TECHNISCHE UNIVERSITÄT BERLIN INSTITUT FÜR INFORMATIK HUMBOLDT-UNIVERSITÄT ZU BERLIN INSTITUT FÜR INFORMATIK TECHNICAL ENTREPRENEURSHIP Vorlesung 1 INTRODUCTION Wintersemester 1999 Leitung: Prof. Dr. Miroslaw Malek Betreuer: Peter K. Ibach www.informatik.hu-berlin.de/~rok/entrepreneurship TE - I - I - 0 THE GOALS • Development of a viable Business Plan – – – – – – Team Formation Idea Development Initial Presentation Midterm Report Final Presentation Prize Award Ceremony for the Winning Team • Guest speeches on – – – – – Sources of Financing Marketing Tax and Legal Issues Management Success Stories TE - I - I - 1 TECHNICAL ENTREPRENEURSHIP 1. Introduction 2. Entrepreneurial Processes and Models 3. Creating a Successful Business Plan 4. Creativity: the Product or the Service 5. Business Management 6. Financial Projections and Sources of Financing 7. Marketing 8. Legal and Tax Issues 9. Intellectual Property 10. Ethics 11. Special Problems and Who Can Help 12. Advanced Topics Lectures by: M. Malek, Students, Guests TE - I - I - 2 Internet Revolution (Worldwide) Quelle: Der Spiegel 38/99 TE - I - I - 3 Internet Revolution (Germany) 30 Geschätzte Umsätze mit ECommerce in Mrd. DM (Deutschland) 25 20 15 10 Quelle: Berliner Wirtschaft Aug./Sept. 99 5 0 1999 2000 2001 TE - I - I - 4 E-COMMERCE IN GERMANY Quelle: Wirtschaftswoche 42/99 TE - I - I - 5 USEFUL SITES COLLECTION • Books – • Magazines – – • www.infoquelle.de - Infoquelle Online Wirtschaftsmagazin, informiert u.A. über die Erstellung eines Business-Planes www.bizz.de - Bizz Online Kapitalmagazin mit Artikeln rund ums Thema "Existenzgründung" Websites – – • • • • Struck, Uwe: Geschäftspläne, Voraussetzung für erfolgreiche Kapitalbeschaffung, Schäfer Verlag, Reihe: Kompaktes Wissen für Führungskräfte, ISBN: 3-8202-0562-4 www.gruenderstadt.de - Suchmaschine und Informationsplattform speziell für Existenzgründer. smallbusiness.yahoo.com - Entrepreneurial site of Yahoo with many hints and links Conferences and Workshops Organizations and Societies Venture Capital Companies BP-Competitions – www.berliner-sparkasse.de - StartUp Gründungswettbewerb zusammen mit McKinsey. (exhaustive lists in Appendix) TE - I - I - 6 3 M’s of ENTREPRENEURSHIP MANAGEMENT MONEY MARKETING TE - I - I - 7 ENTREPRENEUR • A person who destroys the existing economic order by introducing new products and services, by creating new forms of organizations and by exploiting new raw materials (Joseph Schumpeter) • Someone who perceives an opportunity and creates an organization to pursue it • A person who organizes and manages a business undertaking • A creator of a new company TE - I - I - 8 ENTREPRENEURSHIP = Creation of a new company • The Entrepreneurial Process – involves all the functions, activities and actions associated with perceiving opportunities and creating organizations to pursue them TE - I - I - 9 HOT TOPICS (1) Fast Growing Areas Specific Topics Electronic commerce / virtual stores: buying online and picking up physically problem (3 c’s: community, content and commerce). · Auctions, flea market, e.g., used books (www.ebay.com) · Auctions for B2B competitions · Email to media (letter, book, photo, poster, CD, DVD) gateway city net including delivery, e-commerce infrastructure, logistics Security · · · · · Telecommunication, mobile computing, communication networks, wireless communication · Wireless Internet access (www.sandner.net) Remote control, observation, diagnostics · Intelligent building · Remote housekeeping/controlling · Video control Audio/video streaming, protocols, visualization, 3D, entertainment, games, leisure, education · · · · · Biometrics Cyber cash Firewalls Encryption Operating system extensions & tools Internet video/TV (broadcast) Video distribution (music: www.mp3.com) , Online photo- and copy center Online training