Description
In this such a detailed explanation in regard to the entrepreneurial mind for an entrepreneurial society.
S E V E N T H E D I T I O N
ENTREPRENEURSHIP FOR THE 21st CENTURY
J e f f r y A . T i m m o n s , A . B . , M . B . A . , D . B . A .
Franklin W. Olin Distinguished Professor of Entrepreneurship
Director, Price Babson College Fellows Program
Babson College
Babson Park, Massachusetts
and
S t e p h e n S p i n e l l i , J r . , B . A
V
M . B . A . , P h . D .
|ohu H. Muller, |r. Chair, Entrepreneurship
Director, Arthur M. Blank Center (or Entrepreneurship
Chairman. Entrepreneurship Division
Babson College
Babson Park. Massachusetts
M cGraw-H ill
I r wi n
Boston Burr Ridge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis
Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City
Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
TABLE O F C O N T E N T S
P A RT I
The E ntrepreneurial Mind for an E ntrepreneurial Society
The E n t r e p r e n e u r i al M i n d : C r af t i n g a
P e r s o n al E n t r e p r e n e u r i al S t r at e g y 3
Three Principles for Achieving
Entrepreneurial Greatness 3
Leadership and Human Behavior 4
Research 5
Converging on the Entrepreneurial
Mind 7
Desirable and Acquirable Attitudes,
Habits, and Behaviors 7
Six Dominant Themes 7
Entrepreneurial Reasoning: The
Entrepreneurial Mind in Action 14
The Concept of Apprenticeship 1 5
Shaping and Managing an
Apprenticeship 15
Windows of Apprenticeship 16
The Concept of Apprenticeship:
Acquiring the 50,000 Chunks 17
Role Models 1 8
Myths and Realities 1 8
What Can Be Learned? 18
A Word of Caution: What SATs, IQ Tests,
GMATs, and Others Don't
Measure 21
A Personal Strategy 22
Entrepreneur's Creed 22
Chapter Summary 23
Study Questions 23
Mind Stretchers 24
E xe r ci s e : Crafting a Personal Entrepreneurial
Strategy 24
E xe r ci s e : Personal Entrepreneurial Strategy 27
A m e r i ca's E n t r e p r e n e u r i al Re vo l u t i o n
Goes Gl o bal 49
Entrepreneurship: A Global
Movement 49
Entrepreneurship: Innovation +
Entrepreneurship = Prosperity and
Philanthropy 50
New Venture Formation 51
The Entrepreneurial Revolution: A Decade
of Acceleration and Boom 60
Education 60
Policy 61
Women 61
Minority Groups 61
Youth Entrepreneurship 61
Entrepreneurs: America's Self-Made
Millionaires 62
Dawn of the New Age of Equity
Creation 62
Building an Entrepreneurial
Society 64
Internet Impact: Resources 65
Communication Goes Global 65
Chapter Summary 65
Table of Contents
Study Questions 66
Internet Resources for Chapter 2 66
Mind Stretchers 66
E xe r ci s e : Visit with an Entrepreneur and
Create a Lifelong Learning Log 67
C as e : Roxanne Quimby 69
P A RT H
3 T h e E n t r e p r e n e u r i al P ro ce s s 79
Demystifying Entrepreneurship 79
Classic Entrepreneurship: The Startup 80
Entrepreneurship in Post Brontosaurus
Capitalism: Beyond Startups 80
"People Don't Want to Be Managed.
They Want to Be Led" 80
Signs of Hope in a Corporate Ice
Age 81
Metaphors 81
Entrepreneurship = Paradoxes 82
The Higher Potential Venture: Think Big
Enough 83
Smaller Means Higher Failure Odds 84
Getting the Odds in Your Favor 85
Threshold Concept 85
Promise of Growth 86
Venture Capital Backing 86
Private Investors Join Venture
Capitalists 87
Find Financials Backers and Associates
Who Add Value 87
Option: The Lifestyle Venture 87
The Timmons Model: Where Theory and
Practice Collide in the Real World 88
Intellectual and Practical Collisions
with the Real World 88
Value Creation: The Driving Forces 88
Change the Odds: Fix It, Shape It,
Mold It, Make It 88
Recent Research Supports the Model 95
Chapter Summary 96
Study Questions 97
Internet Resources for Chapter 3 97
Mind Stretchers 97
C as e : Kurt and John Bauer 98
4 The O p p o r t u n i t y : C r e at i n g , S h ap i n g ,
Re co g n i zi n g , S e i zi n g i i s
Think Big Enough 1 1 5
Opportunity through a Zoom Lens 1 16
Transforming Caterpillars into
Butterflies 1 16
New Venture Realities 1 1 6
The Circle of Ecstasy and the Food
Chain for Ventures 1 1 7
When Is an Idea an Opportunity? 1 1 8
The Real World 1 1 8
Spawners and Drivers of
Opportunities 1 1 8
Search for Sea-Changes 1 20
Desirable Business/Revenue Model
Metrics 121
The Role of Ideas 121
Ideas as Tools 1 21
The Great Mousetrap Fallacy 1 22
Contributors to the Fallacy 1 22
Pattern Recognition 1 23
The Experience Factor 1 23
Enhancing Creative Thinking 123
Approaches to Unleashing
Creativity 1 24
Team Creativity 1 24
Big Opportunities with Little Capital 1 25
Real Time. 1 25
Relation to the Framework of
Analysis 127
Screening Opportunities 127
Opportunity Focus 1 27
Screening Criteria: The Characteristics
of High Potential Ventures 1 27
Industry and Market Issues 1 30
Gathering Information 137
Finding Ideas 1 37
Shaping Your Opportunity 1 39
Published Sources 139
Guides and Company Information 1 39
Other Intelligence 140
Internet Impact: Resources 141
Learning and Researching 141
Chapter Summary 141
Study Questions 142
Table of Contents
Mind Stretchers 142
C as e : Securities Online, Inc. 142
A p p e n d i x A 146
E xe r ci s e : T he Next Sea-Changes 163
E xe r ci s e : T he Opportunity Creating
