Foundations and Forms of Entrepreneurship Lecture 1 PDF

Foundations and Forms of Entrepreneurship Lecture 1 Introduction to entrepreneurship commonly thought that entrepreneurship = founding a start-up “entrepreneurship is the pursuit of opportunity beyond resources controlled” —...

Foundations and Forms of Entrepreneurship Lecture 1 Introduction to entrepreneurship commonly thought that entrepreneurship = founding a start-up “entrepreneurship is the pursuit of opportunity beyond resources controlled” — Stevenson and Jarillo 1989 pursuit = someone that wants to do sth, sens of urgency, time is money, relentless focus opportunity = novel offering resources controlled = requires mobilisation think beyond, as an attitude or a mindset applies to many different contexts [startups, corporate, non profit and etc] emphasis on a set of behaviours rather than who is the entrepreneurial actor Picture of circles ? — different perspectives Foundations and Forms of Entrepreneurship 1  being an entrepreneur = being able to take risk great level of uncertainty and high pressure management What are the sources of novel opportunities? within organisations and industries: unexpected occurances incongruities process needs industry and market changes outside organisations and industries: Foundations and Forms of Entrepreneurship 2  demographic changes changes in perception - not necessarily in one industry new knowledge successfully ideas come from personal incidents and field observations for actual demand Unexpected occurences unexpected successes, failure and external events that ‘should not have happened’ but open the door for asking: can i make something out of this? Post-It!: the goal was to great a strong glue but by accident they treated glue that can easily stick to surfaces and be re-stick to others. Incongruities differences between what ‘ought’ to be, or between what and what everybody assumes it to be; likely to emerge qualitatively from observation Blockbuster video vs Netflix netflix realised that people lacked easily access video renting and so they ceased that opportunity and created a streaming platform Process needs a job to be done on a process to create, redesign, improve or perfect it; usually targets problems and task widely recognised as problematic Requirements: x Process must be clearly identifiable x There needs to be a ‘weak’ or ‘missing’ link in the process x The underlying need has to be not only felt but also understood (to define the specification of the solution) x Widespread realization that there needs to be a better way (high receptivity), that fits the way people do the work Slack: a communication platform for businesses that created a thread-based conversation and integration tool as emails are considered slow Foundations and Forms of Entrepreneurship 3  1. Weak/missing link: traditional method of communication in organisations (email, meetings, etc) were inefficient and slow creating delays in decision making and execution 2. underlying need: teams needed a more streamlined way to communicate 3. high receptivity: many teams recognised that email, chat apps, and task management tools weren’t working efficiently 4. opportunity: Slack’s creator designed a solution that targeted this cleat pain point by offering a platform that allowed for real-time collaboration, thread-based conversations, and integration with other tools Industry and market changes changes in consumer habits/preferences/desired, in the way things work whitin a given sector or in the structure of an industry [eg incumbents vs new entrants] Water bottles: small changes in consumer preferences can create new market opportunities in everyday products — people needed more fashionable and functional water bottles Demographic Changes changes in population, it size, age structure, composition, employment, educational status and inome more elderly people - less young people: so due to the growth of elderly their needs will become more addresses and therefore creates and opportunity exo-skeleton for older people so that they can continue working longer and a given position — a big biased that entrepreneurs only target young people — great resignation due to covid to be self employed Changes in perception changes in the meaning people ascribe to a fact or set of facts, which affects the way they see themselves and/or the environment; important to seize and leverage momentum plant-based products: for people having plant-based diet or have dietary restrictions — could be affect by demographic change as young people might be more drawn and Foundations and Forms of Entrepreneurship 4  conscious about craft-beer: used to be niche and not so wanted but nowadays craft beers are considered an art and are indulged by a larger amount of society New Knowledge new scientific, technic or social knowledge becoming available that cna be distilled into usable technology and commercialised as products, process or serve Companies like 23andMe and Ancestry have leveraged new knowledge in genetic science to offer DNA testing services that provide health insights, personalised medicine recommendations or ancestry data — some people create new knowledge for the sake of doing so and some people create new knowledge for the sake of commercialise — ChatGPT: the knowledge was already available but those people were able to commercialise it. The individual- environment relationship starting a new business is a highly personal decision that depends on and reflects: individual’s drive, competence and motivation perceptions of local business opportunities and the ease of starting a business awareness of one’s own skills and abilities however, new entrepreneurs create business within a context including: social values and frameworks that may promote or hinder an entrepreneurial mindset ecosystem that may provide or restrict access to recourses, including finance and expertise — Entrepreneurship can be a choice or necessity: be open minded — it is cool B) there is a relationship between the decision to start the new business and the local, regional and national environment that influences that decision directly (through access to resources) and indirectly (through its effects on social values and priorities) Foundations and Forms of Entrepreneurship 5  Location decision / External Enablers — VERY DIFFICULT TO FIND accurate failure data worldwide [survival biased], but some well known statistics report that: 9 out of 10 startups eventual fail 2/3 of startups never deliver a positive return to investors Top reasons why startups fail: 1. ran out of cash 2. no market need 3. got outcompeted 4. flawed business model 5. regulatory/legal challenges 6. cost issues 7. not the right team 8. product mistimed 9. poor product 10. disharmony among team or investors Foundations and Forms of Entrepreneurship 6  11. pivot gone bad 12. burned out or lacked the passion — Why? entrepreneurs tend to spend all their money before validating whether their idea targets a real need or figuring out how to build/sustain their competitive advantage Ideas as Hypotheses essentially, your idea is a working hypothesis a belief that a certain customer need [problem] exists and is worth solving, which you need to test by collecting data sources of data can include: observing customers conducting interviews and focus groups administering a buying surveys collecting secondary data from reports and internet concept testing and prototyping talking to different people: competitors, suppliers, industry experts, bankers, lawyers etc A scientific approach to enrepreneural strategy Foundations and Forms of Entrepreneurship 7  Lecture 2 — Guest Speaker Marina Tognetti - mYngle a real story about a tech-entrepreneur What do you think is the biggest challenge for the first-time entrepreneurs? — finding the customers having funding for a start-up does not mean success, 90% of startups fail even with it the high numbers of failures came from the lack of available tools and knowledge My Journey story began somewhere in 1999 with introduction of internet she worked at eBay in order to learn how to use internet 2007 - china was booming, so lets do sth with it mYngle — platform where students and teachers can have private leassons idea came from not being able to find a teacher that would teaches chinese in an effective way The launch the beginning was going perfectly, lots of planning and discussion she didn’t want her companies name to resemble learning language bc she wanted to leave space for improvement and expansion getting the team did not take long time, one co-founder quit within a week and joined the other one sth funding difficult to find a guy at the reunion found her ideas amazing and help her find money the launch was a booming event and won a lot of awards what could possible go wrong? biggest reason of failure for start-up → product does not meet the customer needs before money runs out Foundations and Forms of Entrepreneurship 8  Turning Point they were investing money but the results were not meeting the expectations its very important to recognise the problem fast and find a solution for it in time! many first time entrepreneurs fail inlove with their initial idea and struggle to let it go — when things