center Games over (wireless) networks TE - I - I - 10 HOT TOPICS (2) Fast Growing Areas Specific Topics Healthcare, medical applications, bio informatics, remote patient care • Online expert locating and consulting • Online drugstores www.drugstore.com • “Virtual experiments” by processing the Human Genome database Transportation, aerospace, defense, airlines, aviation, automotive, travel, package delivery Robotics, intelligent control, micro mechanics, embedded systems Financial services, banking, insurance, trust center Billing/charging systems Smart cards & wearable computers • Collision avoidance • Logistics • Packing chip, tracking systems · Autonomous coordination · Remote control · Online stock markets · Venture Capital: Capital network for startups und business angels (www.garage.com) · Micro payment systems · Internet payment systems · Payment systems, e-purse · Security · New applications (www.microsoft.com/smartcard) TE - I - I - 11 HOT TOPICS (3) Fast Growing Areas Specific Topics Matchmaking: people matching · “Competition server” matchmaking between people engaging in any kind of on- or offline games/sports · “Reverse” auctions for services (painter, carpeter, IT experts, etc.), taking care of information asymmetries. Agency for self-employed IT experts: www.careercentral.com Matchmaking: product matching · Price broker (books, CDs, DVDs) www.powershopping.de · Specific search engines (music, photos: www.ditto.com, videos) Work over net, market research, customer feedback · Remote secretary · Internet call center: redirect incoming calls to home offices via Internet · www.epinions.com TE - I - I - 12 Entrepreneurship is the engine of growth for the turn of 21st century Entrepreneurship is the best hope for an eternal economic springtime TE - I - I - 13 A MODEL OF THE ENTREPRENEURIAL PROCESS Personal Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Innovation Environment Opportunities Role models Creativity Personal Risk taking Job dissatisfaction Job loss Education Age Commitment Sociological Networks Teams Parents Family Role models Triggering event Personal Entrepreneur Leader Manager Commitment Vision Implementation Environment Competition Resources Incubator Government policy TE - I - I - 14 Organizational Team Strategy Structure Culture Products Growth Environment Competitors Customers Suppliers Investors Bankers Lawyers Resources STATS • BUT REMEMBER – 1 business in 10 will reach its 10th birthday. – Starting businesses is like starting love affairs (paraphrasing George Bernard Shaw) – "Any fool can start one, it takes a genius to end one successfully." U. S. Examples: • JOBS – – – – • 10.000 jobs have to be created every day (= 2,5 million jobs per year) In the 80's 5% of the young companies created 77% of jobs 15% of these companies created 94% of jobs Fortune 500 companies eliminated 3.5 million jobs in the 80's GROWTH – 500,000 small companies grow by 20% per year • ENTREPRENEURSHIP AT UNIVERSITIES - MIT – Over 4,000 businesses established by alumni – 1.1million jobs – $ 232 billion in sales TE - I - I - 15 WHAT MAKES AN ENTREPRENEUR? The Ten D’s (1) • Dream – Entrepreneurs have a vision of what the future could be like for them and their business. And, more importantly, they have the ability to implement their dreams. • Decisiveness – They don't procrastinate. They make decisions swiftly. Their swiftness is a key factor in their success. • Doers – Once they decide on a course of action, they implement it as quickly as possible. • Determination – They implement their ventures with total commitment. They seldom give up, even when confronted by obstacles that seem insurmountable. • Dedication – They are totally dedicated to their business, sometimes at considerable cost to their relationships with their friends and families. They work