Concepts and Quest for Breakthrough Ideas 165
E xe r ci s e : Creative Squares 166
E xe r ci s e : Idea Generation Guide 167
5 S cre e n in g V e n t u r e O p p o r t u n i t i e s 169
Screening Venture Opportunities 169
QuickScreen 1 70
Venture Opportunity Screening
Exercise (VOSE) 170
Exercise QuickScreen 1 70
Venture Opportunity Screening
Exercises 172
Exercise 1: Opportunity Concept and
Strategy Statement 1 73
Exercise 2: The Venture Opportunity
Profile 174
Exercise 3: Opportunity Shaping
Research and Exercise 1 78
Exercise 4: Customer Contact
Research and Exercise 1 84
Exercise 5: Mining the Value Chain—
Defining the "White Space" 1 87
Exercise 6: Economics of the
Business—How Do You Make Money
in the White Space? 191
Exercise 7: Capital and Harvest—
How Will You Realize Dollars from
the Venture 1 98
Exercise 8: Competitive Landscape—
Your Strategy Analysis 200
Exercise 9: Founder's Commitment 209
Exercise 10: Flaws, Assumptions, and
Downside Consequences—Risk
Reconsidered 21 1
Exercise 1 1: Action Steps—Setting a
Week-by-Week Schedule 21 3
Exercise 12: Four Anchors Revisited 215
C as e : Burt's Bees 216
6 The Business P lan 223
Developing the Business Plan 223
The Plan Is Obsolete at the Printer 224
Work in Progress—Bent Knees
Required 224
The Plan Is Not the Business 224
Some Tips from the Trenches 225
How to Determine If Investors Can
Add Value 226
The Dehydrated Business Plan 226
Who Develops the Business Plan? 227
A Closer Look "at the What 227
The Relationship between Goals and
Action 227
Segmenting and Integrating
Information 227
Establishing Action Steps 228
Preparing a Business Plan 228
A Complete Business Plan 228
Internet Impact: Opportunity 230
Small Business Commerce 230
Chapter Summary 230
Study Questions 231
Internet Resources for Chapter 6 231
Mind Stretchers 231
E xe r ci s e : T he Business Plan Guide 232
C as e : Newland Medical T echnologies 246
PART I I I
T h e Fo u n d e r an d T e am
7 The E n t r e p r e n e u r i al M an ag e r 257
The Entrepreneurial Domain 257
Converging on the Entrepreneurial
Manager 257
Principal Forces and Venture
Models 258
Stages of Growth 260
A Theoretical View 260
Managing for Rapid Growth 261
What Entrepreneurial Managers Need
to Know 265
Management Competencies 266
Skills in Building Entrepreneurial
Culture 266
Other Management Competencies 268
Chapter Summary 270
Study Questions 270
Internet Resources for Chapter 7 271
Table of Contents
Mind Stretchers 271
E xe r ci s e : Managerial Skills and Know-How
Assessment 272
C as e : Jim Poss 282
8 The N e w V e n t u r e Team 291
The Importance of the Team 291
The Connection to Success 291
Forming and Building Teams 292
Anchoring Vision in Team Philosophy
and Attitudes 292
A Process of Evolution 294
Filling the Gaps 294
Additional Considerations 296
Common'Pitfalls 297
Rewards and Incentives 298
Slicing the Founder's Pie 298
The Reward System 299
Critical Issues 299
Considerations of Timing 300
Considerations of Value 300
Compensation and Incentives in High
Potential Ventures 301
Internet Impact: Team 301
Attracting Talent 301
Chapter Summary 301
Study Questions 302
Internet Resources for Chapter 8 302
Mind Stretchers 302
E xe r ci s e : Rewards 303
C as e : Maclean Palmer 308
9 P e r s o n al E thics an d t h e E n t r e p r e n e u r 321
E xe r ci s e : Ethics 321
Overview of Ethics 326
Ethical Stereotypes 326
Should Ethics Be Taught? 328
Ethics Can and Should Be Taught 328
The Usefulness of Academic Ethics 329
Integrity as Governing Ethic 329
Entrepreneurs' Perspectives 329
Thorny Issues for Entrepreneurs 331
Action under Pressure 331
Different Views 331
Problems of Law 332
Examples of the Ends-and-Means
Issues 333
An Example of Integrity 333
Ethics Exercise Revisited 334
Chapter Summary 334
Study Questions 334
Internet Resources for Chapter 9 335
Mind Stretchers 335
C as e : Wayne Postoak 335
P A RT I V
Fin an cin g E n t r e p r e n e u r i al V e n t u r e s
10 Re s o u r ce Re q u i r e m e n t s 341
The Entrepreneurial Approach to
Resources 341
Bootstrapping Strategies: Marshaling
and Minimizing Resources 342
Build Your Brain Trust 342
Using Other People's Resources
(OPR) 343
Outside People Resources 344
Board of Directors 344
Alternatives to a Formal Board 347
Attorneys 347
Bankers and Other Lenders 349
Accountants 349
Consultants 351
Financial Resources 352
Analyzing Financial Requirements 352
Internet Impact: Resources 353
Fund-Raising for Nonprofits 353
Chapter Summary 353
Study Questions 354
Internet Resources for Chapter 10 354
Mind Stretchers 354
E xe r ci s e : Build Your Brain T rust 355
E xe r ci s e : How Entrepreneurs T urn Less into
More 356
C as e : Quik Lube Franchise Corporation
(QLFC) 357
11 Fr an ch i s i n g 363
Introduction 363
Job Creation versus Wealth
Creation 364
Franchising: A History of
Entrepreneurship 364
Table of Contents
Franchising: Assembling the
Opportunity 365
Primary Target Audience 365
Evaluating a Franchise: Initial Due
Diligence 367
Franchisor as the High Potential
Venture 368
Key Components of a Franchise
- Offering 369
Service Delivery System 369
Training and Operational Support 370