go wrong you need to able to change — they went back tot he drawing board right product for the right segment — thats how Quibi failed “dont find customers for your product, find products for your customers” — Seth Godin they conducted a wide spread research to see what customer within the field want and think you as myngle need to take responsibility for the product you are launching — quality control they needed to make sure that the teachers were qualified to teach as a entrepreneur you need to make the though decision — price price gets associated with the quality — SHIFT FROM MARKET PLACE TO A GLOBAL SCHOOLD shift form B2C to B2B because people started a asking for invoices she went to explore whether the shift was worth it dont ever go to investor to save you from running out of cash — never make a plan on a hail mary that the revenue will increase — understanding finance is crucial its so easy to spend the money fast, cost efficiency is important firing people who were with you front he begging is something that might come and it needs ot be done in a right way My lesson learned when coming from working FOR corporations you think you know it all the reality is harsh, maintaining the flexibility is important Foundations and Forms of Entrepreneurship 9  do not compare Lecture 3 — guest lecture Amko what does the business do what it was like being a student and a entrepreneur at the same time and what decisions I made in this period Amko weksle ding is a company that sells workwear to businesses in construction, production and transportation — innovative ordering system they preprogrammed the ordering criteria in order to greatly simplify the ordering and all the basics in the customisation for the employees very short delivery and creation of the products [ 1 week compared to 3-4 weeks for competitors] What sparked the idea for Amko his father has a construction company and he did help out there in the past, thats when he saw the problem that it nobody does the basics fast enough therefore it came to his mind to start the company he knew that they can make it way better than the others being a student and an entrepreneur started the business during his minor at UVA — Entrepreneurship he continued growing the company and paused his studies makes for a lot of doubt with potential business relations and clients perfect time to start due to not having a lot of responsibilities yet however, after you do find to see a bit of success, the support quickly follows — having partners makes the process smoother and easier — he was alone tips focus on building your professional network [ join business clubs, check Uni network, talk to potential clients] Foundations and Forms of Entrepreneurship 10  improve you sales and marketing skills, these are crucial for success in the early stages i would highly suggest attending marketing events as these are very educational while also good for networking purposes start selling and stop researching what i wanted to know: customer experience > product sales is very hard in the early stages due to lack of trust or reputation, so you need to start building on these aspects mouth to mouth will probably be the kick start to your early success, not your fancy marketing campaigns so investing in high quality customer service will highly improve your customers experience and this they will tell others about it [you made them feel special and heard] — Customer Journey Maps — Awareness → Consideration → Purchase → Retention → Advocacy Good sales can sell a bad product, but a bad product can not do it's own sales Please spend a great amount of time on building you customer journey and get the right sales funnels in place Ask experienced entrepreneurs or marketing experts to review your customer journey, as they can identify simple errors Creating your customer journey early will help you dramaticly increase customer lifetime value and long term ROAS for great ad examples, check out AD libraries meta ad library LinkedIn ad library Google ad Library check out free downloads from marketing tools and agencies on customers journey Foundations and Forms of Entrepreneurship 11  Cashflow > Profit cash flops and profits are not the same and in my opinion chasflow is more important find investor and/or try to create a positive cash flow as soon as possible ideas of how to tackle this: make use of good payment providers like Mollie start with higher pricing hire a good accountant to advise you as cashflow is a very difficult topic you don’t need a world changing idea like I said before, you can have a very good and realistic idea by just doing the basics better than competitors start small and built from there starting to big will likely result in a loss of motivation due to many setbacks starting small will also help with maintaining good cashflow check out this people: Check out the following people to learn from: Sabri Suby (customer journey and marketing) Ben Heath (Meta and Google ads) Diary of a CEO (business strategy and inspiration) Sharktank or Dragons Den (Startup essentials and convincing investor) Lecture 4 — Business Models Recap opportunities stem form different sources both within and outside a company do entrepreneurs discover existing opportunities or create new ones? thinking like a scientist [theory, hypothesis, test, evaluation] and validating your assumptions can help you figure out if your ideas has potential before investing too much Foundations and Forms of Entrepreneurship 12  to validate opportunities, it is important to identify a target audience, a humanised representation [persona] of someone who feels the problem you have identified Start-up planning pathways: where should you start? most people start with the business plan! A business plan is a comprehensive document that outlines a company's goals, strategies, financial projections, and operational details. It serves as a roadmap for the business and is often used to secure funding from investors or lenders. Are business plans effective? many entrepreneurs tend to start by writing a detailed business plan but we have mixed evidence about watery this a good idea pros and cons a business plan scripts the ‘markets to be served, proposed products/services,required resources and the anticipated growth and profitability of the new venture’ answers these questions: ‘where is the business concept now?’, where does it want to get to? and how is it going to get there? profiles the opportunity, details the start-up team/individuals The goods of writing it: tells you if your business opportunity is desirable and feasible helps select, evaluate, and fine-tune start-up activities anticipates and avoids demand and supply issues such as supply bottlenecks gives confidence, improves control perceptions and promotes task persistence and goal commitment a ;reality check’ that helps avoid in built cognitive biases gives credibility and eases access to external finance The bads of business plan: starting up is often a non linear journey with lots of iterations Foundations and Forms of Entrepreneurship 13  early-stage ventures [especially premarket] face a great deal of uncertainty → content of business plan is just an idea until entrepreneurs actually do start up creating a detailed business plan right away might lead to overlook false market assumptions better to focus initial activities on collecting customer information and defining the market opportunity Is it effective the evidence we do have suggests that business planning seems to pay off more for small firms that are not very new and that might not be a good idea for new ventures to start off by creating a detailed business plan an alternative approach is to start by drafting several iterations of a business model canvas and then create a business plan Business Models a business model describes the building blocks of an organisations that are necessary for it to make or raise money the business model canvas is a tool that allows people to communicate the value generated by a business and the means through which that value is generated without having to exchange 90- page plans you might be tempted to think to the business model only in terms of revenue model[SaaS] but the business model is not just monetisation, its a holistic representation of the business The context provides a distinction between making money and raising money for a new venture: Making money: This sustains the business. It refers to generating revenue through the company's operations and selling products or services. Raising money: This is different from making money. It typically involves obtaining funds from external sources like investors, loans, or grants to support the business, especially in its early stages. Making money is crucial for long-term sustainability, while raising money can provide the initial capital needed to start and grow the business before it becomes self-sustaining. BM based on Market Geometrty based on the number of actors in the market Foundations and Forms of Entrepreneurship 14  Direct [1 side] includes products, services, events, B2B and B2C sales Multi-sided [Airbnb, 2 or more sides] Includes platforms that provide a place for meeting and exchange between supply and demand (e.g., Airbnb, Uber, Ebay, Zalando, etc); some of these platforms also sell the data they collect to other actors (e.g., Patientslikeme) Key components of BM you offer [product or service] → value proposition or the WHAT your target clients → the WHO the set of internal and external activities that allow you to deliver your offer to the customer → the HOW how do you make money out of it? who will pay? What is the purpose of a Business Model The Classic BMC Template A Business Model Canvas (BMC) is a strategic management tool used to visualize and develop business models. It was created by Alexander Osterwalder and Yves Pigneur and has become widely adopted in the business world. The BMC provides a simple, one-page overview of a business idea or concept, breaking it down into nine key components: Foundations and Forms of Entrepreneurship 15  1. Customer Segments: Who are your target customers? 