ENTREPRENEURSHIP SEMINAR Lesson 1 What is entrepreneurship spotting

ENTREPRENEURSHIP SEMINAR Lesson 1 What is entrepreneurship & spotting the opportunity Prof. Vittorio de Pedys

Schumpeter’s definition of entrepreneur 1. PProduce a new product, new because addressed to a new customers’ target or goods new in qualities and characteristics. 2. IIntroduce a new production method, which could consist in something not in use in a specific industry or in a scientific technology or in a new manner of treating a product for different commercial purposes. 3. OOpen a new market, such as a new industry’s branch not yet penetrated in a specific country, either already existing or completely new. 4. CConquer a new source of supplying of raw material or semi-finished goods, either already existing or completely new. 5. NNew forms of organization/ reorganization of a specific industry, such as creation of a monopoly (for example with the creation of a trust) or its distribution.

A possible definition Entrepreneurship consists of the competitive behaviours that drive the market process. Consumers get additional choices and incumbent firms get reason to change their behaviour to meet this new competition -Davidson- Strategic orientation is the business dimension that describes the factors that drive the firm’s formulation of strategy. A promoter is truly opportunity driven. His or her orientation is to say, “As I define a strategy, I am going to be driven only by my perception of the opportunities that exist in my environment, and I will not be constrained b the resources at hand”. A trustee, on the other hand, is resource-driven and tends to say, “How do I utilize the resources that I control? ” -Stevenson-

HBS DEFINITION An entrepreneur moves to pursue new opportunities. When he determines a strategy he will be guided only by market opportunities, and will not accept limitation in his endeavour by the lack of resources. (Howard Stevenson)

The Entrepreneur: A Special Species? What do successful high tech entrepreneurs look like? 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Integrity Leadership Impatient; bias toward action (with analysis). Quick clockspeed Modest ego. Seeks and accepts coaching. Recognizes, and hires to overcome weaknesses. Willing to be different. Pragmatic: willing to compromise (in order to move forward). Rejoices in others’ victories (no petty jealousy). Driven to solve a valuable problem for customers (not driven by money or technology). Able to attract world class talent.

Fundamental difference between entrepreneurs and managers

An HBS scheme Entrepreneurial manager Trustee Manager Strategic approach Capability and resources Management style • Strategic view • Driven by perception of opportunity • Driven by resources owned • Decision on opportunity • Quick Decision • Following a slow and established process Decision making in steps with minimal exposure at each step • Single decision with full commitment of all resources • Control of resources • Rent, lease, or temp use in initial phase • Stable ownership of all necessary resources • Structure • flat, informal • Formal hyerarchy • Pay system and meritocracy • Based on wealth generated for the team • Based on individual contribution and promotion Fonte: Stevenson H. , 2000 Why entrepreneurship has won! Harvard University - Graduate School of Business

Which type of person ? strategic focus IV° SPECIALIST: on resources I° ENTREPRENEURIAL : on opportunities III° POTENTIAL : cautious analysis Personal inclination PRO-ACTIVE: fast action

A new venture should originate from a need that urges satisfaction Capability need Resources Risk Idea Opportunity Initiative money

Opportunity sheet - template NEED DESCRIPTION INITIATIVE … … DECISION MAKERS … IDEA DESCRIPTION … RESOURCES Sponsor: Responsible: Team Members: Other people/entities involved: INVESTEMENT REQUIRED … OPPORTUNITY DESCRIPTION RISKS … … SUCCESS CRITERIA …

. . . which raise a number of questions to be addressed Example of questions to answer to Need Idea Opportunity Initiative • Are there needs not addressed by anyone in the market? • Is the need express or latent? • How big is the need (e. g. size of target population, urgency of the need, . . . )? • Who does express the need? • … • What do you offer to satisfy this need? • What type of need is not addressed? • … • How can I realise the idea? • How can I generated the most desirable choice for customers? • Has anyone else done something similar? • … • Which are the main steps to be implemented/executed in exploiting the opportunity? • What are the resources to engage in the initiative? • Which value added will be brought in the company thanks to the initiative? • How is it measured the success of the initiatives? • …

Opportunity sheet – applied to R&R case NEED DESCRIPTION ● People want to play a new board game which involve skill and luck and permit them to socialise. ● The need is proven by the success of Trivial Pursuit in Canada IDEA DESCRIPTION ● Import Trivial Pursuit in US: “Sales of a game in US tend to be approximately 10 times those of sales in Canada” ● Leverage a well known brand to sell the new Trivial game OPPORTUNITY DESCRIPTION ● Close the TV guide agreement ● Sell TV Guide Game through the following channels. . . ● Leverage Robert Reiss experience and network (e. g. choose the appropriate channel to distribute, select appropriate partners/manufacturers, etc. ) ● Be quick in order to be first in the market INITIATIVE ● Set up Trivia inc with my friend/shareholder Kaplan ● DECISION MAKERS ● TV guide, RESOURCES Sponsor: Kaplan Responsible: Reiss Team Members: TV guide, Kaplan, Charles, Swiss Colony, Heller factoring, sales rep Other people/entities involved: Tv Guide employees INVESTEMENT REQUIRED ● 300 K$ for working capital requirements ● No cash cost on advertising RISKS ● Short life cycle ● Few large accounts ● No in-house capability (e. g. design, manufacturing, warehousing…) SUCCESS CRITERIA ● large retailer penetration (# of orders for covering by advance fixed costs) ● be on the market before the season beginning

EVOLUTION 4° 3° 2° 1° Evolved Managerial FB Pseudo. Managerial FB Enlarged FB Individually-run FB = Discontinuity TIME Managerially Sophisticated FB

TYPICAL GROWTH STEPS Organization First step Second step Third step Core problem Survival Growth Management Control and resources allocation Central function Unification of talents and goals in firm Specialized functions Fusion of independent units in interdependent firms Systems of control Personnel ; survival Cost centres ; potential growth Profit centers and performance ; expansion potential Compensation – motivation Ownership by famly Salary, opportunity, problems with growth Salary , bonus , stock options, peer prestige Style of management Individualistic, direct management Integrate specialists, cooperation Integrate generalists, collective Structure Informal Specialists Divisional First task of CEO Direct supervision of employees Management of specialized managers Management of generalist managers Management levels Two three Four

Financial life cycle returns maturity decline Development start Seed Start Up Buy Out Expansion - Bridge Turnaround time (Fonte Kunkel & Mukherjee

Type of deals for risk/return net IRR % Seed Capital Venture Capital early Venture Capital late Buy Out Mezzanine Private High yield (Junk bonds) Corporate Lending (Leverage Secured) Kunkel & Mukherjee Risk

Role of venture capital investors on firm development: evolution of cash flows Seed and Early Stage Venture Capital investors have a primary role on supporting new company during their first years