Field Support 371
Marketing, Advertising, and
Promotion 371
Supply 372
Franchise Relationship Model 372
Chapter Summary 374
Study Questions 374
Internet Resources for Chapter 1 1 375
Mind Stretchers 375
C as e : Mike Bellobuono 376
12 E n t r e p r e n e u r i al Finance 387
Venture Financing: The Entrepreneur's
Achilles' Heel 387
Financing Management Myopia:
It Can't Happen to Me 388
Critical Financing Issues 389
Entrepreneurial Finance: The Owner's
Perspective 390
Determining Capital Requirements 393
Financial Strategy Framework 393
Free Cash Flow: Burn Rate, OOC, and
TTC 394
Crafting Financial and Fund-Raising
Strategies 395
Critical Variables 395
Financial Life Cycles 396
Investor Preferences 396
Internet Impact: Opportunity 396
International Finance and Trade 396
Chapter Summary 398
Study Questions 398
Internet Resources for Chapter 1 2 398
Mind Stretchers 398
C as e : Midwest Lighting, Inc. 399
13 O bt ai n i n g V e n t u r e Gr o wt h Cap i t al 409
The Capital Markets Food Chain 409
Cover Your Equity 41 0
Timing 41 1
Angels and Informal Investors 41 1
Who They Are 411
Finding Informal Investors 412
Contacting Investors 413
Evaluation Process 413
The Decision 41 3
Venture Capital: Gold Mines and Tar
Pits 413
What Is Venture Capital? 414
The Venture Capital Industry 415
The Booming 90s 416
Beyond the Crash of 2000: The Venture
Capital Cycle Repeats Itself 416
The Sign-Curve Lives circa 2005 41 8
The Venture Capital Process 41 8
Identifying Venture Capital Investors 419
Dealing with Venture Capitalists 422
Questions the Entrepreneur Can
Ask 422
Due Diligence: A Two-Way Street 423
Other Equity Sources 423
Small Business Administration's 7(a)
Guaranteed Business Loan Program 423
Small Business Investment
Companies 423
Small Business Innovation Research 424
Corporate Venture Capital 424
Mezzanine Capital 424
Private Placements 425
Initial Public Stock Offerings 426
Private Placement after Going
Public 428
Employee Stock Ownership Plans
(ESOPs) 428
Keeping Current about Capital
Markets 429
Chapter Summary 429
Study Questions 429
Internet Resources for Chapter 1 3 429
Mind Stretchers 430
C as e : Forte Ventures 430
A p p e n d i x A 434
14 T h e D e al : V al u at i o n , S t r u ct u r e , an d
N e g o t i at i o n 447
The Art and Craft of Valuation 447
What Is a Company Worth? 447
Determinants of Value 447
Long-Term Value Creation versus
Quarterly Earnings 448
Table of Contents
Psychological Factors Determining
Value 448
A Theoretical Perspective 448
Investor's Required Rate of Return
(IRR) 448
Investor's Required Share of
Ownership 448
The Theory of Company Pricing 449
The Reality 450
The Down Round or Cram Down circa
2002 451
Improved Valuations by 2005 452
Valuation Methods 452
The Venture Capital Method 452
The Fundamental Method 452
The First Chicago Method 452
Ownership Dilution 453
Discounted Cash Flow 454
Other Rule-of-Thumb Valuation
Methods 454
Tar Pits Facing Entrepreneurs 454
Staged Capital Commitments 455
Structuring the Deal 456
What Is a Deal? 456
Understanding the Bets 457
Some of the Lessons Learned: The Dog
in the Suitcase 458
Negotiations 458
What Is Negotiable? 458
The Specific Issues Entrepreneurs
Typically Face 459
The Term Sheet 460
Black Box Technology, Inc., Term
Sheet 460
Sand Traps 460
Strategic Circumference 460
Legal Circumference 461
Attraction to Status and Size 461
Unknown Territory 462
Opportunity Cost 462
Underestimation of Other Costs 463
Greed 463
Being Too Anxious 463
Impatience 463
Take-the-Money-and-Run Myopia 464
Internet Impact: Resources 464
Real Estate Marketing and Sales 464
Chapter Summary 464
Study Questions 465
Internet Resources for Chapter 14 465
Mind Stretchers 465
C as e : PaulJ. T obin 466
15 O bt ai n i n g D e bt C ap i t al 493
A Cyclical Pattern: The Good Old Days
Return but Fade Again 493
A Word of Caution 494
The Lender's Perspective 494
Sources of Debt Capital 494
Trade Credit 496
Commercial Bank Financing 496
Line of Credit Loans 496
Time-Sales Finance 497
Term Loans 497
Chattel Mortgages and Equipment
Loans 498
Conditional Sales Contracts 498
Plant Improvement Loans 498
Commercial Finance Companies 498
Factoring 499
Leasing Companies 500
Before the Loan Decision 501
Approaching and Meeting the
Banker 502
What the Banker Wants to Know 503
The Lending Decision 505
Lending Criteria 505
Loan Restrictions 505
Covenants to Look For 506
Personal Guarantees and the Loan 506
Building a Relationship 506
The TLC of a Banker or Other
Lender 507
What to Do When the Bank Says
No 507
Tar Pits: Entrepreneurs Beware 507
Beware of Leverage: The ROE
Mirage 508
IRS: Time Bomb for Personal
Disaster 508
Neither a Borrower nor a Lender Be,
but If You Must . . . 509
Chapter Summary 509
Study Questions 509
Internet Resources for Chapter 15 510
Mind Stretchers 510
C as e : Bank Documents: " T he Devil Is in the
Details" 511
Table of Contents
P A RT V
S t ar t u p an d B e y o n d
16 M an ag i n g Rap i d Gr o wt h : E n t r e p r e n e u r s h i p
B e y o n d S t ar t u p 533
Inventing New Organizational
Paradigms 533
Entrepreneurial Leaders Are Not
Administrators or Managers 534
Breakthrough Strategy: Babson's F. W.