2. Value Propositions: What unique value do you offer to your customers? 3. Channels: How do you reach and communicate with your customers? 4. Customer Relationships: What type of relationship do you establish with your customers? 5. Revenue Streams: How does your business generate income? 6. Key Resources: What assets are essential to your business model? 7. Key Activities: What are the most important activities your business must perform? 8. Key Partnerships: Who are your key partners and suppliers? 9. Cost Structure: What are the main costs involved in your business model? The BMC helps entrepreneurs and business leaders to quickly and easily define and communicate a business idea or concept. It's particularly useful for startups and new projects, as it allows for rapid iteration and refinement of business models. Foundations and Forms of Entrepreneurship 16  feasibility - how do i make it actually possible viability - how do i make it financially viable desirability - how do i make it wanted The Lean Business model canvas — builds on the assumption that entrepreneurs are problem solvers and that there is no entrepreneurial opportunity without customer demand The Lean Business Model Canvas is a simplified version of the traditional Business Model Canvas, designed specifically for startups and new projects. It focuses on addressing problems, solutions, key metrics, and competitive advantages. The Lean Canvas helps entrepreneurs to: Quickly outline their business idea Identify and prioritize risks Recognize the most important elements of their business Iterate and pivot their concept efficiently Foundations and Forms of Entrepreneurship 17  Key differences from the traditional canvas include: Emphasis on defining the problem and solution Focus on key metrics for measuring success Inclusion of the "Unfair Advantage" or competitive edge Replacement of key activities and resources with "Key Metrics" This lean approach is particularly useful for startups operating in uncertain environments, allowing for rapid testing and adaptation of business hypotheses. problem → customer segments → unique value proposition → solution → channels → revenue streams → cost structure → competitive advantage → key metrics Here's an explanation of each block in the Lean Business Model Canvas, along with examples: 1. Problem This block describes the top 1-3 problems that your target customers are facing. Example: For a food delivery app, the problems might be: Limited food options in certain areas Long wait times for food delivery Foundations and Forms of Entrepreneurship 18  Inconvenience of picking up takeout 2. Customer Segments This defines your target audience or users. Example: For the food delivery app: Urban professionals aged 25-40 College students Busy families 3. Unique Value Proposition This is a clear, compelling message that states why you are different and worth paying attention to. Example: "Hot, restaurant-quality meals delivered to your door in 30 minutes or less." unique selling points saves people time, money, energy or space reduces people worries and limiting risks increases people satisfaction levels brings people convenience improves people status or image makes it easier to earn more money 4. Solution This outlines the top features of your product or service that will solve the customer's problems. Example: Wide network of restaurant partners Efficient routing algorithm for quick deliveries User-friendly mobile app interface 5. Channels Foundations and Forms of Entrepreneurship 19  This describes how you will reach your customers and deliver your value proposition. Example: Mobile app (iOS and Android) Website Social media marketing 6. Revenue Streams This explains how the company will make money. Example: Commission from restaurant partners Delivery fees from customers Premium subscription for free delivery 7. Cost Structure This lists the main costs involved in running the business. — all the costs incurred to operate a business model [start-up + variable + fixed] Example: App development and maintenance Marketing expenses Customer support staff Payments to delivery drivers 8. Key Metrics These are the key numbers that tell you how your business is doing. Example: Number of daily active users Average delivery time Customer retention rate Foundations and Forms of Entrepreneurship 20  9. Competitive Advantage This is something that cannot be easily copied or bought by competitors. — what is going otmake your business stand out from the crowd Example: "Proprietary AI-driven routing algorithm that optimizes delivery times and costs." Revenue Model — how the start-up gets paid How are you going to make money with this?? Direct sales: Selling products or services directly to customers. Bait and hook: This model involves offering a basic product at a low cost or for free, then charging for refills or associated products. Foundations and Forms of Entrepreneurship 21  Freemium: Offering a basic service or product for free, but charging for premium add-ons or advanced features. Fining: Charging a surcharge or penalty fee under certain conditions. Subscription: Customers pay a recurring fee (e.g., monthly or annually) for continued access to a product or service. Brokerage: Earning a commission by facilitating transactions between parties. Advertising: Generating revenue by displaying ads to users, often in free-to-use products or services. Affiliates: Earning commissions by promoting other companies' products or services. Peer-to-peer: Facilitating transactions directly between individuals, often taking a small fee or percentage. Each of these models has its own advantages and is suitable for different types of businesses and industries. The choice of revenue model can significantly impact a company's growth strategy and overall business model. BM assumptions like the other building blocks of your BM, your financials are also a collection of assumptions that need testing, examples: we can acquire customer for less than $XX each we will be able to upsell $XX of our free users to our premium plans average revenue per premium plan customer will be $X/month our operating cost will be less than $X per user/month we can keep customer abandonment rate below X% Start up Financials 2 key indicators for early-stage ventures: 1. cash burn rate a. one of the key problems for early-stage ventures is running out of cash b. it take time before a start up starts making money Foundations and Forms of Entrepreneurship 22  c. the cash burn rate is the amount of cash spend or used over specific time which can be determined through cash flow statement [cash spent/time period] 2. break-even point a. point at which the case balance is going to start being positive Cash Burn Rate Calculation Break-Even point Break-Even Point is the point at which total revenue equals total costs, resulting in neither profit nor loss. For a startup, it's a crucial milestone that indicates when the business begins to be profitable. Calculating the break-even point helps entrepreneurs understand: How many units they need to sell to cover all costs The minimum revenue required to avoid losses The time frame to achieve profitability This information is vital for financial planning, setting realistic goals, and demonstrating viability to potential investors. The formula for break-even point is typically: Break-Even Point = Fixed Costs / (Price per Unit - Variable Cost per Unit) Key value drivers in order to deliver a value proposition, a start up has to think about how to use: key resources - workers equipment Foundations and Forms of Entrepreneurship 23  key activities - productions key partners - those that a start-up needs to help. Trade-off at the heartof these operational issues: ownership = control, but can make it difficultto grow quickly; weak ties at the beginning stimulate idea sharing, strong ties later stimulate idea building (Mannucci & Perry-Smith, 2022) These value drivers (enabler of delivery of value proposition) have implications for start-up costs, cash burn rate, and break-even point Link between value driver and costs retail and food marta is ‘location, location’ so will incur some costs [constructions, getting supplies, etc] service-based like consultancy may have high staff costs manufacturers may need lots of equipment and space web and app-based businesses