tirelessly. Twelve-hour days, and seven-day work weeks are not uncommon when an entrepreneur is striving to get a business off the ground. TE - I - I - 16 WHAT MAKES AN ENTREPRENEUR? The Ten D’s (2) • Devotion – Entrepreneurs love what they do. It is that love that sustains them when the going gets tough. And it is love of their product or service that makes them so effective at selling it. • Details – It is said that the devil resides in the details. That is never more true than in starting and growing a business. The entrepreneur must be on top of the critical details. • Destiny – They want to be in charge of their own destiny rather than dependent on an employer. • D-Marks – Getting rich is not the prime motivator of entrepreneurs. Money is more a measure of their success. They assume that if they are successful they will be rewarded. • Distribute – Entrepreneurs distribute the ownership of their business with key employees who are critical to the success of the business. TE - I - I - 17 IDEA • The idea per se is not most important. In entrepreneurship, ideas really are a dime a dozen. Developing the idea implementing it, and building a successful business are the important things. • Perhaps the biggest misconception about an idea for a new business is that it must be unique, obsessed with the thought that the idea might be stolen. • "Always invest in a grade A man with a grade B idea. Never invest in a grade B man with a grade A idea.“ Georges Doriat TE - I - I - 18 ENTREPRENEUR, OPPORTUNITY AND RESOURCE Uncertainty Entrepreneur Uncertainty Opportunity Fits & Gaps Resource s Uncertainty TE - I - I - 19 Uncertainty KEY TO SUCCESS • The crucial ingredients for entrepreneurial success are a superb entrepreneur with a first-rate management team and an excellent market opportunity. • Would-be entrepreneurs who are unable to name customers are not ready to start a business. They have only found an idea and have not yet identified a market need. TE - I - I - 20 SOURCES OF STARTUP CAPITAL (USA) OTHERS (3,9%) GOVERNMENT LOANS (1,1%) MORTGAGED PROPERTY (4,0%) VENTURE CAPITALISTS (6,3%) FRIENDS (9,0%) EMPLOYEES / PARTNERS FAMILY MEMBERS BANK LOANS PERSONAL SAVINGS (12,45) (12,9%) (14,4%) (78,5%) TE - I - I - 21 SOURCES OF STARTUP CAPITAL (GERMANY) normale Bankkredite 75.8% staatliche Eigenkapitalhilfe 75% Überbrückungsgeld vom Arbeitsamt 38.4 % Kredite und Bürgschaften von Verwandten und Freunden 33.3 % Wagniskapital 2.5 % Quelle: DtA, Hochschul-Anzeiger 44/99 TE - I - I - 22 STARTUP CAPITAL • 25% start with less than $5,000 • 50% start with less than $25,000 • 75% start with less than $75,000 • Less than 5 % with $ 1,000,000 or more TE - I - I - 23 INGREDIENTS FOR A SUCCESSFUL NEW BUSINESS The Ten F’s (1) • Founders – Every startup company must have a first-class entrepreneur. • Focused – Entrepreneurial companies focus on niche markets. They specialize. • Fast – They make decisions quickly and implement them swiftly. • Flexible – They keep an open mind. They respond to change. • Forever-innovating – They are tireless innovators. TE - I - I - 24 INGREDIENTS FOR A SUCCESSFUL NEW BUSINESS The Ten Fs (2) • Flat – Entrepreneurial organizations have as few layers of management as possible. • Frugal – By keeping overhead low and productivity high, entrepreneurial organizations keep costs down. • Friendly – Entrepreneurial companies are friendly to their customers, suppliers, and workers. • Fun – It's fun to be associated with an entrepreneurial company. • Fanatic – Completely devoted to the cause TE - I - I - 25 PRODUCTIVITY PER EMPLOYEE (1990) IN COMPUTER INDUSTRY • Nintendo $1,000,000 • Apple $451,600 • Compaq $317,500 • NEC $198,200 • IBM $184,600 • Siemens-Nixdorf $106,700 TE - I - I - 26 TECHNOLOGY TRANSFER AT FOUR LEVELS OF INVOLVEMENT Collaboration Level IV Complexity