A primer in Entrepreneurship

Transcription

1 Prof. Dr. Institutefor Strategy and Business Economics

2 Chapter 9: Building a New Venture Team Table of Contents I. Creating a New Venture Team A. The Founder or Founders B. Recruiting and Selecting Sl Key Employees C. The Role of the Board of Directors II. Rounding Out the Team The Role of Professional Advisors A. Board of Advisors B. Lenders and Investors C. Other Professionals 2

3 1. A new venture team is the group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm. 2. Usually the team doesn t come together all at once. Instead, it is built as the new firm can afford to hire additional personnel. 3. 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. 3

4 Liabilities of Newness 1. New ventures have a high propensity to fail. 2. The high failure rate is due in part to what researchers call the liability of newness, which refers to the fact that companies often falter because the people who start the firms can t adjust quickly enough to their new roles and because the firm lacks a track record with outside buyers and sellers. 3. Assembling a talented tl tdand experienced new venture team is one path that firms can take to overcome these limitations. 4

5 Elements of a New Venture Team 5

6 A. The Founder or Founders 1. Size of Founding Team a. The first decision that most founders face is whether to start a firm on their own or whether to build an initial founding team. Studies show that teams or partners start 50 to 70 percent of all new firms (CH: 47 percent). b. It is generally believed that new ventures started by a team have an advantage over those started by an individual, because a team brings more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur. 6

7 A. The Founder or Founders c. Several factors affect the value of a team that tis starting ti a new firm. i. First, teams that have worked together before, as opposed to teams that are working together for the first time, have an edge. ii. Second, if the members of the team are heterogeneous, meaning that they are diverse in terms of their abilities and experiences, rather than homogeneous, meaning that their areas of expertise are very similar to one another, they are likely to have different points of view about important issues. These different points of view are likely to generate debate and constructive conflict. 7

8 A. The Founder or Founders 2. Qualities of the Founders a. One reason the founders are so important is that in the early days of the firm, their knowledge, skills, and experiences are the most valuable resource the firm has. b. Several features are thought to be significant to a founder s success. These factors include: The level of the founder s education Prior entrepreneurial experience Rl Relevant industry experience Networking (the depth of the founder s professional network) 8

9 A. The Founder or Founders 2. Qualities of the Founders 9

10 A. The Founder or Founders 2. Qualities of the Founders 10

11 B. Recruiting and Selecting Key Employees 1. Founders differ in terms of how they approach the task of recruiting and selecting key employees. Some founders draw on their network of contacts to identify candidates for key positions, while others use executive search firms. 2. An executive search firm is a company that specializes in helping other companies recruit and select key personnel. 11

12 B. Recruiting and Selecting Key Employees 3. Many founders worry about thiring i the wrong person for a key role. Because most new firms are strapped for cash, every team member must make a valuable contribution, so it s not good enough to hire someone who is well intended but who doesn t precisely fit the job. 4. Some founders approach the task of hiring by creating a formal hiring plan. Others approachthetask task moreinformally, andhire personnel as funds become available and opportunities emerge. 12

13 C. The Role of the Board of Directors 1. If a new venture organizes as a corporation, it is legally ll required dto have a board of directors a panel of individuals who are elected by a corporation s shareholders to oversee the management of the firm. 2. A board is typically made up of both inside and outside directors. An inside director is a person who is also an officer of the firm. An outside director is someone who is not employed by the firm. 3. A board of directors has three formal responsibilities: Appoint the officers of the firm, declare dividends, and oversee the affairs of the corporation. directors.html 13

14 C. The Role of the Board of Directors 4. If handled dproperly, a company s board of directors can be an important t part of its new venture team. Two ways a board of directors can help a new firm get off to a good start and develop what, it is hoped, will become a sustainable competitive advantage are by providing guidance and lending legitimacy. 14

15 C. The Role of the Board of Directors Ways a Board of Directors Can Help a New Venture Get Off to a Good Start Function Provide Guidance Importance of Function Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance and support to the firm s managers. Many founders and CEOs interact with their board members frequently and obtain important input and advice. Lend Legitimacy Another important 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. 15

