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ENTREPRENEURSHIP FOR ENGINEERS

CHAPTER - 5
Growing the New Ventures

5.1 Managing Growth

5.2 Financing Growth
5.3 Developing a Team of Advisors
5.4 The Management Team
5.5 Strategic Planning

5.1 Managing Growth

 The Growth, Myth and Reality

The Myth
• Success = Sales . . . BECAUSE…Sales = Profits
The Reality
• Success is defined by goals of each entrepreneur.
No matter what, profits matter, not sales
BECAUSE…Profits create income and wealth (and means
for further resource acquisition).
Vision Drift
• Vision is the leader’s view of what the business
can become. This vision can become forgotten or off-
track during growth loss of “value discipline”

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Disjointed Strategy
• Market demands should shape strategies.
Strategies should shape structure, culture, and
systems. When these are all out of alignment,
growth suffers and becomes difficult to manage
Culture Drift
• Common Beliefs, Assumptions, Behaviours
• Begins Day 1 from Entrepreneur’s values.
However, it is shaped by all who come into the
business. Culture can eventually look very
different than entrepreneur intended. Can be
changed, but change is difficult

 Leadership and Growth

a) Relentless and consistent focus on vision
b) Provide inspiration for company potential
c) Serve as “emotional shock absorber”
d) Adapt to change and learn from failure
e) Focus on results
f) Lead by example for ethical standards

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5.2 Financing Growth

 Tips in financing growth

1] Plan financing stages carefully
2] Use friendly money first
3] Stick with private placement as long as
possible
4] Do YOUR due diligence
5] Get references
6] Be proactive

 Raising capital from private investors

• Securities:
a) common/preferred stock
b) notes
c) bonds
d) debentures,
e) limited partnership shares etc.
• Sophisticated investors
• Advantages
Less costly, less time consuming than Initial
Public Offering (IPO)
Availability of standardized offering statements
Don’t have to file with SEC

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 Alternative Sources
1. Strategic alliances
R&D limited partnership and Joint venture
2. Small Business Investment Company (SBIC)
3. SBIR Grants
Phase I: develop concept and test feasibility
Phase II: pursue the innovation and develop
the product
Phase III: commercialize the technology
 Debt Sources
1. Commercial banks 2) Commercial finance companies
3) Small business administration 4) State-funded venture
capital 5) Incubators 6) Customers and suppliers
 Venture Capital

The Initial Public Offering (IPO)

1. Choose an investment banker
2. Draw up letter of intent/terms and
conditions
3. File a registration
statement with the SEC
4. Publish the tombstone
5. Decide on a stock exchange
6. Go on a road show prior to
the IPO

Advantages of Going Public Disadvantages of Going Public

1. Source of interest-free
growth capital
2. More prestige and clout
3. Easier to form alliances and
negotiate deals
4. Public stock used to attract
employees and reward existing
employees
• Expensive process
• Time-consuming
• Company information is
public
• CEO responsible to
shareholders
• Entrepreneur may not
control stock
• Pressure to perform in the
short term
• SEC reporting requirements

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5.3 Developing a Team of Advisors

The Professional Advisors

1. Board of Advisors
2. Lenders and Investors
3. Other Professionals

 Board of Advisors
• A board of advisors is a panel of experts who
are asked by a firm’s managers to provide
counsel and advice on an ongoing basis.
• 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.
 Guidelines to Organizing a Board of Advisors
• Board members should be compatible and
complement one another in terms of
experience and expertise.

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Lenders and Investors

• Lenders and investors have a vested interest in the
companies they finance, often causing them to
become very involved in helping the firms they
fund.
Ways Lenders and Investors Add Value to an
Entrepreneurial Firm
1. Help identify and recruit key management
personnel.
2. Help the venture fine-tune its business model.
3. Provide introductions to additional sources of
capital.
4. Provide insight into the markets that the
new venture plans to enter.
5. Serve as a sounding board for new ideas
6. Serve on the new venture’s board of directors
or board of advisors.
7. Recruit customers
8. Help to arrange business partnerships
9. Provide a sense of stability and calm

Other Professionals
• The other professionals that make
up a firm’s new-venture team
include attorneys and accountants.
• Business Consultant consultant is
an individual who gives
professional or expert advice.
• Business consultants fall into two
categories: paid consultants and
consultants who are available for
free or at a reduced rate through a
nonprofit or governmental agency.

