Entrepreneurship Class, UNR MBA Program

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?
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

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

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

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?

Section II
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.

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

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

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

Dangers of Explosive Growth
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

Section III
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

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

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!

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

Section IV
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

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

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

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

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:

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Entrepreneurship Class, UNR MBA Program

by evansridge on Oct 25, 2006

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Entrepreneurship Class, UNR MBA Program — Presentation Transcript