may need software engineers to design the website or app all need systems to inform, educate and sell to customers Lecture 5 — entrepreneurial teams and leadership Recap: the starting point to turn opportunities inot businesses is to figure out what is your business model → how do you create, deliver and appropriate value? business models change over time and there are different approaches to developing them however, your business model is a set of hypothesis [what you believe to be true] until test them using existing data or collecting new one Entrepreneurial teams formation strategies Myths about the Lone entrepreneur most startup have more than 1 founders one of the common problems CEOs and entrepreneurs face: how do i build and motivate my team? Foundations and Forms of Entrepreneurship 24  building a team is not an easy task. a good team can make a mediocre idea successful a bad team can drive a great idea to the grave good teams are rare and difficult to imitate → can provide a source of early competitive advantage entrepreneurial team is like orchestra what makes a team - team = Common Purpose = Shared Goals = Complementary Skills = Clear Workflow =Mutual Accountability — creating this orchestra Why is having a team important 1. Being an early stage entrepreneur can be a lonely job: risk of loneliness and isolation is high 2. People may wonder about your sales ability or your ability to attract/recruit people if you’re unable to find/recruit another co-founder -- co-founders are a good way to demonstrate to the world (investors, future employees, etc.) that you can work with others and convince people to do irrational things 3. People that are exceptionally good at all a startup requires in the early days (e.g., technology, sales, fundraising, operations) are rare 4. Even if you are great, too much work to do in the early days of most startups for a single person to do it all (in addition to the above, marketing, finance, HR, legal, etc.) — creating this orchestra refers to entrepreneurial team formation → the process through which founders established a team to start a new venture 2 common strategies: 1. interpersonal attraction Foundations and Forms of Entrepreneurship 25  2. resource-seeking Interpersonal attraction strategy the interpersonal-attraction strategy represents a relational search process founders take advantage of their close and immediate network homophily and attraction govern the initiation of cofounder ties based on homogeneity and strong relationships in other words, you seek people in your immediate network that are similar to you examples friendship relations family relations romantic relatoins Pros and Cons Pros of the interpersonal attraction strategy: Builds on existing trust and rapport Team members likely share similar values and work styles Easier communication and collaboration Potentially faster team formation process Cons of the interpersonal attraction strategy: Risk of homogeneity in skills and perspectives May limit access to diverse talent pools Potential for conflicts of interest or nepotism accusations Could lead to overlapping skill sets rather than complementary ones Resource-seeking strategy the resource-seeking strategy reflects a rational search process economic instrumentality is key to establishing cofounder ties Foundations and Forms of Entrepreneurship 26  founders rely on a more distributed network for co-founders who have complementary knowledge and skills in other words, you seek people in your extended netwrok that can complement you by providing what you do not have Examples professional background educational background entrepreneurial background Pros and Cons Here are the pros and cons of a resource-seeking strategy in entrepreneurial team formation: Pros: Allows for targeted acquisition of specific skills and expertise needed for the venture Can lead to a more diverse and complementary team composition Potentially brings in team members with valuable industry experience or connections May result in a more well-rounded team capable of addressing various business challenges Cons: May take longer to form the team as the search process can be more extensive Potential lack of pre-existing trust or rapport among team members Could lead to conflicts due to differing work styles or values if not carefully managed Risk of prioritising skills over cultural fit, which could impact team dynamics How could the two strategies be combined? both strategies over time using only one strategy may lead to group deficiencies, that can lead the venture to early failure, limit access into organisational sponsors and hinder their ability to create viable products and sales Foundations and Forms of Entrepreneurship 27  switching strategies is also costlly: entails redefining structural features [eg roles], work practices and processes and socialisation of new members of which can undermine performance a different approach might entail combining these two strategies concurrently rather than sequentially using a dual strategy entails considering both the instrumental and relational aspects when forming a team examples: combining romantic relations and professional background combining friendship relations and professional background Pros alignment of both workplace values and complementary knowledge Cons lack of access limited time and attention limited monetary resources Pros of combining both strategies: Balances relational and instrumental aspects in team formation Potentially creates a more well-rounded team with both trust and complementary skills May lead to faster team integration due to existing relationships while still addressing skill gaps Can provide a mix of shared values and diverse perspectives Cons of combining both strategies: May be challenging to find individuals who meet both relational and resource criteria Could lead to complex team dynamics if some members are chosen based on relationships and others on skills Risk of overlooking potentially valuable team members who don't fit both criteria Foundations and Forms of Entrepreneurship 28  Potential for conflicts between personal and professional expectations within the team A study of 206 teams in the US which collectively raised over 25$ million on Kickstarter "Forming entrepreneurial teams: mixing business and friendship to create transitive memory systems for enhanced success” Key Findings: only 17.5% of teams adopted a dual formation 82.5% adopted either one or the other strategy despite that, these teams raised greater funding amount almost 150k more than teams formed based on interpersonal attraction, both before as well as after reaching their initial campaign goal teams formed according to a resource-seeking strategy alone were more successful than those formed based on interpersonal attraction alone Why is it difficult to combine the two strategies and form hybrid ties? According to Gray et al., 2024 lead entrepreneurs and potential co-founders might have different priorities when making important decision with limited time and attention, individuals prioritise different things: Lead entrepreneurs tend to prioritise resources potential co-founders tend to prioritise interpersonal compatibility lead entrepreneurs can overcome this challenge by emphasising their interpersonal compatibility with potential cofounders during their initial conversations with them Key aspects to manage in entrepreneurial teams: The 3 R's 1. Relationship: Hiring fallacies: 1. Short-term orientation, focus on tasks at hand a. managing reactively [firefighting all the time] rather than proactively 2. Give little thought about the future needs Foundations and Forms of Entrepreneurship 29  a. hiring becomes ad-hoc rather than strategic 3. mindlessly or conveniently team up with family and friends a. can lead to unnecessary interpersonal conflicts and relational stress 4. evaluate candidates as a 'stand alone’ individual rather than in the context of a team a. can lead to misbehaviour, interpersonal conflicts and relational stress What to do instead 1. evaluate the characteristics of the current team a. work norms, culture, values, demographics, personalities and motivation of team members etc 2. evaluate the future needs of the team a. technical or functional expertise: Which and what expertise is needed b. industry or domain specific skills: what challenges will you face in this domain/industry c. interpersonal skills: what interpersonal activities will you engage? GOAL: Identify the needs gap The needs gap refers to the difference between the current capabilities of the team and the skills or expertise required for the venture's success. Identifying this gap involves: Assessing the current team's strengths and weaknesses Determining the critical skills needed for the venture's growth and success Identifying areas where additional expertise or resources are required By understanding this gap, entrepreneurs can make informed decisions about hiring new team members or seeking external resources to address these needs effectively. 