ENTREPRENEURSHIP JOURNAL
REPORT
SPENCER POMEROY
TAYLER WEEKS
MARY ELLEN GREENWOOD
LAUREN PERCIVAL
MICHAEL PIERCE
JULIA SPRIGGS
2
CONTENTS
Entry #1: September 16th,2013 ...................................................................................................... 5
Lessons Learnt From Last Week’s Material .................................................................................. 5
Key Lessons From Assigned Readings .......................................................................................... 5
Chapter 1: The Entrepreneurial Mind ....................................................................................... 5
Analysis of Case study & Assigned Questions ............................................................................ 6
CASE: travelhangar.com ............................................................................................................ 6
Entry #2: September 23rd, 2013 ......................................................................................................... 9
Lessons Learnt From Last Week’s Material .................................................................................. 9
Key Lessons From Assigned Readings .......................................................................................... 9
Chapter 2: The Entrepreneurial Process .................................................................................. 9
Analysis Of Case study & Assigned Questions ......................................................................... 12
CASE: ShoeGuru.ca ................................................................................................................... 12
Business Plan Progress ................................................................................................................... 14
Entry #3: September 30th, 2013 ....................................................................................................... 16
Lessons Learnt From Last Week’s Material ................................................................................ 16
Key Lessons From Assigned Readings ........................................................................................ 17
Chapter 3: The Entrepreneurial Opportunity ........................................................................ 17
Analysis Of Case & Assigned Questions .................................................................................... 22
CASE: ebok systems ................................................................................................................... 23
Entry #4: October 7th, 2013 (Part 1) ................................................................................................ 26
Lessons Learnt From Last Week’s Material ................................................................................ 26
Key Lessons From Assigned Readings ........................................................................................ 27
Chapter 4: The business plan ................................................................................................... 27
Analysis Of Case & Assigned Questions .................................................................................... 29
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CASE: scavenger energy: from the ground up ................................................................... 29
Project progress: ............................................................................................................................ 30
Entry #5: October 7th, 2013 (Part 2) ................................................................................................ 31
Lessons Learnt From Last Week’s Material ................................................................................ 31
Key Lessons From Assigned Readings ........................................................................................ 31
Chapter 5: The Entrepreneurial Leader ................................................................................. 31
Analysis Of Case & Assigned Questions .................................................................................... 34
CASE: Med-ENG Systems Inc. ................................................................................................. 34
Entry #6: October 21st, 2013 ............................................................................................................ 36
Lessons Learnt From Last Week’s Material ................................................................................ 36
Key Lessons From Assigned Readings ........................................................................................ 36
Chapter 6: The New Venture Team ....................................................................................... 36
Analysis Of Case & Assigned Questions .................................................................................... 40
Entry #7: october 28th, 2013 ............................................................................................................. 41
Lessons Learnt From Last Week’s Material ................................................................................ 41
Key Lessons From Assigned Readings ........................................................................................ 42
Chapter 9: Financing the venture .......................................................................................... 42
Analysis Of Case & Assigned Questions .................................................................................... 45
CASE: sandvine inc. ................................................................................................................... 45
Entry #8: November 4th, 2013 .......................................................................................................... 47
Lessons Learnt From Last Week’s Material ................................................................................ 47
Key Lessons From Assigned Readings ........................................................................................ 47
Chapter 12: Leading Rapid Growth: Entrepreneurship Beyond Start-Up ....................... 47
Case & Assigned Questions ......................................................................................................... 52
CASE: sandvine inc. ................................................................................................................... 52
Entry #9: November 18th, 2013 ........................................................................................................ 54
Lessons Learnt From Last Week’s Material ................................................................................ 54
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Key Lessons From Assigned Readings ........................................................................................ 55
Chapter 15: Leading through trouble, the harvest, and beyond .................................... 55
Analysis Of Case & Assigned Questions .................................................................................... 58
CASE: Cavendish Cove Cottages .......................................................................................... 58
Lessons and Reflections.................................................................................................................... 60
Group ............................................................................................................................................... 60
Michael Pierce ............................................................................................................................... 60
Tayler Weeks ................................................................................................................................... 61
Lauren Percival............................................................................................................................... 62
Mary Ellen Greenwood ................................................................................................................. 63
Spencer Pomeroy .......................................................................................................................... 64
Julia Spriggs .................................................................................................................................... 64
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ENTRY #1: SEPTEMBER 16 TH ,2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
Last week’s class was an introduction to the course and an explanation of what is
expected of us. We spoke off entrepreneurship and what it takes to be an entrepreneur.
We also discussed common characteristics among entrepreneurs as well as the reasons
why a person would want to be an entrepreneur. We considered Apple products and
Steve Jobs, as well as Microsoft and Bill Gates as examples throughout the class.
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 1: THE ENTREPRENEURIAL MIND
The main lesson we took away from the assigned readings is that there is no single
psychological template for an entrepreneur., but there are certain characteristics that
many successful entrepreneurs tend to have. However, these are not traits the person is
born with and inherits. For the most part, these traits can be acquired and developed
over time through the form of new skills, knowledge, experiences, and practice.
Furthermore, hard work and determination are among the many things that distinguish a
good entrepreneur from a great one. We found this knowledge to be motivating to us as
students. While we are not all sure what we plan to do with our lives after we graduate, it
is encouraging to know that entrepreneurship is not as black and white as other areas of
business we are studying that require a specific set of skills and instruction.
The reading highlight some desirable and acquirable attitudes, habits, and
behaviors for successful entrepreneurs and also provided information on six dominant
themes on this subject that we found fascinating:
1) Commitment and Determination: This is evidently the most important factor.
Entrepreneurial ventures demand a lot from the creator in terms of time, emotions, and
loyalty. Entrepreneurs possess the desire to win and are driven to complete their goals.
Without self-discipline and persistence, they will not be successful.
2) Leadership: Successful entrepreneurs are able to realize that they cannot
achieve their goals on their own and must therefore be effective leaders. They are able
to influence efficiently without being in a formal position of power. Entrepreneurs lead by
supporting and nurturing others and making sure that their subordinates feel valued and
recognized for their contributions.
3) Opportunity Obsession: Entrepreneurs are constantly paying attention to trends
in order to recognize opportunities. They are constantly thinking of new ideas for business
ventures and how to create, shape, or improve current products and services to better
meet the needs of customers. Successful entrepreneurs recognize the opportunity first
and monetary benefit afterward.
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4) Tolerance of Risk, Ambiguity, and Uncertainty: Contrary to popular belief,
entrepreneurs are not impulsive risk-takers or gamblers. They take time to consider the
options and consequences of their actions. Furthermore, it is important for entrepreneurs
to be comfortable with conflict and their sometimes-unorganized and unstructured life.
5) Creativity, Self-Reliance, and Ability to Adapt: Entrepreneurs tend to be very
confident in themselves and their ideas. They are detail-oriented and are able to
conceptualize their ideas. Entrepreneurs are willing to accept responsibility for their
actions and are not deterred by the possibility of failure. And finally, entrepreneurs are
able to view setbacks and mistakes as positive learning experiences rather than
complete failures.
6) Motivation to Excel: Entrepreneurs have a very high set of self-imposed
standards that they constantly strive to uphold. They are driven by challenges rather than
incentives and rewards. They are realistic when assessing their own abilities and have a
keen sense of self-awareness.
It did not come as a surprise to our group that apprenticeships contribute directly
to the probability of success for entrepreneurs. That is because apprenticeships enable
the entrepreneurs to gain expertise, network, and become familiar in their specific
industry. Apprenticeships allow entrepreneurs to begin developing strategies and action
plans for their own future ventures. It is understandable how one with experience in the
field will be more likely to find entrepreneurial success, as opposed to someone who
hasn’t. You have to be prepared to put multiples years of work into your venture in order
to be successful. That being said, time is precious. Moreover, there is also a strong
connection between the presence of a role model or a mentor in the life of a person
and the decision to start a business.
The myths surrounding how to become a successful entrepreneur and find
success in your specific venture were interesting, as we found that members of our group
believed in some of them without having ever heard otherwise. For example, some of us
believed that one of the main reasons why entrepreneurs chose their line of work is so
they could be their own bosses and be completely independent. The reading taught us
that this could not be further from the truth, since entrepreneurs must answer to many
people, like investors and partners, and also work with many if they want their venture to
grow to anything worthwhile. The debunking of these myths opened up a lot of realities,
but the main take away from the chapter for us was that there isn’t a set of common
elements to entrepreneurs nor is there a particular ideal that will lead to sure success.
ANALYSIS OF CASE STUDY & ASSIGNED QUESTIONS
CASE: TRAVELHANGAR.COM
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#1) WHAT SHOULD JASON AND ALEX DO?
There are several options that can be considered when looking at what Jason
and Alex should do in this situation. It is clear that Alex and Jason are not 100% invested in
the venture and aren’t completely confident in the success of their product. They are
both committed to their personal full-time jobs and do not have much time to dedicate
to Travel Hangar. Selling the business to Brett in exchange for future revenue is therefore
a viable option.
Another option would be for Alex and Jason to hire more sales agents in order to
distribute the workload more evenly and to ensure Brett is not faced with all of the
responsibilities for the company. With these changes, they could renegotiate the
proposed commission changes by Brett. Finally, the third option, and possibly the most
entrepreneurial by nature, would be to take time away from their current full time jobs in
order to be able to dedicate that time to Travel Hangar. Alex and Jason obviously don’t
have enough time and energy to be fully dedicated to both. It would undoubtedly
benefit Travel Hangar if the creators allocated more of their time to nurture the business.
#2) HOW COULD JASON AND ALEX HAVE AVOIDED THIS CURRENT
SITUATION?
Alex and Jason could have avoided their current situation by drawing up formal
contracts including the terms and conditions agreed upon by all parties. This would have
prevented Brett from having the ability to ask for higher commission rates. Furthermore,
roles and responsibilities for everyone would have been more clearly defined. Another
preventative measure they could have taken is to have taken the time to properly train
more agents. This would have ensured that Brett did not have to take on all the work and
he therefore would not have expected more compensation. Furthermore, this would
expand their reach to more schools.
#3) ASSUMING THE CRISIS IS RESOLVED, HOW WOULD YOU GROW THE
VENTURE IN THE FUTURE?
In order to grow the company, given the solution was resolved, the first step
would be to hire more agents. This is crucial in order for the business to grow, as it will
allow them to incorporate more schools into their company, which makes for more trips
and increased word of mouth. Although it was shown that the need for a website is not
crucial for the business to run smoothly, there is no doubt that a website that works
properly would be an asset to Travel Hangars. Travel Hangar can also benefit from
joining the social media platform. It will allow them to reach their target market more
efficiently and get people talking about the company. The company could also
consider hiring an agent manager. This manager would be responsible for finding and
training new agents and ensuring they are doing their job properly. This would allow
Jason and Alex to continue working full time at their other jobs while ensuring Travel
Hangar runs smoothly.
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#4) WHAT LESSONS CAN BE LEARNED FROM THIS CASE ABOUT STARTING
YOUR OWN COMPANY? HOW DO YOU BEST MANAGE A COMPANY WITH
LIMITED OR NO RESOURCES?
Through studying this case, we have learned that when starting a company it is
important to look thoroughly when considering potential partners and look into their
backgrounds, unlike what Jason and Alex did when agreeing to give equity to Allen.
Looking into Allen’s background and realizing that he had no time or drive to contribute
to Travel Hangar would have saved them a substantial amount of money. In addition,
we have learned the importance of forming contracts that both parties can agree upon
when hiring an employee or partnering.
It is best to manage a company with limited resources by planning how to best
use the resources that the company does have. It is necessary to develop a better
business model that incorporates goals on how to achieve their goals with their limited
set of resources. That being said, we have also learned from the case that “Cheaper is
not always better.” So although you may have limited funds, it might not always be the
best idea to go for the cheapest options when buying equipment, contractors, etc. as
they may not be successful and they may not last.
#5) CAN YOU EFFECTIVELY START/MAINTAIN A VENTURE IF IT IS A PART-TIME
FOCUS?
Although it is possible with certain ideas that have the proper planning and
delegation, it is not recommended for a venture to be started with a part-time focus.
Entrepreneurial spirit thrives on leaders becoming personally invested in the venture and
it is essential for an entrepreneur to be willing to risk their time and energy in order to
reach measurable success. Dedication and commitment are key aspects of successful
entrepreneurship, and high-risk entrepreneurs should to be able to dedicate all of their
time and energy into their current endeavors.
#6) HOW DO YOU MANAGE PERSONAL RELATIONSHIPS WHILE MAINTAINING
BUSINESS ONES?
In order to manage personal relationships while maintaining business ones, it is
necessary to separate business relationships from personal relationships. Not mixing the
two environments is key in order to avoid conflicts and avoiding spreading inevitable
conflicts from one to the other. Communication is another factor that in important in
maintaining both personal and business relationships. Making an effort to maintain
healthy communication practices inside and outside of the business will prevent future
conflicts as well.
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ENTRY #2: SEPTEMBER 23 RD , 2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
A key learning we took away from last week’s readings and class were the core
attributes of an entrepreneur. Successful entrepreneurs frequently share certain six
attributes that describe their way of thinking and acting, and help to explain how they
work and behave. An important note to take away from the first chapter is that one is
not necessarily born an entrepreneur, and one can acquire skills to be successful in their
endeavors. One may have certain attributes, such as charisma, naturally, but that is not
to say that those who do not automatically have these traits are doomed. Through
practice, diligence, and determination, all dominant theme of an entrepreneurial leader
can be achieved to a certain extent. It does not matter how high of a GPA you have, or
your IQ score, because some of the most important characteristics of an entrepreneur
are not measurable, such as your commitment and determination, as well as your
motivation to excel.
The chart that discusses who the entrepreneur is was also something that we took
away from the reading. An entrepreneur is someone who has a high focus on creativity
and innovation, while at the same time they are skilled on general management,
business know-how, and networking. With this chart, it helped us to understand the
difference between an entrepreneur and a manager.
In regards to the case study, this really made us think outside of the box to figure
out some solutions for what Travel Hangar should do. The class had many good ideas
and recommendations as well, some in which we thought of as a group, and others that
we believe were great ideas/responses from our classmates. We learned that the
diversification of a company is important to its success. With diversity in an organization
or company, there will be positive benefits and we also learnt the importance of written
contracts. If Travel Hangar would have had a written contract, it could have saved them
a lot of trouble and headaches.
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 2: THE ENTREPRENEURIAL PROCESS
This chapter began by discussing the classic idea of entrepreneurship being solely a
start-up venture when in fact entrepreneurship can be found in any level company.
Google is an example that comes to our mind as they are a mega-corporation that is
constantly pushing the envelope on innovation and spend their money on new projects
that may or may not turn out to be financially successful. On the other end, dinosaur
corporations are sticking with their old ways of doing things to cater to what they know
customers want. These dinosaur corporations are too afraid to displease their current
customers, making them much slower at adapting. However, new start-up companies
are able to develop new markets that can appeal to customers and keep others
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innovating in order to keep up. These big corporations are perceived as old,
conservative, and bound by tradition where the new ventures are perceived as fresh,
exciting, and sexy. People are putting a lot more emphasis on local or small businesses;
we as a group agree that we would rather purchase a product from a smaller business.
A stigma exists toward supporting big corporations. Additionally, new entrepreneurs are
creating markets and coming up with products/services that customers don’t even
realize they want. In the 21st century, the Internet is a driving force in entrepreneurialism
since there are fewer barriers to entry various markets now. We find it rather
understandable that many younger entrepreneurs are embracing the Internet since
younger generations are increasingly growing up with this revolutionary technology and
are generally acknowledged as more “tech-savvy” than those older than them. We find
this changing paradigm between younger and older generations to be unique in that
traditional wisdom that has normally been handed down generation to generation is
being questioned as youth have endless information at their finger tips and are looking
into making their own changes to the entrepreneurial landscape.
Some common paradoxes exist in the world of entrepreneurship that our group found
interesting, again highlighting our understanding that not everything in the field of
entrepreneurship is black and white. These paradoxes are:
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“To succeed, one first has to experience failure.” – One should take every
inevitable failure they face in their pursuit of a new venture as a learning
opportunity instead of a negative experience. We found this challenging after
so many years in school because, normally, school is an environment where
there is often one correct answer that we are taught to pursue and any
deviation from this ideal is considered unfavorable. Entrepreneurship is such a
challenging field that failure is almost inevitable and almost no one succeeds
the first time. We talked about how some of the highly regarded “successful”
entrepreneurs probably had just as many problems as anyone when they set out
to pursue their first venture. However, we are often only told of Steve Jobs’ or Bill
Gates’ success instead of highlighting the many struggles they faced in their
early years. It is because of their failures that they were able to gain knowledge
and experience in their fields and grow to become the icons they are today.
Our group also discussed how succeeding the first time isn’t necessarily a good
thing. By not seeing initial success, the situation calls for several desirable
entrepreneurial traits such as perseverance and opportunity over money. This
basically “weeds” out the weaker entrepreneurs who may not be in the area of
new venture development for the right reasons, while inspiring the better ones to
continue on and learn from their mistakes.
“The greater the organization, orderliness, discipline, and control, the less you will
control your ultimate destiny” – We agree that orderliness and discipline do not
leave much room for innovation, flexibility, and creatively. Dinosaur corporations
tend to follow order and control, making it understandable why they aren’t
keeping up so well in the modern world with the new entrepreneurs. While this
system of control can work for certain organizations that are already established
and do not need constant innovation, the examples are few. Once again, we
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thought of Google and how as a corporation it allows each employee an entire
day of the workweek to spend on their own personal projects. This is
groundbreaking because of the extensive size of a company like Google.
Management is not able to closely monitor how employees are spending their
time during this personal day, but it has often resulted in many innovations that
would not be commonly expected from such a large company. This example
again emphasizes how traditional bureaucratic practices of dinosaur
corporations do more harm for a business than good. This holds especially true
to organizations looking to continuously innovate and keep up in the everchanging business market of today.
“Failure is the rule, not the exception.” – This paradox stood out to all of us since
it is interesting to learn first-hand that failure is inevitable in the entrepreneurial
process. This ties into the discussion we had on the first day of the class where we
addressed the question of “Are you still an entrepreneur if you fail”? To answer
this question, we believe that you are as long as you embrace these failures as a
learning opportunity and learn from your mistakes. This is in order to ensure
success in future endeavors. Another discussion we had over this section was the
quotation “Know when to hold them, know when to fold them.” We discussed
knowing when to cease activities with a business, and how this is an absolutely
necessary entrepreneurial quality. It reminded us of the comments made in class
about failing quickly, and if failing is inevitable, it is important to know when the
right time is to cease operations and focus your attention elsewhere. This
prompted a group member to call home and speak with her entrepreneurial
father about this topic, and it was interesting to hear him talking about knowing
when to quit his business activities and when to keep trying for success.
A common entrepreneurial mistake we also discussed from the assigned reading is to
think too small and limit oneself. Generally, the smaller the business, the higher the failure
rate. Thinking too small will result in a failure to distinguish one’s venture from the
thousands of others out there all seeking similar success. It is important to look for business
concepts and opportunities that will change the way people live or work. A common
example we thought of was Facebook. Although a number of similar website ideas
existed at the time, Mark Zuckerberg saw an opportunity to distinguish his new website
from the others and completely revolutionized the way people live and communicate by
making them partially live online through their profile. As a group, we discussed that this is
a common mistake to make because entrepreneurs are scared of failure and potentially
intimidated by the risk. It is almost a test of the entrepreneurial ability to seek out the true
entrepreneurs who are willing to go the extra mile in order to ensure the highest possible
success rate.
In our discussion of the assigned reading, we also discussed the Timmons Model. This
model balances between opportunity, resources, and the entrepreneurial team, as well
as how they interact and work together toward ultimate sustainability. Knowing the
difference between a good opportunity and good idea is vital when formulating a new
venture and we will now discuss the three aspects the Timmons Model says to balance:
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Opportunity: This is the beginning of the entrepreneurial process and without it, a
venture would not exist. Entrepreneurs need to be able to distinguish between
what is simple an idea and what is an opportunity. An idea is something that
true entrepreneurs come up with many times on a daily basis. By looking at the
world through the lens of an entrepreneur, you are constantly looking for new
ideas of potential ventures to pursue. However, only those ideas that have a
high potential should be considered as opportunities and pursued. Individuals
need to be able to quickly evaluate whether potential exists and know both
when to cut your losses and how much time and effort to invest. To quote a
section of the textbook, “Durability of an opportunity is a widely misunderstood
concept. In entrepreneurship, durability exists when the investor gets his or her
money back plus a market or better return on investment.”
Resources: One of the most common misconceptions among untried
entrepreneurs is that you first need to have all the resources in place, especially
the money, to succeed with a venture. It’s intimidating to think that you have to
be willing and comfortable with going into a venture unprepared, and having
to work your way up and accumulate resources along the way. Another group
member thought it was important to remember that this shouldn’t be a
deterrent from entrepreneurship and that as you go and meet more contacts;
the resources will come and will just be included in the entrepreneurial activities.
The idea of having too much money in the beginning was a bad thing. It could
lead to a lack of appreciation of capital by employees, and we believe if they
had fewer resources, it could bring innovation and better ideas in order to
stretch their money as far as they could. We’ve concluded that it is more
important to minimize and control resources rather than maximize and own
them.
Team: To once again quote the assigned reading, “I’d prefer a grade A
entrepreneurial team with a grade B idea over a grade B entrepreneurial team
with a grade A idea.” It is becoming more important to have a strong team that
works well with one another rather than placing importance on resources or a
winning idea. One of the most valued capabilities investors look for is ability/skill
to attract key management members and build a good team. You have to
place more importance on who you want on your team, who you’re working
with and who is being put in charge. We agree that the team needs to be
passionate about the product and the industry in order to be able to put their
heart into their work, and ensure the highest amount of success. Every part of
the team has to have consistent emotional ties towards the venture, in order to
have consistent views and goals.
ANALYSIS OF CASE STUDY & ASSIGNED QUESTIONS
CASE: SHOEGURU.CA
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#1) WHAT ITEMS OR OPTIONS CAN SHOEGURU PROVIDE IN THE PROPOSAL
TO ATTRACT THE DISTRIBUTOR?




