Entrepreneurship Class, UNR MBA Program

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Dos and don't of startups for MBA entreprneurship class from Nevada Ventures, venture capital firm.

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Entrepreneurship Class, UNR MBA Program

  1. 1. 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
  2. 2. Section I <ul><li>What is entrepreneurship? </li></ul>
  3. 3. What is Entrepreneurship? <ul><li>Not a job </li></ul><ul><li>Not a career </li></ul><ul><li>Not a class </li></ul><ul><li>Not a title </li></ul><ul><li>Not risk-taking </li></ul><ul><li>Definitely not working for yourself </li></ul>
  4. 4. My definition <ul><li>Entrepreneurship is an orientation towards life </li></ul><ul><li>Recognizes limitations of human endeavor in society, economy, academy </li></ul><ul><li>Knows how malleable the world actually is </li></ul><ul><li>Commits to changing it </li></ul><ul><li>Wherever the world is imperfect, there find you an entrepreneur </li></ul><ul><li>Entrepreneurship is artistry </li></ul>
  5. 5. Should You Care? <ul><li>Wherever you work – nursing, education, business, research, government, non-profits – you will have opportunities to exercise your entrepreneurial mentality </li></ul><ul><li>If you do, you will earn more, achieve more, and stand out as a leader </li></ul>
  6. 6. Life of an Entrepreneur <ul><li>Cultivate your passion </li></ul><ul><li>Look for luck and take advantage of it </li></ul><ul><li>Learn to make mistakes </li></ul><ul><li>Learn to enjoy solitude </li></ul><ul><li>Have a great support system </li></ul><ul><li>Never give up </li></ul>
  7. 7. Exercise: Highlight the Pain (How to Think Like One) <ul><li>Brainstorm: Identify Problems </li></ul><ul><li>Who is in pain? </li></ul><ul><li>Quantify Cost </li></ul><ul><li>What solutions exist? </li></ul><ul><li>Is the solution feasible? </li></ul><ul><li>Do they increase revenue or decrease cost? Key to adoption in capitalism. </li></ul><ul><li>Who has authority to fix it? </li></ul><ul><li>Read the newspaper! </li></ul><ul><li>Watch people – when are they frustrated? </li></ul>
  8. 8. Section II <ul><li>Some Dos and Don’ts </li></ul>
  9. 9. The Best Kept Secret in Business: Choose a Great Business <ul><li>What are the elements of a great business/profit model? </li></ul><ul><li>1. Demand exists or can be created that consistently exceeds supply. </li></ul><ul><li>2. Customers love the product and advocate it to their friends and associates. </li></ul><ul><li>3. They have a high degree of recurring, repeat or sequential revenue. </li></ul><ul><li>4. They create a sustainable advantage that is difficult to duplicate and deepens over time. </li></ul><ul><li>5. They possess a very high gross margin, net margin, and return on invested capital. </li></ul>
  10. 10. Common Mistakes – Don’t Make Them <ul><li>50/50 or 3 person partnership – no leader/ no CEO </li></ul><ul><li>Customer concentration </li></ul><ul><li>Mousetrap team, not management team </li></ul><ul><li>Low gross margins </li></ul><ul><li>Undercapitalized </li></ul><ul><li>Assume fast time to market or large penetration </li></ul><ul><li>Lack of focus </li></ul><ul><li>No accountability </li></ul><ul><li>Proper market segmentation (e.g., high-end tents) </li></ul><ul><li>ROI indeterminable </li></ul><ul><li>Managers don’t act like owners </li></ul>
  11. 11. Management: The Key to Success <ul><li>Competent management who have an in-depth knowledge of the industry </li></ul><ul><li>Flexible to the company’s needs, will not hold a company back </li></ul><ul><li>Ability to execute a wide variety of tasks including complex business matters </li></ul><ul><li>Ability to train, hire, and recruit the best staff </li></ul><ul><li>Only undertakes activities which are value added for the company, i.e. not wasting time and money </li></ul><ul><li>Emotionally intelligent, stable, mature </li></ul>
  12. 12. Board of Directors <ul><li>Is a great board more important than great management? </li></ul><ul><li>Things to look for: </li></ul><ul><ul><li>Deep board experience </li></ul></ul><ul><ul><li>Functional diversity </li></ul></ul><ul><ul><li>Diversity of styles </li></ul></ul><ul><ul><li>Experience managing people </li></ul></ul><ul><ul><li>Discipline, work ethic, integrity, serious record of achievement, candor </li></ul></ul><ul><ul><li>Smart, opinioned people who are professional, courteous, and who don’t kowtow to CEO </li></ul></ul><ul><ul><li>Emotionally stable, not greedy, manageable ego </li></ul></ul><ul><ul><li>Are informed and involved </li></ul></ul><ul><ul><li>Can prioritize and quantify materiality </li></ul></ul>
  13. 13. Dangers of Explosive Growth <ul><li>Undercapitalization/mis-capitalization </li></ul><ul><li>Customer service mistakes </li></ul><ul><li>Management inflexibility </li></ul><ul><li>Capacity </li></ul><ul><li>Inexperience </li></ul><ul><li>Margin creep </li></ul>
