LAUNCHING NEW VENTURES AN ENTREPRENEURIAL APPROACH, 7E Kathleen R. Allen 2016 Cengage Learning....

LAUNCHING NEW VENTURES – AN ENTREPRENEURIAL APPROACH, 7E

Kathleen R. Allen

– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Designing an Entrepreneurial Company

Chapter 11


Chapter ObjectivesExplain how your business worksDiscuss how entrepreneurs make

the decision about the design of their company

Explain how to identify the appropriate business site

Discuss the most critical issues related to organizing people



Superior company design begins with an understanding of how the business works – how information flows through the business

Use design thinking; consider the entire organization and how the components are interconnected◦Its about doing, not talking◦Its about telling stories; making strategy

real◦Its about flexibility and adaptability◦Its about people



Three components make up design of an entrepreneurial company:◦Processes

Planning system, control mechanisms, compensation & reward policies, other HR processes

◦People Need team-building skills & the ability to

make decisions & implement them with little input from CEO

◦Culture A culture of collaboration, internally &

externally– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11.1 Design: Understanding the Way the Business Works

Today’s entrepreneurs must design their firms to adapt continually to an ever-changing global environment that presents the business world with complex problems

These new types of problems must be solved in innovative ways using new heuristics rather than algorithms or formulas

Think about design from the perspective of project workflows, not departments or personnel assignments


Figure 11.1- The Distributed Form of Business


11.1a Identifying Business Processes

Eye-opening to identify all the processes (activities, tasks, etc.) that occur in your business, and create a process map or flowchart

To create a map of business processes, take an imaginary tour of the business during a single day, listing all tasks, people, equipment, supplies and space required to run the business


11.1b Making Decisions: Doing it All or Outsourcing

The Virtual Enterprise: Getting Traction Quickly◦A network of independent companies,

suppliers, customers, etc. using information technology to share skills, costs; may use cloud computing

Strategic Alliances◦Teams of businesses share resources

and reduce costs; more like partnerships


11.1b Making Decisions: Doing it All or Outsourcing

Keeping Distributed Employees and Strategic Partners Linked◦Management team

Online independent professional service providers

◦Marketing Online public relations, marketing, direct

mail◦Supply chain management

Online firms will assemble, package, fulfill orders

◦Virtual meetings Citrix, Google Groups, Go to Meeting are

examples


11.2 Location Strategy: Finding the Appropriate Business Site

Business location affects success; determines◦Who will see the business◦How easily customers can find it,

access it◦Whether people will want to access it

Manufacturers will prefer a location near major sources of supply or transportation

Site selection usually permanent, so consider carefully– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


11.2a Choosing the Region, State and CommunityWhat area is “best suited” for your

business?◦Area where similar industries gather?◦State offering financial incentives?◦Near major suppliers?

Communities are viewed as primarily industrial, agricultural or service-oriented

What is the economic base of the community?

You want a community with other businesses in your industry to tap a skilled talent pool


11.2b Population DemographicsIs the population growing or

shrinking? Aging or getting younger? Culturally diverse?

Is there enough disposable income in the community to purchase what you are offering?

Will the skill level of workers in the community meet your needs?

Demographic data available from the local economic development agency, public library, Internet, post office, others


11.2c Choosing a Retail SiteNeed a site close to consumers with

disposable incomeThe trade area is the region from

which you expect to draw customers, smaller for common goods, larger for specialty items

Identify your location, draw a circle around it; within are both customers and competitors

What routes will customers take to reach you? Is there transportation, parking?


Figure 11.2- Sample of a Trade Area


11.2d Choosing a Service/Wholesale SiteYou will need a site that offers the

same attributes a retailer look for◦Accessibility◦Attractiveness◦A trade area of sufficient size

No need for a more expensive commercial site because customer expectations lower for wholesale outlet

Professional services require attractive spaces– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


11.2e Choosing the Manufacturing SiteCostly to set up a manufacturing

operation, but sometimes, the only option

Zoning laws limit manufacturing firms to certain areas away from residential, retail and office sites to reduce noise, odor, pollutants◦Industrial parks◦Enterprise zones

If an existing building, lease or buy? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