They could create shipping contract that was inversely related to volume. That
way, the distributor could be sure that they’ll be getting a substantial payment
regardless of sales.
- Will create incentive for Tom to increase and maintain sales
- Will make distributor take him more seriously if they know he is willing to risk
more of his assets
- Will lead to higher earnings for distributor than the current arrangement
Create a contract that specifies a flat rate in addition to a set percentage of
profits.
- More appealing to distributor than above mentioned contract
- Still beneficial for both parties
Offer to be the sole point of contact in dealing with returns or exchanges.
- Distributor won’t have to deal with phone calls or contact any customers
- Tom is responsible for all communications with customers
Become a dotcom domain
- Remove the option of another party clamming the dotcom domain for
ShoeGuru
- Increases worldwide presence and accessibility of the brand
#2) HOW CAN SHOEGURU CONVINCE THE DISTRIBUTOR THAT IS HAS THE
ABILITY TO EB AN EFFECTIVE PARTNER?





“Online consumers spend 15% of their total shopping dollars on the online market,
and that this number would jump to 36% in the next three years.”
- The internet shopping market is steadily increasing due to emerging
security measures for customer protection, such as Paypal
Online advertising is developing rapidly.
- Take advantage of online advertising to draw more customers to
ShoeGuru website
- Google ads
- Can use the savings from a new distribution contract to fund the
increased advertising budget that has been his plan all along
Brand recognition
- “top 20 e-commerce Web site designs”
- “1000 best Web designs of the year”
Potential for international growth
- There’s currently strong European market growth
Very low rate of returns with customers
- Only one issue in the past, which was due to a mistake made by Tom
#3) DOES SHOEGURU AND ITS MODEL PROVIDE AND SUSTAINABLE
COMPETITIVE ADVANTAGE THAT WOULD BE HARD TO RECREATE BY
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COMPETITORS? DOES SHOEGURU HAVE ANY COMPETITIVE
DISADVANTAGES?
- Web site design is really strong
Trendy atmosphere into online format and recreate the shopping
experience
o Website has been nominated for superlatives
Someone can easily come out with another website that’s better than his – pretty
easy to recreate
They only own the .ca domain
- Usually large website purchase the .com domain
Foregone opportunities to expand audience by having advertisements on the
website
- Can have mutual links to and from other sites (mutual advertising)
o



BUSINESS PLAN PROGRESS
ROUGH BRAINSTORMING
Business

Frozen yogurt store
Product line



Frozen Yogurt
Smoothies (dairy free, & protein supplement options)
Variety of toppings
o Fresh fruit
o Chocolate/caramel sauces
o Nuts
o Cookies/candybars
Market




Students
Families
Locals
Target Market: women aged 16-30
o More concerned with health and image
o A dessert choice mothers will love
Competitive Advantage


Healthy alternative to ice cream desserts
Appeals to sweet tooth and desire to be healthy
Opportunity

Lack of something of this nature offered in
Antigonish
Global trend of making more health-conscious
decisions
“small town nature” of Antigonish will cause people


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in town to be interested in new business
Company Names


