Description
This brief description in relation to new venture creation entrepreneurship for the 21st century jeffry k timmons.
N e w V e n t u r e C r e a t i o n
ENTREPRENEURSHIP FOR THE 21ST CENTURY
J e f f r y k Ti m m o n s , A . B , M . B . i D .B A
Fr a n k l i n W . Ol i a D i s t i n g u i s h e d Pr o f e s s o r o f En t r e p r e n e u r s ! ^
D i r e ct o r , Th e Pr i ce -B a bs o n Co l l e g e Fe l l o ws Pr o g r a m
Fr a n k l i n W . Ol i n , Gr a d u a t e Sch o o l o f B u s i n e s s
B a bs o n Co l l e g e
B a bs o n Pa r k , M a s s a ch u s e t t s
Ir w i n
McGr a w -Hi ll
B o s t o n B u r r Ri d g e , IL D u bu qu e , IA M a d i s o n , W I Ne w Yo r k
Sa n Fr a n ci s co St . Lo u i s B a n g k o k B o g o t a Ca r a ca s Li s bo n
Lo n d o n M a d r i d M e xi co Ci t y M i l a n Ne w D e l h i Se o u l
Si n g a p o r e Syd n e y Ta i p e i To r o n t o
© 2008 AGI-Information Management Consultants
May be used for personal purporses only or by
libraries associated to dandelon.com network.
T a b le n f C n n t e n t s
P A R T I
T h e O p p o r t u n i t y
T h e E n t r e p r e n e u r i a l R e v o l u t i o n i
The Entrepreneurial Revolution 3
The E-Generation and the Death of
Brontosaurus Capitalism 4
Entrepreneurship: America's Secret
Economic Weapon 4
The Entrepreneurial Revolution
Accelerates and Broadens 13
Entrepreneurs: America's
Self-Made Millionaires 14
Dawn of the New Age of
Equity Creation 14
Building an Entrepreneurial
Society 16
Chapter Summary 17
Study Questions 18
Mind Stretchers 18
Exe r ci s e : A Visit with an Entrepreneur 18
C a s e : Outdoor Scene, Inc. 21
T h e E n t r e p r e n e u r i a l P r o c e s s 2 7
Demystifying Entrepreneurship 27
Classic Entrepreneurship:
The Startup 28
Entrepreneurship in Post-Brontosaurus
Capitalism: Beyond Startups 28
"People Don't Want to Be Managed.
They Want to Be Led" 28
Signs of Hope in a Corporate
I c e A ge 2 9
Metaphors 29
Entrepreneurship = Paradoxes 30
The Higher Potential Venture:
Think Big Enough 31
Smaller Means Higher Failure Odds 32
Getting the Odds in Your Favor 33
Threshold Concept 33
Promise of Growth 34
Venture Capital Backing 34
Not Only the Insights of
Venture Capitalists 35
Find Financial Backers and Associates
Who Add Value 36
Option: The Lifestyle Venture 36
The Timmons Model: Where Theory and
Practice Collide in the Real World 37
Intellectual and Practical Collisions
with the Real World 37
Value Creation: The Three
Driving Forces 37
Recent Research Supports
the Model 44
Entrepreneurial Reasoning:
The Entrepreneurial Mind in
Action 44
Apprenticeship: Acquiring the
50,000 Chunks 46
Role Models 46
Myths and Realities 46
What Can Be Learned? 48
A Word of Caution: What SATs, IQ Tests,
GMATs and Others Don't Measure 50
Chapter Summary 50
Study Questions 51
Ta bl e o f Co n t e n t s
Mind Stretchers 51
C a s e : PC-Build, Inc. 51
3 T h e I
R e c o gn i z i n g. S e i z i n g 7 5
Opportunity through a Zoom Lens 75
Transforming Caterpillars
into Butterflies 75
The Role of Ideas 76
Ideas as Tools 76
The Great Mousetrap Fallacy 76
The Best Idea 77
Being There First 78
Pattern Recognition 78
The Experience Factor 78
Enhancing Creative Thinking 79
Approaches to
Unleashing Creativity 79
Team Creativity 80
When Is an Idea .an Opportunity? 80
The Real World* 81
Spawners and Drivers
of Opportunities 81
Big Opportunities with
Little Capital 82
Real Time 83
Relation to the Framework
Analysis 85
Screening Opportunities 87
Opportunity Focus 87
Screening Criteria: The Characteristics
of High-potential Ventures 87
Gathering Information 95
Finding Ideas 95
Shaping Your Opportunity 98
Published Sources 98
Other Intelligence 99
Chapter Summary 100
Study Questions 100
Mind Stretchers 100
