Pgdm 6 the Entrepreneurial Process Start Up Factors

8/7/2019 Pgdm 6 the Entrepreneurial Process Start Up Factors

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Overviewy Entrepreneurship definitiony Critical factors for start-upy Components of start-upsy Evaluating Opportunitiesy Ask questions as they come up

MeetingToday


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What is en trepreneurs h ip?y A person who destroys the existing economic order by introducing new

products and services, by creating new forms of organization, or by exploitingnew raw materials - Schumpeter

y Someone who perceives an opportunity and creates an organization to pursue it- Bygrave

y Most current:

A way of thinking and acting that isopportunity obsessed,holistic in

approach andleadership balanced for the purpose of wealth creation - BabsonCollege


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What is th e En trepreneuri al P rocess?y T he process that involves the functions, activities and actions

associated with perceiving opportunities and creatingorganizations to pursue them.


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At th e He a r t of th e Process:1 . Creation/Recognition of opportunity2. Desire and ability to seize the opportunity3. Willingness to take calculated risk


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En trepreneurs h ip is a fu ll con ta c t spor t.The val ue comes in th e co llision .

Spontaneity;

opportunism

Discipline;

processes


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D ue D iligencey N ot just for investorsy T horough investigation into all aspects of potential venturey If initial due diligence is encouraging write a full business

plan


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The Oppor tuni ty

#1 Market demand is a key ingredient to measuringan opportunity

Market share & growth potential =

20%+, 20% annual growth, and durable?Is the customer reachable?Customer payback


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The Oppor tuni tyy Take a few minutes and write down a list of businesses with

the following characteristics:y Market share & growth potential =

20%+, 20% annual growth, and durable?y Is the customer reachable?y Customer payback < 1 year

O pportunity


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The Oppor tuni ty

#2 M arket size and structureEm erging and/or f rag m entedProprietary barriers to entry

O pportunity Driven

O pportunity


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The Oppor tuni ty

Take a f ew m inutes and write down a list of businesses with the f ollowing chara cteristi cs:

Emerging and/or f rag

mentedProprietary barriers to entry

O pportunity


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Life Cyc le

100 M

50 M

25M

3M1 M

Tim e (years)

Start up HighGrowth

Maturity Sta bility


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The Oppor tuni ty

#3 Margin ana lysis helps diff erentiate an opportunity f rom an ideaLow cost provider? (40% gross m argin)

Low capita l requirem

ent versus the com

p.?Break-even in 1 -2 years?Value added increase of overa ll P/E ?

O pportunity Driven

O pportunity


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The Oppor tuni ty

#3 Margin ana lysis helps diff erentiate an opportunity f rom an ideaKey question:W

hat are the f inan cialm

ani f estations of your com petitive advantage (s)?

O pportunity Driven

O pportunity


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The Oppor tuni ty

Take a f ew m inutes and write down a list of businesses with the f ollowing chara cteristi cs:

Low cost provider? (40%

gross m

argin)Low capita l require m ent versus the com p.?Break-even in 1 -2 years?

O pportunity


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The Oppor tuni tyy Evaluating an opportunity =T he 3 Ms

#1 Market demand value proposition, name potentialcustomers

# 2 Market size and structure - $1 00m+, emerging or fragmented(not perfectly competitive)

# 3 Margin Analysis 40%gm


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Unders ta nd a nd use Resources

y

Minimize and Controlversus

y Maximize and Own

Unleash creativity

Dont be driven by them

Resources

THINK CASH LAST


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Resources:Environmen taly H otbeds - Silicon Valley,1 28Tech. H ighway

y Role modelsy Resources: VCs, Banks, Lawyers, other resources


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Resources:Environmen tal ( con t.)y Family factorsy Experience, Optimism, Youthy Contactsy Awareness of resources

.


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Resourcesy Fortune 500 start-up capital

y 25% less than Rs5,000y 50% less than Rs25,000y

75% less thanRs$100,000y Fewer than 5% began with more than Rs1 million

Too m uch cash too ear ly in a new ventures lif e cycle can be detri m enta l to creating a culture of creativity and resour cef ulness.


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En trepreneuri al F rug al ityy Low overheady H igh productivityy

Minimal ownership of capital assetsy Bootstrapping


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S ta r t-up ca pi taly Debt

y Loansy Collateral - 25% of loan

y Equityy

Outside investorsy VCsy Familyy Friendsy Informaly

Angely Sweat equity


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Profi t po ten tial : Benc hm a rksy Benchmarks

y 5% = net income for most companiesy 1 0% = doing very welly 1

5% = truly exceptionaly Reality

y 50% of fortune 500 make 5% or lessy Only 1 3% of fortune 500 make more than16 %


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Profi t po ten tial : Running th e numbersy Salaryy Benefitsy Opportunity costy Return on personal investment (40% on high risk)


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Profi t po ten tial : Ca s h f lowy K EY: dont mistake cash flow for profity Outgrowing your resources


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Profi t po ten tial : Re turn on inves tmen ty T he two ingredients that determine ROI are

y Amount investedy Annual amount earned on that investment

y

40%+ on start-up or seed investment


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The En trepreneuri al Te a m

y T he lead entrepreneur is keyy Quality and diversity of team

y An A team with a B idea isbetter than a B team with

an A idea

E ntrepreneur


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En trepreneuri al Te a m Cha ra c teris ticsy Tolerance of risk and

ambiguityy Motivation to excely

Leadershipy Creativity

y Communicatorsy Commitment and

determinationy T

eam locus of controly Adaptability

RELEVANT EXPERIENCE

AND

OPPORTUNITY OBSESSION


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En trepreneur a nd Ma na gemen t Te a my Relevant industry experiencey Getting involved in something you love to do

Passion!Passion!


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En trepreneur Cha ra c teris ticsy Burning desire to achieve - getting out therey Internal locus of control - I control my destinyy 1 0 Ds

y

Dream, Decisiveness, Doers, Determination, Dedication, Devotion, Details,Destiny, Dollars, Distribute


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The Timmons Mode l: EOR

O pportunity E ntrepreneur

Resour ces

Business PlanFits & Gaps

Uncertainty

Uncertainty Un certainty

Uncertainty


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How do I use th e mode l?

O pportunityE ntrepreneur

Resour ces

Business PlanFits & Gaps


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If I a m in con tro l, Im prob a b ly moving too s low!

- Ma rio Andre tt i

Pgdm 6 the Entrepreneurial Process Start Up Factors

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