Yogonish
Fruitigonish
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ENTRY #3: SEPTEMBER 30 TH , 2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
Last week’s material got the class thinking about the idea of start-up
entrepreneurial ventures as opposed to dinosaur corporations that are continuing to
exercise their usual way of doing things. These dinosaur corporations have more
competition from these smaller ventures because they are able to appeal to customers
in ways customers didn’t even realize they wanted. These start-up ventures can gain
competitive advantage by creating new markets that the traditional dinosaur
corporations cannot compete with.
The paradoxes regarding entrepreneurialism were very interesting to learn about
because they put the entrepreneurial process into perspective. Nothing comes easy,
and the paradox explaining “to succeed, one first has to experience failure,” allowed us
to understand that entrepreneurship comes with learning experiences and being
perseverant will lead to success.
The Timmons Model illustrates the balance between opportunity, resources and
the entrepreneurial team. These three characteristics must be balanced in order to
achieve maximized sustainability. It is essential that entrepreneurs must know the
difference between a good opportunity and a bad one, and must be able to evaluate
the potential in a venture quickly in order to make the necessary decisions. It was
interesting to learn that money isn’t the most important resource for a successful venture,
and that it is most important to minimize and control resources, rather than maximizing
resources and owning them. It is more important to have a good, solid team than a
good idea because the key to success is having a consistent team that is emotionally
connected to the rest of the team and its activities. Having a strong team that is
consistent in its values ensures the most efficient use of resources in order to find success
in the ventures opportunities.
The case about ShoeGuru.ca got the class discussing further into the options that
faced the entrepreneurs regarding their proposal for their distributors. We thought that
they could perhaps create a dotcom domain in order to expand their brand awareness,
and remove the possibility of other companies taking over the website. They had many
opportunities facing their company, and the idea to expand their sales through their
website advertising could bring profits that could help improve the website design. The
fact that the company didn’t provide footwear for women and children was a
disadvantage discussed by the class, because many other companies are expanding
into this market that can provide these options. The fact that this company was starting
up with Internet sales as that point in time, we believed it would be a successful venture
and the expansion of the Internet sales services could mean potential opportunities for
expansion of ShoeGuru.ca as well.
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KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 3: THE ENTREPRENEURIAL OPPORTUNITY
We have broken down this week’s analysis of the assigned readings based on
the six learning objectives presented at the start of the chapter.
LO1: Appreciate the importance of thinking big enough.
It is absolutely essential for entrepreneurs to think bigger. This means putting away
the mindset of traditional small business owners who expect to rarely build equity but
often expect to put in constant work similar to a dairy farmer. The quote explained by
Patricia Cloherty “It is critical to think big enough. If you want to start and build a
company, you are going to end up exhausted. So you might as well think about creating
a BIG company. At least you will end up exhausted and rich, not just exhausted.” This
was interesting to read because it shows us as early business students that we should be
aiming for the stars, and that we need to be willing to try and undertake the journey
before we can realize the success or failure. It is these BIG journeys that we should be
striving to undertake rather than setting our sites on small-scale opportunities that will
ultimately lead to exhaustion without the paybacks.
LO2: Assess opportunity via a zoom lens on the criteria used by successful
entrepreneurs, angels and venture capital investors in evaluating potential
ventures.
Opportunity recognition and evaluation are not products of a formulas or
checklists, but rather products of a complex, dynamic and constantly changing process.
Before beginning either of these processes, one must recognize the fundamental realities
of new ventures. The majority of new ventures are works in process; they often end up
being something completely different from what they started out as. Business plans
become obsolete faster than anyone could write them down, and most of them fail.
Speed, adroitness of reflex and adaptability of entrepreneurs are crucial when starting a
new venture. Their success is highly situational, depending on timing, market space and
stakeholders. Finally, entrepreneurs must recognize that new ventures are a lot harder
than they anticipate, but also, if done properly, could have more rewards.
Over years of research and experiences, a set of rules has been developed to
guide entrepreneurs, angels, private investors, and venture capitalists in the screening
process. The evaluation criterion is divided into seven groups comprised of several
specific aspects to be considered.
Industry + Market Issues
This group focuses on subjects of identifying a market, its structure, size and capacity.
Attractive opportunities can identify a market niche, are preferably in a fragmented
or emerging market. The market should be large and growing and operating at full
capacity, indicating that there is a demand that existing suppliers are unable to meet.
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Other aspects, such as large and growing growth rates, attainable market shares and
the ability to be a low-cost provider are favorable.
Economics
Here is where the focus is on capital requirements and return margins. Profits after tax
should have the potential of at least 10-15% along with a payback period of up to 2
years. Return on investment and internal rate of return should both have the potential
for over 25% per year. As well as payback period and time to breakeven should be no
longer than 2 years. Gross margins of 40-50% provide room for flexibility, while anything
less than 20% is seen as unfavorable.
Harvest Issues
It is very important to give some serious thought to if the venture is going to be
attractive to potential buyers in the future. Businesses that are valued at a premium
have high valued-added strategic importance to acquirers. They also have or have
envisions their exit strategy. It is also necessary to identify historical guidelines for
valuation placed on companies in the same market/industry due to the large spread
capital markets place on private and public companies. One must not disregard
timing and the capital market context.
Competitive Advantage Issues
It is important for each opportunity to have its own competitive advantage. It should
have the potential for being one of the lowest-cost producers and have some of the
lowest marketing and distribution costs. The potential for moderate to strong control of
prices, costs and distribution channels is extremely attractive, as well as the ability to
gain proprietary protection, regulatory advantage and response/lead times.
Management Team Issues
Nothing substitutes for a top quality team. Strong existing entrepreneurial teams that
contain industry superstars are a major asset. Management should have a track
record of significant accomplishment in the industry, with the technology, and in the
market area. Un questioned reputation of honesty trust and integrity can go a long
way. It is crucial for entrepreneurs to know what they know and what they don’t as
well as be aware of and have a way to overcome their shortcomings.
Personal Criteria
In this section, we examine criterion of the founders themselves. It is important that
there is a good match between the business’ requirements and what the founders
want out of it. They should have the ability to absorb downside risk; be able to
rebound and not become indentured to debt obligations. They need to be able to
take calculated risks while avoiding unnecessary ones. The stressful requirements of
fast-growth, high-stakes ventures should be considered as well as the desirability and
opportunity cost of pursuing a possible opportunity.
Strategic Differentiation
When starting a new venture, it is important to differentiate your strategy from that of
competitors. To what extent is there good fit between driving forces and timing given
the external environment? Success depends on the team’s execution and ability to
adapt and devise constantly new strategies. Customer service should be a top priority
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as customer loyalty is extremely valuable. There must be a constant alertness to the
market and constant assessment to determine if investments are worthwhile. Access
to distribution channels and creation of new channels provide advantages.
Awareness of the amount of room for error is vital.
Fatal-Flaw Issues
For an opportunity to be favorable, it mustn’t possess any fatal flaws
LO3: Describe how the most successful ventures track a “Circle of Ecstasy” and match
investors’ appetites in “The Food Chain.
The Circle of Venture Capital Ecstasy begins with identifying an opportunity in the
“best technology and market” space. This will create an attraction for the “best
management team”. With the best team acting with speed and agility to quickly attract
the “best venture capitalists, board embers, and other experts who all add value to the
company. This leads to the nest underwriter, which gives the company the opportunity
for highest market capitalization.
Entrepreneurs have to know which investors to chase. Investors all have different
preferences, criteria and capacities for the kind of venture they want to invest in.
Entrepreneurs must be aware of investors’ appetites and match new ventures
accordingly in order to not waste both time and money on an idea that won’t go
anywhere. They must know how investors and suppliers think about the opportunity and
its creation & recognition process. Being aware of how investors are evaluating
opportunities is vital.
LO4: Differentiate between an idea and an opportunity.
All opportunities begin as an idea. These ideas are the initial thought and
recognition of a potential venture, but do not hold any true value until they can be
further realized. Ideas are part of the creative process in entrepreneurship and dozens of
ideas can pass through an entrepreneurial mind each day. However, extensive inquiries
must be made in order to see if this idea has potential to be a great opportunity. A good
idea is a tool for creating a successful venture, but needs a skillful entrepreneur in order
to become an opportunity.
There are four main criteria entrepreneurs can use to determine if an idea can
become a legitimate opportunity. These include:
1. They create or add significant value to a customer or end-user.
2. They do so by solving a significant problem, removing a serious pain-point, or
meeting a significant want or need – for which someone is willing to pay a
premium.
3. They have robust market, margin, and moneymaking characteristics that will
allow the entrepreneur to estimate and communicate sustainable value to
potential stakeholders.
4. They are a good fit with the founder(s) and management team at the time and
marketplace – along with an attractive risk-reward balance.
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It is only upon reflection and research that one can determine if the opportunity is
present. Many ideas initially appear great, but not so much after it has been fleshed out
and looked at in the context of the market. If an opportunity does fit in with all of these
qualities, the “window of opportunity” is opening and will remain open long enough for
the venture to be realized - resulting in successful entry into the market, gaining a
competitive advantage, and economic rewards.
Opportunities are situational; meaning a high potential opportunity at one time and
place may not be elsewhere. Market research, a good strategy, and a tentative business
plan are all necessary in order for an idea to move beyond the limitations of being simply
an idea and turn into a golden opportunity. Ideas are an infinite resource, but success
will not be an outcome unless the entrepreneur can seize that one great idea and turn
into an opportunity.
“A superior opportunity has the qualities of being attractive, durable,
and timely and is anchored in a product or service which creates or
adds value for its buyer or end-user – usually by solving a very painful
or serious problem. “
LO5: Explain the role of ideas, pattern recognition and the creative process in
entrepreneurship
Explain the role of ideas, pattern recognition, and the creative process in
entrepreneurship.
At the heart of any successful business, there is a great idea. When you see a new
product, or a new business, you always think to yourself, hey, why did I not think of
that? Or, they are the complete opposite and make you think, wow, how did anyone on
earth ever think of that? These great ideas do not just come to you while sitting around
hanging out. Normally business ideas for startups begin with a problem that needs to be
solved. Recognizing ideas that can become opportunities come from being able to see
what others are not able to. The tough thing about ideas though, is how maybe 1 out of
100 actually turn out to be successful. Ideas are a huge, essential part to
entrepreneurship. Without new innovative ideas or opportunities, entrepreneurship quite
frankly wouldn’t be a topic of discussion.
Another important role of entrepreneurship is pattern recognition. You need to be able
to recognize patterns, and being able to recognize said patterns is a skill that
entrepreneurs need to develop, to remain successful. What happens a lot of the time is
entrepreneurs are not able to recognize these patterns quickly, and end up missing
out. Pattern recognition is fundamental to creativity, which is another skill that is
essential to entrepreneurship. Pattern recognition is what leads to theories or strategies
that the entrepreneur can pursue. It is not guarantee that all of them will be successful,
but entrepreneurs also need to be able willing to take those risks. Successful
entrepreneurs are smart risk takers. Pattern recognition is essential to learning as well.
Entrepreneurship is all about innovation, and creativity is what leads to innovation. To
practice innovation, you need to be aware of change, and creatively use it your
21
advantage. Creativity is not being able to create something out of nothing, because
physically we cannot do this, but it is the ability to generate new ideas by changing or
combining existing ideas. In order to be successful as an entrepreneur, you need to be
able to be creative. This also requires a lot of motivation, another key characteristic of
an entrepreneur.
LO6: Identify sources of information for finding and screening venture opportunities
Screening opportunities is a process that requires careful consideration in several
subjects. These subjects include:
1. The Market (market structure, size, growth rate, cost structure, etc.)
2. Economics ( profits after taxes, time to break even, potential for return on
investments, etc.)
3. Harvest Issues (Value-added potential, valuation multiples and comparable,
capital market context, etc.)
4. Competitive Advantage Issues (entry barriers, degree of control, etc.)
5. Management Team Issues (integrity, intellectual honesty, industry and technical
experience, etc.)
6. Personal Criteria (goals and fit, opportunity cost, desirability, risk/reward
tolerance, etc.)
7. Strategic Differentiation (service management, timing, technology, flexibility, etc.)
It is clear that all of these things are worth looking into when screening opportunities.
However, it will be nearly impossible to find an opportunity that has favorable
characteristics in all of these categories. The purpose of this screening process is to allow
the entrepreneur to be able to view quantitative ways to make judgments regarding
their potential venture and ultimately help them decide whether or not to pursue the
opportunity. When coming to this decision, certain characteristics will have more weight
than others, depending on the product or service in question. For example, a dominant
strength in one category could have significant weight, leading to a decision to pursue
to opportunity or it could be more or less meaningless. The same can be said for
unfavourable or flawed characteristics. Before one is able to screen opportunities, they
must first find an idea to generate an opportunity.
There are several ways one can increase their chances of finding that winning idea:
1. Purchasing an existing business: there may be an excellent opportunity that the
former owner was unable to uncover.
2. Franchising: this could be in the form of becoming a franchisee or starting a
franchise operation.
3. Patents: Individuals can buy patents from a patent broker and then resell it.
4. Product licensing: One can subscribe to information services to gain exposure to
ideas.
5. Corporations: One can receive the rights to a corporation’s invention that they
chose not to exploit commercially.
22
6. Not-for-Profit Research Institutions: One can license their new products and
processes.
7. Universities: One can license inventions resulting from university research
Ideas can also be generated through talking to people. This can be done in numerous
ways:
1.
2.
3.
4.
5.
6.
Attending trade shows and association meetings
Contacting potential customers
Receiving information from distributors and wholesalers
Examining the products of competitors
Contacting formal employers
Contacting a professional such as a patent agent, accountant, venture
capitalist.
7. Engage in consulting
8. Networking
Once an idea is generated, the individual must then turn the idea into an
opportunity. It is important to note that “Data available about market characteristics,
competitors and so on, are frequently inversely related to the real potential of an
opportunity.” For instance, one might find legitimate published data on an industry,
showcasing it’s potential and prompting the individual to seize the opportunity. However,
this data may have already attracted several other entrepreneurs who made the same
decision to seize the opportunity, decreasing the potential for the original person.
A substantial amount of information that the entrepreneur needs to know can be
found in libraries and on the Internet. Not all of it, however. The remainder can most likely
be found through other sources such as trade associations, employees, consulting firms,
public filings, etc.
There are even two online screening tools that allow entrepreneurs to conduct
preliminary evaluation of their idea in order to help them decide whether it is an
opportunity or not. After having reviewed both of these tools on the McGraw Hill website
(http://mba6601entrepreneurialmanagement.wiki.usfca.edu/file/view/Screening+of+New+Venture+Opp
ortunities.pdf) we have determined that they are definitely helpful tools when it comes to
opportunity screening. A substantial amount of research would have to be done before
using them though.
It is clear that all of these tools and methods outlines for screening opportunities will
indeed help potential entrepreneurs determine whether their idea is an opportunity. We
believe, however, that in some cases it pays off to simply go for it, regardless of what the
screening process says.
ANALYSIS OF CASE & ASSIGNED QUESTIONS
23
CASE: EBOK SYSTEMS
ALTERNATIVE 1: QUIT AND TRY AND NEW IDEA
PROS
 Able to fix the capacity issues
 Can come up with possible fixes to
introduce to the same market
CONS
 Already have success in market after
one night of use.
 Already late to the market and not in
place to waste time.
 Would cost more money and time to
start things from scratch.
 Lose customer base.
Implementation
In order to implement this alternative, the firm would have to completely stop
operations and come up with a new idea. This would mean having all current activities
come to an end, and needing to collaborate in order to come up with a new idea. This
would all have to be done quickly in order to avoid being even later joining the market.
ALTERNATIVE 2: TWEAK THE IDEA TO MAKE BOK AHEAD OF THE GAME
PROS
 Don’t have to start from scratch
 Already have identified market niche
 Market was operating at full capacity
when they had the trial set up,
demonstrating that there is a huge
demand surplus
 Low capital requirement
CONS
 Already late to the market
 Failure of launch provided the idea to
possible competitors
 Management team needs intellectual
honesty
Implementation




Put money, time and research in developing a server that could handle the high
levels of traffic. The demand is there, in order to capture the market, the capacity
to handle large volumes of traffic must be achieved.
Apply for a patent or some sort of proprietary protection. Try to create as many
barriers to entry for prospective competitors as possible.
Invest money into public relations and customer service to reinstate customers’
confidence in us after we had to shut down the site. Customer loyalty is
invaluable. We want customers to have brand loyalty to us and confidence in our
service when new competitors emerge.
Contact professors from university for professional advice. Academic
concentration in both Electrical and Computer Engineering as well as
Entrepreneurship and Management, professors will likely have very valuable
advice. They may even have professional contacts they are willing to share with
you, or possibly invest or become a partner.
24

Hire 1 or 2 people with more industry experience. Although the current team is
academically qualified, they lack proven profit and loss experience. There are no
industry “superstars”. Since it is a new market, they need to find someone with
experience in a similar industry such as social networking sites or cellular service
providers.
This is a great opportunity with an identified market niche in an emerging market with no
dominant competitor. The market was operating at full capacity while only in the test
stage. There is a huge attainable market share. Capital requirements are low and return
potentials are high. Competitive advantage is high. There is a definite potential to be the
lowest-cost producer and maintain a high level of control over costs. The window of
opportunity has opened and the team at bOK Systems needs to act quickly before it
slams shut.
ALTERNATIVE 3: OBTAIN VENTURE CAPITAL/ANGEL INVESTORS
PROS
 Can continue to improve the product
with more money
o Will be able to handle the
heavy traffic with more money
invested in servers and the
system as a whole.
o Can also begin marketing the
product to the masses and
expand.
 Valuable skills and experience will be
brought to the venture by angel
investors. Also could have many
valuable connections in the industry.
 Repayment of venture capital
investment is not an obligation like it
would be from a bank since the
investor understands the risk associated
with pursuing a new venture.
CONS
 Give up part of the ownership to the
investors. Not as much control over the
venture.
 More pressure to succeed and the
workings of the company will be under
watch and scrutiny since the investors
now have a stake.
 Have to share any potential profits with
the investors based on contractual
obligations that will be made prior to
any economic success for bOK Systems
Corp.

Implementation:
Seeking out venture capital/angel funding seems like one of the best alternatives
from the six available. Although this type of funding involves a certain loss of control and
potential profits, the benefits involved outweigh the negative. They will have the
opportunity to improve their product and move beyond the testing phase. This is a high
potential opportunity and Aydin must move quickly in order to improve his product and
get it on the market while the opportunity window is still open. The angel investors will also
provide valuable insight and knowledge from past entrepreneurial endeavors to Aydin
and his team
In order to raise venture capital and angel investments, Aydin must prepare a
formal way to present the new venture. He must also determine how much capital he will
25
require, what it will be used for, and what percentage of the company the investors will
receive. He must be prepared for negotiations when meeting with potential investors
since they may have other ideas. In regards to seeking out venture capitalists and angel
investors, bOK Systems Corp. must take advantage of resources such as trade fairs,
existing connections (possibly some of Aydin’s old professors/university connections),
venture capital firms, and the internet as a way to advertise their venture to potential
angel investors. It is important for Aydin and his team to not only seek out investors who
will be able to provide the necessary capital, but also seek out investors who will bring
other valuable assets to the company like knowledge and connections.
ALTERNATIVE 4: ATTEMPT TO SELL THE PRODUCT/FIRM
PROS
 Immediate cash return from the sale.
 No more responsibilities (can pursue
other interests/opportunities).
 Aydin can focus on job at large
multinational telecommunications
equipment manufacturer.
 Since there is a high demand, you
could capitalize on the potential for
growth and ask for a higher selling
price.
 Opportunity can maybe grow more
quickly depending on who purchases
it.
 Legal problems with service providers?
CONS
 Throwing away an opportunity that has
very high potential just based on how
quickly people started using it on the
first day.
 There are no significant barriers to entry
aside from raising capital.
 Little to no competition in the market.
 Already have a team going – will be
harder to convince them to pull out?
 Will they even be able to sell it?
 To summarize, it’s pretty stupid for them
to jump ship so early when the idea
clearly has a lot of potential and
interest.
Implementation:
 There is not direct information about the amount of startup capital Aydin and his
associates spent getting ready for the test launch, but it is assumed to be pretty
minimal. The test launch data shows very high potential and that could be used to
attract buyers. It is also assumed that the sale and transfer of the business and its
product would be pretty simple.
 You must first determine the reason you want to sell the business, since a potential
buyer will surely be asking. Is it because Aydin doesn’t believe in the potential of the
venture? Does he want to focus on his other job? Does he want to pursue other
things?
 Prepare all necessary documents to lay out the business plan, strategy, and market
research in a presentable way to show to potential buyers.
 Determine the worth of the business by locating a business appraiser to get a
valuation. Don’t want to charge too much or too little but need to assess how much
the opportunity is potentially worth.
 Determine whom you wish to sell it to. Family/friends? Employee? Other business? Try
not to limit your advertising of the sale so you can attract as many potential buyers as
possible.
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ALTERNATIVE 5: QUIT JOBS AND FOCUS ON BOK FULLTIME
PROS
 More time time and effort can be
dedicated to bOK
 Less time will be spent worrying about
other commitments and jobs
CONS
 Loss of money, connections, happiness
that may have come from other jobs
and commitments
Implementation:
This alternative would involve Aydin and his fellow founders to focus all of their
attention on bOK. Quitting their other jobs would be necessary to accomplish this. We
feel that this alternative would work best in combination with another alternative,
specifically the first alternative; tweak the idea and make bOK ahead of the game.
Having enough time to be able to put the required effort into tweaking the idea and
implementing it properly will ensure the success of bOK.
ENTRY #4: OCTOBER 7 TH , 2013 (PART 1)
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
One of the key concepts from last week’s material was the criterion for
evaluating opportunities. There are 8 categories under which these criteria are as follows:
Industry and Market, Economics, Harvest Issues, Competitive Advantage Issues,
Management Team, Personal Criteria, Strategic Differentiation and Fatal-Flaw Issues.
Together these criteria will guide entrepreneurs and investors into identifying high
potential ventures.
Another emphasized lesson was that there are 4 main criteria in deciding if an
idea can become a legitimate opportunity. It must create or add significant value to a
consumer, by solving a significant problem for which someone is willing to pay. A robust
market is essential to communicate sustainable value to potential stakeholders. The
venture must be a good fit with the leaders and management team while offering an
attractive risk-reward balance.
The last lesson that really resonated with us, was where and how to gather information.
There is a wide variety of people and institutions with a lot of available information. It is
very important to take advantage of them.
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KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 4: THE BUSINESS PLAN
Chapter 4 discusses the Business Plan. It covers how to utilize a business plan,
what needs to be included and why and also gives an example of a formal business
plan.
A business plan is yet another way that an entrepreneur can convert an idea into
an opportunity. A business plan is an extensive and well researched document that
consists on several parts including market research, an industry analysis, a manufacturing
plan and a financial plan, among other things. These plans are used as a way to help
keep the entrepreneur on track, more importantly they are the starting point for potential
investors when assessing the potential of new venture ideas.
Timmons et al. showcase four abilities that can be revealed in high potential
venture business plans. These include the business’ ability to:




Create or add significant value to a customer or end user
Solve a significant problem or meet a significant want or need for which
someone will pay a premium
Have robust market, margin and moneymaking characteristics
Fit well with the founders and management team
Arguments surrounding the idea that “the business plan is obsolete at the printer”
have been going on for several decades. This stems from the fact that technology and
the global marketplace are constantly evolving. Some might look at the business plan as
a “work in progress” requiring the entrepreneur to be flexible and responsive. We, as a
group agree with that notion. It would be unethical for an entrepreneur to formulate a
business plan and follow it precisely. It is almost certain that unexpected events and
changes in the marketplace and technology will require the plan to be tweaked and
edited. It may even require more significant changes, depending on the situation. No
matter the extent of the required changes, it is important that they are implemented if
they minimize risk to the business, regardless of what the business plan may state.
The book proceeds in explaining the importance of a business plan when
attempting to obtain capital from investors. However, even a well written business plan
does not mean that the venture will be an automatic success. The business must first be
developed before it can be successful.
Entrepreneur, Thomas Huseby offers readers advice regarding venture capitalists,
the business plan itself, the deal and the fund-raising process. It was interesting to
receive advice from someone who has actually has experience as an entrepreneur and
a venture capitalist. One piece of advice he offered stated, “The numbers don’t matter;
but the economics really matter.” Initially we found this rather surprising. According to
28
Huseby the value proposition and the business model are more important than the
actual numbers. After discussing and analyzing his point we concluded that the numbers
are less important due to the fact that they are all hypothetical estimates. Huseby also
stated “Never say “no” to an offer price. After some discussing, we realized that this is
definitely a good idea as even if you aren’t entirely certain whether or not you want to
accept the offer, you are not legally bound to it by saying yes. It would not be impossible
to retract your acceptance. Conversely, it would be a lot more difficult to retract the
declination of an offer.
Timmons et. Al continue to discuss the important of not just attracting any
investor, but those who can add value to the business in question. “Fit” between the
founders, the investors and the business itself are very important in enterprise
development. This brought us to the idea behind the television show “Dragon’s Den”
where entrepreneurs seek investment from five venture capitalists, ranging from different
business backgrounds. It is quite common to see the entrepreneurs accept deals even if
the Dragon offering that deal does not come from a background that would add
significant value to the business. The entrepreneurs are so focused on receiving the
money that loose focus on who they are receiving it from.
Another question the entrepreneur needs to answer is “Who develops the
Business Plan?” It may be the entrepreneur or it may be an outside professional hired to
prepare it for the entrepreneur. We as a group agree that leaving the preparation of
such an important document in the hands of someone who is not directly involved in the
business is not something we would do. It would be very difficult for the founder to
communicate every aspect of his vision to an outside professional. Furthermore, the
outside professional may not interpret the founders ideas same way that the founder
would have. It may be beneficial to hire an outside professional to develop certain parts
of the business plan, for example the financials. Leaving the creation of the entire plan in
the hands of an outsider, however, does not seem like a good idea.
The books proceeds by looking further into what the business plan actually consists of
as well as the required “action steps” in writing it. The four action steps listed for the
development of a business plan are as follows:




Segmenting information
Creating an overall schedule
Creating an action calendar
Doing the work and writing the plan
The book emphasizes the importance of sticking the action calendar. These action
steps seem as if they would be beneficial for someone writing a business plan with a
deadline. In contrast, being bound to such a schedule without a deadline seems
unnecessary. The entrepreneur may not realize the extent of one segment of the plan
and may end up needing more time than he or she had originally expected. Sticking to
the action calendar in such a scenario would require rushing through the segment and
potentially making errors or forgetting parts.
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ANALYSIS OF CASE & ASSIGNED QUESTIONS
CASE: SCAVENGER ENERGY: FROM THE GROUND UP
#1. WITH NO SIGNIFICANT ASSETS AND NO TRACK RECORD AS A CEO, CAN
RAZA HASANIE MAKE IT?
He can make it, but there are some conditions:

Without the experience factor, the odds are certainly not in Raza’s favor. He has
not had the opportunity to build contacts, know-how and an established track
record in the industry, market and technology. Furthermore, he probably does
not have knowledge of the customer, distribution channels and the market. Since
he does not have any experience as a CEO he will have to learn as he goes.
Furthermore, he doesn’t have sufficient assets to start this company. He will
undoubtedly have to give up equity in order to secure the funds he needs to
develop the enterprise. Having said this, it is not impossible for Raza to succeed,
the odds are simply not in his favor. He will definitely need to compile an
executive team with relevant knowledge and experience to assist him in his
endeavor. He will have to use the “bootstrapping” technique and do more with
less.
** ANOTHER OPTION**
Raza could decline the offer from these investors and try to find investors that have
experience in the industry. It is important that top management of the business has
experience. Since Raza himself doesn’t
#2 WHAT FINANCING STRUCTURE WILL SATISFY INVESTORS?
Concentrated financing structure with fewer investors at larger amounts. The
Investors don’t want his friends and family involved in financing as it adds to risk and
complexity of the structure as well as making exit strategies much more complicated.
#3 WHAT WILL RAZA HAVE TO GIVE UP?
Angel investors don’t want to give Raza, even as much as a fifth of the company.
He has to give up the majority equity of his company if he goes with these investors. He
has to give up over 80% of his company. A more reasonable value for the investors might
be to let Raza keep 10%. Raza should have known, before he started, that without any
industry experience or assets that he wouldn’t be able to keep a substantial stake of the
venture.
He has 2 options:
1. Earn his equity stake
30
Find an industry expert to partner with him and go back to angel investors
demanding more of the company since they don’t have any experience in
the oil and gas industry either.
o Potential partner would maybe be a former employee of an oil and gas
company with the desire to have a lower scale business.
2. Give up ownership
o
PROJECT PROGRESS:
Frozen yogurt:
Vending machine:




Have a variety of 6 or more fruits,
Low fat, naturally sweetened
Option to get 1, 2, or 3 different fruits
Mixes it on the spot into a cup
 Healthy option,
 Have them in malls, arenas/sport centers
 Possibly get them approved by school board and have them as “healthy snacks
in schools
 University campuses, including residences
 Low maintenance costs
 Low operational cost
31
ENTRY #5: OCTOBER 7 TH , 2013 (PART 2)
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
One of the key concepts from last week’s material was the criterion for
evaluating opportunities. There are eight categories that constitute this criterion which
are as follows: Industry and Market, Economics, Harvest Issues, Competitive Advantage
Issues, Management Team, Personal Criteria, Strategic Differentiation and Fatal-Flaw
Issues. Together these criteria will guide entrepreneurs and investors into identifying high
potential ventures.
Another emphasized lesson was that there are four key criteria in deciding if an
idea can become a legitimate opportunity. It must create or add significant value to a
consumer, by solving a significant problem for which someone is willing to pay. A robust
market is essential to communicate sustainable value to potential stakeholders. The
venture must be a good fit with the leaders and management team while offering an
attractive risk-reward balance.
The last lesson that really resonated with us, was where and how to gather
information. There is a wide variety of people and institutions with a lot of available
information. It is very important to take advantage of them.
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 5: THE ENTREPRENEURIAL LEADER
Chapter 5 allows us to further understand what it takes to be a successful
entrepreneur. There was a significant amount of important information and key points to
highlight in this chapter.
One of those major points to highlight was that some individuals are better
managers and some better entrepreneurs. Some, however, have the ability to excel at
both activities. Managers are the ones who focus more so on the day-to-day operations
of a company, implementing the plans and ideas of the entrepreneur. Conversely, an
entrepreneur’s objective is to innovate and create. They are the ones with the vision,
imagination, determination and innovation. They typically hold a strong need for
achievement and take the necessary risks to achieve their goals for the
company. Entrepreneurial firms are more concerned with developing new things, and
are less conventional. They do have more uncertainty, but the high risk often comes with
higher return. This piece of information made us all reflect and discuss under which
category we would each fall. A good way for us to judge this was based on how each
individual acted with our discussion group. Certain individuals were very organized, often
arranging times to meet, leading the discussions, and making sure that each individual
32
was contributing the appropriate amount of reflection and work to the conversations.
On the other hand, other individuals, while not always the most organized nor running
the meetings, were often contributing to the group through their original ideas and
generally had a more laid back approach to the group work. They always contributed to
the group, but always approached the discussion with an attitude reflecting their belief
that everything would be done in time and would instead focus on making the
discussions original and innovative.
There are five growth stages with a new venture. The first is the research and
development stage. This is where the entrepreneur, or small team of entrepreneurs,
undergo an investigation of their new business idea, and try to make the idea come to
life. The second stage is the start up. The period between the first and second stage
requires a motivated entrepreneurial leader to be creatively involved in all aspects of the
company. This stage involves a significant amount of energy, drive and ambition from
the entrepreneur(s). Next comes the high growth stage. With a failure rate of over 60%,
this stage is the deal breaker for a lot of entrepreneurs and the toughest of the stages. It
is difficult for a company to identify this stage until after it has already occurred. It is
during this stage that the entrepreneur needs to let go of their power and control that
they have always had. This can understandably be very challenging for them. We, as a
group, agree that letting go of some of the control you have always had in a business
that you have created would be particularly challenging. We can understand why the
high growth stage would be deemed the most difficult. We also discussed how one
would be able to best identify when their venture is at each individual stage, although
we determined it would be rather difficult because the line between each stage is not
precisely cut and will depend on many factors including the opportunity, timing, team,
and market.
After the high growth stage, comes the maturity stage. This is where the
company strives for steady and profitable growth. In this stage, the founder may
transition from managing to the even higher position of managing managers. The
stability stage usually follows the maturity stage.
The book proceeds in explaining managing in the rapid growth stage and how it
differs from managing other stages of the growth cycle. Reasons for this include change,
ambiguity and uncertainty, nonlinear and nonparametric events, inexperience and
unconventional decision making, all of which are common in the high growth stage. The
importance of being able to exert influence without formal power is highlighted, and we
took a moment to discuss any experiences we may have had with individuals who
displayed these characteristics. David Bradford says “If you are a manager, you not only
need to exercise influence skills you’re your peers and your own boss, but also to help the
people who work for you learn to be effective influencers-even of you- since that will free
you to spend more of your time seeking new opportunities and working the organization
above and around you.” We did not fully understand this quote because we don’t see a
noticeable connection between why having effective influencers leads to create more
free time for a manager to seek new opportunities. In fact, we more so saw the dangers
in working with influential people who may be manipulative. This could influence
33
managers to make decisions that could end up being the wrong ones, and in turn,
costing more time and money.
As we have learned before, it takes a variety of different skills to be a successful
entrepreneur. It is very unlikely that one individual will have every one of these skills. It is
for that reason that teamwork in venture development is so important. Timmons et al.
stress the idea of “fit” among the entrepreneurial team as well as complementary skills
and characteristics. For example, one individual may be strong in financial aspects, but
not so strong when it comes to marketing. This individual would have a higher rate of
success if they were to find a colleague with marketing expertise, allowing them to work
together to achieve success. It is very important that entrepreneurs be honest when
undergoing a self-assessment before looking for a colleague. They need to identify and
understand their strengths and weaknesses to be able to find others with specific
strengths to weaknesses to counterbalance their own. Our group realizes that selfassessing is not the easiest thing to do. Certain people in our group would find it easier
than others. We do realize that a thorough and honest self-assessment will lead to finding
a better team. One person in particular, identified her tendency to over think things and
stress and worry too much. As an entrepreneur, she would benefit from working with
someone who knows how to avoid stress and who is better able to look at the big picture
without focusing too much on minor details.
The book proceeds by listing characteristics of good entrepreneurial leaders
surrounding the idea of leadership, vision and influence, helping and coaching and
finally teamwork and people management. The most effective entrepreneurial leaders
are those who are skilled at handling conflict, gaining consensus and sharing their
knowledge and information. They are able to blend ideas and viewpoints to resolve
conflict rather than emphasize differences. Handling conflict can be a very difficult
task. Many individuals prefer to push the issues under the rug, which is considered a
Band-Aid solution. The issue comes out eventually and when it does, it creates a much
larger problem than what would have happened if they had addressed the issue and
handled it when it first arose. We have all experienced situations like this with friends
where issues were pushed aside and then later blew up to a much larger proportion than
they would have been if the issue had been addressed first-hand. Therefore, we agree it
is understandable how this could happen with a venture team.
Next, Timmons et al. list other necessary competencies of an entrepreneurial
leader in the categories of marketing, operations/production, finance, entrepreneurial
management, law and taxes and information technology. The lengthy list of necessary
skills and characteristics listed throughout chapter five prompted a discussion within our
group regarding what it takes to be an entrepreneur. It is clear that nobody is able to
hold all of these skills and characteristics. Moreover, an individual can indeed be
successful without having all of them. One group member knows of a female who
doesn’t seem to have what it takes to be an entrepreneurial leader. In fact, she seems to
be more the opposite of what the perfect entrepreneurial leader would be. Having said
that, she is very successful. We assume that her entrepreneurial team played a large
contribution to her success. We came to the conclusion that there are exceptions and
34
sometimes things just work out, regardless of the person and whether or not they are a
“good” entrepreneurial leader.
A key lesson learnt in this chapter regards the importance of teamwork to a
successful entrepreneurial leader. There is no room for the “hero” in the entrepreneurial
world. That is, the person who thinks they are better than everyone and tries to exert
control over their peers. Those who are “trying to make the pie bigger” by making
“heroic contributions” will be much more beneficial to a successful venture in the long
run.
ANALYSIS OF CASE & ASSIGNED QUESTIONS
CASE: MED-ENG SYSTEMS INC.
#1) WHAT WOULD YOU DO IF YOU WERE MR. L’ABBE?
We think Mr. L’Abbe has two options at this point. His first option is to stay with his
company in his current role. To be successful in this position he would need to change his
position from a strong entrepreneurial leader to more of a manager. His second option is
to step aside from the Med-Eng and allow a professional manager to take control of the
company.
Med Eng is no longer in a rapid growth stage. It is in its maturity and it is time for
the company to be harvested. This will not be possible if they continue to spend a large
portion of their resources on research and development of new ideas and products. It is
for that reason that Mr. L’Abbe needs to reconsider his role if he chooses to stay on
board with the company.
If he wishes to continue to be highly entrepreneurial, it would be in both his and
the firms best interests for him to step aside. He would then be free to begin new
entrepreneurial pursuits, while Med-Eng would be able to be harvested and stakeholders
could see the financial benefits.
#2) HOW WILL YOU SATISFY INVESTOR DEMAND FOR GROWTH? ARE THERE
NEW MARKETS ON THE HORIZON (E.G., SPACE SUITS, UNDERWATER SUITS,
BEAR-PROOF SUITS)? ARE YOU THE BEST CANDIDATE TO LEAD MED-ENG
INTO THE FUTURE?
We believe that investor demand for growth has already been realized. It is now
time to provide financial compensation. Until 2005, revenue grew fairly constantly. In 2005
it roughly quadrupled. This was not because of new technical innovation, but because
of their partnerships with American firms that led to a large volume of sales to the U.S.
35
defense market. Rather than focusing on growing the product lines, the business should
become more focused on selling the products they already have. This will lead to
increasing revenues and profits, which can then be paid out to investors. Since the
company would need to become less entrepreneurial and more focused on a
structured business process Mr. L’Abbe may not be the best candidate to lead Med-Eng
into the future.
#3) WHERE WILL THIS INDUSTRY, THIS COMPANY, AND YOU BE IN TWO TO
THREE YEARS AND IN 10-PLUS YEARS?
We see Med-Eng being a strong company in the future. There are many conflicts
around the world, and there is an already large and growing demand for the types of
products they offer. Although there are competitors who produce similar products, MedEng has a good reputation and is known by many to be the top manufacturer. They also
hold a variety of patents on the technology they developed for use in their suits and as
such can fight off competitors who try and replicate it. In two or three years I think it is
safe to guess that Med-Eng will still be an industry leader. It is harder to judge where they
will be in 10 years. They could continue along their current path for that long, however it
is also possible another firm will develop a disruptive technology and render their
products obsolete.
36
ENTRY #6: OCTOBER 21 ST , 2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
This chapter discussed the fact that there are managers and entrepreneurs and
then there are entrepreneurial leaders, capable of excelling in both positions. One of the
key lessons from last week’s material was the stages of the growth cycle. These include
research & development, start-up, high growth, maturity and stability. The High Growth
Stage, in particular, can be a significant challenge for entrepreneurs, involving a lot of
drive, ambition and energy. Moreover, management in this stage is different from any
other stage as it involves ambiguity and uncertainty.
The skills and competencies necessary in being a successful entrepreneurial
leader were also discussed along with the notion that it is highly unlikely for a single
entrepreneur to posses all of these skills and competencies. Finding an entrepreneurial
team with a good “fit” between members is therefore very important as team member’s
strengths and weaknesses can compliment one another’s.
We learned that there is no room for the “hero” in the entrepreneurial world. That
is, the person who thinks they are better than everyone and tries to exert control over
their peers. Those who are “trying to make the pie bigger” by making “heroic
contributions” will be much more beneficial to a successful venture in the long run.
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 6: THE NEW VENTURE TEAM
Chapter six surrounds the idea behind the significance of a new venture team.
This includes what an effective venture team is made of, critical issues and hurdles in
building a new venture team, and the idea of rewards, which are all highlighted
throughout the assigned reading.
A high quality management team provides the organization with the ability to
reach higher success potentials and maintain substantial value over time. Although it is
possible for lone-wolf entrepreneurs to be successful without a team, it is much harder to
do so. These people prefer to have employees so that they can hold onto the ownership
and power behind their venture. Although this has been discussed before, we agree
that having a good team is essential for the success in almost any large endeavor. We
talked about how our discussion groups and the weekly submissions are much easier
when our group is working well together and sharing ideas, as opposed to only a couple
members contributing to the discussion.
Finding the right partner with the right attributes is essential. This can remove
loneliness and stress that entrepreneurs may feel, and can lead to building a strong team
that venture capitalists are likely to be attracted to. We, as a group agree that large
37
venture owners will often not want to give up any of their company. However, having a
good team makes the workload much less, while increasing the chances of raising
profits. It will likely lead to success that the entrepreneur never even anticipated,
depending on the situation.
Forming and Building Teams
Timmons et al. explain that having a consistent vision among all members of the
team will create a guideline for how the team will interact together, and the shared
expectations of the group. It is the responsibility of the lead entrepreneur to motivate the
team members and coordinate the group to work together efficiently. Having the
“secret weapon” of understanding teamwork is a massive advantage over those who
focus on individualistic competitiveness.
The chapter outlined some philosophies and attitudes that the best entrepreneur
teams have:









Cohesion: The idea of sticking together, winning together and losing
together.
Teamwork: Remaining a team by keeping all members as equal success
factors, motivating one another and helping each other with activities.
Integrity: Remaining consistent with views of performing quality business
without sacrificing health, or personal standards and beliefs.
Commitment to the long haul: The level of commitment of the team
directly affects the long and short-term success of the new venture. The
team must be perseverant and willing to go through hard times in order to
reach success.
Harvest mind-set: Looking at the big picture, and realizing eventual
capital gain as success factors rather than incremental pay amounts.
Commitment to value creation: The entire team has consistent values of
creating value for themselves, other members of the team and their
customers.
Equal inequality: Unequally split based on commitment to team.
Fairness: Rewards and compensation are based on results and hard work.
Sharing of the harvest: Sharing the winnings, and remaining fair with the
rewards based on key employees and activity levels.
Building a strong team does not happen over night, and the end result of a
successful team is only possible after filtering out people who are not compatible and
realizing the best ways of working together. The formation of a team can be done by
one person having an idea and then multiple people joining in as they learn more, or as
a group of people who share a similar initial idea and begin activities as a team from the
start. The formation of a solid team is a “process of evolution”, and those considering the
idea of team formation must be prepared for a long process of changing dynamics.
38
Forming a team would take time, and it is easy to understand why. We see
relationships everywhere we go in our day-to-day lives, whether it is with teachers or
classmates. Everyone in our group has encountered a situation where they thought they
knew and liked someone but eventually saw another side of them, changing everything.
It is crucial to have strong relationships and teams in the business world and that will
certainly be a lengthy process.
Filling the Gaps
When forming a new team, there are many gaps that will open up that will need
to be filled, as the process of team making is complex and time consuming. These gaps
can be filled and avoided by ensuring the correct approach to team building. The
founder must be self-aware and know what kind of team they are looking for based on
the set of needs at hand. As discussed in Chapter 5, in order for the founder to properly
choose the appropriate team members, they have to have a very strong knowledge on
their own strengths and weaknesses in order to be aware of what kind of team members
are needed. Sometimes, it is better to be prepared with a strong team prior to heavy
business activities rather than the traditional idea of hiring more employees as the
revenue sees fit. Moreover, incorporating outside resources such as lawyers, board of
directors and tax and legal expertise can help ensure that the team has all of the
necessary skills to take on the venture. Determining the degree of involvement needed
by these outside resources is important as is ensuring a degree of trust can be found
between the two parties.
We agree that it would be difficult to trust outside resources such as lawyers or tax
experts because they have the ability to take your ideas and spread them to your
competition or even take them for their own benefit. It is important for companies to
research and interview their team members thoroughly before they agree to move
forward with them in order to make sure that their trade secrets are kept safe.
Timmons et al. compared the idea of an entrepreneurial team with that of a
courtship that eventually leads to a family. We found this to be very interesting. It was a
great analogy that laid a really good framework for the complexity of teams and the
ability for different minded people to work together very well as a team.
The book proceeds in explaining the importance of the alignment of values,
goals and commitments among group members. Moreover, the definition of roles must
be clearly explained for the entire team so that all members are clear on their roles, and
the team members are able to take advantage of their specialties. Having peer groups
available for each team member to speak to is helpful in making sure that all problems
are discussed and every team member is comfortable and happy with their
responsibilities.
Our group found learning about the importance of peer groups to be rather eye
opening. The idea that an entrepreneurial leader is not only responsible for the financial
39
aspect of their team members lives but also their emotional well-being is certainly be
challenging.
Common Pitfalls
The moonlighting phase acts as an opportunity for the team members to get to
know one another while the ideas of the venture are starting to develop but the actual
business activities have not yet begun. A common pitfall occurs when a company or
team does not have the appropriate skills to deal with start up issues, such as lack of
communication regarding ownership or ambiguity of roles. Another common pitfall that
some teams experience is the actual formulation of the team itself. Many people team
up with people they have existing relationships with, and neglect to communicate the
key aspects of the business such as ownership and control.
After a group discussion, we agreed that working with people you know can be
very difficult because it can involve poor conflict management and avoiding issues and
arguments because you don’t want to create awkwardness or conflict with a friend.
Furthermore, people will often take things more personally when it is coming from
someone they know. We believe that it is better to separate work life and personal life.
Destructive motivations from any team member can act as a pitfall for the entire
team. This could be from outside resources, the lead entrepreneur or any of the team
members that have a destructive outlook on power and control. It seems that every
team has one person who always wants to be in charge, and call all of the shots. It’s
important to understand that everyone needs to be viewed and treated as an individual
in order for the entire team to work together successfully.
Rewards and Incentives
The trouble of determining what goes to who can be overcome by rewarding
every employee based on his or her output. That way, each employee has an equal
share to one another based on their contribution to the team activities, and it can be
viewed as equal rather than the founder receiving half of the pie. The reward system is
based on incentives for the team members, both tangible and intangible, and extrinsic
and intrinsic. These incentives act as motivators, periodically or for the entire duration of
the venture. The reward system for a new venture needs to be planned thoroughly so
that rewards can be disturbed throughout the lifetime of the venture and the company
will be able to support these activities financially.
We think it is very important for new ventures to consider rewarding their teams,
even in times of financial despair or uncertainty. Even if the company does not have the
financial resources to reward their team with bonuses at a given time, that is not to say
that they cannot reward them in other ways. Praise and gratitude are ways that teams
can be rewarding without the firm having to spend a penny.
Critical Issues
40
Many conflicts arise when teams are faced with the daunting task of distributing
wealth, profits and ownership. Considering the level of differentiation and the different
levels of output from each employee is important and can help in considering the levels
of reward to give to each. Rewards being a function of performance differ from that of
differentiation because it depends solely on success factors. If the employee is
successful, they should be rewarded rather than if the employee tried and was rewarded
for activity. The split of stock is something that would be done at the beginning of the
venture, while rewards such as bonuses, and fringe benefits can be given more readily in
order to reward performance.
ANALYSIS OF CASE & ASSIGNED QUESTIONS
#1) EVALUATE THE COMPOSITION OF BRIAN AND MARS’ TEAM. WHO IS PART
OF THEIR TEAM AND WHO IS NOT?
Who is a part of their team?



Brian Takeda and Mars Koo are the lead entrepreneurs of the venture, and
began the formulation of the team.
After hiring a high-end design group and a noted branding expert, they have
added these members into their team.
The members of the Aiya Corp. of Japan became team members when the
founders decided to team up with the company, and agreed to share the cost
of direct marketing and employees.
Who is not a part of their team?


