Entrepreneurship Chapter 9 (Building A New-Venture Team)

Entrepreneurship Chapter 9 (Building A New-Venture Team)
New venture team: is the group of founders, key employees, and advisers that move a new venture from an
idea to a fully functioning firm.
Liabilities of newness: refers to the fact that new companies often falter because the people who start them
aren’t able to adjust quickly enough to their new roles and because the firm lacks a “track record” with outside
buyers and suppliers.
Assembling a talented and experienced management team is one path that firms can take to overcome these
limitations.
Another way entrepreneurship-focused overcome the liability of newness is by attending entrepreneurship-

focused workshops, speaker series, boot camps, and similar events.
Creating a New-Venture Team

Those who launch or found an entrepreneurial venture have an important role to play in play in shaping the
firm’s business concept. Stated even more directly, it is widely known that a well-conceived business plan
cannot get off the ground unless a firm has the leaders and personnel to carry it out.
The way a founder builds a new-venture team sends an important signal to potential investors, partners, and
employees. Some founders like the feeling of control and are reluctant to involve themselves with partners or
hire managers who are more experienced than they are.
The element of new venture team:

1. Management team
2. Key employees
3. Board of directors
4. Broad of advisers
5. Lenders and investors
6. Other professionals
Common mistakes made in putting together a new-venture team:

1. Placing unqualified friend or family members in management positions.
2. Assuming that previous success in other industries automatically translates to your industry.
3. Presenting a “one man team” philosophy – meaning that one person (or a small group of people) is wearing
all hats with no plans to bolster the team.
4. Hiring top managers without sharing ownership in the firm.
5. Not disclosing or talking dismissively of management team skill or competency gaps.
6. Vague or unclear plans for filling the skill or competency gaps that clearly exist.
The Founder or Founders
–The characteristics of the founder or founders of a firm and their early decisions have a significant
impact on the manner in which the new-venture team takes shape.
•Size of the Founding Team

–Studies have shown that 50% to 70% of all new ventures are started by more than one individual.
–Experts disagree about whether new ventures started by a team have an advantage over those started
by a sole entrepreneur.
•Advantages of Starting a Venture as a Team

1. Teams bring more talent, resources, and ideas to a new venture.
2. Teams bring a broader and deeper network of social and professional contacts to a new
business.
3. The psychological support that the cofounders of a business can offer one another can be an
important element of a new venture’s success.
•Several issues affect the value of the team:

1. Teams that have worked together before, as opposed to teams that are working together for the
first time, have an edge. If people have worked together before and have decided to partner to
start a firm together, it usually means that they get along personally and trust one another.
2. If the members of the team are heterogeneous, meaning that they are diverse in terms of their
abilities and experiences, rather than homogenous, meaning that their areas of expertise are
very similar to one another, they are likely to have different point of view about technology,
hiring decisions, competitive tactics, and other important activities.
•Potential pitfalls associated with starting a firm as a team rather than as a sole
entrepreneur(disadvantage):
1. Team members may not get along.
2. If two or more people start a firm as “equals,” conflicts can arise when the firm needs to
establish a formal structure and designate one person as the CEO.
3. If the founders have similar areas of expertise, they may duplicate rather than complement one
another.
4. Team members can easily disagree in terms of work habits, tolerances for risk, levels of passion
for the business, ideas on how the business should be run, and similar key issues.
Qualities of the founders
–One reason the founder are so important is that in the early days of a firm, their knowledge, skills, and
experience are the most valuable resource the firm has.
–Preferred Attributes of the Founder or Founders if an Entrepreneurial venture:

1. Firm started by a team
New ventures that are started by a team can provide greater resources, a broader
diversity of viewpoints, and a broader array of other positive attributes than ventures
started by individuals.
2. Higher education
Evidence suggest that important entrepreneurial skills are enhanced through higher
education
3. Prior entrepreneurial experience

Founders familiar with the entrepreneurial process are more likely to avoid costly
mistakes than founders without similar experience.
4. Relevant industry experience

Founders with relevant industry experience are more likely to have:
> Better established professional networks
> More applicable marketing and management skills
5. Broad social and professional network

Founders with broad social and professional networks have potential access to
additional know-how, capital, and customer referrals
Recruiting and Selecting Key Employees

Start-ups vary in terms of how quickly they need to add personnel.
In some instances, the founders will work alone for a period of time. In other instances, employees are hired
immediately.
A skills profile is a chart that depicts the most important skills that are needed and where skills gaps exist in a
new firm.
The Roles of the Board of the Directors