2. Roles: a. Assigning roles to team members i. important because the roles set at start-up impact on future performance outcomes ii. despite that, few start-ups have fully developed teams at start Foundations and Forms of Entrepreneurship 30  iii. Role allocation is biased [eg those with prior startup experience more likely to become CEO] and not 'rational’— [eg males and whites mroe likely to have senior roles iv. roles may be unequal, but decision-making can still be democratic, this builds trust and cohesion but may mean decision-making is slow and indecisive b. Challenges of assigning roles i. Lack of authority: co-founders are often peers who come together to launch the venture and therefore lack the formal authority that managers in established firms use to design a work team ii. Correlated expertise: co-founders tend to have correlated expertise, this renders task allocation difficult because similarity of skill sets makes division of skill sets makes division of labour problematic iii. Biases: higher-raked task position within founding teams are often occupied by people that correspond to the 'leader’ stereotype [white, male, well-educated] Article: How do entrepreneurial founding teams allocate task postions? Role allocation is biased – these researchers studied which co-founder initially occupies a particular formal task position in a founding team They find that co-founders use so-called status cues to make these decisions. In this context, status cues of gender (male), ethnicity (white), or achievement (occupational prestige or academic honors) that indicated general ability led some people to become the typical occupants of higher-ranked positions, such as chief executive officer role, within the founding team. 3. Rewards a. Splitting ownership between team members i. important because many founders only realise a financial benefit when they sell their share of the startup ii. most founders share equity equally [builds team cohesion and commitment iii. can be unequal — can better reflect commitment iv. later on, ownership is often shared with investors: attention to the so-called cap table dilution Foundations and Forms of Entrepreneurship 31  The MIT Sloan 4 Capabilities — leadership framework — ZipCar opportunity analysis Observation: 66 million people live in the top 20 largest metropolitan areas and only 20 million people use public transportation to go to work, meaning most of them use their car. At the same time, people that do not own a car full time struggle to find one when they need it. Car sharing works well in Europe and companies are starting to be founded in the US too. Motivation: Public transportation is not efficient, certain areas are not well connected to city centre, urban dwellers do not have easy access to cars they can share to go to the office, especially families with one shared car Opportunity: Create a car sharing service to provide urban dwellers with convenient, reliable, fast access to cars. The existing Internet and wireless technology make a car sharing service feasible technology-wise. Initial assumptions 1. people that live in large metropolitan areas predominantly use their private car to go to work 2. people that live in large metropolitan areas would like an alternative to their private car to go to work 3. people that do not own a car fill time do not have easy access to a shared car when they need on 4. people would be willing to share their car with strangers or to use a car that has been used by strangers before them Hiring strategy Dual to start with, mixing romantic and friendship with expertise needed Foundations and Forms of Entrepreneurship 32  Chase’s first phone to her brother Mark (familiar with car sharing, great network) – eventually employed in business development Danielson (three years of experience as a research assistant at a German-based institute working with semiconductors and two years selling and repairing cars) Chase’s husband Roy Russell (electrical engineer from MIT, experience of development of speech recognition applications) -- set up the company’s server; working on in-car technology Stephen Oakley (neighbor with a master’s degree in public health and knowledge of transportation planning) Larry Slotnick (Mark’s contact, biking enthusiast, engineer, interested in marketing of innovative solutions) Resource-seeking moving forward various hourly paid consultants and engineers to work on specific aspects of the company experienced manager Keefer Welch as president [costly mistake!] Who is Robin Chase? grew up with a global mindset from this experience, she learned two key values from her parents: respecting all skill sets making do with what you have high expectations of herself honest resilient Transparent pessimistic/negative What team-related challenges did Chase face as she created Zipcar? leaned on expertise of first members Antje, Roy and Mark looked for generalsits to join team who were self-sufficent Foundations and Forms of Entrepreneurship 33  made bad choices in Keefer Welch but rectified it fairly quickly started building a 'teams’midset with potential members by asking them for help naming company The 4 Capabilities leadership model this model can be used to assess a leader's style as well as her strenghts and weaknesses The 4 Capabilities leadership model is a framework that identifies four key areas of leadership competence: 1. Sensemaking: The ability to interpret and make sense of complex situations a. Examples from case study: i. Learned about previous attempts at car sharing in U.S. and why they failed. Had nonsensical business models. (p. 6) ii. Visited Communauto to get a sense of how a car sharing company that had been in business for five years operated (paper and pen). iii. Learned what she didn’t want to replicate with Zipcar. (p. 6) iv. Turned to potential customers to see what name resonated with them. (p. 7) 2. Relating: The capacity to build and maintain relationships with diverse stakeholders a. Examples from case study: Foundations and Forms of Entrepreneurship 34  i. Networked with different stakeholders ii. Gave over one hundred presentations to potential investors and obtained funding. iii. Educated stakeholders by positioning the company in a win-win light. (p. 12) (example of advocacy) iv. Offered discounts to large companies and academic institutions (p. 14) v. Communicated directly with members through monthly emails and learned from their feedback (p. 17) (example of inquiry and advocacy) 3. Visioning: The skill to create and communicate a compelling vision for the future a. Examples from case study: i. Envisioned helping the environment by reducing number of cars on the road. ii. Envisioned creating a service for people like her: those who did not want a full car but only part of a car. iii. Envisioned making the industry competitive through the use of new technology (wireless, Internet) and better use of resources 4. Inventing: The ability to develop innovative solutions and implement change a. Examples from the case study i. Invented a service that met a market niche (people who didn’t need cars all the time and people who needed a car from time to time) ii. Utilized wireless capabilities to create a sophisticated communication system between customers, cars and the company iii. Hired two “generalists” who would be able to do many different things and not need a lot of supervision iv. Created procedures and processes for Zipcar members to follow in renting a car and invented a pricing model that was not profitable initially. This model suggests that effective leaders need to balance and develop these four capabilities to successfully navigate challenges and lead organizations. It provides a holistic approach to understanding and improving leadership effectiveness across various contexts. Leadership Signature Foundations and Forms of Entrepreneurship 35  while capabilities focus on what leader do, Leadership Signature is who a leader is! A Leadership Signature comprises three things: 1. Credo — your core beliefs and values 2. Confidence — what give you the confidence to take on the risky task of leadership? 