One of the strongest assets in building a successful business is the management team. You often hear VCs or other investors say if they had the choice between an A product and a B management team or an A management team and a B product, more often than not they would select the B product with an A management team. The management team is important in developing and executing the strategy and building credibility with your investors. The depth and breadth of their experience and ability to meet the challenges of a start-up enterprise will be critical to long-term success. If this were a horse race, the management team is your jockey. Management teams should reflect experience in sales and marketing, finance, operations and strategy, preferably in the same industry. If the company is technologically focused, having strong technical expertise is essential. Sometimes in a start-up situation you may not always be able to attract the talent that you need so it is important to find other ways to get it. (more…)

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I’m a great believer in what is commonly called clinical teaching: learning by being immersed in real problems. Surgeons learn by watching others perform operations and then by actually operating while under supervision. Entrepreneurship should be learned similarly. One way you can learn the skills is to network in your local entrepreneur clubs and try to find mentors. If you are working in a larger corporation, ask to be assigned to new business generation activities where you will interact with internal creative people.

Entrepreneurship is taught entirely using clinical methods at the Smeal College of Management. The introduction to the entrepreneurship course requires each student to find an idea that they would like to champion, using the methods outlined earlier in this chapter. Their output is actually an executive summary describing their opportunity and targeted to generate interest in a specific person or group of people that they’ve identified as their most appropriate stakeholders. If the opportunity best matches a venture capital firm, they have to identify not only the one or two firms that are the best fit, but also the actual partners that specialize in the area addressed by the opportunity. (more…)

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One thing that irks me as a researcher in the entrepreneurship arena is the confusion that people have about successful start-ups and what they mean. Most often, observers seem to want to conclude that entrepreneurs are successful because they are “a breed apart” or because they are brilliant. If the revolution has taught us anything, it demonstrates the fallacy of that kind of thinking. A lot of people who weren’t very capable were highly successful, at least in terms of enriching themselves, because the market was wacky. We used the Amazon case in class a lot of times, and always ended up pushing my students to identify what factors would make Amazon a success. With all the hype surrounding the revolution, you couldn’t tell the evangelists from people with a truly viable idea. The point to make here is the fact that a person has made a lot of money in a start-up business doesn’t tell us much about that person, and entrepreneurs shouldn’t be put on a pedestal any more than lottery winners without a lot of careful study into what they did and how their firms became successful.

Successful business start-ups tend to need a lot of different kinds of expertise. One of the important content areas is finance. This is a matter of understanding what independent elements cost, and how one gets the money to cover those costs in order to create a product or service. One of the big challenges that we face with start-ups is, of course, cash flow. An ongoing business normally has a steady cash flow, so there is cash coming in and cash going out. People are paying bills, but they’re selling products. In a start-up technology commercialization, normally that is not the case. Cash goes out but doesn’t come in, at least until the new product or service is up and established in the marketplace. So you have to work out the sequence of how that’s going to happen, and what kind of money needs to be spent at what stage. A big part of this – and I think a much overlooked part – is the management, which is deciding what tasks have to be done and in what sequence in order to reach the marketplace. Then, the process needs to be optimized, so that you’re minimizing the number of dollars you have to spend before dollars start coming in the door. Matching up those cash flows is, of course, important in any kind of start-up – reaching that break-even point where the dollars going out start matching up to those coming in. You are by no means out of the woods when that happens, but you’re way down the road. (more…)

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One of the most important things you will do at the beginning of your business is develop a business plan. A few years ago, during the Internet bubble, many would-be entrepreneurs and their somewhat blinded investors joked that their business plans were written on the back of a napkin in some bar. There just wasn’t time to develop a thorough understanding of the business and strategy for executing the opportunity! Well, the joke was on them. After many business closures and significant losses of investor money, we have returned to the discipline and rigor of business due diligence and the business plan.

There are three main reasons for an entrepreneur to develop a business plan and continue to update it and expand it as the business evolves:

First, it is a planning tool. The business plan helps an entrepreneur plan out the business, define his/her need for resources, understand the marketplace and customer needs and evaluate the best strategies for accomplishing the plan objectives. (more…)

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What are the key concepts of entrepreneurship? I tend to revise this question by asking, “What is the key concept of entrepreneurship?” Based on my personal and professional experiences, I always begin with cash flow. My experiences include private and university research on entrepreneurship, a partnership with four brothers for over a decade, and working relationships with entrepreneurs. Through my experiences and those of my highly respected colleagues, we find that the Achilles heel of the majority of new start-ups is the “burn rate” – the rate at which scarce financial resources are utilized. Why does the miscalculation occur? Is it over-optimism with regard to the market plan, pricing of the product/service, or overzealousness? Or, is it that the firm has failed at market intelligence, competitive analysis, or management? (more…)

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