Chapter 6
Successfully Building a New Venture Team
Entrepreneurship: Successfully Launching New Ventures
Modified from Barringer and Ireland (2006)
What is a New Venture Team?
Group of founders
Key employees
Advisers
–
–
–
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They move new venture from an idea  functioning firm
The team is built as the firm can afford to hire people
The team involves more than employees
Also can include:
Boards of directors
Boards of advisers
Other professionals who provide direction and advice
Why is a New Venture Team Important?
Fundamental Problem for New Firms:
Liabilities of Newness
– The basic concept:
New ventures have a high likelihood of failing because
the people who start the firm can’t adjust quickly
enough to their new roles and because the firm lacks a
“track record” with those in external environment
One way to overcome liabilities of newness is
assembling a talented and experienced new venture
team
– They have a track record (e.g., via their experience)
– They can provide legitimacy for external others
7 Elements of a New Venture Team
Element 1: Founder(s) of the Firm
Element 1: Founder(s) of the Firm
Founders are the individual or team of individuals who initiate
the start of the firm and who have equity stakes in the venture
Important factors about founder(s):
– Founder(s) characteristics:
Characteristics (e.g., experience, background, personality, etc.) and early
decisions have major impact on how new venture team takes shape
– Issues associated with founding team size:
50% to 70% of all new ventures started by more than one person
Research suggests that new ventures started by a team have an advantage
– More talent
– More ideas
– Psychological support
– Faster firm growth
– Better network quality
Element 1: Founder(s) of the Firm
Qualities of Successful Founders:
1. Higher education: important entrepreneurial skills enhanced via
education
2. Prior entrepreneurial experience: helps to avoid costly mistakes; the
corridor principle
3. Relevant industry experience: have more well established and
appropriate network contacts; more applicable management and
marketing expertise
4. The ability to “network” effectively: aids in gaining know-how;
access to capital; more customer referrals
Element 2: Key Employees
Element 2: Key Employees
Recruiting Key Employees: When, how, why?
– When and why?...it depends
Startups vary in how quickly they need to add personnel
Sometimes, founders work alone for a while and other times
employees are hired immediately
– These decisions are based on necessity, financial abilities, knowledge
specialization, time issues
– How?...depends on type of personnel needed
Networks
Placement offices (e.g., college placement)
Executive search firms (e.g., head-hunting firms)
Advertising the position
Element 3: BODs
Element 3: BODs
What is a BOD?
– Panel of individuals who are elected by a corporation’s shareholders to oversee the
management of the firm
Why have a BOD?
– Legally, if new venture is a corporation, it is required to have a BOD
– The firm can gain legitimacy (and lessen the likelihood of succumbing to liabilities
of newness) if the BOD consists of well-known and respected people
– Most useful role is to provide guidance and support the firm’s managers
Who in on a BOD?...it depends
– Typically made up of insiders and outsiders
An inside director is a person who is also an officer of the firm
An outside director is someone who is not employed by the firm
– Often prior corporate officers
– Corporate officers from other firms (which can sometimes become an interlock)
– Community members
– Much research suggests certain mixes of BODs is important for venture development
Element 3: BODs
What do BODs Do?
– BODs have three formal responsibilities.
Appoint the officers of the firm
Declare dividends
Oversee the affairs of the corporation
When do they meet and how are they paid?
– How frequently?
Most BODs meet 3-4 times a year
– How are they compensated?
More likely to pay BODs in company stock or ask them to serve
voluntarily versus paying a cash honorarium
– Why do you think that is?
Element 4:
Other Professional Advisors—Board of Advisors
Element 4:
Other Professional Advisors—Board of Advisors
What is a BOA?
– Panel of experts who provide counsel and advice on an
ongoing basis
Informal group with no legal responsibility for the firm and their
advice is nonbinding
Easier to recruit due to fewer time requirements and no legal liability
Why have a BOA?
– Can be for general purposes or to address a specific issues
– Provide guidance
– Lends credibility/legitimacy
Crotty Advisory Council
Black Inventor’s Club
Element 4:
Other Professional Advisors—Board of Advisors
Guidelines to Consider when Organizing a BOA
– Make sure they play a meaningful role in the firm’s
development and growth
Without a meaningful role, advisors will become disillusioned
– Look for BOA members who are compatible and
complementary in terms of experience and expertise
– When inviting people to be on BOA, be sure to carefully
spell out the “rules”
What their role is
How to handle access to confidential information
Element 4:
Other Professional Advisors—Lenders & Investors
Element 4:
Other Professional Advisors—Lenders & Investors
Why do Lenders & Investors Act as Advisors?
– They have a vested interest in the companies they finance,
often causing them to become involved in helping
– They help new firms by providing guidance & lending advice
– They assume the natural role of providing financial oversight
– Because of their financial interest, they are very helpful for
recruiting customers
Important Considerations with Lenders & Investors
– Their goals are sometimes not inline with entrepreneurs’
They often want a liquidity event
– Often they require substantial controlling power and profit
percentages per the lending/investment agreement
Element 4:
Other Professional Advisors—Other Professionals
Element 4:
Other Professional Advisors—Other Professionals
There are hosts of other professionals that can make up a firm’s new venture team
– Attorneys for legal issues (in Chapter 8)
– Accountants for financial issues (in Chapter 7 and in Dr. Janney’s class)
– Business consultants
Business Consultants
– A business consultant is an individual who gives professional or expert advice.
– Business consultants fall into two categories:
Paid consultants
Consultants available for free or at a reduced rate via nonprofit or governmental agency
– Small Business Administration (SBA) at national and local levels
National SBA: www.sba.gov
Columbus SBA: http://www.sba.gov/oh/columbus/index.html
– Small Business Development Centers (SBDC)
At UD: http://www.emtec.org/SBDC/Univ_of_Day_SBDC.htm
At Wright State U: http://www.sbdcwsu.org/
In Springfield: http://www.smbusdev.org/
– Business Incubators
– University Entrepreneurship Centers