3. Credibility — what is it about you that makes others want you as a leader? Robin Chase's Leadership Signature High expectations of herself (believed she could master anything) and others. (p. 3, 8, 9 and 18) Honest and transparent (emotionally). No attempt to hide her emotional reaction to the pricing issue. (p. 18) Pessimistic: “able to find cloud in every silver lining.” (p. 17, 18) Respecting all skill sets (a value she learned at a young age). (p. 8) Placing confidence in others’ abilities. Ability and willingness to make do with what she had. RC launched Zipcar without the technology in place she believed would lead the company to profitability. (p. 11) Robin Chase's strenghts and weaknesses RC excels at visioning and relating. She saw a market need and how it could be addressed. She also excelled at inventing a new business model. RC’s invention capabilities, however, excluded her ability to implement and execute the business model, as highlighted by her hiring practices (the one professional she hired was a disaster) and the pricing error she made. She is about big “I” inventing not small “i”. RC seemed to understand the importance of sensemaking as she built Zipcar, looking at industry data, identifying an industry peer (but not competitor), Communauto to seek advice from, and relying on feedback from the “market" RC does a lot of relating (as indicated by list under relating), but her ability to do so well is limited. Foundations and Forms of Entrepreneurship 36  She relates well with her constituencies (car manufacturers, members) Less so with her own team (emotional transparency, negativity) Key take-aways it is rare to see a leader exhibit more than two or three of the 4 core capabilities effective leaders know what their strong suit is and do not all for the myth of the omniscient leader the leader we are when we start is not the leader we will become, we evolve and develop as leaders this case shows that start of Robin Chase — buut also the experiences that helped her to develop, the mistakes she made, and the resilience she showed in getting through and the transition she makes Lecture 6 Recap Resource acquisition and legitimation strategies Setting the stage: Entrepreneurial Resource Acuisition venture managers rarely possess everything they need to seize an opportunity — need external resources Foundations and Forms of Entrepreneurship 37  but, because, uncertainty is high, they also dont knwo the exact resources that will be needed — remember that new ventures are commercial experiments resource acquisition is a process of trial and error driven by ‘asset parsimony’ = securing the resources to achieve the desired business results at minimum cost — Asset parsimony is a key principle in entrepreneurial resource acquisition. It refers to the practice of securing only the essential resources needed to achieve business goals while minimizing costs. This approach helps startups operate efficiently and conserve capital, especially when resources are limited. The evaluation of novel ideas Novel ideas are critical for firms’ competitiveness and economic growth, but many do not reach the implementation stage because they are rejected by the audience who first evaluate them — A novel idea is a new, original, or innovative concept that has not been previously explored or implemented. It represents a departure from existing norms, practices, or ways of thinking, often offering a fresh perspective or solution to a problem. Novel ideas are characterized by their uniqueness and potential to create value or bring about significant change in a particular field or industry. both scholarly and anecdotal evidence provides plenty of examples of successful innovations that were initially rejected by key audiences The Paradox of Entrepreneurship entrepreneurship is about the discovery/creation of new opportunities [doing sth that did not exist before] — this newness is what new ventures derive their competitive advantage from but the more innovative the business is, and the less performance history a venture has, the more difficult and constrained its resource acquisition process will be [paradox of new venture legitimation] Problem with novelty Foundations and Forms of Entrepreneurship 38  — Key challenge for novel initiative is to obtain legitimacy— legitimacy is a generalised perception that a novel idea is ‘desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions’ Legitimacy is not a fixed attribute of an idea [yes/no] —i ts in the eye of the beholder Legitimacy is the perception that an entity or idea is appropriate, proper, and acceptable within a given social context. For entrepreneurs, it's crucial as it: Facilitates access to resources Enhances credibility with stakeholders Increases chances of survival and success Gaining legitimacy is particularly challenging for novel ventures due to their lack of track record and departure from established norms. Entrepreneurial Legitimacy the most appropriate strategy to gain legitimacy depends on the degree of technology/market novelty Foundations and Forms of Entrepreneurship 39  Option 1 is the lest risky option for many startups Option 4 is essentially a brand-new startup The Entrepreneurial Newness Framework The Entrepreneurial Newness Framework is a model that helps categorize new ventures based on two key dimensions: 1. Market Newness: This refers to how novel or unfamiliar the market is for the venture's products or services. 2. Technology Newness: This dimension considers how new or innovative the technology or approach used by the venture is. Based on these two dimensions, the framework creates four quadrants: 1. Low Market Newness, Low Technology Newness: These are typically traditional small businesses entering established markets with proven technologies. 2. High Market Newness, Low Technology Newness: This represents ventures that use existing technologies to serve new markets or customer segments. Foundations and Forms of Entrepreneurship 40  3. Low Market Newness, High Technology Newness: These ventures introduce innovative technologies or approaches to established markets. 4. High Market Newness, High Technology Newness: This quadrant represents the most innovative and potentially disruptive ventures, creating new markets with new technologies. Understanding where a venture falls within this framework can help entrepreneurs identify appropriate strategies for gaining legitimacy and acquiring resources. It also helps in assessing the potential risks and opportunities associated with different types of entrepreneurial endeavors. Sources of Financing strategy about position comes handing when you try to pinpoint where are you standing building your legitimacy when new to the game comes with good positioning — Foundations and Forms of Entrepreneurship 41  Selecting Funding Sources: A Framework Small business, established models/technologies personal lines of credit bank loans proven models/technologies, capital intensive commercial banks public project financing — corporate Foundations and Forms of Entrepreneurship 42  strategic low/medium capital requirements, new model, technologies angels seed investments venture capital capital intensive, untested technologies valley of death The "valley of death" refers to a critical phase in a startup's lifecycle, particularly for those developing capital-intensive or untested technologies. It is the period between initial seed funding and generating sustainable revenue, where many startups struggle to secure additional funding. This phase is characterized by: High cash burn rates due to ongoing research and development Lack of revenue or insufficient revenue to cover expenses Difficulty in attracting investors due to high risk and uncertainty Potential for running out of funds before achieving market traction Startups in this phase often face significant challenges in obtaining financing, as they are too risky for traditional lenders but may not yet be attractive to venture capitalists. Overcoming the valley of death is crucial for a startup's survival and progression to later stages of growth. Foundations and Forms of Entrepreneurship 43  Bootstrapping — self-financing or borrowing from family or friends Crowdfunding — raising small amounts of money form a large number of people, typically via internet, in exchange for a discount or early access to a solution Debt — secured financing of a new venture that involves a payback of the funds plus a fee Equity — involves the sale [exchange] of some of the ownership interest in the venture in return for a unsecured investment Understanding Audience Diversity When approaching audiences, it is important to understand what they value [their meaning- making logic] and link your proposition to that Different audiences have different logics Foundations and Forms of Entrepreneurship 44  Crowdfunding backers → community logic, drawn to ventures that demonstrate commitment to community values and ideology Government agencies → state logic, operate to fulfill government mandates, place value in the prestige and selectivity of government funding for science, see themselves as stewards of government funds Angel investors → market logic, can be relatively autonomous in their decision making, draw authority from their past entrepreneurial success and the personal wealthy that stems from that, invest for personal economic returns and for the opportunity to participate in entrepreneurial endeavours Venture capitalists → professional logic, depends on their investment track record as a source of their own legitimacy, operate from a self-interested perspective and invest with a strong focus on generating economic returns, which benefits them and their fund investors Corporate venture capitalists → corporate investment logic, the logic of investment is for strategy enhancement, CVC investors look for ventures that offer something to enhance the strategy of the corporation Pre-seed funding family, freinds, self-funding pre-seed is when the ideas i form and there is mostly intangible aspects of the company present equity → 50/50 between founders (bootstrapping) Seed funding angel networks, crowdfunding, bank loans, lines of credit seed is when your company is becoming more tangible equity → it is spread out but the most hold has a probably the angle investor (early) Seedling funding same as before but the rounds repeat seedling is when the company is staring to grow (growth) Baby Plant funding Foundations and Forms of Entrepreneurship 45  bridge loans, open market