to the post-money evaluation at the end of the second round. Calculate the cash flows and IRR for ONSET and its VC partners under each scenario 3. Given the financial return expectations of ONSET and the prospective venture capital partners, plus the desire of the company to set aside some shares for stock options, how would the ownership be distributed (post funding) under each alternative? 4. Is this a purely economic decision, or do other factors (risk, consistency with ONSET’s operating philosophy, etc.) come into play? What risks are involved? How do these other considerations impact the decision? 5. Focus on the decision from the perspective of TallyUp’s management team: (a) would you prefer to have ONSET increase its commitment now to develop the beta product, or (b) would you prefer to go to the market now to raise $3-4 million? How much ownership would you be willing to give up under each scenario? How would this impact your anticipated return? ArthroCare (Stevenson: 543-571) (Session 10) 1. What insights did you gain about the process of innovation from the “Background” section of this case? 2. How would you evaluate ArthroCare’s financial performance to date (as compared to the projections provided in Exhibit 3)? Is this performance fairly reflected in the stock price, or has the market over-reacted? 3. What key assumptions (implicit in ArthroCare’s strategy and business model) have changed materially from the time of the initial IPO until the end of the case? How have these changes impacted ArthroCare’s strategy and financial performance? 4. At the end of the case, Dr. Thapliyal faces two strategic decisions: (a) pricing for the controller; and (b) level of investment in R&D to broaden the Company’s markets. Both involve tradeoffs between short term performance and long term growth, marketplace viability and financial return. To what extent do the expectations of the marketplace and key shareholders constrain his options? What would you recommend in each case? Why? (justify
© 2005 Joseph C. Picken Revised: December 22, 2004



your recommendations). 5. In order to answer question (a) above, develop a spreadsheet that calculates the future revenues from the sales of wands and controllers under various pricing and volume scenarios, recognizing that controllers represent a onetime sale that provides an installed base that will drive the future sales of wands (the more controllers installed on a cumulative basis, the more wands that will be sold in each future period). Written Assignment # 7: Allen Lane (Stevenson: 417-440) (Session 11) 1. Assume that you are Allen Lane’s partner. Prepare a prioritized (in terms of relative importance) checklist of the items that must be taken into account in valuing the business of PTI. Explain why each of these items is important to the valuation. 2. Based on the historical financials provided, develop pro forma income statement and balance sheet projections for the next five years (1982-1986). Explore the implications of various sales growth and purchase price assumptions on financial performance, financing requirements, and return on equity for the investors. 3. Critically examine the valuation report (Exhibit 4) and the letter from the accountants on contingent liabilities (Exhibit 7). What issues, questions, or red flags do these reports raise? Why are they important to your valuation? What risks and contingencies should Lane consider in establishing a purchase price. What risks should he be willing to assume? 4. Use your pro forma model to explore the implications of the various IRS audit scenarios on the transaction (don’t forget penalties and interest on delinquent amounts). What impact would this risk have on your proposed valuations? 5. Prepare a bid (in the form of an offer letter) for the purchase of PTI, addressing the proposed purchase price, structure and terms of the deal, exclusions, proposed financing arrangements, etc. Attach a spreadsheet analysis (not part of the offer), detailing the development and calculation of the purchase price and analyzing the projected return on investment to Lane and his partner over a period of five years. Explain your assumptions. Gordon Biersch Brewing Company (Stevenson: 511-532) (Session 12) 1. Conduct a thorough analysis of the financial projections contained in Exhibits 7, 9, and 10. Compare these projections to the actual financials summarized in Exhibit 3. Construct a pro forma income statement for 19921997 based on the data provided in Exhibits 3,7,9 and 10 and a balance sheet projection for 1992-1997 beginning with the balance sheets summarized in Exhibit 3 and consistent in future years with the income statement projection for the same period. Are their financial projections consistent with their experienced history? What assumptions are implicit in their projections? Are these assumptions realistic? 2. Use your pro-forma balance sheets to estimate the financing requirements to support the projected growth and expansion of the business through 1997. How would you propose to finance the requirements for working capital, new construction, fixed assets, etc. to support the proposed expansion? 3. What elements of the Company’s strategy have been important to its success to date? Has it been more important to be efficient or effective? What role has the hands-on involvement of the founders played in that success? Is it reasonable to assume that they can continue to be as actively and directly involved as the business grows? If not, what kind of organizational structure, decision-making processes, management incentives and internal controls would you recommend to ensure the continued success of the Company? Grand Junction (Stevenson: 629-643) (Session 13) 1. The decision of the founding shareholders to “cash out” by the sale of the Company (acquisition) vs. the sale of part of the Company (shares) through an IPO has very different implications for the Company’s shareholders. Analyze and quantify the personal financial implications of the alternatives for Charney, Moses & Birenbaum under two scenarios: (a) sale of the company to Cisco for $325 million; or (b) taking the Company public at $16/share. 2. Regardless of whether the Company was sold to Cisco or taken public, much of the wealth of the founding shareholders would be held in the form of publicly traded shares (either Cisco or Grand Junction) for a number of years. Evaluate the risks and opportunities inherent in the two scenarios. 3. Assume that the financial risks and returns are roughly comparable. Identify and discuss the non-financial considerations that must be taken into account by Charney, Moses and Birenbaum in making the decision on how to “cash out”. Prepare a list of non-financial “pros” and “cons” for discussion. 4. Given all of the considerations addressed above, which scenario would you recommend? If you recommended sale to Cisco, what would be your “rock bottom” price? If you recommended an IPO, at what price would a sale to Cisco become attractive enough to change your mind?