C a s e : Roxanne Quimby 101
Exe r ci s e : Creative Squares 107
Exe r ci s e : Idea Generation Guide 108
4 S c r e e n i n g V e n t u r e O p p o r t u n i t i e s 113
Screening Venture Opportunities
Four Anchors 113
113
QuickScreen 114
Venture Opportunity Screening
Guide (VOSG) 114
Exe r ci s e : QuickScreen 115
Exe r ci s e : Venture Opportunity
Screening Guide 117
C a s e : Gary and George Mueller 157
5 E n t r e p r e n e u r s a n d t h e I n t e r n e t : T h e G r e a t E q u a l i z e r
( J u l i a n E L a n ge ) 1 7 3
The Great Equalizer 175
What Is the Internet and Where Did It
Come From? 176
Internet Basic: Principal Features 177
E-mail 177
The World Wide Web 178
Telnet 178
FTP 179
Gopher 179
Usenet 179
Mailing Lists 180
IRC 180
Search Engines 180
Getting Connected: Online Services
versus Direct Connections 181
Staying in Tune with the
Internet Culture 181
How an Existing Business Can Benefit
from the Internet 182
Customer Service/Support 182
Technical Support 184
Data Retrieval 184
Public Relations and
Investor Relations 185
Selling Products and Services 185
An Example: The Internet
Fashion Mall 186
Factors to Consider in Designing Your
Commercial Web Site 186
Security and Payment Issues 186
Cutting Costs 187
Obtaining Advice/Information 187
Internet-related Opportunities for the
Creation of New Businesses 188
Chapter Summary 189
Study Questions 189
Mind Stretchers 189
C a s e : Internet Securities, Inc. 190
Ta bl e o f Co n t e n t s
xi x
PART II
T h e F o u n d e r s
6 T h e E n t r e p r e n e u r i a l M i n d i n T h o u gh t a n d A c t i o n 2 15
The Search for Understanding 215
Two Principles for Achieving
Entrepreneurial Greatness 215
Leadership and Human Behavior 216
Research 217
Converging on the
Entrepreneurial Mind 219
Desirable and Acquirable Attitudes
and Behaviors 219
Six Dominant Themes 220
Other Desirable (but Not So
Acquirable) Attitudes and Behaviors
225
A Look at the
Nonentrepreneurial Mind 226
The Concept of Apprenticeship 226
Shaping and Managing
an Apprenticeship 226
Windows of Apprenticeship 227
A Personal Strategy 228
Entrepreneur's Creed 228
Chapter Summary 229
Study Questions 229
Mind Stretchers 229
C a s e : Michael Healey (A) 230
7 T h e E n t r e p r e n e u r i a l M a n a ge r m
The Entrepreneurial Domain 239
Converging on the
Entrepreneurial Manager 239
Principal Forces and
Venture Modes 240
Stages of Growth 242
A Theoretical View 242
Managing for Rapid Growth 243
What Entrepreneurial Managers Need
to Know 246
Management Competencies 247
Skills in Building an Entrepreneurial
Culture 248 '
Other Management Competencies
249
Chapter Summary 251
Study Questions 252
Mind Stretchers 252
C a s e : Fenchel Lamp Shade Company 252
T h e N e w V e n t u r e T e a m 2 7 7
The Importance of the Team 277
The Connection to Success 277
Forming Building Teams 278
Anchoring Vision in Team Philosophy
and Attitudes 278
A Process of Evolution 280
Filling the Gaps 281
Additional Considerations 282
Common Pitfalls 283
Rewards and Incentives 284
Slicing the Founder's Pie 284
The Reward System 285
Critical Issues 285
Considerations of Timing 286
Considerations of Value 286
Compensation and Incentives in
High-Potential Ventures 287
Chapter Summary 287
Study Questions 287
Mind Stretchers 287
C a s e : Michigan Lighting, Inc. 288
Exe r ci s e : Rewards 296
P e r s o n a l E t h i c s a n d t h e E n t r e p r e n e u r m
Exe r ci s e : Ethics 303
Overview of Ethics 308
Ethical Stereotypes 309
Should Ethics Be Taught? 310
Ethics Can and Should Be Taught
310
The Usefulness of Academic Ethics
311
Entrepreneur's Perspectives 311
Thorny Issues for Entrepreneurs 312
Action under Pressure 312
Different Views 312
Problems of Law 313
Examples of the
Ends-and-Means Issue 314