Application Level III Implementation Level II Acceptance Level I Quality R&D G. Kozmetzky, UT-Austin TE - I - I - 27 KEY FACTORS IN THE DEVELOPMENT OF A TECHNOLOGY TRANSFER INFRASTRUCTURE Talent K n o w H o w Technology Transfer Infrastructure Capital TE - I - I - 28 T e c h n o l o g y G. Kozmetzky UT-Austin ENVIRONMENTAL CONDITIONS Climate Environment Push/Pull Factors Talent Business Technical K n o w H o w Technology Transfer Infrastructure Capital T R&D e c Performers h n o l Nature of o Technolog y gical Innovation Private Capital Institutions TE - I - I - 29 Technology Venturing Institutions G. Kozmetzky UT-Austin POLICY IMPLICATIONS Local infrastructure Access to other areas Successful role models Culture for Innovation Quality of life Push/Pull Factors Climate Environment Incubators Educational Programs Technical Support Programs Professional Support Organization Local Advisors Business Networks Talent Business Technical K n o w H o w Technology Transfer Infastructure Capital Private Capital Institutions T e c h n o l o g y Government Funding R&D Performers Technology Transfer Nature of Science Parks Technological Innovation Consortia Intellectual Property Technology Venturing Institutions Venture Capital Pools Business Angels Network Tax Advantages Government Programs (SBIR) R&D Limited Partnerships State Venture Capital Funds Small Business Investment Corp. TE - I - I - 30 G. Kozmetzky UT-Austin SUCCESS FACTORS FOR TECHNOLOGY TRANSFER Academic Business Government Community Talent Technology Capital Know-How Market - Need Successful Value-Added Technology Transfer G. Kozmetzky UT-Austin TE - I - I - 31 ELEMENTS OF THE TECHNOPOLIS New technologies Government services Business services Global linkages and relationships Airporttelecommunication infrastructure Quality-oflife support University and other institutions Technologyrelated industries Technopolis model Program Marketing Land use allocation and site requirements G. Kozmetzky UT-Austin TE - I - I - 32 CASE STUDY: TIVOLI SYSTEMS INC. • ONE OF THE HIGHEST PRICES AFTER ONE YEAR ON THE WALL STREET: – IBM PAID $743 MILLON • PRODUCT: – NETWORK MANAGEMENT SOFTWARE • HEADQUARTERS: – AUSTIN, TEXAS TE - I - I - 33 • TIVOLI SYSTEM INC. In 1989, 12 IBM engineers left the company and founded Tivoli Systems Inc. in Austin, Texas Summary Financial Information (In thousands, except per share data) 1990 1991 1992 1993 1994 1995 Statement of Operations Data: Total revenues $542 $--- $4,699 $12,746 $26,878 $50,000 Operating income (loss) (653) (3,808) (1,904) (735) 1,539 Net income (loss) (590) (3,732) (1,885) (735) 1,397 0,11 Pro forma net income per share 1 Pro forma weighted average common 13,239 shares and equivalents 1 Shares Purchased Total Consideration Average $ Number Percent Amount Percent Per Share 85,6% $11,089,925 35,7% $0,94 Existing stockholders 2 11,845,038 2,000,000 14,4 20,000,000 64,3 10,00 New investors 2 Total 13,845,038 100,0% $31,089,925 100,0% •Pro forma as of December 31, 1994, to give effect to the conversion of the Company’s redeemable convertible Preferred Stock. •Assumes the conversion of all outstanding shares redeemable convertible Stock into an aggregate of 9,025,006 shares of Common Stock upon the closing of the offering. The net effect of sales by the Selling Stockholders in the offering will reduce the number of shares held by existing stockholders to 11,520,038 or 83,2% of the total number of shares held by new investors to TE - I - I - 34 2,325,000 or 16,8% of the total number. TIVOLI’S BALANCE SHEET (1) PERCENT OF TOTAL REVENUES, YEARS ENDED DECEMBER 31 Revenues: License fees and other services Total revenues Cost of revenues: License fees and other services Total cost of revenues Gross margin Operating expenses: Sales and marketing Product development and engineering General and