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© 2005 Joseph C. Picken Revised: December 22, 2004



Session S01 Week of 1/10/05 Readings/Preparation
What is Entrepreneurship? Readings: Stevenson: 3-17 (perspective) Prepare for class discussion based on readings and your entrepreneurial experiences Lecture: Introduction to Entrepreneurship Basics of Financial Analysis Readings: Teaching Note on Financial Analysis and Projections (WebCT) We will use the ABC Electronics example to illustrate the kinds of financial analyses required to analyze the cases assigned. Download ABC Electronics and SplatterMatter Paintguns, Inc. cases from WebCT. Lecture: Basics of Financial Analysis Case: SplatterMatter Paintguns, Inc. Finding the Opportunity Readings: Stevenson: 18-33 (startup strategies); Drucker: 1-36 (innovation) Lecture: Finding the Opportunity Case: The DAG Group (Stevenson: 143-155) Finding the Opportunity: Sources of Innovation Readings: Drucker: 37-140 (sources of innovation); download A Checklist for Opportunity Evaluation from WebCT. Lecture: Sources of Innovation Developing Startup Strategies Readings: Stevenson: 57-62 (road travelled); Drucker: 209-252 (generic strategies) Lecture: Startup Strategies Case: Icedelights (Stevenson: 78-103)

Discussion Board #1: Self Introduction (see template on WebCT) Due: 11:59 PM 1/13/05 Teleconference #1: 7:008:30 PM 1/20/05 – Financial Analysis & Projections Written Assignment #1 (Individual)– SplatterMatter Paintguns, Inc. Due: 11:59 PM 1/23/05 Discussion Board #2: The DAG Group Due: 11:59 PM 1/30/05

S02 Week of 1/17/05

S03 Week of 1/24/05 S04 Week of 1/31/05 S05 Week of 2/7/05

Written Assignment #2 Opportunities for Innovation (Individual) Due: 11:59 PM 2/6/05 Teleconference #2: 7:008:30 PM 2/10/05 Opportunities for Innovation Written Assignment #3 Icedelights (Stevenson: 78103) (Group) Due: 11:59 PM 2/13/05 Written Assignment #4 Commercial Fixtures Financial Analysis and Bid Preparation (Stevenson: 104-122) (Individual) Due: 11:59 PM 2/20/05 Written Assignment #5 Business Opportunity (Group) Due: 11:59 PM 2/27/05 Teleconference #3: 7:008:30 PM 3/3/2005: Business Opportunity Analyses Discussion Board #3: Heather Evans Due: 11:59 PM 3/7/05 Written Assignment #6 Onset Ventures (Stevenson: 281-310) (Group) Due: 11:59 PM 3/20/05 Discussion Board #4: ArthroCare Due: 11:59 PM 3/27/05

S06 Week of 2/14/05

Evaluating the Opportunity Readings: Stevenson: 34-42 (valuation); 159-168 (attracting stakeholders); Bhide, The Questions Every Entrepreneur Must Answer (HBR 96603) Lecture: Opportunity Evaluation Case: Commercial Fixtures (Stevenson: 104-122) (valuation analysis) Group Project: Identification of Business Opportunity Each group will post their Business Opportunity Analysis on the Discussion Board for review by the class.

S07 Week of 2/21/05 S08 Week of 2/28/05

Business Plans for Entrepreneurial Ventures
Readings: Stevenson: 43-56 (business plans, legal forms); 214-220 (selling process). Take a look at and Lecture: Developing a Business Plan Case: Heather Evans (Stevenson: 245-280) Attracting Stakeholders: Financing the Venture Readings: Stevenson: 169-195; How Venture Capital Works HBR 98611; see Deal Structure Example posted on WebCT. Lecture: Financing the Venture Case: Onset Ventures (Stevenson: 281-310) SEC & Legal Issues Readings: Stevenson: 196-214, 465-482 Lecture: SEC & Legal Issues Case Discussion: ArthroCare (Stevenson: 543-571)

S09 Week of 3/14/05

S10 Week of 3/21/05

© 2005 Joseph C. Picken Revised: December 22, 2004



S11 Week of 3/28/05 S12 Week of 4/4/05 S13 Week of 4/11/05 S14 Week of 4/18/05

Acquiring an Existing Business Readings: Stevenson: 374-409 Lecture: Acquiring a Business Case: Allen Lane (Stevenson: 417-440)

Written Assignment #7 Allen Lane (Stevenson: 417440) (Individual) Due: 11:59 PM 4/3/05 Teleconference#4: 7:00– 8:30 PM 4/7/05 Onset Ventures, Arthrocare, Allen Lane cases Discussion Board #5: Grand Junction Due: 11:59 PM 4/17/05 Written Assignment # 8 New Venture Business Plans (Group) Due: 11:59 PM 4/24/05 Written Assignment #9 Peer Evaluation Due: 11:59 PM 4/24/05 Teleconference: 7:00–9:30 PM 4/28/05 New Venture Business Plan Presentations

Managing the Growing Business
Readings: Stevenson: 460-464 Lecture: Managing the Growing Business Case: Gordon Biersch Brewing Company (Stevenson: 511-532) Exit Strategies: Harvesting the Venture Readings: Stevenson: 574-588 Lecture: Exit Strategies: Harvesting the Venture Case Discussion Grand Junction (Stevenson: 629-643) Entrepreneurial Leadership Lecture: Entrepreneurial Leadership Written Assignment # 8: New Venture Business Plans § Submit electronic copy of Business Plan and Presentation Slides in assignment drop box on 4/24/05 § Post copy of Presentation Slides on Discussion Board on WebCT on 4/24/05 Presentation of New Venture Business Plans

S15 Week of 4/25/05

Download the Peer Evaluation Form (a Word document). Complete and submit your evaluation form using the WebCT assignment drop box tool by 11:59 PM April 24th. Back to Top

© 2005 Joseph C. Picken Revised: December 22, 2004