An Example of Integrity 314
Ethics Exercise Revisited 315
Ta bl e o f Co n t e n t s
Chapter Summary 315
Study Questions 315
Mind Stretchers 315
C a s e : Wayne Postoak 316
P A R T I I I
n e s o u r c e R e q u i r e m e n t s
R e s o u r c e R e q u i r e m e n t s 321
The Entrepreneurial Approach
to Resources 321
Bootstrapping Strategies: Marshalling
and Minimizing Resources 322
Using Other People's
Resources (OPR) 322
Outside People Resources 324
Board of Directors 324
Attorneys 326
Bankers and Other Lenders 328
Accountants 329
Consultants 330
Financial Resources 332
Analyzing Financial Requirements 332
General Sources of Information 338
Chapter Summary 338
Study Questions 338
Mind Stretchers 338
Exercise: How Entrepreneurs T urn Less
into More 338
C a s e : Douglas Ranalli and Shae Plimley 339
T h e B u s i n e s s P l a n 5 6 7
Developing the Business Plan 367
The Plan Is Obsolete at the Printer 368
Work in Progress—Bent Knees
Required 368
The Plan Is Not the Business 368
Some Tips from the Trenches 369
Sell, Sell, Sell! Myopia 369
The Dehydrated Business Plan 370
Who Develops the Business Plan 371
A Closer Look at the What 371
The Relationship between Goals and
Actions 371
Segmenting and
Integrating Information 371
Establishing Action Steps 372
Preparing a Business Plan 372
A Complete Business Plan 372
Exe r ci s e : T he Business Plan Guide 373
Exe r ci s e : T he Business Plan Guide 375
Chapter Summary 387
Study Questions 387
Mind Stretchers 388
P A B T I V
L
F i n a n c i n g E n t r e p r e n e u r i a l V e n t u r e s
1 2 E n t r e p r e n e u r i a l F i n a n c e 411
Venture Financing: The Entrepreneur's
Achilles'Heel 411
Financial Management Myopia: It
Can't Happen to Me 412
Critical Financing Issues 413
Entrepreneurial Finance:
The Owner's Perspective 414
Determining Capital Requirements 417
Financial Strategy Framework 417
Free Cash Flow: Burn Rate,
OOC, and TTC 418
Crafting Financial and
Fund-raising Strategies 419
Critical Variables 419
Financial Life Cycles 420
Investor Preferences 420
Chapter Summary 421
Study Questions 422
Mind Stretchers 422
C a s e : FAX International Japan, Inc. 422
1 3 O h t a i n i n g V e n t u r e a n d G r o w t h C a p i t a l 4 3 7
Cover Your Equity 437
Timing 438
Angels and Informal Investors 438
Who They Are 438
Finding Informal Investors 439
Contacting Investors 439
Evaluation Process 440
The Decision 440
Venture Capital: Gold Mines and
Tar Pits 440
What Is Venture Capital? 440
The Venture Capital Industry 441
The Venture Capital Process 443
Ta bl e o f Co n t e n t s
xxi
Identifying Venture
Capital Investors 446
Dealing with Venture Capitalists 447
Due Diligence: A Two-way Street 448
Other Equity Sources 448
Small Business Administration's 7(a)
Guaranteed Business Loan Program
448
Small Business
Investment Companies 449
Mezzanine Capital 449
Private Placements 449
Initial Public Stock Offerings 450
Private Placement after
Going Public 452
Employee Stock Option
Plans (ESOPs) 452
Keeping Current about
Capital Markets 453
Chapter Summary 453
Study Questions ^ 5 3
Mind Stretchers 453
C a s e : Hindman & Company 454
14 The Deal: V a lu a t i o n Structure and Negotiation 463
The Art and Craft of Valuation 463
Entrepreneurial Value versus Corporate
Finance Value 463
Determinants of Value 463
Long-term Value Creation versus
Quarterly Earnings 464
Psychological Factors
Determining Value 464
A Theoretical Perspective 465
Investor's Required Rate of
Return (IRR) 465
Investor's Required Share
of Ownership 465
Valuation Methods 466
Tar Pits Facing Entrepreneurs 469
Staged Capital Commitments 469
Structuring the Deal 470
What Is a Deal? 470
Understanding
1
the Bets 471
Some of the Lessons Learned:
The Dog in the Suitcase 472
Negotiations 472