Their parents are not a part of their team. They will be able to pay them back the
money, and do not have any agreements to give them any share or decision
abilities.
The smoothie giant interesting in purchasing matcha from Takeda and Mars is not
part of their team. In fact, they are competitors.
#2) ARE THERE ANY ELEMENTS OR INDIVIDUALS MISSING FROM THEIR TEAM?
WHAT CHARACTERISTICS OR ATTRIBUTES SHOULD THEY BE LOOKING FOR IN
ORDER TO COMPLETE THEIR TEAM?
The new agreement with Aiya Corp. requires that Infuze continue pursuing its business
as both a retailer and a wholesaler. Aiya will be paying for all marketing and employees
(for a modest share of equity) and so we believe that the next logical step is for Takeda
and Koo to recruit more associates to the team, each bringing with them their own skills
and experience. Since their organization is involved in more than one business, we
believe they should treat it as such and recruit new associates who are experts in
wholesale and associates who are experts in retail. Some types of associates that will be
required to successfully pursue such a high potential venture include finance, strategy
41
and infrastructure, research & development, and marketing. Skills and experience in
areas such as these will be required if the venture were to continue to grow and expand
both as a retailer and wholesaler. One area of the new contract with Aiya outlines that
they need to continue expanding commercial efforts for their own Infuze brand.
Marketing associates will be especially important now that matcha will not be as big of a
value-adding element in their retail chain since many other retailers will also carry the
product. However, since Aiya will be funding the marketing expenditures, there is a
significant opportunity for the retail chain the take more market share if the right
associates were brought on to the venture.
#3) WHAT SHOULD BRIAN AND MARS DO NEXT?
They have been successful at retailing and their wholesale efforts show great
promise; therefore, we believe it would be a massive missed opportunity if the duo were
to just focus in on one of the two to further pursue. The contract with Aiya is extremely
promising and flexible and they currently allow Infuze to bare a monopoly as a
wholesaler of matcha in North America. Based on performances at trade shows and
interest from other retailers, there is a very high potential for demand for the product and
that combined with the very good new potential contract with Aiya gives so much
credibility to the notion of Infuze becoming a major wholesaler of matcha throughout all
of North America. However, they should inquire as to exactly how much a “modest”
share of equity being granted to Aiya would entail. By granting shares of equity to Aiya, it
would no longer be just a distributor, but instead a partner and Brian and Mars will no
longer have complete autonomy over the organization. However, the case details a trust
that was built over the two companies’ long courtship, so Aiya looks to be a very
promising partner that comes with much capital, experience, and connections. We
believe that although they will no longer have as much autonomy, it will be worth it since
the benefits of this new contract with Aiya are so extensive. A suggestion we could make
for Infuze would be to focus part of their branding strategy as the original “creator” of
matcha in North America. The media has already assisted with this by treating matcha as
a “made-in-Vancouver success,” and if they can continue to deliver excellent products
they could keep much of the market share for themselves.
ENTRY #7: OCTOBER 28 TH , 2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
Last week’s material focused on the venture team and how developing a high
quality team gives the entrepreneur the ability to achieve success by finding the right
partners and capitalizing on individual skills. We learnt that the formation of a strong
team is known as an evolutionary process, and cannot be done overnight.
42
In our study of entrepreneurial teams, we recognized that the best practice attitudes
such as cohesion, teamwork, integrity, and commitment to the long haul, harvest mindset, commitment to value creation, fairness, and sharing of the harvest. These
philosophies help guide the best entrepreneurs to successfully motivate the team, and
guide the group to work together efficiently.
Many gaps can occur while formulating a team, and there are many different ways
entrepreneurial leaders can choose to fill these gaps. Having a clear definition of roles,
using outside resources, and having a clear definition of the shared values and goals can
help new venture teams overcome common gaps, and learn different procedures to fill
these.
Last week we also learned about the common pitfalls that can accompany the
development of a new venture, including overconfidence in the lead entrepreneur,
failure to understand the ever-changing business environment, and not having the
proper skills to deal with startup issues. Communicating the duties of all members of the
team can avoid these pitfalls, and having an open business environment is necessary in
order to ensure a successful team. A team can be related to the structure of a family,
and understanding the complicated dynamics of a family can help understand the
relationships behind a team.
Providing team members with incentives and rewards can ensure continued activity,
and act as motivation for team members to collaborate and reach united success.
Giving rewards can be done in many different ways, including monetary incentive and
personal motivation, and needs constant planning by the lead entrepreneur in order to
make sure the company has the appropriate allocations for these rewards. Flexibility and
adaptability are also essential components of a successful team, and all members must
be willing to work together through group changes. Constant communication and
understanding of wealth earnings and company shares can help a team avoid common
issues that can result in the downfall of the team.
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 9: FINANCING THE VENTURE
Chapter nine looks at the financing of a new venture and the various factors
involved in the process. Topics covered include the complex dynamics and interplay
between financial management and business strategy, the differences between
financing in large established companies and new emerging ventures, and determining
capital requirements as well as strategies to fund-raise such capital, like different kinds of
investors.
Timmons et al. begin by laying out the three core principles of entrepreneurial
finance:
1. More cash is preferred to less cash
2. Cash sooner is preferred to cash later
43
3. Less-risky cash is preferred to more-risky cash
However, much financial analysis beyond these basic core comprehensions is
often intimidating to individuals and groups. This lack of understanding of the important
relationship between financial management and business strategy is referred to as
financial management myopia and is something that entrepreneurs should attempt to
avoid with management in their new venture. We as a group find it believable that, as
important as financial management is, people would still avoid it. The entrepreneurial
mind is often not oriented toward numbers and math, and it is therefore understandable
how looking at extensive data on spreadsheets would be intimidating to many managers
and leaders. If an entrepreneur can get over this myopia, they will have a competitive
edge over others without this skill.
Developing financing and fund-raising strategies and obtaining the necessary
funding is vital to an emerging company’s survival and success. Some critical issues the
entrepreneurs face which influence the financing of their venture include creating value,
slicing the value pie, selling the idea, covering risk, and determining what financers need
to be accessed and developed and how to go about doing so. Entrepreneurs need to
have a good understanding of these issues since with a new venture, cash goes out long
before it starts to come back in. If an entrepreneur leading a venture overlooks these key
issues, we believe that it will be pretty easy to understand why their venture might fail to
gain financial backing. If these issues remain unaddressed, to us it looks bad on the
entrepreneur and looks as if they haven’t thought out their venture thoroughly.
Entrepreneurial Financing vs. Traditional Financing
There exist many differences, both in theory and in practice, between how a
large established company gets financed and how a new emerging venture would.
Because of these significant differences, many people reject modern financial theory
and believe there are no single answers when it comes to financing in the global
economy. Some key differences are the importance of cash flow and cash, timing,
capital markets and emphasis, strategies for raising capital, potential consequences,
valuation methods and end goals. These are all clearly different in how they affect a
young venture as opposed to one that is established and has a history, so we agree that
there should be no standard set for how a venture should go about pursuing financing.
Determining Capital Requirements
To begin determining a firm’s capital requirements, one should look at it in terms
of asset needs and operating needs. Entrepreneurs should be careful when determining
these requirements and how to go about meeting them so that they can find the right
financing sources, at the right time, and with the right terms and conditions. Free cash
flow is the core concept in determining the external financing requirements of a venture.
The burn rate, time to out of cash (OOC), and time to close the financing (TTC) all have a
major impact on the entrepreneur’s choices and bargaining power with various sources
of equity and debt capital. By measuring the free cash flow and operating working
capital of the firm, a manager can better determine where the firms stands on the three
44
core concepts and how much bargaining power they will have when seeking out
capital investments. Our group believes it is important for the entrepreneur to have a
good understanding and guidelines for the amount of power they wish to have when
seeking out financing. Of course, the more power the better but sometimes acquiring
capital is a very important and pressing issue that cannot wait.
Strategies to Fund-Raise Financial Capital
There are two sources of financing that a company can pursue: debt or equity.
The two often go hand-in-hand because, especially for new ventures, it is extremely
difficult to obtain financing without offering up a portion of equity in exchange.
Entrepreneurs should carefully study all potential alternatives to financing, which are
available, and which they should pursue. The text provided an interesting comparison of
capital markets for equity to a food chain. The bigger the company gets, the more
equity the owners will need to give up in exchange for capital and the more equity the
investors will be hungry for. By giving up equity, the founders are thus giving up control of
their company, making it a very difficult decision to do so. We agree that the founders
should try to hold on to as much equity as possible for as long as possible, and that
serious thought should be put in before acquiring a certain level of capital such as
necessity for it and from whom it will be acquired. However, they should not wait too
long since waiting could result in a cash shortage.
Types of Investors
Angels and informal investors are a very promising source of capital financing
since they are usually individuals or groups that have previously been in a similar situation
seeking financing. Meaning, many of them are wealthy individuals who earned a large
portion of their fortunes through entrepreneurial endeavors. They have a keen interest in
nurturing and realizing new high potential ventures and can often add a lot more value
to a business than just money. This added value can include knowledge, experience,
and connections in the industry. However, these investors may also demand more equity
if they see high potential in the venture, and may even try to entirely dominate it. They
can also become impatient more quickly if the venture fails to live up to their
expectations. Timmons et al. describe the process of finding, contacting, and presenting
to angel and informal investors, as well as the decision-making process by the investors.
Our group agrees that angel and informal investors seem like a preferred option when
seeking out financial capital since they are often entrepreneurs themselves. Although it is
extremely important for an entrepreneur seeking financing to evaluate these investors
and their past business dealings, we feel like they will bring on immense value to the firm
because of their experience. This is much more preferable than other investors who add
value to the firm only by giving money. Potential investors should fill some gaps in the
founders’ lack of experience, knowledge, and connections, and the founder should be
able to properly evaluate him or herself to find what attributes they require.
45
Venture capital is an industry that supplies capital and other resources to
entrepreneurs with their new ventures in hopes of gaining a high rate of return on their
investment. This industry functions similarly to angels and informal investments, but it much
more formalized and less personal. There are many stages involved in the venture capital
investing process and the venture capital firm hopes to improve the company after
making an investment. They are determined to see the venture succeed since their end
goal is to turn out a profit from their investment. There are a number of factors that
influence a new venture’s ability to attract venture capital, but it is much more easy to
find venture capital firms than it is angels and informal investors. However, it is still difficult
to receive financing from them since they have strict criteria for assessment and tend to
stay away from early-stage investments. Entrepreneurs are advised again to screen
prospective investors to find the right fit for their venture that will lead to the most valueadding results. After discussing, we agree that venture capital is also an important and
useful way to seek financing. While venture capital financing is more formal and less
personal than the first option, it also has an assurance that the firm will completely
support and assist the new venture in achieving its goals since they have a slice of the
pie. If the new venture fails, the venture capital firm will lose on their significant
investment. Since seeking out venture capital is a more formalized process, it will also
force the new venture firm to figure out and refine the details in their strategies, which will
only added benefits to the firm. We believe that both sources of financing are valuable
and should be considered, but the ultimate decision will often depend on the type of
firm and what they are seeking.
Some other types of financing that are mentioned briefly in the textbook include
the Business Development Bank of Canada, Scientific Research and Experimental
Development Tax Credit Program, corporate venture capital, mezzanine capital, private
placement, initial public stock offerings, private placement after going public, and
employee stock ownership plans. However, we believe that the two most significant, as
well as the most important types of financing, angel and informal investors and venture
capital investors, are the best options for most entrepreneurs seeking to finance their new
venture business activities.
ANALYSIS OF CASE & ASSIGNED QUESTIONS
CASE: SANDVINE INC.
#1. EVALUATE THE COMPANY. HOW MUCH DO YOU BELIEVE IT IS WORTH?
When deciding how much we believe the company is worth, there are several
things to take into consideration. Firstly, the original $19.5 million from venture capitalists.
The case also mentions another round of Venture Capitalist financing but does not
indicate a specific amount. The company burns approximately $700,000 per month and
46
around $200,000 per year on marketing. We must also consider the 78 highly trained
employees and their salaries. Finally, we must factor in the company’s two products, the
P2P system as well as the subscriber services bundle. It is difficult to make an appropriate
estimated of the company’s net worth when the case only gave us a limited amount of
information.
Due to their highly skilled team, all development is performed in-house,
component manufacturing is outsourced and final assembly and testing is performed in
the Waterloo facility. All of these processes minimize costs. That being said, we would
estimate that the company is worth approximately $40 million dollars.
#2. FROM AN INVESTOR’S PERSPECTIVE, PLEASE MAKE SPECIFIC
RECOMMENDATIONS REGARDING FINANCING
As a group of investors we would recommend that the company restructure it’s
financing. Rather than being 100% equity financed they should repurchase some equity
with debt. This will allow investors to begin to see a return on their investment as well as
allow the company to take advantage of tax benefits surrounding debt and interest
obligations. It would also benefit the initial investors if the firm were taken public. However
before this can occur they must attain a much higher revenue stream and have steady
sales of their products.
#3. WHAT SPECIFIC ACTIONS WOULD YOU PROPOSE BE TAKEN AND WHEN?
As outlined above, Sandvine Inc. should immediately leverage its value. Since they are
an established company, they should be able to secure debt financing through a
banking institution, and use these funds to buy a portion of ownership back from
investors. This will increase the company’s earnings per share, which will be beneficial in
the event of an IPO. Once they have leveraged their company and increased the
number of sales, they should take the company public. This will raise a larger amount of
capital that can be reinvested into the firm. A portion of these funds can also be used to
compensate the founders and those who held private equity in the firm prior to
becoming publicly traded. In terms of products, Sandvine would be wise to increase the
amount of marketing dollars spent to advertise both of their products, especially for their
subscriber services. This will allow customers to better understand the value of these
services and increase sales. Furthermore, Sandvine should not be so quick to exit out of
the P2P market for fear that Apple’s iTunes store will take over the market. P2P is useful to
consumers for many other purposes other than sharing music. Moreover, not all those
who download music will want to switch to iTunes. Continuing to pursue the P2P market
and investing more marketing dollars into the promotion of the product would be a
good idea. Sandvine undoubtedly has the knowledge and expertise within their
workforce to ensure that these products are a success.
47
ENTRY #8: NOVEMBER 4 TH , 2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
Last week, we looked at Chapter 9: Financing the Venture. This chapter took an
in depth look into the various factors involved in financing an entrepreneurial venture,
including critical issues, financial fundraising sources and important financial decisions,
among other things. Timmons et. Al showcased the major differences between financing
a large established company or corporation compared to financing a start-up venture.
They highlighted the fact that many typical financial theories do not apply to start-up
ventures. We learned that there is no right or wrong way for a venture to go about
acquiring financing, since this matter is unique to each individual situation. Furthermore,
we learned about the Capital Market Food Chain and the sources of investors that are
likely to be interested in the four stages of entrepreneurial ventures.
The bulk of the chapter focused on the numerous fund-raising strategies that
entrepreneurs may pursue to raise capital. These include angels and informal investors,
venture capitalists, Business Development Bank of Canada, Private Placements, etc. The
authors explained each type of investor and indicated how to track them down, what to
expect from them, and what to do and what not to do. We learned about the many
added values that angel investors bring to a firm, as opposed to just provided capital
funding without any additional strategic help.
They also emphasized the fact that who you obtain money from is more
important than how much, reinforcing the notion found in several previous chapters of
‘fit.’ If the investor does not have the same ideas for the venture and how the money
should be allocated as the venture team, it can lead to numerous problems if a fight for
power ensues. This can end very badly for the entrepreneur as they can lose control of
their venture if the investors have a substantial share of equity and say in the operations.
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 12: LEADING RAPID GROWTH: ENTREPRENEURSHIP BEYOND
START-UP
Entrepreneurial ventures have demonstrated a capacity to invent new
organizational paradigms to replace brontosaurus capitalism. This is due to the
innovative nature and competitive breakthroughs, as well as abandoning the
organizational structures and processes of typical industry giants.
The Hay System (popular in the ‘80’s) was a method of defining and grading
management jobs in large companies. The criteria for Hay Points included:


Number of people who are direct reports
Value of assets under management
48




Sales volume
Number of products
Square feet of facilities
Total size of one’s operating and capital budget
All basic components of entrepreneurialism are missing (value creating, opportunity
creating and seizing, frugality with resources, bootstrapping, staged capital
commitments, team building, etc.). We as a group see this traditional way of conducting
business as almost cringe-worthy. It complete disregards everything we have been
taught all semester is favorable in entrepreneurship, demonstrating just how outdated
some of these dinosaur corporations operate.
Entrepreneurial organization is flatter, faster, more flexible and responsive, and
copes readily with ambiguity and change. In the growing business, owner-entrepreneurs
focus on recognizing and choosing opportunities, allocating resources, motivating
employees, and maintaining control –while encouraging the innovative actions that
cause a business to grow. They lead through influence and persuasion derived from
knowledge and performance. They are learning- and influence-based. Entrepreneurs
create a perpetual learning culture in which they value people and share the wealth.
We feel as though this is a very accurate description of the role of entrepreneurs.
Recognizing these key priorities help highlight the differences between the capitalist
structure and that of an entrepreneurial organization.
Entrepreneurs in rapid growth must also demonstrate leading practices in
marketing, finance, management and planning. They pursue opportunities; devise,
manage, and orchestrate their financial strategies; build a team with collaborative
decision making; and plan with vision, clarity and flexibility.
Stages of Growth Revisited:
Ventures in rapid growth face many problems including forces that:




Limit the creativities of the founders and team
Cause confusion and resentment over roles, responsibilities, and goals
Call for specialization & erode collaboration
Require operating mechanisms and controls
Over the lifetime of a growing firm, the life cycle is not a smooth curve, but one with
many ups and downs, sporadic peaks and troughs. We find it understandable that many
of these difficulties would arise, especially because society is so used to the traditional,
hierarchal practices of businesses. This would result in people taking longer to adapt to
the fast-paced, unstructured way of conducting business that encompasses modern
entrepreneurship ventures.
The chapter describes a new way to classify the stages of growth:
Wonder: filled with uncertainty, lots of hard work
49
Blunder: growth stage where many firms fail, lots of hard work
Thunder: robust growth, entrepreneur has built a solid new venture team, creation of
myths
Plunder: Cash flow is robust, teach and share or destroy
Asunder: firm needs to renew (renaissance of Wonder) or it will fail (liquidation)
Core Leadership Mode:
The core leadership mode is influenced by the number of employees a firm has, which is
in turn related to its dollar sales.
Employees
<25
25-75
>75
Sales
<$5 million
$5-$15 million
>$10
Core Leadership Mode
Doing
Leading
Leading team leaders
During the growth stage, there are entrepreneurial crises that most firms will confront.
There are many “signals” indicating crises for each driving force of entrepreneurship.
The chapter also highlights some distinctive issues caused by rapid growth:
Opportunity overload: entrepreneurs must be able to choose among many opportunities
Abundance of capital: how to evaluate investors as “partners” and the terms of the
deals with which they were presented.
Misalignment of cash burn and collection rates: cash burn rates tend to race ahead of
collection rates and unless effective integrated accounting, inventory, purchasing,
shipping and invoicing systems and controls are in place, misalignment can lead to
failure
Decision-Making: execute functional day-to-day and week-to-week decisions, put
strategy on the back burner
Expanding Facilities and Space… and related surprises: leaders aren’t prepared for
surprises, delays, organizational difficulties, and system interruptions
These problems are all compounded by the amount of industry turbulence. Firms with
higher growth rates are usually operating in an industry that is also rapidly developing.
Our group saw this list and looked back to reflect on how a strong venture team would
expect how a venture is able to deal with these issues of rapid growth. We concluded
that everything we learnt about the importance of venture teams is accurate based on
how well a new business would be able to deal with problems such as these.
The Importance of Culture and Organizational Climate
50
Organizational culture and climate are critical in how well the organization can
deal with growth. The climate of an organization can have a significant impact on
performance. This climate is created both by the expectations people bring to the
organization and by the practices and attitudes of key managers.
There exist six dimensions of organizational climate that are outline in the reading:
1. Clarity: organized, concise and efficient in the way tasks, procedures and
assignments are made and accomplished
2. Standards: expectations and pressures put on employees for high standards and
excellence
3. Commitment: employees feel committed to organization’s goals and objectives
4. Responsibility: members feel responsibility for accomplishing their goals with
constant monitoring
5. Recognition: employees feel they are recognized and rewarded for a job well
done
6. Esprit de corps: employees feel a sense of cohesion and team spirit
Approaches to Entrepreneurial Leadership
Consensus Building: This involves defining authority and responsibility in a way that
builds motivation and commitment to cross-departmental and corporate goals. This
requires working with peers and with the subordinates of others and balancing their
multiple viewpoints and demands. A commitment to dealing with problems and working
problems though to agreement by seeking a reconciliation of viewpoints is essential.
Also, a founder must be seen as willing to relinquish priorities and power in the interest of
an overall goal and must place and emphasis on participation and listening. This
consensus building will be futile if the leaders are not open to confrontation and
differences of opinion. They must be willing to change opinions based on consensus and
new information, allowing logic and reason to prevail. Our group agrees that in order to
new ventures to distinguish themselves from dinosaur corporations, leaders must be
willing to allow consensus building and a much more cooperative platform for decisionmaking. Without consensus building, the venture will be no less authoritarian than old
corporations we criticize.
Communication: Leaders must share information and be willing to alter their
individual views. This relates to our opinion on consensus building, and without such
communication, there would be no consensus reached that differs from the leader’s
ideals. It is essential for information to be clearly communicated so everyone can form
their own ideas and opinions so more will be brought to the table to discussion. Listening
and participation can be facilitated by methods such as: circular seating arrangements,
few side conversations, and calm discussions
Encouragement: Leaders build confidence by encouraging innovation and
calculated risk-taking. By expecting and encouraging others to find and correct their
own errors, they will in turn solve their own problems and the leaders won’t have to
micro-manage. However, at the same time leaders should be perceived as accessible
51
and willing to help when needed. They should also recognize and reward differences
and performance.
Trust: By doing what they say they are going to do, leaders can be perceived as
trustworthy and straightforward. By doing this, they will earn a reputation of getting results
and be known as the creative problem solvers who have a knack for blending and
balancing multiple views and demands. We agree in saying that trustworthiness is one of,
if not the most important approach to entrepreneurial leadership, especially when it
comes to gain employee respect and respect from investors, partners, and other third
parties.
Development: Entrepreneurial leaders should be able to groom and grow other
effective leaders by their example and their mentoring. By linking a plan to grow human
capital at the middle management and the supervisory levels with the business strategy,
leaders will develop a reputation for developing human capital, which will be a great
advantage when it comes to attracting skill and commitment to the venture by
incoming employees and team members.
The Chain of Greatness
Vision
Results in
Leadership
Achievement of personal and
performance goals
Big Picture
Think/act like owners
Shared pride and leadership
Best we can be
Mutual respect
Thirst for new challenges and
goals
Perpetual Learning Culture
Widespread responsibility
Train, educate and coach
Understand and interpret the
numbers
High performance
goals/standards
Reward short-term with bonuses
Shared learning
Reward long-term with equity
Grow, improve, change, and
innovate
52
Entrepreneurial mindset and values
Take responsibility
Get results
Value and wealth creation
Share the wealth with those who create it
Customer and quality driven
CASE & ASSIGNED QUESTIONS
CASE: SANDVINE INC.
#1. MAKE A LIST OF POSITIVE AND NEGATIVE SIGNS OF GROWTH AT
AVALON ELECTRONICS.
The most important positive sign of growth for Avalon is that they are seeing such
high demand when they are located in an area that is vastly different from normal tech
hubs. The organization saw sales of $1.5M in 2007, a ten-fold increase from 2006. They are
also anticipating a sales increase of 40% for 2008, a rate that is expected for years to
come. There are also no direct competitors in their industry. However, if any were to
become established in the coming years, they could be big threats to the firm because
of Avalon’s inability to keep up with demand. Although the company is showing
substantial promise, they are having difficulty recruiting the right software engineers due
to their location in Newfoundland. The lack of skilled engineers results in the organization
being unable to keep up with demand and having to turn down business. This leaves
plenty of room for new entrants to fill those demand slots and take over the market. In
order to keep up with the demand, they will need to find solutions as soon as possible for
their inability to attract talent to relatively remote location.
#2. WHAT SHOULD WALLY HAAS’ PRIORITIES BE?
53
Wally Haas' priorities should include planning an alternate supply chain technique
to avoid excess inventory, as well as doing business with those customers that Avalon
could not service at the time. The capacity problems should be fixed in order to ensure
the immediate issue is taken care of, but many other priorities should be looked into as
well. Wally should create a consistent vision amongst the business, as it seemed like
Avalon had difficulty coming to any sort of general consensus. If the entire corporation is
looking at a consistent big picture, they will be able to plan for the future and make
quick adjustments when necessary. By creating a vision periodically, it will give members
incentive to work harder and share the pride and success amongst one another. This
could also make for better ideas and output, and could help the company plan more
into opening another design center perhaps, or moving to Ottawa.
#3. WHAT ARE THE NEXT HURDLES? WILL THEY BE ORGANIZATIONAL,
FINANCIAL, OR TECHNICAL?
It seems as though the next hurdles will all be organizational. Avalon managed to
secure government funding in its ideas phase. Now that it has a large revenue stream it
will be much easier to secure fundraising either through banks or investors. It also has the
technical knowhow already and is able to produce its product to the needs of their
customers. The big issue that Avalon faces is how to keep up with the speed of its growth.
This brings with it two problems. The first, in order to be able to keep up with the demand
for their product, they must increase the size of the team, so Avalon is in need of skilled
engineers. The second is that not many engineers want to live in Newfoundland.
These organizational hurdles are going to hinder the growth of Avalon if they
can’t find a way to jump over them. Since it is a highly team oriented business, it will be
hard for engineers to work effectively and efficiently if they are not in close proximity.
One option would be for Avalon to open up a second facility, and have each office
work independently on projects. This will allow Avalon to increase the amount of output
they can produce, as well as bring in skilled engineers to the team. At the same time it
will allow Wally Haas the ability to stay in Newfoundland once the second arm of Avalon
is up and running.
54
ENTRY #9: NOVEMBER 18 TH , 2013
LESSONS LEARNT FROM LAST WEEK’S MATERIAL
Last week, we looked at Chapter 12: Leading Rapid Growth: Entrepreneurship
beyond start-up. This chapter went in depth on the changing entrepreneurial
organizations and the replacement of the brontosaurus capitalistic entrepreneurialism.
Old systems and structures such as the Hay System are no longer a proper method for
determining a grading scheme for management jobs in large companies. These
structures tend to leave out necessary components such are value and opportunity
creating, boot strapping and team building.
In the growing business environment, entrepreneurs today need to have
knowledge on many bases including marketing, management and finance. They must
also be prepared for the always-changing business environment, and be prepared for a
bumpy cycle. We looked at the stages that entrepreneurs go through when exercising
the activities associated with a new venture.
Wonder: filled with uncertainty, lots of hard work
Blunder: growth stage where many firms fail, lots of hard work
Thunder: robust growth, entrepreneur has built a solid new venture team, creation
of myths
Plunder: Cash flow is robust, teach and share or destroy
Asunder: firm needs to renew (renaissance of Wonder) or it will fail (liquidation)
We also looked into some key issues associated with rapid growth:
Opportunity overload: entrepreneurs must be able to choose among many
opportunities
Abundance of capital: how to evaluate investors as “partners” and the terms of
the deals with which they were presented.
Misalignment of cash burn and collection rates: cash burn rates tend to race
ahead of collection rates and unless effective integrated accounting, inventory,
purchasing, shipping and invoicing systems and controls are in place,
misalignment can lead to failure
Decision-Making: execute functional day-to-day and week-to-week decisions,
put strategy on the back burner
Expanding Facilities and Space… and related surprises: leaders aren’t prepared
for surprises, delays, organizational difficulties, and system interruptions These
issues can all be determined by the amount of industry turbulence.
Entrepreneurial leadership comes with many responsibilities, and requires
numerous skills and approaches in order to successfully lead a venture team. These
approaches include: Consensus Building, Communication, Encouragement, Trust and
Development
55
KEY LESSONS FROM ASSIGNED READINGS
CHAPTER 15: LEADING THROUGH TROUBLE, THE HARVEST, AND
BEYOND
Causes of Trouble
Trouble can be caused by both external forces or from within a company. A
majority of causes for failure come from company leadership. The main leadership issues
are inattention to strategic issues, general management problems, and poor financial or
accounting systems and practices. If our studies have taught us anything so far, it is that
strong leaders are the most essential factor in a successful venture. We all agree with this
sentiment and know that leaders can make or break anything. One group member
compared this to professors leading a class. We have all experienced professors who
have made a class worth taking or not. In many cases, it is not even the subject that
matters as much as it is how the professor engages with the class and conducts the
entire learning experience.
Inattention to strategic issues includes a variety of problems. Some of the more
notable ones being a misunderstanding of market niche, mismanaged relationships with
customers and suppliers, mousetrap myopia, and a lack of contingency planning.
General management problems arise from a lack of leadership skills, high turnover in key
management personnel and weak finance function. These areas all need people who
have a high level of skill and know-how, and without it can put a new firm in a vulnerable
position. Poor financial planning can also cause firms to fail. One way this can become a
problem is if a firm doesn't correctly price products or manage credit and excessive
leverage properly
We believe that the best way for a new company to get out of trouble is to bring
on team members with experience navigating similar scenarios. It is also helpful to try
and predict possible issues before they happen.
Predicting Trouble
Although there are several models that can be used to predict trouble, there are
two main approaches. The first is a ratio of net liquid balance to total assets. The model
was initially developed to predict load defaults. It can be useful for up to two years in
advance, and as the science of prediction improves so does this method.
The second way to approach predicting trouble is non-quantitative. It includes
many signals, and although it is possible for a firm to have some of them appear they do
not necessarily mean trouble. However if many of these signals begin to appear then
trouble may be likely to follow.
These signals include:
-Inability to produce financial statements on time
56
-Changes in behavior of the lead entrepreneur
-Changes in management or advisors
-Accountant’s opinion that us qualified and not certified
-New Competition
-Launching of a “big project”
-Lower research expenditures
-Reduction of credit line
The period of time between identifying that there is a problem and intervening in
it can take anywhere from 18 months to 5 years. With such a long time period the
intervention leading to a turnaround of failure is largely dependent on how the
entrepreneur reacts and what happens to morale. Realizing there is a problem and
accepting it is paramount to a successful turnaround. Problems arise when entrepreneurs
and managers fail to realize a problem when they have it, or believe it is just a minor
hiccup that will work itself out.
Once a firm has identified there is an issue and it needs to intervene it is typical to
bring in an outside advisor who specializes in turnarounds. The specialist would then
perform a diagnosis to determine what needs to be done. Some diagnostic methods
are:
-
-
Strategic analysis: attempt to identify markets the firm is able to compete
in and decide on a competitive strategy.
Analysis of management: consists of interviewing members of the
management team and determining who is suited for the current tasks
and who is not.
“The numbers”: this involves a detailed cash flow analysis in order to
reveal areas for remedial action. The most common areas for cutting
costs or improving cash flow are working capital management, payroll,
and overcapacity & underutilized assets.
Once there is a better understanding of a company’s position a detailed
turnaround plan can be developed. This plan will outline remedial actions and also
provide a means to monitor and control turnaround activity. Within the plan are actions
that will be used for dealing with lenders, creditors, and employees. Some that we found
to be the most important are:
-
Prove credibility to lenders.
Adjust deals with creditors to pay a lower rate in order to lower debt
obligations.
Reduce number of employees to lower cash outflows.
57
Following the success of these immediate remediation actions, long-term
remedial actions must be addressed. Long-term actions typically fall into three different
categories.
1.
2.
3.
Systems and procedures – improve systems and procedures that
contributed to the problem as well as implement new ones.
Asset plays – liquidate longer term assets.
Creative solutions
A common trait among entrepreneurs is that they value the process of starting,
building, and growing a company. This is an important factor in the success of a new
firm, focusing on the journey not the destination. The only point where this becomes an
issue is when it comes time to harvest. It is easy for an entrepreneur to overlook this
stage. Some entrepreneurs feel that by harvesting their company they are essentially
ending their life with it. One way to make this stage easier for entrepreneurs is to think of
harvesting as a way to decrease risk. We were surprised to learn that harvesting was both
a good idea and often encouraged. Our group thought of harvesting as most
entrepreneurs do, and believed it was basically “selling your baby”.
What separates successful entrepreneurs from the others is the ability to set
harvest goals and create a harvest strategy. This is important because it achieves many
purposes. Typically one of the main goals and strategies is provide an entrepreneur with
a way to cash out of the business they created. Harvest goals can also decrease the
workload on an entrepreneur. A variety of options regarding the process of harvesting a
company exist and were described in the assigned reading:
-Capital cow: take out a higher amount of cash from the firm to compensate
yourself.
-Employee stock ownership plan
-Management buyout: the entrepreneur sells some of their stake to key
managers.
-Merger, acquisition, and strategic alliance
-Outright sale
-Public offering
Successful entrepreneurs tend to learn that in order to succeed they required an
investment of some sort. They tend to come full circle and give back; helping another in
the same way they received help that led to success. This is done through endowments,
community activities, and investing in new companies.
58
ANALYSIS OF CASE & ASSIGNED QUESTIONS
CASE: CAVENDISH COVE COTTAGES
#1) WHAT ARE THE STRENGTHS AND WEAKNESSES OF CCC’S CURRENT
STRATEGY?
Cavendish Cove Cottage’s current strategy has many admirable aspects, but
also has a lot of room for improvements. A key strength of the business is it’s prime
location. Cavendish is an area with high traffic from tourism and the business’ location is
central to almost everything. The close proximity to golf courses is appealing to the more
upscale consumers who come to PEI with friends for a golfing location. Golf packages
offered by the business are also strength of the current strategy in attracting golfers. For
their other target market, middle income families with children, the closeness (some in
walking distance) of the beach, restaurants, shopping, amusement parks, and Green