  14. 14. The Crucial Years – Summary <ul><li>It’s the people, stupid! </li></ul><ul><ul><li>Hire the best you can afford (and quality over quantity) </li></ul></ul><ul><ul><li>As hire As, Bs hire Cs </li></ul></ul><ul><ul><li>2 biggest threats to success: greed & ego – are you the problem? </li></ul></ul><ul><li>Capital may obscure market signals </li></ul><ul><li>Verify market: Spend 90% of time on top line and gross margin </li></ul><ul><li>Instill disciplined business practices on management: planning, accountability, control </li></ul><ul><li>Over-communicate w/ BOD, mgmt </li></ul>
  15. 15. Section III <ul><li>Venture Capital </li></ul>
  16. 16. Sources of Financing for Newco, Inc. <ul><li>Personal savings </li></ul><ul><li>Friends and family </li></ul><ul><li>Angels </li></ul><ul><li>Venture capitalists </li></ul><ul><li>Banks </li></ul><ul><li>Investment banks </li></ul><ul><li>Public markets </li></ul>Small company, Equity Larger company, Debt & equity Increasing Sophistication
  17. 17. Best-performing asset class over long-term *Ibbotson & Associates **Venture Economics We hope …
  18. 18. VCs: Most Important Thing We Do, 3 Ways <ul><li>Mitigate Risk! </li></ul><ul><ul><li>Instill world-class business practices </li></ul></ul><ul><ul><li>Hire/fire CEO, and quickly! </li></ul></ul><ul><ul><li>Ensure accountability </li></ul></ul>
  19. 19. How We Work With Management <ul><li>Confessors, advisors, sounding-boards, devil’s advocates, and assistants, providing: </li></ul><ul><ul><li>Moral support </li></ul></ul><ul><ul><li>Market Strategy </li></ul></ul><ul><ul><li>Recruiting </li></ul></ul><ul><ul><li>Credibility for financing, hiring </li></ul></ul><ul><ul><li>Business development </li></ul></ul><ul><ul><li>Key trends </li></ul></ul><ul><ul><li>And of course: more money! </li></ul></ul>
  20. 20. Turnoffs Include… <ul><li>Inexperienced, inflexible management team </li></ul><ul><li>Principals don’t have zen </li></ul><ul><li>First time CEOs </li></ul><ul><li>No clear core competency </li></ul><ul><li>Customer base too broad due to undefined target market </li></ul><ul><li>Low ROI for customers </li></ul><ul><li>Low gross margin </li></ul><ul><li>Product is not a strategic purchase </li></ul><ul><li>Small target market size </li></ul><ul><li>Customers are not hungry for the solution </li></ul><ul><li>Product is not developed </li></ul>
  21. 21. Section IV <ul><li>War Stories </li></ul><ul><li>(Notice that “war” rhymes with “horror”.) </li></ul>
  22. 22. Datacom Hardware <ul><li>Great market, technology, team (we thought) </li></ul><ul><li>Well-funded, brand name syndicate </li></ul><ul><li>Lessons: </li></ul><ul><li>Executives do what they know (CEO was sales and marketing executive) </li></ul><ul><ul><li>$1mm/mo marketing burn pre-product </li></ul></ul><ul><li>Market analysts are usually wrong about timing of market opening </li></ul><ul><li>VCs as investment managers – must understand finance (tempers greed) and historical valuation precedent </li></ul><ul><ul><li>Know when an acquirer is making a great offer </li></ul></ul>
  23. 23. Fiber optics <ul><li>Revolutionary optical technology </li></ul><ul><li>Idiosyncratic team </li></ul><ul><li>Lessons: </li></ul><ul><li>Never rely entirely on someone else’s due diligence </li></ul><ul><li>Get to know the team very well </li></ul><ul><li>Never get caught up in hype </li></ul><ul><li>Watch for warning signs in entrepreneur’s motivations </li></ul>
  24. 24. Satellite training <ul><li>Very strong team (again, it appeared) </li></ul><ul><li>Well-funded </li></ul><ul><li>Guaranteed contract w/ IBM </li></ul><ul><li>Lessons: </li></ul><ul><li>Executives do what they know (CEO came from large company) </li></ul><ul><li>Bear as little fixed cost risk as possible (zero) </li></ul><ul><li>Hobby v. business </li></ul>
  25. 25. Healthcare services <ul><li>Reputable VCs </li></ul><ul><li>Compelling value proposition </li></ul><ul><li>Large market pain </li></ul><ul><li>Lessons: </li></ul><ul><li>Change management quickly on sign of systemic trouble </li></ul><ul><li>Always have growth financing in place alongside equity </li></ul><ul><li>Good boards can save a company on the slide </li></ul><ul><li>Bad boards will ruin a company on the rise </li></ul>
  26. 26. Exercise: Startup, Inc. <ul><li>Problem: </li></ul><ul><li>Solution: </li></ul><ul><li>Customers: </li></ul><ul><li>Market Size: </li></ul><ul><li>Decision Maker: </li></ul><ul><li>Product ROI: </li></ul><ul><li>Feature or Stand Alone: </li></ul><ul><li>Startup “Dream” Team (Pick 2): </li></ul><ul><li>Gross Margin: </li></ul><ul><li>Competition: </li></ul><ul><li>Unfair Advantage: </li></ul>

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