Olin Graduate School 534
. Leading Practices of High Growth
Companies 534
Growing Up Big 535
Stages of Growth Revisited 535
Core Management Mode 536
The Problem in Rate of Growth 536
Industry Turbulence 539
The Importance of Culture and
Organizational Climate 540
Six Dimensions 540
Approaches to Management 541
Entrepreneurial Management for the 21 st
Century: Three Breakthroughs 542
Ewing Marion Kauffman and Marion
Labs 542
Jack Stack and Springfield
Remanufacturing Corporation 543
Ralph Stayer and Johnsonville Sausage
Company 543
The Chain of Greatness 544
Internet Impact: Resources 545
Supply Chain Management 545
Chapter Summary 546
Study Questions 546
Internet Resources for Chapter 16 546
Mind Stretchers 546
C as e : EverNet Corporation 547
17 T h e Fam i l y as E n t r e p r e n e u r 561
Families, Entrepreneurship, and the
Timmons Model 561
Building Entrepreneurial Family
Legacies 562
Large Company Family Legacies 562
Smaller and Mid-Size Family
Legacies 563
The Family Contribution
and Roles 565
Frame One: The Mindset and Method for
Family Enterprising 568
Enterprising Mindset and Methods 568
What Enterprising is Not . . . 569
Creating the Dialogue for
Congruence 570
Frame Two: The Six Dimensions for
Family Enterprising 572
Leadership Dimension—Does Your
Leadership Create a Sense of
Shared Urgency for Enterprising
and Transgenerational Wealth
Creation? 573
Relationship Dimension—Does Your
Family Have the Relationship Capital
to Sustain Their Transgenerational
Commitments? 573
Vision Dimension—Does Your Family
Have a Compelling Multigenerational
Vision That Energizes People at Every
Level? 574
Strategy Dimension—Does Your Family
Have an International Strategy for
Finding Their Competitive Advantage
as a Family? 574
Governance Dimension—Does
Your Family Have Structures and
Policies That Stimulate Change and
Growth in the Family and
Organization? 574
Performance Dimension—Does Your
Performance Meet the Requirements
for Transgenerational Entrepreneurship
and Wealth Creation? 575
Frame Three: The Familiness Advantage
for Family Enterprising 575
Conclusion 578
Chapter Summary 578
Study Questions 579
Internet Resources for Chapter 1 7 579
Mind Stretchers 580
Exercises 580
Mindset Continuum 580
Methods Continuum 581
Family Enterprising Model 582
Familiness F+ and F —
Continuum . . . 582
Table of Contents
C as e : Indulgence Spa Products 583
A p p e n d i x A 592
A p p e n d i x B 593
18 T h e E n t r e p r e n e u r an d t h e T r o u bl e d
Co m p an y 597
When the Bloom Is off the Rose 597
Getting into Trouble—The Causes 598
Getting out of Trouble 599
Predicting Trouble 599
Net-Liquid-Balance-to-Total-Assets
Ratio 600
Nonquantitative Signals 600
The Gestation Period of Crisis 600
The Paradox of Optimism 601
The Bloom Is off the Rose—Now
What? 601
Decline in Organizational Morale 601
The Threat of Bankruptcy 602
Voluntary Bankruptcy 602
Involuntary Bankruptcy 602
Bargaining Power 602
Intervention 603
Diagnosis 603
The Turnaround Plan 604
Longer-Term Remedial Actions 607
Internet Impact: Opportunity 607
Consumer Power 607
Chapter Summary 607
Study Questions 608
Internet Resources for Chapter 1 8 608
Mind Stretchers 608
C as e : Lightwave T echnology, Inc. 609
19 T h e H ar ve s t an d B e y o n d 617
A Journey, Not a Destination 617
The Journey Can Be Addictive 617
First Build a Great Company 61 8
Create Harvest Options 61 8
A Harvest Goal 619
Crafting a Harvest Strategy: Timing Is
Vital 620
Harvest Options 621
Capital Cow 622
Employee Stock Ownership
Plan 622
Management Buyout 622
Merger, Acquisition, and Strategic
Alliance 622
Outright Sale 623
Public Offering 623
Wealth-Building Vehicles 624
Beyond the Harvest 624
The Road Ahead: Devise a Personal
Entrepreneurial Strategy 625
Goals Matter—A Lot! 625
Values and Principles Matter—
A Lot! 625
Seven Secrets of Success 626
Chapter Summary 626
Study Questions 626
Internet Resources for Chapter 1 9 626
Books of Interest . . . 626
Mind Stretchers 627
C as e : Boston Communications Group, Inc. 627
Index 643
doc_899697728.pdf
In this such a detailed explanation in regard to the entrepreneurial mind for an entrepreneurial society.
