Entrepreneurship

by William D. Bygrave (Babson College); Andrew Zacharakis (Babson College)

• ISBN13: 9780471755456
• ISBN10: 0471755451
• Edition: 1
• Format: Paperback
• Copyright: 2007-03-01
• Publisher: Wiley

Summary

* Covers how to acquire equity financing and getting access to funds.

Author Biography

Bill Bygrave is the Director of the Center for Entrepreneurial Studies at Babson College, where he also teaches Free Enterprise. He has also been a successful entrepreneur himself: he founded a high-tech company that was funded with venture capital; he managed a division of another high-tech company that was listed on the NYSE; he co-founded a pharmaceutical database company; and he was a member of the investment committee of a venture capital firm. He spent the 1992-1993 academic year at INSEAD where he introduced an MBA course in Entrepreneurial Finance and led a pan-European team from eight nations that studied entrepreneurs' attitudes toward realizing value and harvesting their companies. One of the outcomes of that research was the initiative that led to the founding of EASDAQ (the European equivalent of NASDAQ). In 1997, he and Michael Hay at the London Business School started the Global Entrepreneurship Monitor (GEM), which examines the entrepreneurial competitiveness of nations. Bygrave was the 1997 winner of the Ernst Young Entrepreneur of the Year award in the supporter category for New England, and one of the three finalists in this category nationwide.

Andrew Zacharakis is the Paul T. Babson Term Chair in Entrepreneurship and Associate Professor of Entrepreneurship in the Arthur M. Blank Center for Entrepreneurship at Babson College. His writings and research focus on two major areas of entrepreneurship: the venture capital decision-making process, and the impact of entrepreneurship on the economy. His 1999 article on new venture failure received editor's award for best article in Journal of Small Business Management and his dissertation received the Heizer Award for outstanding thesis in entrepreneurship in 1995. Zacharakis has been interviewed in newspapers nationwide, including The Wall Street Journal, USA Today, The Boston Globe and The Los Angeles Times, and by several magazines, including Inc., Entrepreneur and Kiplinger's. He has also appeared on television in the Bloomberg Small Business Report and radio on NPR Morning Edition. Prior to his work at Babson, he held investment banking/venture capital positions with The Cambridge Companies. He also previously held positions at IBM and Leisure Technologies.