What Is Negotiable? 473
The Specific Issues Entrepreneurs
Typically Face 473
Sand Traps 474
Strategic Circumference 474
Legal Circumference 474
Attraction to Status and Size 475
Unknown Territory 475
Opportunity Cost 476
Underestimation of Other Costs 476
Greed 476
Being Too Anxious 476
Impatience 477
Take-the-Money-and-Run Myopia 477
Chapter Summary 477
Study Questions 478
Mind Stretchers 478
C a s e : Bridge Capital Investors, Inc. 478
15 Obtaining Debt Capital 491
The New Millenium: The Good Old
Days Return 491
A Word of Caution 491
The Lender's Perspective 492
Sources of Debt Capital 492
Trade Credit 494
Commercial Bank Financing 494
Line of Credit Loans 494
Accounts Receivable Financing 495
Time-Sales Finance 495
Unsecured Term Loans 495
Chattel Mortgages and
Equipment Loans 496
Conditional Sales Contracts 496
Plant Improvement Loans 496
Commercial Finance Companies 496
Factoring 497
Leasing Companies 498
Managing and Orchestrating the
Banking Relationship 498
Before the Loan Decision 498
Choosing a Value-added
Banker 499
Approaching and Meeting
the Banker 501
What the Banker Wants to Know 501
The Lending Decision 502
Lending Criteria 503
After the Loan Decision 503
Tar Pits: Entrepreneurs Beware 505
Beware of Leverage:
The ROE Mirage 505
Ta bl e o f Co n t e n t s
IRS: Time Bomb for
Personal Disaster 505
Neither a Lender nor a Borrower Be,
But if You Mu s t . . . 506
Chapter Summary 506
Study Questions 506
Mind Stretchers 506
C a s e : Jiffy Lube International, Inc. 507
P A R T V
S t a r t u p a n d A f t e r
16
V
517
M a n a gi n g R a p i d G r o w t h
Inventing New
Organizational Paradigms 517
Entrepreneurial Leaders Aren't
Administrators or Managers 518
Breakthrough Strategy: Babson's F.W.
Olin Graduate School 518
Leading Practices of High Growth
Companies 518
Growing up Big 519
Stages of Growth Revisited 519
Core Management Mode 520
The Problem in Rate of Growth 522
Industry Turbulence 523
The Importance of Culture and
Organizational Climate 524
Six Dimensions 524
Approaches to Management 524
Entrepreneurial Management for the 21st
Century: Three Breakthroughs 526
Ewing Marion Kauffman and
Marion Labs 526
Jack Stack and Springfield
Remanufacturing Corporation
Ralph Stayer and Johnsonville
Sausage Company 527
The Chain of Greatness 527
Chapter Summary 529
Study Questions 529
Mind Stretchers 529
Case: Quick Lube Franchise Corporation
(QLFC) 529
The Entrepreneur and the Troubled Conpny 535
When the Bloom Is off the Rose 535
Getting into and out of Trouble 536
Causes of Trouble 536
The Gestation Period of Crisis 537
The Paradox of Optimism 538
526
Decline in Organizational Morale 538
Predicting Trouble 538
Net-Liquid-Balance-to-Total-Assets
Ratio 539
Nonquantitative Signals 539
The Threat of Bankruptcy 539
Voluntary Bankruptcy 540
Involuntary Bankruptcy 540
Bargaining Power 540
Intervention 540
Diagnosis 541
The Turnaround Plan 542
Longer-term Remedial Actions 544
Chapter Summary 545
Study Questions 545
Mind Stretchers 545
C a s e : Paul J. T obin 545
T h e H a r v e s t a n d B e y o n d 5 7 3
A Journey, Not a Destination 573
The Journey Can Be Addictive 573
First Build a Great Company 574
Create Harvest Options 574
A Harvest Goal 575
Crafting a Harvest Strategy:
Timing is Vital 575
Harvest Options 577
Capital Cow 577
Employee Stock Ownership Plan 577
Management Buy Out 577
Merger, Acquisition, and
Strategic Alliance 577
Outright Sale 578
Public Offering 578
Wealth-building Vehicles 579
Beyond the Harvest 579
Seven Secrets of Success 580
Chapter Summary 580
Study Questions 580
Mind Stretchers 580
C a s e : Boston Communications Group, Inc. 581
doc_240360427.pdf
This brief description in relation to new venture creation entrepreneurship for the 21st century jeffry k timmons.