S E V E N T H E D I T I O N
ENTREPRENEURSHIP FOR THE 21st CENTURY
J e f f r y A . T i m m o n s , A . B . , M . B . A . , D . B . A .
Franklin W. Olin Distinguished Professor of Entrepreneurship
Director, Price Babson College Fellows Program
Babson College
Babson Park, Massachusetts
and
S t e p h e n S p i n e l l i , J r . , B . A
V
M . B . A . , P h . D .
|ohu H. Muller, |r. Chair, Entrepreneurship
Director, Arthur M. Blank Center (or Entrepreneurship
Chairman. Entrepreneurship Division
Babson College
Babson Park. Massachusetts
M cGraw-H ill
I r wi n
Boston Burr Ridge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis
Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City
Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
TABLE O F C O N T E N T S
P A RT I
The E ntrepreneurial Mind for an E ntrepreneurial Society
The E n t r e p r e n e u r i al M i n d : C r af t i n g a
P e r s o n al E n t r e p r e n e u r i al S t r at e g y 3
Three Principles for Achieving
Entrepreneurial Greatness 3
Leadership and Human Behavior 4
Research 5
Converging on the Entrepreneurial
Mind 7
Desirable and Acquirable Attitudes,
Habits, and Behaviors 7
Six Dominant Themes 7
Entrepreneurial Reasoning: The
Entrepreneurial Mind in Action 14
The Concept of Apprenticeship 1 5
Shaping and Managing an
Apprenticeship 15
Windows of Apprenticeship 16
The Concept of Apprenticeship:
Acquiring the 50,000 Chunks 17
Role Models 1 8
Myths and Realities 1 8
What Can Be Learned? 18
A Word of Caution: What SATs, IQ Tests,
GMATs, and Others Don't
Measure 21
A Personal Strategy 22
Entrepreneur's Creed 22
Chapter Summary 23
Study Questions 23
Mind Stretchers 24
E xe r ci s e : Crafting a Personal Entrepreneurial
Strategy 24
E xe r ci s e : Personal Entrepreneurial Strategy 27
A m e r i ca's E n t r e p r e n e u r i al Re vo l u t i o n
Goes Gl o bal 49
Entrepreneurship: A Global
Movement 49
Entrepreneurship: Innovation +
Entrepreneurship = Prosperity and
Philanthropy 50
New Venture Formation 51
The Entrepreneurial Revolution: A Decade
of Acceleration and Boom 60
Education 60
Policy 61
Women 61
Minority Groups 61
Youth Entrepreneurship 61
Entrepreneurs: America's Self-Made
Millionaires 62
Dawn of the New Age of Equity
Creation 62
Building an Entrepreneurial
Society 64
Internet Impact: Resources 65
Communication Goes Global 65
Chapter Summary 65
Table of Contents
Study Questions 66
Internet Resources for Chapter 2 66
Mind Stretchers 66
E xe r ci s e : Visit with an Entrepreneur and
Create a Lifelong Learning Log 67
C as e : Roxanne Quimby 69
P A RT H
3 T h e E n t r e p r e n e u r i al P ro ce s s 79
Demystifying Entrepreneurship 79
Classic Entrepreneurship: The Startup 80
Entrepreneurship in Post Brontosaurus
Capitalism: Beyond Startups 80
"People Don't Want to Be Managed.
They Want to Be Led" 80
Signs of Hope in a Corporate Ice
Age 81
Metaphors 81
Entrepreneurship = Paradoxes 82
The Higher Potential Venture: Think Big
Enough 83
Smaller Means Higher Failure Odds 84
Getting the Odds in Your Favor 85
Threshold Concept 85
Promise of Growth 86
Venture Capital Backing 86
Private Investors Join Venture
Capitalists 87
Find Financials Backers and Associates
Who Add Value 87
Option: The Lifestyle Venture 87
The Timmons Model: Where Theory and
Practice Collide in the Real World 88
Intellectual and Practical Collisions
with the Real World 88
Value Creation: The Driving Forces 88
Change the Odds: Fix It, Shape It,
Mold It, Make It 88
Recent Research Supports the Model 95
Chapter Summary 96
Study Questions 97
Internet Resources for Chapter 3 97
Mind Stretchers 97
C as e : Kurt and John Bauer 98
4 The O p p o r t u n i t y : C r e at i n g , S h ap i n g ,
Re co g n i zi n g , S e i zi n g i i s
Think Big Enough 1 1 5
Opportunity through a Zoom Lens 1 16
Transforming Caterpillars into
Butterflies 1 16
New Venture Realities 1 1 6
The Circle of Ecstasy and the Food
Chain for Ventures 1 1 7
When Is an Idea an Opportunity? 1 1 8
The Real World 1 1 8
Spawners and Drivers of
Opportunities 1 1 8
Search for Sea-Changes 1 20
Desirable Business/Revenue Model
Metrics 121
The Role of Ideas 121
Ideas as Tools 1 21
The Great Mousetrap Fallacy 1 22
Contributors to the Fallacy 1 22
Pattern Recognition 1 23
The Experience Factor 1 23
Enhancing Creative Thinking 123
Approaches to Unleashing
Creativity 1 24
Team Creativity 1 24
Big Opportunities with Little Capital 1 25
Real Time. 1 25
Relation to the Framework of
Analysis 127
Screening Opportunities 127
Opportunity Focus 1 27
Screening Criteria: The Characteristics
of High Potential Ventures 1 27
Industry and Market Issues 1 30
Gathering Information 137
Finding Ideas 1 37
Shaping Your Opportunity 1 39
Published Sources 139
Guides and Company Information 1 39
Other Intelligence 140
Internet Impact: Resources 141
Learning and Researching 141
Chapter Summary 141
Study Questions 142
Table of Contents
Mind Stretchers 142
C as e : Securities Online, Inc. 142
A p p e n d i x A 146
E xe r ci s e : T he Next Sea-Changes 163
E xe r ci s e : T he Opportunity Creating
Concepts and Quest for Breakthrough Ideas 165
E xe r ci s e : Creative Squares 166