administrative Total operating expenses Total expenses Operating income (loss) Interest and other income (expense), net Net income (loss) TE - I - I - 35 1992 1993 1994 100% no 100 91% 9 100 85% 15 100 21 no 21 79 13 9 22 78 10 11 21 79 42 63 14 119 140 (40) no (40)% 40 34 10 84 106 (6) no (6)% 43 22 8 73 94 6 (1) 5% TIVOLI’S BALANCE SHEET (2) Statement of Operations Data, (in thousands, except per share data) Years Ended December 31 Revenues: License fees and other services Total revenues Cost of revenues: License fees and other services Total cost of revenues Gross margin Operating expenses: Sales and marketing Product development and engineering General and administrative Total operating expenses Operating income (loss) Interest & oth. income (expense), net Net income (loss) Balance Sheet Data (in thousands $): Working capital Total assets Long-term liabilities, net of current Portion Redeemable convertible preferred stock Common stockholders’ equity (deficit) 1990 $--542 542 1991 $------- 1992 $4,699 --4,699 1993 $11,542 1,204 12,746 1994 $22,725 4,153 26,878 --126 126 416 --------- 991 --991 3,708 1,602 1,191 2,793 9,953 2,765 2,951 5,716 21,162 51 753 265 1,069 (653) 63 $(590) 630 2,406 772 3,808 (3,808) 76 $(3,732) 1,992 2,973 647 5,612 (1,904) 19 $(1,885) 5,134 4,287 1,267 10,688 (735) --$(735) 11,599 5,765 2,259 19,623 1,539 (142) $1,397 1990 $2,614 2,936 --3,500 (588) TE - I - I - 36 1991 $2,092 2,889 201 6,810 (4,406) 1992 $2,443 4,721 242 9,449 (6,439) 1993 $3,075 8,201 388 11,158 (7,267) 1994 $3,652 15,908 1,375 11,369 (5,700) FINANCIAL SERVICES TELECOMMUNICATIONS Automatic Data Processing Inc. Cargill Inc. Charles Schwab Chase Manhattan Corp. Citicorp North America Inc. Fidelity Systems Development Co. GE Capital Corp. IDS Financial Services Inc. MBNA Corp. M. Lynch, Pierce, Fenner & Smith Metropolitan Life Insurance Co. Paine Webber Inc. Prudential Securities Inc. Securities Industries Automation C. Union Bank of Switzerland Wells Fargo & Company American Telephone/Telegraph Co. Ameritech Services Inc. AT&T Bell Laboratoires Inc. Bell Atlantic Network Services Inc. BellSouth Telecommunications Inc. BT North America Inc. Claircom Communications Group GTE Data Services Inc. McCaw Cellular Communications Network general Corp. Pagenet Paging Network Inc. TDS Computing Services Inc. US West inc. TE - I - I - 37 ELECTRONICS/COMPUTERS Adobe Systems Inc. Comdisco Systems Inc. Cray Research Inc. Cypress Semiconductor Corp. Hitachi America Ltd. Intel Corp IBM Corp. LSI Logic Corp. Motorola Inc. National Semiconductor Corp. Siemens Rolm Communications Sybase Inc. Xilinx Inc. GOVERNMENT UTILITIES Federal National Mortgage Association Federal Reserve Bank of New York Student Loan Marketing Association U.S. Department of the Army U.S. Department of Labor Carolina Power & Light Co. Delmarva Power & Light Co. Detroit Edison Co. Duke Power Co. Inc. Florida Power Corp. Northern States Power Co. Public Service Electric & Gas Co. Southern Company Services Inc. TRANSPORTATION OTHERS BMW Manufacturing Corp. Delta Airlines Inc. Federal Express Corp. Lynden Inc. United Parcel Service Inc. Amgen Inc. Circuit City Stores Inc. Eli Witt Co. Exxon Corp. Hughes Aircraft Co., Inc. Marriott International Inc. Martin Marietta Corp. Mobil Oil Corp. TE - I - I - 38 THE U.S. ENTREPRENEURSHIP SUCCESS STORIES • • • • • • • • FIRST COMPANY WHICH ACHIEVED $ 100 MILLION SALES IN THE FIRST YEAR: COMPAQ INC. PRODUCT: PORTABLE PC’S HEADQUARTERS: HOUSTON, TEXAS FIRST COMPANY WHICH ACHIEVED $1 BILLION SALES IN THREE YEARS: SUN MICROSYSTEMS INC. PRODUCT: WORKSTATIONS + SOFTWARE HEADQUARTERS: MOUNTAIN VIEW, CALIFORNIA FIRST COMPANY WHICH ACHIEVED $4 BILLION SALES AT INITIAL PUBLIC OFFERING NETSCAPE COMM. CORP. (BOUGHT BY AOL IN 1999) HEADQUARTERS: MOUNTAIN VIEW, CA www.home.netscape.com TE - I - I - 39