N e w V e n t u r e C r e a t i o n
ENTREPRENEURSHIP FOR THE 21ST CENTURY
J e f f r y k Ti m m o n s , A . B , M . B . i D .B A
Fr a n k l i n W . Ol i a D i s t i n g u i s h e d Pr o f e s s o r o f En t r e p r e n e u r s ! ^
D i r e ct o r , Th e Pr i ce -B a bs o n Co l l e g e Fe l l o ws Pr o g r a m
Fr a n k l i n W . Ol i n , Gr a d u a t e Sch o o l o f B u s i n e s s
B a bs o n Co l l e g e
B a bs o n Pa r k , M a s s a ch u s e t t s
Ir w i n
McGr a w -Hi ll
B o s t o n B u r r Ri d g e , IL D u bu qu e , IA M a d i s o n , W I Ne w Yo r k
Sa n Fr a n ci s co St . Lo u i s B a n g k o k B o g o t a Ca r a ca s Li s bo n
Lo n d o n M a d r i d M e xi co Ci t y M i l a n Ne w D e l h i Se o u l
Si n g a p o r e Syd n e y Ta i p e i To r o n t o
© 2008 AGI-Information Management Consultants
May be used for personal purporses only or by
libraries associated to dandelon.com network.
T a b le n f C n n t e n t s
P A R T I
T h e O p p o r t u n i t y
T h e E n t r e p r e n e u r i a l R e v o l u t i o n i
The Entrepreneurial Revolution 3
The E-Generation and the Death of
Brontosaurus Capitalism 4
Entrepreneurship: America's Secret
Economic Weapon 4
The Entrepreneurial Revolution
Accelerates and Broadens 13
Entrepreneurs: America's
Self-Made Millionaires 14
Dawn of the New Age of
Equity Creation 14
Building an Entrepreneurial
Society 16
Chapter Summary 17
Study Questions 18
Mind Stretchers 18
Exe r ci s e : A Visit with an Entrepreneur 18
C a s e : Outdoor Scene, Inc. 21
T h e E n t r e p r e n e u r i a l P r o c e s s 2 7
Demystifying Entrepreneurship 27
Classic Entrepreneurship:
The Startup 28
Entrepreneurship in Post-Brontosaurus
Capitalism: Beyond Startups 28
"People Don't Want to Be Managed.
They Want to Be Led" 28
Signs of Hope in a Corporate
I c e A ge 2 9
Metaphors 29
Entrepreneurship = Paradoxes 30
The Higher Potential Venture:
Think Big Enough 31
Smaller Means Higher Failure Odds 32
Getting the Odds in Your Favor 33
Threshold Concept 33
Promise of Growth 34
Venture Capital Backing 34
Not Only the Insights of
Venture Capitalists 35
Find Financial Backers and Associates
Who Add Value 36
Option: The Lifestyle Venture 36
The Timmons Model: Where Theory and
Practice Collide in the Real World 37
Intellectual and Practical Collisions
with the Real World 37
Value Creation: The Three
Driving Forces 37
Recent Research Supports
the Model 44
Entrepreneurial Reasoning:
The Entrepreneurial Mind in
Action 44
Apprenticeship: Acquiring the
50,000 Chunks 46
Role Models 46
Myths and Realities 46
What Can Be Learned? 48
A Word of Caution: What SATs, IQ Tests,
GMATs and Others Don't Measure 50
Chapter Summary 50
Study Questions 51
Ta bl e o f Co n t e n t s
Mind Stretchers 51
C a s e : PC-Build, Inc. 51
3 T h e I
R e c o gn i z i n g. S e i z i n g 7 5
Opportunity through a Zoom Lens 75
Transforming Caterpillars
into Butterflies 75
The Role of Ideas 76
Ideas as Tools 76
The Great Mousetrap Fallacy 76
The Best Idea 77
Being There First 78
Pattern Recognition 78
The Experience Factor 78
Enhancing Creative Thinking 79
Approaches to
Unleashing Creativity 79
Team Creativity 80
When Is an Idea .an Opportunity? 80
The Real World* 81
Spawners and Drivers
of Opportunities 81
Big Opportunities with
Little Capital 82
Real Time 83
Relation to the Framework
Analysis 85
Screening Opportunities 87
Opportunity Focus 87
Screening Criteria: The Characteristics
of High-potential Ventures 87
Gathering Information 95
Finding Ideas 95
Shaping Your Opportunity 98
Published Sources 98
Other Intelligence 99
Chapter Summary 100
Study Questions 100
Mind Stretchers 100
C a s e : Roxanne Quimby 101
Exe r ci s e : Creative Squares 107
Exe r ci s e : Idea Generation Guide 108