E xe r ci s e : Idea Generation Guide 167
5 S cre e n in g V e n t u r e O p p o r t u n i t i e s 169
Screening Venture Opportunities 169
QuickScreen 1 70
Venture Opportunity Screening
Exercise (VOSE) 170
Exercise QuickScreen 1 70
Venture Opportunity Screening
Exercises 172
Exercise 1: Opportunity Concept and
Strategy Statement 1 73
Exercise 2: The Venture Opportunity
Profile 174
Exercise 3: Opportunity Shaping
Research and Exercise 1 78
Exercise 4: Customer Contact
Research and Exercise 1 84
Exercise 5: Mining the Value Chain—
Defining the "White Space" 1 87
Exercise 6: Economics of the
Business—How Do You Make Money
in the White Space? 191
Exercise 7: Capital and Harvest—
How Will You Realize Dollars from
the Venture 1 98
Exercise 8: Competitive Landscape—
Your Strategy Analysis 200
Exercise 9: Founder's Commitment 209
Exercise 10: Flaws, Assumptions, and
Downside Consequences—Risk
Reconsidered 21 1
Exercise 1 1: Action Steps—Setting a
Week-by-Week Schedule 21 3
Exercise 12: Four Anchors Revisited 215
C as e : Burt's Bees 216
6 The Business P lan 223
Developing the Business Plan 223
The Plan Is Obsolete at the Printer 224
Work in Progress—Bent Knees
Required 224
The Plan Is Not the Business 224
Some Tips from the Trenches 225
How to Determine If Investors Can
Add Value 226
The Dehydrated Business Plan 226
Who Develops the Business Plan? 227
A Closer Look "at the What 227
The Relationship between Goals and
Action 227
Segmenting and Integrating
Information 227
Establishing Action Steps 228
Preparing a Business Plan 228
A Complete Business Plan 228
Internet Impact: Opportunity 230
Small Business Commerce 230
Chapter Summary 230
Study Questions 231
Internet Resources for Chapter 6 231
Mind Stretchers 231
E xe r ci s e : T he Business Plan Guide 232
C as e : Newland Medical T echnologies 246
PART I I I
T h e Fo u n d e r an d T e am
7 The E n t r e p r e n e u r i al M an ag e r 257
The Entrepreneurial Domain 257
Converging on the Entrepreneurial
Manager 257
Principal Forces and Venture
Models 258
Stages of Growth 260
A Theoretical View 260
Managing for Rapid Growth 261
What Entrepreneurial Managers Need
to Know 265
Management Competencies 266
Skills in Building Entrepreneurial
Culture 266
Other Management Competencies 268
Chapter Summary 270
Study Questions 270
Internet Resources for Chapter 7 271
Table of Contents
Mind Stretchers 271
E xe r ci s e : Managerial Skills and Know-How
Assessment 272
C as e : Jim Poss 282
8 The N e w V e n t u r e Team 291
The Importance of the Team 291
The Connection to Success 291
Forming and Building Teams 292
Anchoring Vision in Team Philosophy
and Attitudes 292
A Process of Evolution 294
Filling the Gaps 294
Additional Considerations 296
Common'Pitfalls 297
Rewards and Incentives 298
Slicing the Founder's Pie 298
The Reward System 299
Critical Issues 299
Considerations of Timing 300
Considerations of Value 300
Compensation and Incentives in High
Potential Ventures 301
Internet Impact: Team 301
Attracting Talent 301
Chapter Summary 301
Study Questions 302
Internet Resources for Chapter 8 302
Mind Stretchers 302
E xe r ci s e : Rewards 303
C as e : Maclean Palmer 308
9 P e r s o n al E thics an d t h e E n t r e p r e n e u r 321
E xe r ci s e : Ethics 321
Overview of Ethics 326
Ethical Stereotypes 326
Should Ethics Be Taught? 328
Ethics Can and Should Be Taught 328
The Usefulness of Academic Ethics 329
Integrity as Governing Ethic 329
Entrepreneurs' Perspectives 329
Thorny Issues for Entrepreneurs 331
Action under Pressure 331
Different Views 331
Problems of Law 332
Examples of the Ends-and-Means
Issues 333
An Example of Integrity 333
Ethics Exercise Revisited 334
Chapter Summary 334
Study Questions 334
Internet Resources for Chapter 9 335
Mind Stretchers 335
C as e : Wayne Postoak 335
P A RT I V
Fin an cin g E n t r e p r e n e u r i al V e n t u r e s
10 Re s o u r ce Re q u i r e m e n t s 341
The Entrepreneurial Approach to
Resources 341
Bootstrapping Strategies: Marshaling
and Minimizing Resources 342
Build Your Brain Trust 342
Using Other People's Resources
(OPR) 343
Outside People Resources 344
Board of Directors 344
Alternatives to a Formal Board 347
Attorneys 347
Bankers and Other Lenders 349
Accountants 349
Consultants 351
Financial Resources 352
Analyzing Financial Requirements 352
Internet Impact: Resources 353
Fund-Raising for Nonprofits 353
Chapter Summary 353
Study Questions 354
Internet Resources for Chapter 10 354
Mind Stretchers 354
E xe r ci s e : Build Your Brain T rust 355
E xe r ci s e : How Entrepreneurs T urn Less into
More 356
C as e : Quik Lube Franchise Corporation
(QLFC) 357
11 Fr an ch i s i n g 363
Introduction 363
Job Creation versus Wealth
Creation 364
Franchising: A History of
Entrepreneurship 364
Table of Contents
Franchising: Assembling the
Opportunity 365
Primary Target Audience 365
Evaluating a Franchise: Initial Due
Diligence 367
Franchisor as the High Potential
Venture 368
Key Components of a Franchise
- Offering 369
Service Delivery System 369
Training and Operational Support 370
Field Support 371
Marketing, Advertising, and