Table 11.1- The Lease-Buy Decision


11.2f Alternatives to Conventional FacilitiesIncubators

◦Lower rent, share common support functions

Shared space◦Locate within a larger facility, or sublease

to another firmMobile locations

◦Pushcarts & kiosks in airports, mallsTemporary tenant agreements

◦Some landlords will lease on temporary basis– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


11.3 People Strategy:Organizing Human Resources

At startup, the founding team performs all functions

To build an effective organization, avoid:◦Isolating yourself from the rest of the

team◦Always having the one “right” answer◦Keeping people on who don’t meet

needs◦Taking on too much too soon◦Setting unrealistic expectations◦Not building support networks


Figure 11.3- Traditional Org Chart for a Growing Business


11.3a Creating the Company Culture

Organizational culture is the personality of the firm, the intangible set of values, the attitudes and actions of the firm’s people as they interact on a daily basis

Entrepreneurial firms may have a different culture from that of large corporations

Easier to create a culture in a startup than change the culture of an existing firm– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


Figure 11.4- Aligning Culture and Strategy



To create your firm’s culture, ask:◦1. Do the organization’s people work in

teams or individually?◦2. How does the organization deal with

change?◦3. How does the company deal with

failure?◦4. How are decisions made? Who

makes the critical decisions?◦5. How is work prioritized?◦6. How is information shared within and

outside the organization?– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license



To create your firm’s culture, ask: (cont.)◦7.Does the company take a long-term

or short-term focus on decision making?

◦8. How does the company ensure employee competence?

◦9. Does the company encourage diversity?

◦10. How are employees treated, and what is their role in the company’s vision?


11.3b Hiring the Right PeopleFirst, determine what positions are

needed for the required tasks of the business◦Develop job descriptions; include not

only duties and responsibilities, but also behavioral profiles

To find people, look among current employees, subcontractors or professional advisors

Check references before an interview

In an interview, ask open-ended questions◦Avoid discriminatory questions


11.3b Hiring the Right PeopleHuman Resource Leasing

◦Consider leasing employees or using temporary services; professional employer org (PEOs)

◦A leased employee is legally the employee of the lessor organization, and not yours

◦That firm is responsible for all employment taxes and benefits, and labor law compliance

◦You receive a bill for services– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


11.3c Managing Employee RiskRisk management is a set of policies

and their associated decision-making processes that reduce or eliminate risks associated with having employees◦Financial risk is one type of employee

riskThe law affects the way employees

are treated◦Protect employees from dangerous work

environments◦See Table 11.2 for major employment

laws


Table 11.2- Important Employment Laws


11.3d Planning for Ownership and CompensationTwo perplexing questions:

◦How much of the firm should we sell to potential stockholders?

◦How much should we pay key managers?

Prevailing wisdom is that providing stock in the new firm will increase commitment, but doesn’t always work◦Use a stock-vesting agreement◦Use a buyback provision in the

stockholders agreement– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


11.3e Founder’s Stock and Dilution

Founder’s stock (144 stock) is stock issued to the first shareholders of the corporation or assigned to key managers as part of a compensation package at startup

Payoff comes when the company experiences a liquidity event (IPO, or acquisition by another firm)

If the firm is successful, founder’s stock at issuance is valued at the lowest it will ever be, and a tax problem can arise


11.3f Alternatives to Equity Incentives

Deferred Compensation Plans◦Specify that awards and bonuses be

linked to profits and performanceBonus Plans

◦Bonus given on reaching goalsCapital Appreciation Rights

◦Gives employees the right to participate in the profits of the firm at a specified percentage

Profit-Sharing Plans◦Apply to all employees; governed by

ERISA– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


New Venture Action PlanIdentify the processes and

information flow in your businessIdentify potential ways to operate

like a virtual enterprise or at lest to outsource some aspects of the business

Locate a site for the business, if required

Decide whether to lease, buy, or build a facility– © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license


New Venture Action PlanCreate job profiles for positions in

the businessDetermine the ownership and

compensation requirements of the business. Formulate a plan to find the best candidates for positions in the company.


LAUNCHING NEW VENTURES AN ENTREPRENEURIAL APPROACH, 7E Kathleen R. Allen 2016 Cengage Learning....

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