4 S c r e e n i n g V e n t u r e O p p o r t u n i t i e s 113
Screening Venture Opportunities
Four Anchors 113
113
QuickScreen 114
Venture Opportunity Screening
Guide (VOSG) 114
Exe r ci s e : QuickScreen 115
Exe r ci s e : Venture Opportunity
Screening Guide 117
C a s e : Gary and George Mueller 157
5 E n t r e p r e n e u r s a n d t h e I n t e r n e t : T h e G r e a t E q u a l i z e r
( J u l i a n E L a n ge ) 1 7 3
The Great Equalizer 175
What Is the Internet and Where Did It
Come From? 176
Internet Basic: Principal Features 177
E-mail 177
The World Wide Web 178
Telnet 178
FTP 179
Gopher 179
Usenet 179
Mailing Lists 180
IRC 180
Search Engines 180
Getting Connected: Online Services
versus Direct Connections 181
Staying in Tune with the
Internet Culture 181
How an Existing Business Can Benefit
from the Internet 182
Customer Service/Support 182
Technical Support 184
Data Retrieval 184
Public Relations and
Investor Relations 185
Selling Products and Services 185
An Example: The Internet
Fashion Mall 186
Factors to Consider in Designing Your
Commercial Web Site 186
Security and Payment Issues 186
Cutting Costs 187
Obtaining Advice/Information 187
Internet-related Opportunities for the
Creation of New Businesses 188
Chapter Summary 189
Study Questions 189
Mind Stretchers 189
C a s e : Internet Securities, Inc. 190
Ta bl e o f Co n t e n t s
xi x
PART II
T h e F o u n d e r s
6 T h e E n t r e p r e n e u r i a l M i n d i n T h o u gh t a n d A c t i o n 2 15
The Search for Understanding 215
Two Principles for Achieving
Entrepreneurial Greatness 215
Leadership and Human Behavior 216
Research 217
Converging on the
Entrepreneurial Mind 219
Desirable and Acquirable Attitudes
and Behaviors 219
Six Dominant Themes 220
Other Desirable (but Not So
Acquirable) Attitudes and Behaviors
225
A Look at the
Nonentrepreneurial Mind 226
The Concept of Apprenticeship 226
Shaping and Managing
an Apprenticeship 226
Windows of Apprenticeship 227
A Personal Strategy 228
Entrepreneur's Creed 228
Chapter Summary 229
Study Questions 229
Mind Stretchers 229
C a s e : Michael Healey (A) 230
7 T h e E n t r e p r e n e u r i a l M a n a ge r m
The Entrepreneurial Domain 239
Converging on the
Entrepreneurial Manager 239
Principal Forces and
Venture Modes 240
Stages of Growth 242
A Theoretical View 242
Managing for Rapid Growth 243
What Entrepreneurial Managers Need
to Know 246
Management Competencies 247
Skills in Building an Entrepreneurial
Culture 248 '
Other Management Competencies
249
Chapter Summary 251
Study Questions 252
Mind Stretchers 252
C a s e : Fenchel Lamp Shade Company 252
T h e N e w V e n t u r e T e a m 2 7 7
The Importance of the Team 277
The Connection to Success 277
Forming Building Teams 278
Anchoring Vision in Team Philosophy
and Attitudes 278
A Process of Evolution 280
Filling the Gaps 281
Additional Considerations 282
Common Pitfalls 283
Rewards and Incentives 284
Slicing the Founder's Pie 284
The Reward System 285
Critical Issues 285
Considerations of Timing 286
Considerations of Value 286
Compensation and Incentives in
High-Potential Ventures 287
Chapter Summary 287
Study Questions 287
Mind Stretchers 287
C a s e : Michigan Lighting, Inc. 288
Exe r ci s e : Rewards 296
P e r s o n a l E t h i c s a n d t h e E n t r e p r e n e u r m
Exe r ci s e : Ethics 303
Overview of Ethics 308
Ethical Stereotypes 309
Should Ethics Be Taught? 310
Ethics Can and Should Be Taught
310
The Usefulness of Academic Ethics
311
Entrepreneur's Perspectives 311
Thorny Issues for Entrepreneurs 312
Action under Pressure 312
Different Views 312
Problems of Law 313
Examples of the
Ends-and-Means Issue 314
An Example of Integrity 314