Promotion 371
Supply 372
Franchise Relationship Model 372
Chapter Summary 374
Study Questions 374
Internet Resources for Chapter 1 1 375
Mind Stretchers 375
C as e : Mike Bellobuono 376
12 E n t r e p r e n e u r i al Finance 387
Venture Financing: The Entrepreneur's
Achilles' Heel 387
Financing Management Myopia:
It Can't Happen to Me 388
Critical Financing Issues 389
Entrepreneurial Finance: The Owner's
Perspective 390
Determining Capital Requirements 393
Financial Strategy Framework 393
Free Cash Flow: Burn Rate, OOC, and
TTC 394
Crafting Financial and Fund-Raising
Strategies 395
Critical Variables 395
Financial Life Cycles 396
Investor Preferences 396
Internet Impact: Opportunity 396
International Finance and Trade 396
Chapter Summary 398
Study Questions 398
Internet Resources for Chapter 1 2 398
Mind Stretchers 398
C as e : Midwest Lighting, Inc. 399
13 O bt ai n i n g V e n t u r e Gr o wt h Cap i t al 409
The Capital Markets Food Chain 409
Cover Your Equity 41 0
Timing 41 1
Angels and Informal Investors 41 1
Who They Are 411
Finding Informal Investors 412
Contacting Investors 413
Evaluation Process 413
The Decision 41 3
Venture Capital: Gold Mines and Tar
Pits 413
What Is Venture Capital? 414
The Venture Capital Industry 415
The Booming 90s 416
Beyond the Crash of 2000: The Venture
Capital Cycle Repeats Itself 416
The Sign-Curve Lives circa 2005 41 8
The Venture Capital Process 41 8
Identifying Venture Capital Investors 419
Dealing with Venture Capitalists 422
Questions the Entrepreneur Can
Ask 422
Due Diligence: A Two-Way Street 423
Other Equity Sources 423
Small Business Administration's 7(a)
Guaranteed Business Loan Program 423
Small Business Investment
Companies 423
Small Business Innovation Research 424
Corporate Venture Capital 424
Mezzanine Capital 424
Private Placements 425
Initial Public Stock Offerings 426
Private Placement after Going
Public 428
Employee Stock Ownership Plans
(ESOPs) 428
Keeping Current about Capital
Markets 429
Chapter Summary 429
Study Questions 429
Internet Resources for Chapter 1 3 429
Mind Stretchers 430
C as e : Forte Ventures 430
A p p e n d i x A 434
14 T h e D e al : V al u at i o n , S t r u ct u r e , an d
N e g o t i at i o n 447
The Art and Craft of Valuation 447
What Is a Company Worth? 447
Determinants of Value 447
Long-Term Value Creation versus
Quarterly Earnings 448
Table of Contents
Psychological Factors Determining
Value 448
A Theoretical Perspective 448
Investor's Required Rate of Return
(IRR) 448
Investor's Required Share of
Ownership 448
The Theory of Company Pricing 449
The Reality 450
The Down Round or Cram Down circa
2002 451
Improved Valuations by 2005 452
Valuation Methods 452
The Venture Capital Method 452
The Fundamental Method 452
The First Chicago Method 452
Ownership Dilution 453
Discounted Cash Flow 454
Other Rule-of-Thumb Valuation
Methods 454
Tar Pits Facing Entrepreneurs 454
Staged Capital Commitments 455
Structuring the Deal 456
What Is a Deal? 456
Understanding the Bets 457
Some of the Lessons Learned: The Dog
in the Suitcase 458
Negotiations 458
What Is Negotiable? 458
The Specific Issues Entrepreneurs
Typically Face 459
The Term Sheet 460
Black Box Technology, Inc., Term
Sheet 460
Sand Traps 460
Strategic Circumference 460
Legal Circumference 461
Attraction to Status and Size 461
Unknown Territory 462
Opportunity Cost 462
Underestimation of Other Costs 463
Greed 463
Being Too Anxious 463
Impatience 463
Take-the-Money-and-Run Myopia 464
Internet Impact: Resources 464
Real Estate Marketing and Sales 464
Chapter Summary 464
Study Questions 465
Internet Resources for Chapter 14 465
Mind Stretchers 465
C as e : PaulJ. T obin 466
15 O bt ai n i n g D e bt C ap i t al 493
A Cyclical Pattern: The Good Old Days
Return but Fade Again 493
A Word of Caution 494
The Lender's Perspective 494
Sources of Debt Capital 494
Trade Credit 496
Commercial Bank Financing 496
Line of Credit Loans 496
Time-Sales Finance 497
Term Loans 497
Chattel Mortgages and Equipment
Loans 498
Conditional Sales Contracts 498
Plant Improvement Loans 498
Commercial Finance Companies 498
Factoring 499
Leasing Companies 500
Before the Loan Decision 501
Approaching and Meeting the
Banker 502
What the Banker Wants to Know 503
The Lending Decision 505
Lending Criteria 505
Loan Restrictions 505
Covenants to Look For 506
Personal Guarantees and the Loan 506
Building a Relationship 506
The TLC of a Banker or Other
Lender 507
What to Do When the Bank Says
No 507
Tar Pits: Entrepreneurs Beware 507
Beware of Leverage: The ROE
Mirage 508
IRS: Time Bomb for Personal
Disaster 508
Neither a Borrower nor a Lender Be,
but If You Must . . . 509
Chapter Summary 509
Study Questions 509
Internet Resources for Chapter 15 510
Mind Stretchers 510
C as e : Bank Documents: " T he Devil Is in the
Details" 511
Table of Contents
P A RT V
S t ar t u p an d B e y o n d
16 M an ag i n g Rap i d Gr o wt h : E n t r e p r e n e u r s h i p
B e y o n d S t ar t u p 533
Inventing New Organizational
Paradigms 533
Entrepreneurial Leaders Are Not
Administrators or Managers 534
Breakthrough Strategy: Babson's F. W.