Table of Contents

Preface	p. xiii
The Power of Entrepreneurship	p. 1
Entrepreneurship and Small Business in the U.S.	p. 2
Entrepreneurial Revolution	p. 4
Web: Three Revolutions Converge	p. 9
Development of the Web	p. 9
Entrepreneurship Revolution Strikes Gold	p. 10
Causes of the Entrepreneurial Revolution	p. 12
Changes in the Entrepreneurial Framework Conditions	p. 14
Churning and Economic Growth	p. 18
Global Entrepreneurship Monitor	p. 20
Principal Findings from GEM	p. 21
Age	p. 23
Gender	p. 24
Education	p. 25
Financing	p. 25
Job Creation	p. 26
Twenty-First Century Economies: Anglo-Saxon or Social Models?	p. 27
Conclusion	p. 28
Your Opportunity Journal	p. 29
Web Exercise	p. 30
Notes	p. 30
Case: Malincho	p. 36
The Entrepreneurial Process	p. 49
Critical Factors for Starting a New Enterprise	p. 50
Personal Attributes	p. 52
Environmental Factors	p. 52
Other Sociological Factors	p. 54
Evaluating Opportunities for New Businesses	p. 56
The Opportunity	p. 57
The Customer	p. 58
The Timing	p. 58
The Entrepreneur and the Management Team	p. 59
Resources	p. 60
Determining Resource Needs and Acquiring Resources	p. 61
Startup Capital	p. 63
Profit Potential	p. 65
Ingredients for a Successful New Business	p. 66
Conclusion	p. 68
Your Opportunity Journal	p. 69
Notes	p. 69
Case: Alison Barnard	p. 71
Opportunity Recognition, Shaping, and Reshaping	p. 83
From Glimmer to Action: How Do I Come Up with a Good Idea?	p. 84
Finding Your Passion	p. 84
Idea Multiplication	p. 85
Is Your Idea an Opportunity?	p. 89
The Customer	p. 89
The Competition	p. 100
Suppliers and Vendors	p. 103
The Government	p. 104
The Global Environment	p. 104
The Opportunity Checklist	p. 104
"I Don't Have an Opportunity"	p. 104
Conclusion	p. 106
Your Opportunity Journal	p. 107
Web Exercise	p. 108
Notes	p. 108
Case: Jim Poss	p. 110
Understanding Your Business Model and Developing Your Strategy	p. 125
The Business Model	p. 126
The Revenue Model	p. 126
The Cost Model	p. 127
The First-Mover Myth	p. 129
Formulating a Winning Strategy	p. 132
The People Are What Matters	p. 132
Entry Strategy	p. 134
Growth Strategy	p. 137
Conclusion	p. 144
Your Opportunity Journal	p. 145
Web Exercise	p. 145
Notes	p. 145
Case: Adam Aircraft	p. 148
Enterpreneurial Marketing	p. 165
Why Marketing Is Critical for Entrepreneurs	p. 166
Entrepreneurs Face Unique Marketing Challenges	p. 166
Acquiring Market Information	p. 167
Marketing Strategy for Entrepreneurs	p. 168
Segmentation, Targeting, and Positioning	p. 169
The Marketing Mix	p. 170
Guerrilla Marketing	p. 182
Marketing Skills for Managing Growth	p. 183
Understanding and Listening to the Customer	p. 183
Building the Brand	p. 184
Conclusion	p. 185
Your Opportunity Journal	p. 185
Web Exercise	p. 186
Customer Interview	p. 186
General Outline: It Needs to be Tailored to Meet your Research Needs	p. 186
Notes	p. 188
Case: ClearVue	p. 189
Building the Founding Team	p. 184
Power of the Team	p. 202
Where Do You Fit?	p. 203
How to Build a Powerful Team	p. 207
Bootstrapping: Building the Team Based on Stage-of-Venture Life	p. 209
Compensation	p. 210
Equity	p. 210
Salary	p. 215
Other Compensation Considerations	p. 216
External Team Members	p. 216
Outside Investors	p. 216
Lawyers	p. 217
Accountants	p. 218
Board of Advisors	p. 218
Board of Directors	p. 219
Keeping the Team Together	p. 219
Burnout	p. 221
Family Pressure	p. 221
Interpersonal Conflicts	p. 222
Conclusion	p. 222
Your Opportunity Journal	p. 223
Web Exercise	p. 223
Notes	p. 223
Case: Ajay Bam	p. 225
The Business Planning Process	p. 239
The Planning Process	p. 241
The Story Model	p. 243
The Business Plan	p. 244
The Cover	p. 244
Table of Contents	p. 244
Executive Summary	p. 245
Industry, Customer, and Competitor Analysis	p. 246
Company and Product Description	p. 249
Marketing Plan	p. 250
Operations Plan	p. 254
Development Plan	p. 255
Team	p. 256
Critical Risks	p. 259
Offering	p. 260
Financial Plan	p. 260
Appendices	p. 260
Types of Plans	p. 261
Style Pointers for the Written Plan and Oral Presentation	p. 262
Conclusion	p. 263
Your Opportunity Journal	p. 263
Web Exercise	p. 264
Notes	p. 264
Case: P'kolino	p. 265
Building Your Pro-Forma Financial Statements	p. 309
Common Mistakes	p. 310
