Or the art and science of taking a malleable universe and adapting it to your creative vision and will … E n t r e p r e n e u r s h i p Robb Smith Managing Director

Section I What is entrepreneurship?

What is entrepreneurship?

What is Entrepreneurship? Not a job Not a career Not a class Not a title Not risk-taking Definitely not working for yourself

Not a job

Not a career

Not a class

Not a title

Not risk-taking

Definitely not working for yourself

My definition Entrepreneurship is an orientation towards life Recognizes limitations of human endeavor in society, economy, academy Knows how malleable the world actually is Commits to changing it Wherever the world is imperfect, there find you an entrepreneur Entrepreneurship is artistry

Entrepreneurship is an orientation towards life

Recognizes limitations of human endeavor in society, economy, academy

Knows how malleable the world actually is

Commits to changing it

Wherever the world is imperfect, there find you an entrepreneur

Entrepreneurship is artistry

Should You Care? Wherever you work – nursing, education, business, research, government, non-profits – you will have opportunities to exercise your entrepreneurial mentality If you do, you will earn more, achieve more, and stand out as a leader

Wherever you work – nursing, education, business, research, government, non-profits – you will have opportunities to exercise your entrepreneurial mentality

If you do, you will earn more, achieve more, and stand out as a leader

Life of an Entrepreneur Cultivate your passion Look for luck and take advantage of it Learn to make mistakes Learn to enjoy solitude Have a great support system Never give up

Cultivate your passion

Look for luck and take advantage of it

Learn to make mistakes

Learn to enjoy solitude

Have a great support system

Never give up

Exercise: Highlight the Pain (How to Think Like One) Brainstorm: Identify Problems Who is in pain? Quantify Cost What solutions exist? Is the solution feasible? Do they increase revenue or decrease cost? Key to adoption in capitalism. Who has authority to fix it? Read the newspaper! Watch people – when are they frustrated?

Brainstorm: Identify Problems

Who is in pain?

Quantify Cost

What solutions exist?

Is the solution feasible?

Do they increase revenue or decrease cost? Key to adoption in capitalism.

Who has authority to fix it?

Read the newspaper!

Watch people – when are they frustrated?

Section II Some Dos and Don’ts

Some Dos and Don’ts

The Best Kept Secret in Business: Choose a Great Business What are the elements of a great business/profit model? 1. Demand exists or can be created that consistently exceeds supply. 2. Customers love the product and advocate it to their friends and associates. 3. They have a high degree of recurring, repeat or sequential revenue. 4. They create a sustainable advantage that is difficult to duplicate and deepens over time. 5. They possess a very high gross margin, net margin, and return on invested capital.

What are the elements of a great business/profit model?

1. Demand exists or can be created that consistently exceeds supply.

2. Customers love the product and advocate it to their friends and associates.

3. They have a high degree of recurring, repeat or sequential revenue.

4. They create a sustainable advantage that is difficult to duplicate and deepens over time.

5. They possess a very high gross margin, net margin, and return on invested capital.

Common Mistakes – Don’t Make Them 50/50 or 3 person partnership – no leader/ no CEO Customer concentration Mousetrap team, not management team Low gross margins Undercapitalized Assume fast time to market or large penetration Lack of focus No accountability Proper market segmentation (e.g., high-end tents) ROI indeterminable Managers don’t act like owners

50/50 or 3 person partnership – no leader/ no CEO

Customer concentration

Mousetrap team, not management team

Low gross margins

Undercapitalized

Assume fast time to market or large penetration

Lack of focus

No accountability

Proper market segmentation (e.g., high-end tents)

ROI indeterminable

Managers don’t act like owners

Management: The Key to Success Competent management who have an in-depth knowledge of the industry Flexible to the company’s needs, will not hold a company back Ability to execute a wide variety of tasks including complex business matters Ability to train, hire, and recruit the best staff Only undertakes activities which are value added for the company, i.e. not wasting time and money Emotionally intelligent, stable, mature

Competent management who have an in-depth knowledge of the industry

Flexible to the company’s needs, will not hold a company back

Ability to execute a wide variety of tasks including complex business matters

Ability to train, hire, and recruit the best staff

Only undertakes activities which are value added for the company, i.e. not wasting time and money

Emotionally intelligent, stable, mature

Board of Directors Is a great board more important than great management? Things to look for: Deep board experience Functional diversity Diversity of styles Experience managing people Discipline, work ethic, integrity, serious record of achievement, candor Smart, opinioned people who are professional, courteous, and who don’t kowtow to CEO Emotionally stable, not greedy, manageable ego Are informed and involved Can prioritize and quantify materiality

Is a great board more important than great management?

