Entrepreneurship Chapter 9: New-Venture Team

Chapter 9: Building a New-Venture Team

• New ventures often face "liabilities of newness," meaning the high failure rate is partly due to challenges new companies experience adjusting to new roles and lacking a track record.
• A new-venture team consists of founders, key employees, and advisors. This team develops from an idea to a functional firm.
• Teams are often built incrementally, not all at once, as the new firm can afford to hire more personnel.
• A new-venture team also encompasses more than paid employees, including boards of directors, advisors, and other professionals.

Chapter Objectives

• Explain the concept of "liabilities of newness."
• Describe a new-venture team and discuss its primary elements.
• Identify professional advisors and their roles in a new-venture team.
• Explain why new ventures use consultants.

New-Venture Team

• The new-venture team is the group of founders, key employees, and advisors guiding the venture's transition.
• New-venture teams do not usually form fully formed all at once, but grow incrementally as the business gains the resources to hire additional personnel.
• Teams include more than just paid employees, encompassing boards of directors, advisors, and other professionals.

Liability of Newness

• New ventures have a high failure rate.
• Liabilities of newness refer to the challenges new companies face.
• Problems arise when employees struggle to adapt to new roles and when the firm has no prior success track record.
• Firms can overcome these issues by building a talented and experienced management team.

Separate Elements of a New-Venture Team

• A diagram illustrates the various elements forming a new-venture team. Key elements include:
  • Management team
  • Key employees
  • Founder(s) or founders of the venture
  • Board of directors
  • Board of advisors
  • Lenders and investors
  • Other professionals

The Founder or Founders

• Early founders' decisions heavily impact the formation and structure of the new-venture team.
• Many new ventures (50-70%) are started by multiple founders rather than a single individual.

Advantages and Disadvantages of Starting a Venture as a Team

• Advantages:
  • Teams bring together more talent, resources, and ideas than a solo founder.
  • Teams benefit from a larger network of professional and social contacts.
  • Cofounders provide valuable psychological support for each other.
• Disadvantages:
  • Team members might have conflicts or disagree on key issues like work habits, risk tolerance, or business decisions.
  • Disagreements can arise if shared responsibilities or authority within the team aren't defined and agreed upon.
  • If founders have similar skillsets, they might duplicate efforts rather than complement each other.

Key Elements of a Successful Founding Team

• Heterogeneous teams (with diverse members) are more effective than homogenous ones.
• The example provided displays a team initiating an educational software company, highlighting members' diverse backgrounds.

Preferred Attributes of Sole Entrepreneurs and Members of a New-Venture Team

• Higher Education: Evidence suggests that higher education can enhance entrepreneurial skills.
• Prior Entrepreneurial Experience: Experience in the entrepreneurial process allows founders to avoid costly mistakes.
• Relevant Industry Experience: Experience in the relevant industry is useful for a founder to have in order to have a better understanding of the market and gain access to established networks.
• Broad Social and Professional Networks: This access to additional expertise, funding and customers can greatly benefit the startup

Recruiting and Selecting Key Employees

• Start-ups' need for employees varies.
• Sometimes, founders work alone for a time and other times they hire employees immediately.
• A skills profile chart is useful for identifying needed skills and skill gaps in a new firm.

Skills Profile for Fitness Drinks

• A skills profile table shows gaps, or positions not yet filled, in a new fitness drinks venture. This example showcases positions for various skill sets.

Sources of Labor for New Ventures

• Employ full or part-time employees working within the firm, tools, location and policies.
• Employ interns as apprentices for practical experience.
• Employ freelancers who work independently for many clients, using their own equipment.
• Utilize virtual assistants providing remote assistance.

The Roles of the Board of Directors

• Corporations legally require a board of directors for governance, oversight, election and decision-making.
• This board is composed of both inside and outside directors.
• Inside directors hold officer positions within the firm; outside directors are not employed by the firm.
• Responsibilities include appointing firm officers, declaring dividends, and overseeing the corporation's affairs.
• Typically, board meetings occur 3-4 times a year.
• Cash is not always the primary compensation, for new ventures stocks may frequently be used instead.

What a Board of Directors Can Do to Help a Start-Up Get Off to a Good Start

• Provide guidance and support to firm managers.
• Lending legitimacy to the firm. Well-known board members add credibility.

Rounding out the Team: The Role of Professional Advisors

• Advisors include:
  • Boards of advisors
  • Lenders and investors
  • Other professionals

Board of Advisors

• A board of advisors is a panel of experts consulted by firm managers.
• Advisors provide counsel and advice on an ongoing basis.
• Advisory boards lack the formal legal responsibilities of a board of directors, their advice is non-binding but still insightful.

Lenders and Investors

• Lenders and investors have a strong interest in the companies they finance, and often get involved with in helping the firms they fund.
• Like other non-employee team members, they provide guidance and advice.
• They also manage financial oversight of the firm.

Ways Lenders and Investors Add Value to an Entrepreneurial Firm

• Help identify and recruit key management personnel
• Help the venture fine-tune its business model
• Provide introductions to additional sources of capital
• Provide insight into markets
• Serve as a sounding board for new ideas
• Serve on the board of directors or board of advisors
• Recruit customers
• Help to arrange business partnerships
• Provide a sense of stability and calm

Other Professionals

• Other professionals include attorneys, accountants, and business consultants.
• Business consultants are individuals offering professional or expert advice.
• Consultants can be categorized as paid or available for free/reduced rates through nonprofits or governmental agencies.

Explore the dynamics of building a new-venture team in this chapter focused on entrepreneurship. Understand the challenges of 'liabilities of newness' and the essential roles that founders, key employees, and advisors play in creating a successful team. Learn how these elements contribute to the transition from idea to operational firm.