Financial Statement Overview	p. 311
Building Your Pro-Forma Financial Statements	p. 312
Build-Up Method	p. 312
Revenue Projections	p. 314
Cost of Goods Sold	p. 315
Operating Expenses	p. 315
The Preliminary Income Statement	p. 316
Comparable Method	p. 318
Building Integrated Financial Statements	p. 321
Income Statement	p. 322
Balance Sheet	p. 324
Cash Flow Statement	p. 325
Putting It All Together	p. 326
Conclusion	p. 327
Your Opportunity Journal	p. 328
Web Exercise	p. 328
Notes	p. 328
Case: P'kolino Financials	p. 329
Financing Entrepreneurial Ventures Worlwide	p. 341
Entrepreneurial Financing for the World's Poorest	p. 342
Microfinancing	p. 342
Microcredit for the Poorest of the Poor	p. 343
Entrepreneurs and Informal Investors	p. 344
Amount of Capital Needed to Start a Business	p. 346
Characteristics of Informal Investors	p. 347
Financial Returns on Informal Investment	p. 348
Supply and Demand for Startup Financing	p. 348
Venture Capital	p. 350
Classic Venture Capital	p. 350
Importance of Venture Capital in the U.S. Economy	p. 353
Mechanism of Venture Capital Investing	p. 355
Financial Returns on Venture Capital	p. 357
Venture Capital in Europe	p. 359
Factors Affecting Availability of Financing	p. 359
Total Entrepreneurial Activity and Informal Investing	p. 360
Factors Affecting Informal Investing	p. 360
Factors Affecting Classic Venture Capital	p. 360
Conclusion	p. 361
Your Opportunity Journal	p. 361
Web Exercise	p. 361
Notes	p. 362
Case: DayOne	p. 364
Raising Money for Starting and Growing Businesess	p. 383
Jim Poss, Seahorse Power Company	p. 383
Bootstrapping New Ventures	p. 384
Valuation	p. 385
Earnings Capitalization Valuation	p. 385
Present Value of Future Cash Flows	p. 386
Market-Comparable Valuation (Multiple of Earnings)	p. 386
Asset-Based Valuation	p. 387
Example of Market-Comparable Valuation	p. 387
Asset-Based Valuation Example	p. 389
Financing a New Venture	p. 390
Informal Investors	p. 391
Business Angels	p. 392
Searching for Business Angels	p. 394
Types of Business Angels	p. 395
Putting Together a Round of Angel Investment	p. 396
Venture Capital	p. 397
Candidates for Venture Capital	p. 397
Ideal Candidates for Venture Capital	p. 398
Actual Venture-Capital-Backed Companies	p. 399
Dealing with Venture Capitalists	p. 400
Negotiating the Deal	p. 402
Follow-On Rounds of Venture Capital	p. 403
Harvesting Investments	p. 403
Initial Public Offering	p. 404
Pros and Cons of an IPO	p. 405
The Process of Going Public	p. 406
BFWS Goes Public	p. 408
Selling the Company	p. 409
A Strategic Acquisition: LowerMyBills.com	p. 409
Why Be Acquired?	p. 411
Conclusion	p. 412
Your Opportunity Journal	p. 413
Web Exercise	p. 413
Notes	p. 413
Case: Jon Hirschtick's New Venture	p. 416
Debt and Other Forms of Financing	p. 427
Getting Access to Funds-Start with Internal Sources	p. 428
Start with Credit Cards and Home Equity Lines	p. 429
Cash Conversion Cycle	p. 430
Working Capital: Getting Cash from Receivables and Inventories	p. 431
Using Accounts Receivable as Working Capital	p. 432
The Sales Pattern	p. 432
Cash Versus Credit Sales	p. 433
Credit Policies	p. 434
Setting Credit Terms	p. 434
Collection Policies	p. 435
Setting Credit Limits for Individual Accounts	p. 436
Inventory	p. 438
Sources of Short-Term Cash: More Payables, Less Receivables	p. 439
Cash from Short-Term Bank Loans	p. 439
Cash from Trade Credit	p. 439
Cash Obtained by Negotiating with Suppliers	p. 441
Cash Available Because of Seasonal Business Credit Terms	p. 441
Advantages of Trade Credit	p. 442
Cash Obtained by Tightening Up Accounts Receivable Collections	p. 442
Obtaining Bank Loans Through Accounts Receivable Financing	p. 443
Pledging	p. 443
Pledging with Notification	p. 443
Factoring	p. 443
Recourse	p. 444
Obtaining Loans Against Inventory	p. 445
Chattel Mortgage	p. 445
Floating Lien	p. 446
Field Warehousing	p. 446
Public Warehousing	p. 446
Obtaining "Financing" from Customer Prepayments	p. 447
Choosing the Right Mix of Short-Term Financing	p. 447
Traditional Bank Lending: Short-Term Bank Loans	p. 447
Maturity of Loans	p. 448
Interest Rates	p. 448
Collateral	p. 450
Applying for a Bank Loan	p. 450
Restrictive Covenants	p. 450
General Provisions	p. 451