offerings, SPAC [special purpose acquisition company], merges Baby plant is when the company is getting stronger and it’s growing (exit) Working out your financials Projecting Financials try not to project much further than 24 months, investors are less likely to believe a projection for a longer time horizon know that until you start selling your numbers are just rough estimates! so be conservative in your projections [better to estimate higher rather than lower costs] remember that financial forecasts show a startups's strategic assumptions about how to intends to create, deliver and capture value → investors care about your assumptions and thinking process so focus on explaining what will drive revenues — they know the actual numbers are likely to change Cash is King — main reason for business failure amoung startups is cash Foundations and Forms of Entrepreneurship 46  cash flow statement is a record for a given period of when cash came in, when it went out and what is left over usually done month by month cash flow statement for the first year includes different scenarions — best, expects and worst case important because a startup can make a loss and still survive but if it lacks cash, it is heading towards the cemetery — needs money to get through the 'valley of death' difference between when cash comes in and when it goes out — especially if gives its customers 90-day payment terms [three months wait for payment but still has to pay the bills Cash flow statememt equation Key pre-launch startup costs Foundations and Forms of Entrepreneurship 47  regulatory requirements [eg insurance, health and safety liabilities, registering with the tax office and other government agencies] capital equipment pre-launch operational costs incurred to get the product or service ready [eg buying supplies, warehousing, sales and logistics] living expenses contigency reserve to cope with delays and problems 4 main sources of fixed costs 1. total sales and marketing costs — the costs involved in promoting and selling a product or service 2. total general and administrative costs [eg rent, insurance, utility] 3. total personnel costs [eg founder and employees salaries] 4. total product development Profit and Loss vs Cash Flow Profit and Loss (P&L) and Cash Flow are two essential financial statements that provide different insights into a company's financial health: Profit and Loss (Income Statement): Shows revenues, expenses, and profit over a specific period Indicates the company's profitability Uses accrual accounting (records transactions when they occur, not when cash changes hands) Cash Flow Statement: Shows the inflow and outflow of cash during a specific period Indicates the company's liquidity and ability to pay bills Uses cash accounting (records transactions when cash is received or paid) Key differences: Foundations and Forms of Entrepreneurship 48  1. Timing: P&L may include future income or expenses, while Cash Flow only shows actual cash movements 2. Purpose: P&L shows profitability, Cash Flow shows liquidity 3. Importance for startups: Cash Flow is often more critical, as it shows if the company can meet its immediate financial obligations A company can be profitable on paper (P&L) but still face cash flow problems, or vice versa. Both statements are crucial for a comprehensive financial analysis. Market sizing: TAM, SAM, SOM TAM (Total Addressable Market) This is the entire market for your product or service. Example: For a company selling organic dog food, the TAM might be all dog owners in the country. SAM (Serviceable Available Market) This is the portion of TAM that your company can realistically target with its current business model and technology. Example: For the organic dog food company, the SAM might be dog owners who buy premium or organic pet food. SOM (Serviceable Obtainable Market) This is the portion of SAM that you can realistically capture in the near term. Example: For the organic dog food company, the SOM might be dog owners in cities where they currently have distribution, who are interested in organic food and can afford premium prices. Think of it as a series of nested circles: SOM is a subset of SAM, which is a subset of TAM. This helps you understand your market potential and set realistic goals. Lecture 7 — guest lecture: Apollo Agriculture — Leondro Sales, Vise President of technology Foundations and Forms of Entrepreneurship 49  → we work with farmers across Africa to increase their profitability and resilience, from season to season and from seed to sale company tries to maintain the farmers and be able to create sales In the nutshell: farmers come to the company to get credit for farming then they provide them with high-quality inputs, basically they go to the argo-dealers store that they are partnered with to get the good they also provide agronomie advice on how to run the farm in a good way on top they provide insurance — Sales through a Field Agents Network the credit amount is established based on the farmers capabilities and their infrastructure they have a raise equity and debth Apollo provides everything farmers need in 1 customised package product is a customised package of fertiliser, seed, advice and insurance on credit that can at least double yields a farmer without Apollo purchases only the seed and fertiliser she can afford, often poor-quality products and insufficient fertilizer receives little / no advice — vontinue Findng product-market fit are we offering what they need? do they need what we offer FEMSTART — Foundations and Forms of Entrepreneurship 50  Why the focus on the femal entrepreneurs? Gender Financing Gap: 800k female entrepreneurs in the Netherlands Female-led startups receive significantly less funding compared to male-led startup 0,7% Challenges: limited access to networks, mentorship, and financial support Income < 15k py — they give online courses, organise events, training “discipline and consistency is the key” From startup to scale up: FEM-START Startup: develop a proof of concept and focus on initial customer acquisition explore product-market fit and refine our value proposition Growth: expand our team and optimise operations for efficiency scaleup: secure larger investments and focus on expanding into new markets, B2B — the investors should feels the passion soft vs hard loans growth hacker - helps to scale the business digital, (social media, create funnels, anything to attract customers, etc); a good one will find you customers product-market fit! B2C=subscription based membership challenges in the B2c to B2B transition Different marketing approaches: B2C relives on mass marketing, B2B focuses on relationship- for FEMstart didnt not work due to not enough audience Foundations and Forms of Entrepreneurship 51  longer sales cycles and trust-building customisation: B2B clients often need tailored solutions contract complexityL legal and negotiation challenges the kept the business lean, expanded with sufficient funds Financing the growth — from startup to scaleup startup funding options: angel investors and bootstrapping focus on getting our minimum viable product MVP to market scaleup funding venture capital investors require solid growth metrics and clear business plans — when they know you are desparate, they will ask for 30% which is a lot Leaning for moving from startup to scaleup focus on sustainable growth, not quick wins build a strong team that supports scaling develop relationships with B2B clients early What is FEM-START’s biggest challenge? continuing finding clients maintain the right product-market fit when do you realise you transition from a startup to scaleup 1. the amount of money you make 2. amount of clients for B2C, clients dont need to know how you are for B2B, clients should know you, your face — personally Foundations and Forms of Entrepreneurship 52  when pitching the idea it is important to research the person you will be pitching to — align the story to the person women are underestimated and we dont talk about money → by straightforward, confidence banks have fundatorom where you get soft loans and donations Conclusion: B2C to B2B — the path to sustainable growth for FEMStart Key Success Factors building trust and credibility through industry expertise developing a clear value proposition for B2B clients emphasising flexibility and adaptability to meet evolving business needs Opportunities ahead: with the right approach, this shift can unlock new markets, improve operational efficiency, and create long-term partnerships that drive sustainable growth in Lecture 10 — business growth and corporate entrepreneurship Recap from week 4 to sustain growth and realise their intended business model, new venture need to acquire resources from a variety of stakeholders [investors, potential employees, customers) in doing this, new venture face a paradox: their innovative as is what drives their competitive advantage, but it is also what leads them to lack legitimacy founders should identify the right funding sources for their ventures that match the novelty and funding requirements of their startup idea What is business growth? The Orgnisation for Economic Cooperation and Development defines: high-growth entteprises all ‘all enterprises