If a new venture organizes as a corporation, it is legally required to have a board of directors.
A board of directors is a panel of individuals who are elected by a corporation’s shareholders to oversee the
management of the firm.
A board is typically made up of both inside directors and outside directors.
 An inside director is a person who is also an officer of the firm.
 An outside director is someone who is not employed by the firm.
Formal Responsibility of the Board
1. Appoint the officers of the firm.
2. Declare dividends.
3. Oversee the affairs of the corporation.
Frequency of Meetings and Compensation

 Most boards of directors meet three to four times a year.
 New ventures are more likely to pay their board members in company stock or ask them to serve on a
voluntary basis rather than pay a cash honorarium.
What a Board of Directors Can Do to Help a Start-Up Get Off to a Good Start
1. Provide Guidance
> Although a board of directors has formal governance responsibilities, its most useful role is to provide
guidance and support to the firm’s managers.
> Because managers rely on board members for counsel and advice, the search for outside directors
should be purposeful, with the object of filling gaps in the experience and background of the venture’s
executives and the other directors.
2. Lend Legitimacy
> Another function of a board of directors is to lend legitimacy to a firm. Well-known and respected
board members bring instant credibility to a firm.
> Without a credible signal, it is difficult for potential customers, investors, or employees to identify
high-quality start-ups.
> So when a high-quality individual does agree to serve in a broad of a firm, the individual is in essence
“signaling” that the company has potential to be successful.
Attributes of effective boards of directors:

1- Strong communication with the CEO
2- Customer-focused point of view
3- Complementary mix of talents
4- Decisiveness
5- Mutual respect and regard for each other and the management team of the firm
6- Ability and willingness to stand up to the CEO and top managers of the firm
7- Strong ethics
Attributes of strong board members:
1- Strong personal and professional networks
2- Respected in their field
3- Willingness to make personal introduction on behalf of the firm
4- Strong interpersonal skills
5- Pattern recognition skills
6- Investment and/or operating experience
7- Ability and willingness to mentor the CEO and the top managers of the firm
Rounding out the Team: the Role of Professional Advisors

1- Board of Advisors
A board of advisors is a panel of experts who are asked by a firm’s managers to provide counsel and advice
on an ongoing basis.
Unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives
nonbinding advice.
An advisory board can be established for general purposes or can be set up to address a specific issue or
need.
Many people are more willing to serve on a company’s board of advisors than its board of directors because
it requires less time and there is no potential legal liability involved.
Like the members of a board of directors, the members of a company’s board of advisors provide guidance
and lend credibility to the firm.
Guidelines to Organizing a Board of Advisors:

1- Advisors will become disillusioned if they don’t play a meaningful role in the firm’s development
and growth.
2- A firm should look for board members who are compatible and complement one another in terms
of experience and expertise.
3- When inviting people to serve on its board of advisors, a company should carefully spell out to the
individuals involved the rules in terms of access to confidential information.
2- Lenders and Investors
Lenders and investors have a vested interest in the companies they finance, often causing them to become
very involved in helping the firms they fund.
Like the other non-employee members of a firm’s new-venture team, lenders and investors help new firms
by providing guidance and lending advice.
In addition, a firm’s lenders and investors assume the natural role of providing financial oversight.
3- Other Professionals
The other professionals that make up a firm’s new-venture team include attorneys, accountants, and
business consultants.
Consultants
 A consultant is an individual who gives professional or expert advice.
 Consultants fall into two categories:
1- Paid consultants
2- Consultants who are available for free or at a reduced rate through a nonprofit or governmental agency.
Ways Lenders and Investors Add Value to an Entrepreneurial Firm:

1- Help identify and recruit key management personnel
2- Provide insight into the markets that the new venture plans to enter
3- Help the venture fine-tune its business model
4- Serve as a sounding board for new ideas
5- Provide introductions to additional sources of capital
6- Serve on the new venture’s board of directors or board of advisors
7- Recruit customers
8- Help to arrange business partnerships
9- Serve on the board of directors or board of advisors
10- Provide a sense of stability and calm

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Entrepreneurship Chapter 9 (Building A New-Venture Team)

Another way entrepreneurship-focused overcome the liability of newness is by attending entrepreneurship-

Creating a New-Venture Team

The element of new venture team:

Common mistakes made in putting together a new-venture team:

•Size of the Founding Team

•Advantages of Starting a Venture as a Team

•Several issues affect the value of the team:

–Preferred Attributes of the Founder or Founders if an Entrepreneurial venture:

3. Prior entrepreneurial experience

4. Relevant industry experience

5. Broad social and professional network

Recruiting and Selecting Key Employees

The Roles of the Board of the Directors

Frequency of Meetings and Compensation

Attributes of effective boards of directors:

Rounding out the Team: the Role of Professional Advisors

Guidelines to Organizing a Board of Advisors:

2- Lenders and Investors

Ways Lenders and Investors Add Value to an Entrepreneurial Firm:

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