Ethics Exercise Revisited 315
Ta bl e o f Co n t e n t s
Chapter Summary 315
Study Questions 315
Mind Stretchers 315
C a s e : Wayne Postoak 316
P A R T I I I
n e s o u r c e R e q u i r e m e n t s
R e s o u r c e R e q u i r e m e n t s 321
The Entrepreneurial Approach
to Resources 321
Bootstrapping Strategies: Marshalling
and Minimizing Resources 322
Using Other People's
Resources (OPR) 322
Outside People Resources 324
Board of Directors 324
Attorneys 326
Bankers and Other Lenders 328
Accountants 329
Consultants 330
Financial Resources 332
Analyzing Financial Requirements 332
General Sources of Information 338
Chapter Summary 338
Study Questions 338
Mind Stretchers 338
Exercise: How Entrepreneurs T urn Less
into More 338
C a s e : Douglas Ranalli and Shae Plimley 339
T h e B u s i n e s s P l a n 5 6 7
Developing the Business Plan 367
The Plan Is Obsolete at the Printer 368
Work in Progress—Bent Knees
Required 368
The Plan Is Not the Business 368
Some Tips from the Trenches 369
Sell, Sell, Sell! Myopia 369
The Dehydrated Business Plan 370
Who Develops the Business Plan 371
A Closer Look at the What 371
The Relationship between Goals and
Actions 371
Segmenting and
Integrating Information 371
Establishing Action Steps 372
Preparing a Business Plan 372
A Complete Business Plan 372
Exe r ci s e : T he Business Plan Guide 373
Exe r ci s e : T he Business Plan Guide 375
Chapter Summary 387
Study Questions 387
Mind Stretchers 388
P A B T I V
L
F i n a n c i n g E n t r e p r e n e u r i a l V e n t u r e s
1 2 E n t r e p r e n e u r i a l F i n a n c e 411
Venture Financing: The Entrepreneur's
Achilles'Heel 411
Financial Management Myopia: It
Can't Happen to Me 412
Critical Financing Issues 413
Entrepreneurial Finance:
The Owner's Perspective 414
Determining Capital Requirements 417
Financial Strategy Framework 417
Free Cash Flow: Burn Rate,
OOC, and TTC 418
Crafting Financial and
Fund-raising Strategies 419
Critical Variables 419
Financial Life Cycles 420
Investor Preferences 420
Chapter Summary 421
Study Questions 422
Mind Stretchers 422
C a s e : FAX International Japan, Inc. 422
1 3 O h t a i n i n g V e n t u r e a n d G r o w t h C a p i t a l 4 3 7
Cover Your Equity 437
Timing 438
Angels and Informal Investors 438
Who They Are 438
Finding Informal Investors 439
Contacting Investors 439
Evaluation Process 440
The Decision 440
Venture Capital: Gold Mines and
Tar Pits 440
What Is Venture Capital? 440
The Venture Capital Industry 441
The Venture Capital Process 443
Ta bl e o f Co n t e n t s
xxi
Identifying Venture
Capital Investors 446
Dealing with Venture Capitalists 447
Due Diligence: A Two-way Street 448
Other Equity Sources 448
Small Business Administration's 7(a)
Guaranteed Business Loan Program
448
Small Business
Investment Companies 449
Mezzanine Capital 449
Private Placements 449
Initial Public Stock Offerings 450
Private Placement after
Going Public 452
Employee Stock Option
Plans (ESOPs) 452
Keeping Current about
Capital Markets 453
Chapter Summary 453
Study Questions ^ 5 3
Mind Stretchers 453
C a s e : Hindman & Company 454
14 The Deal: V a lu a t i o n Structure and Negotiation 463
The Art and Craft of Valuation 463
Entrepreneurial Value versus Corporate
Finance Value 463
Determinants of Value 463
Long-term Value Creation versus
Quarterly Earnings 464
Psychological Factors
Determining Value 464
A Theoretical Perspective 465
Investor's Required Rate of
Return (IRR) 465
Investor's Required Share
of Ownership 465
Valuation Methods 466
Tar Pits Facing Entrepreneurs 469
Staged Capital Commitments 469
Structuring the Deal 470
What Is a Deal? 470
Understanding
1
the Bets 471
Some of the Lessons Learned:
The Dog in the Suitcase 472