with average annualised growth greater than 20% per annum, over a three-year period’ Foundations and Forms of Entrepreneurship 53  so called gazelles are ‘all entrepreses up to 5 years old with average annualised growth greater than 20% per annum, over a three year period’ In addition, fast growth businesses [gazelles, scale-ups] have at least 10 employees Limitation of this definition: three years might no tbe a suitable time period for all businesses [for some ventures in tech- intensive industries can take longer] measuring percentage change favours smaller businesses — doubling in size from 10 to 20 = 100 per cent growth rate; adding 10 workers to workforce of 100 = 10 per cent increase policy-makers and entrepreneurs measure performance in different ways Is managing growth easy? Foundations and Forms of Entrepreneurship 54 Foundations and Forms of Entrepreneurship 55  Growth models [Greiner, 1997] Alternative perspective on growth: population ecology Greiner’s model focuses on internal management [ability to deal with evolutionary and revolutionary period an alternative approach to understanding business growth focuses on population ecologies [ from natural ecosystem evolution in biology] like stage models, population ecology approaches too focus on how businesses come into existence, develop and die. However, population ecologists believe that Foundations and Forms of Entrepreneurship 56  richness of resources and competition determine business birth and success → environments that are rich and have few serious competitors provide opportunities for growth success breeds competition for resources exit is a common fate when the way they do business no longer fits their environment What challenges do companies face as they try to reach their growth goals? When should a business scale, and is growth always a good thing? when to grow? scaling too early scaling too late scaling before knowing if a venture’s venture might fail if domestic market is concept is effective [and for whom] can not big enough be risky important to seize momentum to rally scaling can reveal fatal flows in design support from audience and execution strategy first-mover advantage might be lower after some time from inception: Foundations and Forms of Entrepreneurship 57  competition might ramp up in other markets in the meantime Managing business growth? organisational structure specialisation and organisation design cross-functional collaboration and conflict management management systems and processes onboarding decision-making adoption of new management systems executive transition structuring board and governance managing and sustaining culture team growth and cultural fit maintaining an entrepreneurial culture What do entrepreneurs need to scale? 4 key activities 1. hire functional experts [ ie, defines specialised roles in different business functions 2. add management structures [increase head count while keeping informal ties] 3. building planning and forecasting capabilities [now its a good time to write that Business Plan] 4. spell out and reinforce the cultural values that will sustain the business Define specialised roles 1. founders typically do a bit of everything: at the beginning, they tend to hire other fellow generalists to get the business off the ground Foundations and Forms of Entrepreneurship 58  2. as complexity increases, ventures need specialists in select functions, such as sales, human resources, marketing, R&D, and manufacturing 3. this requires the founding team to make decisions about the organisation design they want to adopt Organisation design ⏐Flat → no specialisation, no hierarchy ⏐Functional structure → grouping employees into different departments by work specialisation, typically, high centralisation of decision-making ⏐Divisional structure → grouping employees into different departments around a common product or geographical location [eg teams are focused on a specific market or product line], typically, high decentralisation of decision-making [division managers] ↓Matrix structure → blend of functional and divisional Advantages of hiring specialists creating an organisation requires hiring function specialists. 2 key advantages of specialisation: 1. specialised knowledge increases operational efficiency → the specialists use their knowledge to tackle their functions’ work more efficiently 2. specialists who do their work efficiently create slack in the rest of the firm → people who n longer have to worry about marketing, for example, are free to explore other activities Challenges of increasing specialisation 1. legacy employees may grow resentful if functional leadership titles increasingly go to outsiders 2. this can create tension between the ‘old guard’ generalists and the new domain experts 3. increased risk of people leaving Example: Birchbox Foundations and Forms of Entrepreneurship 59  1. $60 million in series B funding 2. from eight employees in 2010 to more than 300 in April 2014 3. early were ‘jack of all trades’ during the first 18 months of operations 4. as the business grew, so did the complexity of shipping a milion boxes of unique samples each month, or the job of building sales relationships with enough partner organisations to continually fill those boxes with fresh, interesing products What did Birchbox do? 1. company hired a CTO with a computer science PhD and vice president of brand campaigns who had been a principal at a global consulting firm with expertise in analytics and digital 2. new specialists focused on making sure to fix processes that could be improved while keeping early employees feeling valued and engaged by: a. involving members of the old guard in the hiring process b. cultivating a learning mindset among employee[talking with them about how the domain experts could mentor them] c. ensuring that early employees served a bridge between new specialised functions [silos] and ambassador of company culture adding management structure 1. at the early stage of venture’s life, dounders typically take all decisions 2. as ventures grow, centralised authority can create a paradox of control: a. because everything pass through them, founders think that they are in control Foundations and Forms of Entrepreneurship 60  b. at the same time this creates bottlenecks that hinders information flow, decision making, and execution, leading the venture to spin out of control Example: CloudFlare 1. Founded in 2010 by three founders 2. In 2012 had 35 employees and was serving nearly 500,000 websites, with more than 2 billion daily page views (then about 1% of total internet page views) (Gulati & DeSantola, 2016) 3. CloudFlare’s early growth plans included creating a flat, title free organisation without HR function that would promote flexibility and individual achievement and avoid organisational chart conflicts 4. By the end of July 2012, 15% of employees quit due to lack of HR practice, no official policies and little to no guidance Planning and Forecasting 1. improvisation can work at the beginning and sustain processes of discovery and experimentation 2. however, as firms grow they need a framework of plans and goals to guide them: goal- setting and pacing exercises can help build a long-term vision 3. this entails: a. think concretely about the company’s future [2 years from now] b. set clear performance targets c. admit when things are not working/going as planned and change course d. introduce management information systems to have real-time data that can help make decisions [performance data can enable better forecasting] e. document best ways of doing things across functions so when key people leave, their knowledge does not walk out the door with them Sustaining the culture 1. culture is the set of enduring values and practices that define ‘who we are’ within an organisation Foundations and Forms of Entrepreneurship 61  2. culture is typically a big part of what draws people to join a start-ups and what keeps them going — early employees are typically motivated by a sense of belonging to something important 3. as more people join and a venture starts to formalise its functions and reporting chains [specialisation and more managers], identifying witht he larger organisation can become more difficult especially for new joiners 4. yet a shared culture helps employees collaborate across boundaries and facilitates the exchange of ideas the company needs to innovate What can founders do to sustain the venture’s culture? if founders do not actively sustain the venture’s core set of values, employees’ motivation and engagement might decrease leading to people leaving — to prevent this from happening founders can: 1. clearly articulate their cultural values in the company’s mission and vision statement and in job descriptions [eg integrity, customer focus, teamwork, fun, community giving, etc] 2. keep values alive by hiring for cultural fit 3. reward desired behaviours through recognition and compensation What is Corporate Entrepreneurship? Corporate entrepreneurship refers to the process of fostering innovation and entrepreneurial behavior within established organizations. It involves: Encouraging employees to think and act like entrepreneurs Developing new products, services, or bu