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5.4 The Management Team

New-Venture Team
• The group of founders, key employees, and
advisors 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 advisors, and professionals on whom
they rely for direction and advice.

Elements of a New-Venture Team

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The Founder/s of a New Venture

• Founder or Founders. The
characteristics of the founder or founders of a
firm and their early decisions have a
significant impact on the manner in which the
new-venture team takes shape.
• Size of the Founding Team. Studies have
shown that 50% to 70% of all new ventures
are started by more than one individual.
Experts disagree about whether new ventures
started by a team have an advantage over
those started by a sole entrepreneur.

Advantages and Disadvantages of Starting a

Venture as a Team
• Advantages
1. Teams bring more talent,
resources, and ideas to a new
venture.
2. Teams bring a broader and deeper
network of social and professional
contacts to a new business.
3. The psychological support that the
cofounders of a business can offer
one another can be an important
element of a new venture’s success.
• Disadvantages
1. Team members may not get
along.
2. If two or more people start a firm as
“equals,” conflicts can arise when the
firm needs to establish a formal
structure and designate one person
as the CEO.
3. If the founders have similar areas of
expertise, they may duplicate rather
than complement one another.
4. Team members can easily disagree
in terms of work habits, tolerances
or risk, levels of passion for the
business, ideas on how the business
should be run, and similar key issues

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 Board of Directors
• If a new venture organizes as a corporation, it is legally
required to have a board of directors.
• A board of directors is a panel of individuals who are elected
by a corporation’s shareholders to oversee the management
of the firm.
• A board is typically made up of both inside directors and
outside directors.
 What a Board of Directors Can Do to Help a Start-Up Get Off
to a Good Start
• Provide Guidance. Although a board of directors has
formal governance responsibilities, its most useful role is to
provide guidance and support to the firm’s managers.
• Lend Legitimacy. Another function of a board of
directors is to lend legitimacy to a firm. Well-known and
respected board members bring instant credibility to a firm.

 Formal Responsibility of the Board

a. A board of directors has three formal
responsibilities.
i. Appoint the officers of the firm.
ii. Declare dividends.
b. Oversee the affairs of the corporation.
 Frequency of Meetings and
Compensation
a. Most boards of directors meet three to
four times a year.
b. New ventures are paying their board
members in company stock or ask them
to serve on a voluntary basis.

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5.5 Strategic Planning

Business strategy
• Definition of business strategy includes
strategy as a combination of
positioning, leveraging advantages,
purpose, direction, scope of activities
and deployment of resources.
However, there are those that
emphasize strategy as the application of
theory and others that emphasize
strategy as dealing with reality.

 What is strategic planning & process?

1. Environmental Analysis.
a] External trends
b] Internal trends.
• In External trends it considers the economic, political, social,
technological, competitors and customers.
• In Internal trends it considers the organizational structure,
organizational culture, politics, processes and size of the
enterprise.
2. Mission.
• Information of the organization, the reason for the existence,
its purpose- like product and services offered. The scope of
activities- how the customer is served. Sometimes it is
commonly called Specific information + Values and belief of the
venture.
3. Vision.
• Future aspirations. The what and who in the future. The good
vision are: brief, updated, verifiable, focused, inspiring, a
stretch, understandable, and bound by timeline.

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 The flow of strategic planning

1. Analyze the situation. These include the SWOT
analysis, and internal trends analysis. Another factor is
to consider the corporate culture. Does the organization
have the right stuff to help the plan to succeed? What
are the patterns of behavior? Will there be resistance to
change?
2. Formulate the strategy. Decide what strategy will
be used to reach the goal. Most organizational leaders
agree that ultimate goal is to attain a competitive
advantage. In other words, be better at what we do
than the other organizations providing the same
product or services. There are a few ways to the
organization can do things better than the other.
Through people or through process. Have the best
people, have the best process, or both.

3. Implement the strategy. In implementing the

strategy, align the strategic initiatives, align the budget
and performance, prepare the structure, engage the
staff, and monitor the success and adapt.
4. Evaluate the strategy. In evaluating the strategy,
evaluate the success of the strategy and make changes
or adaptations as necessary. Is there strategic
alignment? STRATEGI ALIGNMENT is a hands-on
business redesign process, in which we align strategic
goals, your business model and processes, and the
company culture with the key business purpose and
core values.
Finally, strategic plan is not a one-time effort; it
must be fluid and adaptable. The plan must be
evaluated and adapted to both internal and external
changes.

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5 th Chapter Completed

THANK YOU

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