Negotiations 472
What Is Negotiable? 473
The Specific Issues Entrepreneurs
Typically Face 473
Sand Traps 474
Strategic Circumference 474
Legal Circumference 474
Attraction to Status and Size 475
Unknown Territory 475
Opportunity Cost 476
Underestimation of Other Costs 476
Greed 476
Being Too Anxious 476
Impatience 477
Take-the-Money-and-Run Myopia 477
Chapter Summary 477
Study Questions 478
Mind Stretchers 478
C a s e : Bridge Capital Investors, Inc. 478
15 Obtaining Debt Capital 491
The New Millenium: The Good Old
Days Return 491
A Word of Caution 491
The Lender's Perspective 492
Sources of Debt Capital 492
Trade Credit 494
Commercial Bank Financing 494
Line of Credit Loans 494
Accounts Receivable Financing 495
Time-Sales Finance 495
Unsecured Term Loans 495
Chattel Mortgages and
Equipment Loans 496
Conditional Sales Contracts 496
Plant Improvement Loans 496
Commercial Finance Companies 496
Factoring 497
Leasing Companies 498
Managing and Orchestrating the
Banking Relationship 498
Before the Loan Decision 498
Choosing a Value-added
Banker 499
Approaching and Meeting
the Banker 501
What the Banker Wants to Know 501
The Lending Decision 502
Lending Criteria 503
After the Loan Decision 503
Tar Pits: Entrepreneurs Beware 505
Beware of Leverage:
The ROE Mirage 505
Ta bl e o f Co n t e n t s
IRS: Time Bomb for
Personal Disaster 505
Neither a Lender nor a Borrower Be,
But if You Mu s t . . . 506
Chapter Summary 506
Study Questions 506
Mind Stretchers 506
C a s e : Jiffy Lube International, Inc. 507
P A R T V
S t a r t u p a n d A f t e r
16
V
517
M a n a gi n g R a p i d G r o w t h
Inventing New
Organizational Paradigms 517
Entrepreneurial Leaders Aren't
Administrators or Managers 518
Breakthrough Strategy: Babson's F.W.
Olin Graduate School 518
Leading Practices of High Growth
Companies 518
Growing up Big 519
Stages of Growth Revisited 519
Core Management Mode 520
The Problem in Rate of Growth 522
Industry Turbulence 523
The Importance of Culture and
Organizational Climate 524
Six Dimensions 524
Approaches to Management 524
Entrepreneurial Management for the 21st
Century: Three Breakthroughs 526
Ewing Marion Kauffman and
Marion Labs 526
Jack Stack and Springfield
Remanufacturing Corporation
Ralph Stayer and Johnsonville
Sausage Company 527
The Chain of Greatness 527
Chapter Summary 529
Study Questions 529
Mind Stretchers 529
Case: Quick Lube Franchise Corporation
(QLFC) 529
The Entrepreneur and the Troubled Conpny 535
When the Bloom Is off the Rose 535
Getting into and out of Trouble 536
Causes of Trouble 536
The Gestation Period of Crisis 537
The Paradox of Optimism 538
526
Decline in Organizational Morale 538
Predicting Trouble 538
Net-Liquid-Balance-to-Total-Assets
Ratio 539
Nonquantitative Signals 539
The Threat of Bankruptcy 539
Voluntary Bankruptcy 540
Involuntary Bankruptcy 540
Bargaining Power 540
Intervention 540
Diagnosis 541
The Turnaround Plan 542
Longer-term Remedial Actions 544
Chapter Summary 545
Study Questions 545
Mind Stretchers 545
C a s e : Paul J. T obin 545
T h e H a r v e s t a n d B e y o n d 5 7 3
A Journey, Not a Destination 573
The Journey Can Be Addictive 573
First Build a Great Company 574
Create Harvest Options 574
A Harvest Goal 575
Crafting a Harvest Strategy:
Timing is Vital 575
Harvest Options 577
Capital Cow 577
Employee Stock Ownership Plan 577
Management Buy Out 577
Merger, Acquisition, and
Strategic Alliance 577
Outright Sale 578
Public Offering 578
Wealth-building Vehicles 579
Beyond the Harvest 579
Seven Secrets of Success 580
Chapter Summary 580
Study Questions 580
Mind Stretchers 580
C a s e : Boston Communications Group, Inc. 581
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