Things to look for:

Deep board experience

Functional diversity

Diversity of styles

Experience managing people

Discipline, work ethic, integrity, serious record of achievement, candor

Smart, opinioned people who are professional, courteous, and who don’t kowtow to CEO

Emotionally stable, not greedy, manageable ego

Are informed and involved

Can prioritize and quantify materiality

Dangers of Explosive Growth Undercapitalization/mis-capitalization Customer service mistakes Management inflexibility Capacity Inexperience Margin creep

Undercapitalization/mis-capitalization

Customer service mistakes

Management inflexibility

Capacity

Inexperience

Margin creep

The Crucial Years – Summary It’s the people, stupid! Hire the best you can afford (and quality over quantity) As hire As, Bs hire Cs 2 biggest threats to success: greed & ego – are you the problem? Capital may obscure market signals Verify market: Spend 90% of time on top line and gross margin Instill disciplined business practices on management: planning, accountability, control Over-communicate w/ BOD, mgmt

It’s the people, stupid!

Hire the best you can afford (and quality over quantity)

As hire As, Bs hire Cs

2 biggest threats to success: greed & ego – are you the problem?

Capital may obscure market signals

Verify market: Spend 90% of time on top line and gross margin

Instill disciplined business practices on management: planning, accountability, control

Over-communicate w/ BOD, mgmt

Section III Venture Capital

Venture Capital

Sources of Financing for Newco, Inc. Personal savings Friends and family Angels Venture capitalists Banks Investment banks Public markets Small company, Equity Larger company, Debt & equity Increasing Sophistication

Personal savings

Friends and family

Angels

Venture capitalists

Banks

Investment banks

Public markets

Best-performing asset class over long-term *Ibbotson & Associates **Venture Economics We hope …

VCs: Most Important Thing We Do, 3 Ways Mitigate Risk! Instill world-class business practices Hire/fire CEO, and quickly! Ensure accountability

Mitigate Risk!

Instill world-class business practices

Hire/fire CEO, and quickly!

Ensure accountability

How We Work With Management Confessors, advisors, sounding-boards, devil’s advocates, and assistants, providing: Moral support Market Strategy Recruiting Credibility for financing, hiring Business development Key trends And of course: more money!

Confessors, advisors, sounding-boards, devil’s advocates, and assistants, providing:

Moral support

Market Strategy

Recruiting

Credibility for financing, hiring

Business development

Key trends

And of course: more money!

Turnoffs Include… Inexperienced, inflexible management team Principals don’t have zen First time CEOs No clear core competency Customer base too broad due to undefined target market Low ROI for customers Low gross margin Product is not a strategic purchase Small target market size Customers are not hungry for the solution Product is not developed

Inexperienced, inflexible management team

Principals don’t have zen

First time CEOs

No clear core competency

Customer base too broad due to undefined target market

Low ROI for customers

Low gross margin

Product is not a strategic purchase

Small target market size

Customers are not hungry for the solution

Product is not developed

Section IV War Stories (Notice that “war” rhymes with “horror”.)

War Stories

(Notice that “war” rhymes with “horror”.)

Datacom Hardware Great market, technology, team (we thought) Well-funded, brand name syndicate Lessons: Executives do what they know (CEO was sales and marketing executive) $1mm/mo marketing burn pre-product Market analysts are usually wrong about timing of market opening VCs as investment managers – must understand finance (tempers greed) and historical valuation precedent Know when an acquirer is making a great offer

Great market, technology, team (we thought)

Well-funded, brand name syndicate

Lessons:

Executives do what they know (CEO was sales and marketing executive)

$1mm/mo marketing burn pre-product

Market analysts are usually wrong about timing of market opening

VCs as investment managers – must understand finance (tempers greed) and historical valuation precedent

Know when an acquirer is making a great offer

Fiber optics Revolutionary optical technology Idiosyncratic team Lessons: Never rely entirely on someone else’s due diligence Get to know the team very well Never get caught up in hype Watch for warning signs in entrepreneur’s motivations

Revolutionary optical technology

Idiosyncratic team

Lessons:

Never rely entirely on someone else’s due diligence

Get to know the team very well

Never get caught up in hype

Watch for warning signs in entrepreneur’s motivations

Satellite training Very strong team (again, it appeared) Well-funded Guaranteed contract w/ IBM Lessons: Executives do what they know (CEO came from large company) Bear as little fixed cost risk as possible (zero) Hobby v. business

Very strong team (again, it appeared)

Well-funded

Guaranteed contract w/ IBM

Lessons:

Executives do what they know (CEO came from large company)

Bear as little fixed cost risk as possible (zero)

Hobby v. business

Healthcare services Reputable VCs Compelling value proposition Large market pain Lessons: Change management quickly on sign of systemic trouble Always have growth financing in place alongside equity Good boards can save a company on the slide Bad boards will ruin a company on the rise

Reputable VCs

Compelling value proposition

Large market pain

Lessons:

Change management quickly on sign of systemic trouble

Always have growth financing in place alongside equity

Good boards can save a company on the slide

Bad boards will ruin a company on the rise

Exercise: Startup, Inc. Problem: Solution: Customers: Market Size: Decision Maker: Product ROI: Feature or Stand Alone: Startup “Dream” Team (Pick 2): Gross Margin: Competition: Unfair Advantage:

Problem:

Solution:

Customers:

Market Size:

Decision Maker:

Product ROI:

Feature or Stand Alone:

Startup “Dream” Team (Pick 2):

Gross Margin:

Competition:

Unfair Advantage: