New Venture Team & Strategies for Firm Growth

• Building a new venture team and strategies for firm growth are key elements
• Explain the concept called liability of newness
• Describe a new-venture team and discuss the primary elements that form such a team
• Identify professional advisers and explain their role in a new-venture team
• Explain why a new-venture team might use consultants to obtain advice.

New-Venture Team

• A new-venture team is a group consisting of founders, key employees, and advisors
• This team is responsible for moving a new venture from an initial idea to a fully operational firm
• New ventures typically don't start with the entire team in place
• The team is built gradually as the firm can afford additional personnel
• The team includes more than just paid employees
• Many firms will have boards of directors and advisors and professionals for direction and advice

Liability of Newness as a Challenge

• New ventures often have a high failure rate
• This can be attributed to the "liability of newness"
• The "liability of newness" refers to new companies faltering because people involved can't adjust to their new roles fast enough
• The organization also may lack a track record of success
• Assembling a talented and experienced management team helps firms overcome these limitations

Creating a New-Venture Team

• A strong business plan needs a strong team to execute it
• A business plan cannot get off the ground unless leaders and personnel are in place to carry it out
• Founding a new-venture team is a signal to potential investors, partners, and employees
• Assembling a strong team as possible can impress potential investors, partners, and employees

Common Mistakes Made When Assembling a New-Venture Team

• There are several mistakes to assembling a new-venture team:
• Hiring unqualified friends or family
• Assuming prior success will translate automatically
• Presenting a one-person team philosophy
• Hiring managers without sharing ownership
• Hiding team skill gaps
• Having vague plans for filling competency gaps

Founder or Founders

• The characteristics of the founder or founders, and their early decisions, impact the new-venture team
• Between 50% and 70% of all new ventures are started by more than one individual
• It is debated whether new ventures started by a team have an advantage over those started by a sole entrepreneur

Size of the Founding Team

• A team can bring more talent, resources, and ideas
• There is psychological support that business cofounders offer one another
• Team members can disagree in areas of work habits, tolerances for risk, levels of passion for the business and ideas
• Teams that have worked together before have an advantage
• Heterogeneous teams can be beneficial
• This means there is diverse abilities and experiences
• It is important that the team isn't too big, to avoid communications problems
• A sweet spot for founders is two to three founders

Preferred Attributes of the Founder(s)

• Firm started by a team provides more resources, viewpoints, and positive attributes
• Higher education enhances value-creating entrepreneurial skills
• Prior entrepreneurial experience familiarizes founders with the entrepreneurial process to avoid costly mistakes
• Relevant industry experience gives founders better professional networks and applicable marketing expertise
• Broad social and professional networks help with access to additional know-how, capital, and customer referrals

Management Team and Key Employees

• Startups vary in how quickly they need to add personnel
• Some founders may work alone for a period, while others hire immediately
• Skills profiles can depict the most important skills needed and where skills gaps exist

Sources of Labor for New Ventures

• Full- or Part-time Employee: someone who works for the business, utilizing the tools according to policies
• Intern: a person who works for a business as an apprentice
• Freelancer (or contractor): a person who is in business for themselves and performs services for clients
• Virtual Assistant: a freelancer who provides remote admin, technical, or creative assistance

Roles of the 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 elected by a corporation's shareholders to oversee management
• A board consists of both inside and outside directors
• An inside director is also an officer of the firm
• An outside director is not employed by the firm
• A board of directors must:
• Appoint officers of the firm
• Declare dividends
• Oversee affairs of the corporation
• Most boards of directors meet 3-4 times a year
• New ventures are more likely to pay their board members with company stock, or ask them to serve voluntarily
• A board provides guidance to and support for the firm's managers
• The board lends legitimacy by bringing credibility to the firm
• Investors want to see new-venture teams that have sufficient clout to get their foot in the door
• Board members are instrumental in helping young firms arrange financing or funding

Professional Advisers

• A professional advisor can be:
• Board of advisors
• Lenders and Investors
• Other Professionals

Board of Advisors

• An advisory board is a panel of experts who are asked to provide ongoing counsel and advice to a firm's managers
• A board of advisors gives non-binding advice without legal responsibility
• It can be established for general or specific purposes
• More people are willing to serve on an advisory board than a board of directors because it requires less time
• Members of a company's board of advisors provide guidance and lend credibility to the firm
• A board of advisors should play a meaningful role in the firm's growth
• A firm should look for board members who are compatible and complement one another
• When inviting people to serve, they should be told rules about access to confidential information

Lenders and Investors

• Lenders and investors have a vested interest in the companies they finance
• Lenders and investors help new firms by providing guidance and lending advice
• Lenders and investors provide financial oversight

Ways Lenders and Investors Add Value to an Entrepreneurial Venture

• Lenders and Investors add value to entrepreneurial ventures by:
• Helping identify and recruit key management personnel
• Providing industry insight
• Helping fine-tune the business model
• Serving as a sounding board for new ideas
• Providing introductions to additional sources of capital
• Recruiting customers
• Arranging business partnerships
• Serving on boards
• Providing a sense of calm

Other Professionals

• Other professionals that make up a firm's new-venture team include attorneys, accountants, and business consultants
• A business consultant gives professional or expert advice
• Business consultants fall into two categories:
• Paid consultants
• Consultants who are available for free or at a reduced rate

Internal Growth Strategies

• Internal growth strategies involve efforts taken within the firm itself
• Examples include new product development, other product-related strategies, and international expansion
• Internal growth relies on a business's core competencies, expertise, business practices, and employees
• Growth achieved internally is organic growth, as it doesn't rely on outside intervention

Advantages of Internal Growth Strategies

• Incremental, even-paced growth
• Maximum control
• Preserved organizational culture
• Encourages internal entrepreneurship
• Allows firms to promote from within

Disadvantages of Internal Growth Strategies

• Slow form of growth
• The development of new resources
• Investment in a failed growth strategy can be difficult to recoup
• Adds to industry capacity

New Product Development

• New product development involves the creation and sale of new products or services
• This development is a strategy for increasing firm revenues
• In many fast-paced industries, new product development is a necessity
• Average product life cycles in the computer software industry are very short
• Software companies must have products in their pipeline

Keys to Effective New Product and Service Development

• Find a need and fill it
• Develop products that add value
• Get quality and pricing right
• Focus on a specific target market
• Conduct ongoing feasibility analysis

Reasons New Products Fail

• Products do not solve the right problem
• Wrong market was picked
• Products are too expensive
• Business case is flawed
• Products are not good enough
• Market entry was delayed
• Marketing plan was poor

Internal Product-Growth Strategies

• Improving an Existing Product or Service is increasing the quality of an existing product or service
• Increasing Market Penetration involves increasing sales of a product through greater marketing efforts
• Extending Product Lines involves making additional product variations for a broader range of clientele
• Geographic Expansion involves growth via expanding to additional geographic locations

International Expansion

• This is another common form of growth for entrepreneurial firms
• International new ventures are businesses seeking to derive significant competitive advantage
• This is done by selling products or services in multiple countries
• It's a complex form of growth with vast potential

Foreign-Market Entry Strategies

Exporting

• Involves producing a product at home and shipping it to a foreign market

Joint Ventures

• Involves the establishment of a firm jointly owned by independent firms
• Fuji-Xerox is an example of this

Licensing

• Licensing is an arrangement where a firm grants rights to manufacture to another for royalties or other payments

Franchising

• It is an agreement between a franchisor (like McDonald's) and a franchisee (the restaurant owner)

Turnkey Project

• A contractor builds a facility in another country and trains personnel while delivering it ready to operate

Wholly Owned Subsidiary

• A company makes the decision to manufacture a product in a foreign country and establish a permanent presence

External Growth Strategy

• These include:
• Mergers and Acquisitions
• Licensing
• Strategic Alliances and Joint Ventures
• Franchising

Advantages of Emphasizing External Growth Strategies

• Reducing competition
• Gaining access to proprietary products or services
• Gaining access to new products and markets
• Obtaining access to technical expertise
• Gaining access to an established brand name
• Economies of scale
• Diversification of business risk

Disadvantages of Emphasizing External Growth Strategies

• Incompatibility of top management
• Clash of corporate cultures
• Operational problems
• Increased business complexity
• Loss of organizational flexibility
• Antitrust implications

Mergers and Acquisitions

• A merger is the pooling of interests to combine two or more firms into one
• An acquisition is the outright purchase of one firm by another
• Acquiring another business can :
• Expand product lines
• Gain access to distribution channels
• Achieve economies of scale

Licensing

• This is the granting of permission to use intellectual property under set conditions
• Virtually any intellectual property a company owns that is protected by patent, trademark, or copyright can be licensed to a third party
• The terms of a license are spelled out by a licensing agreement
• The licensor owns the intellectual property
• The licensee is the company purchasing rights to it

Types of Licensing:

• Technology Licensing: The licensing of proprietary technology licensor typically controls by virtue of a utility patent
• Merchandise and Character Licensing: The licensing of a recognized trademark or brand that the licensor typically controls through a trademark or copyright

Strategic Alliances and Joint Ventures

• The rise in popularity is driven by firms realizing they can't "go it alone"

Advantages of Participating in Strategic Alliances and Joint Ventures

• Gain access to a specific resource
• Economies of scale
• Risk and cost sharing
• Gain access to a foreign market
• Learning
• Speed to market
• Neutralizing or blocking competitors

Disadvantages of Participating in Strategic Alliances and Joint Ventures

• Loss of proprietary information
• Management complexities
• Financial and organizational risks
• Risk becoming dependent on a partner
• Partial loss of decision autonomy
• Partners' cultures may clash
• Loss of organizational flexibility

Strategic Alliances

• A strategic alliance is a partnership to achieve a goal
• Participation in alliances can boost a firm's rate of patenting, product innovation, and foreign sales
• Strategic alliances tend to be informal without a new entity
• This helps make an alliance making it work can be tricky

Types of Alliances:

• Technological Alliances cooperate in R&D, engineering, and manufacturing
• Marketing Alliances are created when a company with excess distribution capacity connects with a product

Joint Ventures

• This is an entity created when firms pool a portion of their resources to create a jointly-owned organization
• These gain access to a foreign market

Types of Joint Venture

• Scale Joint Venture-Partners collaborate at a single point in the value chain to gain economies of scale in production or distribution
• Link Joint Venture- Partner positions aren't symmetrical but help each other access adjacent links in the value chain