Gables attractions are extremely appealing and would be good for families with kids
who are old enough to venture out on their own but don’t have cars. The establishment
has existed for over 50 years, meaning many customers are repeats and will happily
come back during their yearly vacations to Cavendish. Their 3-star rating, although not
the best, allows for lower nightly rates for customers, helping CCC to compete on price
with the competition. Of the 19 rental units, 13 are in excellent condition and the
complex has several other perks such as an in-ground heated swimming pool and a
playground for children. The low inflation rates make it easy to predict and set up rental
rates for the coming years and the previous two have seen high occupancy rates during
peak season.
An area that the business could focus on improving in their current strategy is their
lower rating. Most competitors in the area had ratings of 3.5-4 and so CCC should look at
those other establishments and see where they excel. If they were able to mimic those
practices of competitors, while still maintaining their lower nightly rates, they could gain a
strong competitive advantage that distinguishes them in the crowded industry. Six of the
rental units are in need of renovations, especially if the other 13 are in such excellent
condition. In the age of the Internet, CCC should focus on improving their current
website offering to present a better image to the consumer. The major problems they
need to fix from the website are the coding problem, the lack of substantial customer
reviews, slow speed, poor image quality, and lack of online reservations.
#2) SHOULD SHERRY NOONAN MAKE AN OFFER? WHAT IS THE VALUE OF THE
BUSINESS?
We believe Sherry should make an offer, as long as the price is fair. She could apply
for a loan in order to finance the purchase or negotiate a financing plan along with her
parents’ investment. Her parents’ share of Equity will help alleviate her personal risk. We
believe the $800,000 seems to be too high. We estimated the value of the company to
be roughly $450,000 -$500,000.
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#3) WHAT IS THE BUSINESS’ FINANCIAL POSITION NOW AND FOR THE
FUTURE?
Currently Cavendish Cove Cottages is not doing too badly financially, but just like
any other business, there can always be room for improvements. From 2006 where they
did not have a successful year, and ended with a deficit, to making close to $30,000 the
following year in 2007 shows there is good potential. In 2008, they had an even better
year, with another increase in revenue. With these increases, there is no reason why this
cannot continue in the future. It may not be the fastest growth, but they are growing.
Cavendish Cove Cottages have a great location, in PEI’s most popular tourist
destination. From beautiful beaches to world known golf courses, this is a great location
for their establishment. If you are visiting PEI in the summer, there is a 99% you will be
visiting Cavendish.
They have growth in revenues over the past 3 years as well as net income. Their
interest obligations are staying relevantly constant so they are taking on no extra debt
and therefor they are well able to cover their debt obligations. Faor the past few years
they have covered their cost showed by positive net income and are generating
income and in the future we predict their number of income will continue to rise which
will generate more revenue for the owners of CCC.
An issue that CCC is facing, is that they can only grow so much with what they have.
If CCC wants to gain more long-term revenue, they need to look into expanding the
company, and building more cottages. If they build bigger and better, it can put them
at the forefront of accommodations in Cavendish, Prince Edward Island. Expansion may
slow down their current revenue progress, but will create more long term potential in a
location that is not going to slow down too much over the years.
#4) WHAT VALUATION METHODS CAN BE USED TO CONSTRUCT AN
ESTIMATE?
There are three different approaches to evaluating companies.
Asset Approach: The total value of net assets of the business
Earnings Approach: Looking at and comparing annual revenues
Market Value: The value of the retained earnings plus common shares of a business. This
may include a reasonable valuation of Goodwill.
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LESSONS AND REFLECTIONS
GROUP
The general opinion consensus of this course was very positive in our group. We were all
very interested in the material and were able to relate it to our everyday lives. This course
taught us the key characteristics and skills of entrepreneurs as well as emphasizing the
other crucial factors for success. We all feel as though this course has impacted the way
we look at the world around us and how we approach problems. There were many key
lessons we drew from the coursework that will help us in the future, as we are all aspiring
entrepreneurs.
One of the key points that really stuck with all of us, was the emphasis on the venture
team and its fit with the lead entrepreneur. A lot of the time, when you think of
entrepreneurs you think of an individual and their success. This course really illuminated
the whole picture for us and made us understand the importance of teamwork. We also
learned about the key characteristics of quality teams such as experience, cohesion,
trust, networking, etc.
When learning about what can cause the success or failure of a venture, we were all
interested by the “too much money is a bad” point. This is something we would not have
concluded on our own, but upon explanation, we all agree with it. It is so true that if you
don’t have money, you will be forced to be resourceful, which is a very valuable skill for
an entrepreneur.
Putting together a business plan was a great way for us to apply and combine the
knowledge we have gained throughout the semester. It allowed us to reflect back on
numerous things that we have learned in the various chapters we studied in our textbook
in the making key decisions required for our business plan. Although we were simply
writing an informal business plan, and not actually creating a legitimate business, we felt
this activity added value to what we’ve learned this semester as it allowed us to feel
more like entrepreneurs. We were able to gain a better sense of what being an
entrepreneur would entail and some of the challenges they would have to undergo.
We believe this course will stick with us throughout our lives. It has taught us to look at the
world from an entrepreneurial perspective. Constantly look for gaps that could present
opportunities, constantly think of solutions.
Another quote from this book that really drives home the central idea of the course:
“Make a mark; don’t be part of the living dead” –Terry Matthews
MICHAEL PIERCE
The primary motivation I had in signing up for this course was to have a chance to
experience an area of business that is not so black and white. I am currently in my third
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year in the BBA program and up until this semester, I had never found most aspects of
business that interesting. Everything we were taught in the introductory business courses
was always very clear-cut and involved a distinct, right or wrong answer. I found moving
into third year that professors were starting to place a lot of emphasis on doing the right
steps now in order to achieve employment directly out of our undergrad. While I can
understand the appeal of this for others, the idea of establishing a career right out of
university and working for someone else for the rest of my life did not seem enticing. In
fact, it seemed rather boring.
Probably the most important lesson I took away from the course is that, if I do
chose to pursue an entrepreneurial lifestyle and career, it will be a lot more work than
one would initially expect. Movies like “The Social Network” make it seem so easy to
achieve success as long as you have a good idea. However, it does not showcase the
many years of work involved, the difficulties of acquiring capital and investors, and the
many other problems an entrepreneur and his or her team will face throughout the
various stages of developing and growing a venture. Although these prospects are often
intimidating, they are also part of the excitement that comes with entrepreneurship.
Another important lesson I gathered from the course was the importance of
teamwork. While part of the appeal of being an entrepreneur is the ability to work for
yourself, that does not mean that you work alone. Much of the success of your venture
depends on how good of a team you are able to form, your relationships with outside
parties (investors, partners, etc.) and you ability to successfully reach and work with your
customers. The discussion groups helped to emphasis the importance of having a strong
team, because when our team would all work together, we would yield much better
results much more easily than we would have doing similar exercises separately.
I’ve noticed that since taking this course, I have started to look at the world
through a more entrepreneurial view. I am often coming up with many ideas and now
have the ability to distinguish whether they are just that our have the potential to be a
good opportunity. I have also noticed that I tend to gravitate toward new technology
ventures and start-ups and I am often reading about them online. While I am still very
undecided on what I plan to do in my future, I am happy I took this course and believe
the knowledge and understandings I have gained from it are much more valuable than
a lot of what I have learnt so far into my degree.
TAYLER WEEKS
Over the length of the course, there are many lessons I have learned that I will take away
from it, and apply to real life, which was the main reason I signed up for this course.
Since the beginning of this course, I have tried to think more with an entrepreneurial
mindset. I’m always trying to think outside of the box, and how I can change something
to make it better, or think of a new business I can start up. I’m always thinking of a way
to fix problems that affect our everyday life. Growing up I was raised with the mindset
that I will not spend my life working for someone else and making their dream come true,
and instead I will make my dreams of becoming successful come true. This course has
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really helped me believe in that statement, and I know I will have a company of my own.
I’m still not sure what it will be, but I know I will not spend my life working for someone
helping them achieve their goals and dreams.
One of the first classes, Chris spoke about his morning routine, and how he wakes up
super early around 5:30am, reads his book, has his morning coffee, and makes a list of
goals to achieve that day. I slowly started to get into this same habit, and I am very
happy I have done so. Each morning when I wake up, I make a list of stuff I need to get
done that day, and it adds more motivation to my day. I spend the day crossing stuff off
the list, and it feels really damn good at the end of the day when everything is crossed
off. I purchased a nice leather notebook, where I write all of this stuff in, and always
have it with me. If I have an idea, this allows me to write it down so I don’t forget it. If
there is stuff that I did not get done which I needed to on my “to do” list, I add it onto the
next day and it’s the first thing I do to get it crossed off. I also started to read more,
which is something I never did before this class. I’m currently reading Think and Grow
Rich, which is teaching me a lot of life lessons. I also do a lot of online readings about
entrepreneurs and businesses. Addicted2success is a website I use a lot, which has a lot
of information on how to be successful, and I find it very interesting. I used to log on my
computer and go straight to Facebook, but now I’m always on this website.
I also learned the importance of teamwork, and how without a solid team, who are
working together, a venture has a very small chance of being successful. You need a
determined, hardworking, diverse group to work as a unit, and as one work to make the
venture a success. You need to have a strong team with the same values, who are
invested in making this idea a reality, and most importantly, a successful one. A great
idea can only get you so far, you need the team behind the idea to make it happen.
One of my favorite things I learnt in this course was the different characteristics of a
successful entrepreneur. I always just thought successful entrepreneurs just had it all and
knew what to do. I didn’t realize that entrepreneurship can be learned and that
entrepreneurs are men and women of all ages and cultures.
LAUREN PERCIVAL
I thoroughly enjoyed this course, and took many valuable lessons out of the material that
I believe will aid me greatly in the future. Coming from an entrepreneurial background, I
have watched my Father conduct business activities since I was a little girl, and I’ve
aspired to one day do the same. Learning the importance of a strong and reliable team
made me think of how important it is going to be to prospect responsible candidates in
the future. It made me realize success doesn’t necessarily come from strength
individually, but instead in the group as a unit. I hope to one day own my own business
and be able to “be my own boss”, as we discussed in the first class. Not only is the
exciting part of entrepreneurship the ability to conduct my own business, but also being
able to grow from my mistakes and learn in order to be successful in the next venture.
Half the fun is learning from the mistakes in the past, and not making them again. I
thought it was very interesting to learn about making “quick mistakes”, not avoiding
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mistakes altogether, but instead realizing a problem is on the horizon and either fixing it
quickly or ending the idea altogether before spending too much time and money on it.
Moving forward in my business endeavors, I believe I will remember a lot of the valuable
information covered in this class, and hope to one day be developing my own different
business plans. I really enjoyed learning about real life cases, such as the war supplies
case. Learning about the market for the bomb suit, which depended on factors such as
violence rates and terrorism, was very interesting. It showed that the need for ideas and
new revolutionary market leaders is constant, and the changing technologies of our time
will do nothing but bring more excitement to the entrepreneurial domain.
MARY ELLEN GREENWOOD
Throughout this course, I learned several key lessons with regards to being an
entrepreneur. I was able to further my knowledge on the process of creating a venture
and the difficulties that it entails. There are two key things in particular that really stood
out from everything I’ve learned this semester in Small Business Management, firstly, the
importance of “fit” within an entrepreneurial team and second, that “money isn’t
everything.”
One of the lessons I learned during this course that I found to be valuable was the
importance of “fit” between entrepreneurial team member. This notion was mentioned
several times in a number of chapters that we discussed throughout the course. In many
cases, an entrepreneur will not be able to successfully develop a business on their own
and they will look to other for help in this case. It is important that the entrepreneur
chooses their helpers wisely. Even if the person in question seems right for the task on
paper, that might not be the case. For instance, they may not hold the same beliefs and
values as the entrepreneur with regards to running a business. This will hinder the
development process at some point or another. The entrepreneur needs to be able to
trust their team, not to mention get along with them. It is certainly worth it to wait for the
right person to come along. This notion is also relevant to our discussion group. If there it
not “fit” between group members, things can go wrong and stress and frustration can
arise within group members.
Another thing that I took away from this course is the idea that money isn’t everything.
This is a multi faceted notion that was also mentioned several times throughout the
course in numerous different ways. For example, when starting a venture, it is quite
common for the entrepreneur to become more or less obsessed with making profits. In a
sense, they become blinded by money and forget what is really important, which to me
would be furthering their company in a sustainable way. Chapter one even mentioned
that some believe it is a curse rather than a blessing to have too much money in the
beginning stages of the venture. Furthermore, even if an entrepreneur is offered money
from a venture capitalist, it may not be the best idea to accept it. It is important to
ensure that partners you will be gaining will add value to your company. This links back to
the idea of “fit” within the entrepreneurial team.
Since I one day hope to be an entrepreneur, I am certainly happy that I have taken this
course. It has taught my numerous lessons on being an entrepreneur and the venture
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development process which may apply to my own career if I do decide to run my own
business.
SPENCER POMEROY
Over the course of the semester I gained insight into the entrepreneurial process.
The biggest thing I have taken in from this experience is that entrepreneurship is a fragile
balancing act. It is a combination of planning, strategy, and the ability to think on your
feet and make decisions. It is more of an art form than a science.
Although many different topics were covered in the course material, this was the
point that seemed to keep coming up. Entrepreneurs may have a variety of traits, and
possess skills and business know-how however it is no match for the experience gained by
actually starting a business.
The business plan assignment taught me the importance of planning when
starting a new venture. It also showed me how much more to the process there is. It is
one thing to have an idea and a plan, but to implement it is a whole other story.
JULIA SPRIGGS
During the semester, I found the material of course to be very interesting and relevant. I
really liked how we had a case study each class. It made it easy to apply the material in
the chapter.
For as long as I can remember, I have been interested in entrepreneurialism –even
before I knew that word existed. When I was 8 years old I stood outside all afternoon in 35 degree weather to sell hot chocolate to passer-by’s. As I was growing up, my dad
owned small business and I have always been interested in the nuts and bolts of it all. I
feel that throughout this course I really expanded on my knowledge of the realities of
new ventures and small business operations. My past experience in this subject area has
all been from first-hand experience, and I really enjoyed the opportunity to learn about
the theory behind it.
I found a lot of things made so much sense, but I never would have thought about them
otherwise. One of the key lessons that resonated with me was that too much capital can
be detrimental to a start-up.
In the beginning of the course, when we were learning about the entrepreneurial
characteristics, I found I really connected with what was being taught in class. I also felt
as though a lot of them applied to my father, who is an entrepreneur and my biggest
role model. I believe it was in the text book where I found the quote by Betty Coster,
“Work hard doing what you love. Find out what gives you energy and improve on it” I
really connected with this quote. It’s now on the cover page of my CV.
As we progressed through the book, I learned more about the importance of the
opportunity and all the factors needed for it to in fact be an opportunity and not just an
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idea. Here, the key lesson for me was to “Think Big” I never would have thought that
could be the downfall of a venture, but once examined, it made perfect sense to me.
I have been involved in student leadership my whole life and really enjoyed learning
about entrepreneurial leadership. I am always working on my leadership skills and I found
a lot of what they talked about in the book are aspects I need to focus on for my
personal growth. I also learned about the importance of leadership through the different
stages of growth.
Overall I was very happy with this course. I loved the material and I found the structure to
be very effective. The problem I had with it was that it was 7-9:30 on the night of my
busiest day. I found this made it very hard for me to stay engaged, even though I was
very interested in the material and connected with it on a personal level. I liked when
Chris would use his life experience as examples, as I felt it made the material feel more
relevant and sometimes made me look through a different lens.