Routine Provisions	p. 452
Specific Provisions	p. 452
Equipment Financing	p. 452
Obtaining Early Financing from External Sources	p. 453
SBA-Guaranteed Loans	p. 453
Applying for an SBA Loan	p. 454
Planning Cash Flow and Planning Profits	p. 455
Conclusion	p. 456
Your Opportunity Journal	p. 457
Web Exercise	p. 457
Notes	p. 457
Case: BetterLiving Patio Rooms	p. 458
Legal and Tax Issues	p. 477
Leaving Your Present Position	p. 478
Corporate Opportunity	p. 478
Recruitment of Fellow Employees	p. 479
Proprietary Information	p. 479
Noncompetition	p. 481
Choosing an Attorney and an Accountant	p. 482
Choice of Legal Form	p. 483
Control	p. 484
Personal Liability	p. 486
Taxation	p. 487
Initial Investment of the Founders	p. 489
Administrative Obligations	p. 491
Choosing a Name	p. 492
Stockholder and Operating Agreements	p. 492
Negotiating Employment Terms	p. 492
Disposition of Equity Interests	p. 493
Distributions of Company Profits	p. 495
Redemption Provisions	p. 495
Legal and Tax Issues in Hiring Employees	p. 496
Employees as Agents of the Company	p. 496
Employment Discrimination	p. 497
Other Employment Statutes	p. 498
Employment Agreements	p. 498
Equity Sharing	p. 499
Insurance	p. 500
Property Insurance	p. 500
Liability Insurance	p. 501
Key Person Life Insurance	p. 501
Business Interruption Insurance	p. 501
Group Life, Disability, and Health Insurance for Employees	p. 501
Raising Money	p. 501
Legal Issues in the Sale of Securities to Investors	p. 502
Conclusion	p. 503
Your Opportunity Journal	p. 504
Web Exercise	p. 504
Notes	p. 505
Case: Cadence Design Systems and Avant! (A)	p. 506
Intellectual Property	p. 519
The Basics: What is Protectable and How Should It Be Protected?	p. 520
Patents	p. 521
Obtaining a Utility Patent	p. 522
Criteria for Obtaining a Utility Patent	p. 523
Drafting the Patent Claims	p. 524
Provisional Patent Applications	p. 526
Design Patents	p. 526
Managing Patent Costs	p. 527
Trade Secrets	p. 527
Trademarks	p. 530
Registering a Mark	p. 532
Ownership of a Mark	p. 532
Copyright	p. 533
Summing Up	p. 533
International Protection for Intellectual Property	p. 534
Patent Filing Deadlines	p. 534
How to Extend Patent Filing Deadlines	p. 535
Licensing and Technology Transfer	p. 536
Common Concerns and Clauses	p. 536
Defining the Property Being Licensed	p. 537
Limitations on Licenses	p. 537
Assigning Value to a License	p. 537
Royalty Rates	p. 538
Negotiating License Agreements	p. 538
Foreign Licenses	p. 539
Software Protection	p. 539
Patents for Software	p. 539
Software Copyrights	p. 540
Software Trade Secret Protection	p. 540
The Internet	p. 541
IP Agreements	p. 541
Preparing Employment Contracts	p. 542
Transfer of Employee Rights to Company Innovations	p. 542
How Employee Moonlighting Might Compromise Confidentiality	p. 543
Noncompetition Clauses	p. 544
Preventing Employee Raiding	p. 545
Employee Ownership of Copyright	p. 545
Rights of Prior Employees	p. 545
Consultant Contracts	p. 546
Confidential Disclosure Agreements	p. 546
Conclusion	p. 548
Your Opportunity Journal	p. 549
Web Exercise	p. 549
Notes	p. 549
Case: Cadence Design Systems and Avant! (B)	p. 550
Entrepreneurial Growth	p. 555
Making the Transition from Startup to Growth	p. 556
Looking Forward: The Choice to Grow, or Not,...or Sell	p. 556
A Model of Driving Forces of Growth	p. 558
The Growth Process	p. 559
Execution	p. 559
Instituting Controls	p. 559
Tracking Performance	p. 561
Managing the Cash Cycle	p. 562
Leveraging the Value Chain	p. 564
Maintaining the Entrepreneurial Organization	p. 564
Opportunity Domain	p. 565
Organizational Resources and Capabilities	p. 568
Obtaining Financial Resources for the Growing Company	p. 568
Intangible Resources and Capabilities	p. 569
Leadership	p. 570
Starting the Delegation Process	p. 571
First-Level Management	p. 572
From Delegation to Decentralization	p. 573
Professional Management and Boards	p. 573
Coordinating the Driving Forces	p. 574
Leading People; Developing Entrepreneurs	p. 574
Conclusion	p. 575
Your Opportunity Journal	p. 576
Web Exercise	p. 577
Notes	p. 577
Case: Nancy's Coffee	p. 578
Glossary	p. 593
Company Index	p. 603
Name Index	p. 605
Subject Index	p. 607
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