16 C. The Role of the Board of Directors 5. Frequency of Meetings and Compensation Most boards of directors meet three to four times a year. New ventures are more likely to pay pytheir boards in company stock or ask them to serve on a voluntary basis rather than pay a cash honorarium. 16

17 Chapter 9: Building a New Venture Team Table of Contents I. Creating a New Venture Team A. The Founder or Founders B. Recruiting and Selecting Sl Key Employees C. The Role of the Board of Directors II. Rounding Out the Team The Role of Professional Advisors A. Board of Advisors B. Lenders and Investors C. Other Professionals 17

18 II. Rounding Out the Team The Role of Professional Advisors Board of Advisers s Lenders and Investors Other Professionals 18

19 II. Rounding Out the Team The Role of Professional Advisors A. Board of Advisors 1. A growing number of start ups are forming advisory boards to provide them with direction and advice. 2. An advisory board is a panel of experts who are asked by a firm s managers to provide counsel and advice on an ongoing basis. 19

20 II. Rounding Out the Team The Role of Professional Advisors A. Board of Advisors 3. Unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives nonbinding advice. 4. An advisory board can be established for general purposes or can be set up to address a specific issue or need. For example, some firms have customer advisory boards that help the firm identify new product and service ideas. 5. Most boards of advisors have between five and 15 members. Companies typically pay the members of their board of advisors a small honorarium for their service, either annually or on a per meeting basis. 20

21 II. Rounding Out the Team The Role of Professional Advisors A. Board of Advisors Guidelines for Organizing a Board of Advisers 1. Advisers will become disillusioned if they don t play a meaningful role in the firm s development and growth. 2. A firm should ldlook kfor board members who are compatible and complement one another in terms of experience and expertise. 3. Wheninviting people to serve onits boardofadvisorsof advisors, a company should carefully spell out to the individuals involved the rules in terms of access to confidential information. 21

22 II. Rounding Out the Team The Role of Professional Advisors Board of Advisers of Ugobe ( Name Profession Role on Advisory Board Steven Mayer Curtis Sasaki Phil Schlein Abraham Wei Bill Hillard Adviser to corporations such as Intel and Nintendo Vice President, Sun Microsystems Partner, U.S. Venture Partners Senior Managing Director, Chinavest Merchant Bank Managing Partner, Hillard Equities/Sonn Hill Consulting Adds legitimacy and provides the firm advice on management issues Adds legitimacy and provides the firm advice di product/market issues Adds legitimacy and provides the firm advice on financial related issues Adds legitimacy and provides the firm advice on financial related issues Adds legitimacy and provides the firm advice on financial and managementrelated issues 22

23 II. Rounding Out the Team The Role of Professional Advisors B. Lenders and Investors 1. 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. 2. As with the other non employee members of a firm s new venture team, lenders and investors help new firms by providing guidance and lending legitimacy, and assume the natural role of providing financial oversight. 3. In some instances, lenders and investors also work hard to help new firms fill out their management teams. 23

24 II. Rounding Out the Team The Role of Professional Advisors B. Lenders and Investors Beyond Financing and Funding: Ways Lenders and Investors Add Value to an Entrepreneurial Venture Help identify and recruit key management personnel Provide insight into the industry and markets in which the venture intends to participate Help the venture fine tune its business model Serve as a sounding board for new ideas Provide introductions i to additional i Serve on the new venture s board of sources of capital directors or board of advisors 24

25 II. Rounding Out the Team The Role of Professional Advisors C. Other Professionals At times, other professionals assume important roles in a new venture s success. Attorneys, accountants, and business consultants are often good sources of counsel and advice. a. A consultant is an individual who gives professional or expert advice. New ventures vary in how much they rely on business consultants for direction. b. Consultants fall into twocategories: paid consultants andconsultants who are made available for free or at a reduced rate through a nonprofit or government agency. 25