Olin Graduate School 534
. Leading Practices of High Growth
Companies 534
Growing Up Big 535
Stages of Growth Revisited 535
Core Management Mode 536
The Problem in Rate of Growth 536
Industry Turbulence 539
The Importance of Culture and
Organizational Climate 540
Six Dimensions 540
Approaches to Management 541
Entrepreneurial Management for the 21 st
Century: Three Breakthroughs 542
Ewing Marion Kauffman and Marion
Labs 542
Jack Stack and Springfield
Remanufacturing Corporation 543
Ralph Stayer and Johnsonville Sausage
Company 543
The Chain of Greatness 544
Internet Impact: Resources 545
Supply Chain Management 545
Chapter Summary 546
Study Questions 546
Internet Resources for Chapter 16 546
Mind Stretchers 546
C as e : EverNet Corporation 547
17 T h e Fam i l y as E n t r e p r e n e u r 561
Families, Entrepreneurship, and the
Timmons Model 561
Building Entrepreneurial Family
Legacies 562
Large Company Family Legacies 562
Smaller and Mid-Size Family
Legacies 563
The Family Contribution
and Roles 565
Frame One: The Mindset and Method for
Family Enterprising 568
Enterprising Mindset and Methods 568
What Enterprising is Not . . . 569
Creating the Dialogue for
Congruence 570
Frame Two: The Six Dimensions for
Family Enterprising 572
Leadership Dimension—Does Your
Leadership Create a Sense of
Shared Urgency for Enterprising
and Transgenerational Wealth
Creation? 573
Relationship Dimension—Does Your
Family Have the Relationship Capital
to Sustain Their Transgenerational
Commitments? 573
Vision Dimension—Does Your Family
Have a Compelling Multigenerational
Vision That Energizes People at Every
Level? 574
Strategy Dimension—Does Your Family
Have an International Strategy for
Finding Their Competitive Advantage
as a Family? 574
Governance Dimension—Does
Your Family Have Structures and
Policies That Stimulate Change and
Growth in the Family and
Organization? 574
Performance Dimension—Does Your
Performance Meet the Requirements
for Transgenerational Entrepreneurship
and Wealth Creation? 575
Frame Three: The Familiness Advantage
for Family Enterprising 575
Conclusion 578
Chapter Summary 578
Study Questions 579
Internet Resources for Chapter 1 7 579
Mind Stretchers 580
Exercises 580
Mindset Continuum 580
Methods Continuum 581
Family Enterprising Model 582
Familiness F+ and F —
Continuum . . . 582
Table of Contents
C as e : Indulgence Spa Products 583
A p p e n d i x A 592
A p p e n d i x B 593
18 T h e E n t r e p r e n e u r an d t h e T r o u bl e d
Co m p an y 597
When the Bloom Is off the Rose 597
Getting into Trouble—The Causes 598
Getting out of Trouble 599
Predicting Trouble 599
Net-Liquid-Balance-to-Total-Assets
Ratio 600
Nonquantitative Signals 600
The Gestation Period of Crisis 600
The Paradox of Optimism 601
The Bloom Is off the Rose—Now
What? 601
Decline in Organizational Morale 601
The Threat of Bankruptcy 602
Voluntary Bankruptcy 602
Involuntary Bankruptcy 602
Bargaining Power 602
Intervention 603
Diagnosis 603
The Turnaround Plan 604
Longer-Term Remedial Actions 607
Internet Impact: Opportunity 607
Consumer Power 607
Chapter Summary 607
Study Questions 608
Internet Resources for Chapter 1 8 608
Mind Stretchers 608
C as e : Lightwave T echnology, Inc. 609
19 T h e H ar ve s t an d B e y o n d 617
A Journey, Not a Destination 617
The Journey Can Be Addictive 617
First Build a Great Company 61 8
Create Harvest Options 61 8
A Harvest Goal 619
Crafting a Harvest Strategy: Timing Is
Vital 620
Harvest Options 621
Capital Cow 622
Employee Stock Ownership
Plan 622
Management Buyout 622
Merger, Acquisition, and Strategic
Alliance 622
Outright Sale 623
Public Offering 623
Wealth-Building Vehicles 624
Beyond the Harvest 624
The Road Ahead: Devise a Personal
Entrepreneurial Strategy 625
Goals Matter—A Lot! 625
Values and Principles Matter—
A Lot! 625
Seven Secrets of Success 626
Chapter Summary 626
Study Questions 626
Internet Resources for Chapter 1 9 626
Books of Interest . . . 626
Mind Stretchers 627
C as e : Boston Communications Group, Inc. 627
Index 643
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