contributed by: k. kumar, faculty & chair person nsrcel -iim b, india getting started:...

Contributed by:K. Kumar,Faculty & Chair PersonNSRCEL -IIM B,India

Getting Started: Entrepreneurial Goals and Choice of Ventures

©Prof.K.Kumar, IIMB

Getting Started …

Entrepreneurial motivations, goals, expectations and capabilities vary across individuals

Likewise, opportunities also vary in their characteristics and critical success factors

Opportunities are to be screened for both viability and ‘fit’ with the entrepreneurs before they are pursued


Entrepreneurial Strategy

HeuristicsHeuristics

Heuristics

Venture Characteristics

*Typology of Ventures

Entrepreneurial Fit

*Personal goals*Entrepreneurial

Capacity

Strategy to Exploit

*Research&Analysis*Process

*Resources*Growth

Iterative


Typology of New Ventures

Revolutionary ventures

Niche ventures

Ventures that are propagators of new technology or innovations

Hustle ventures

Speculative (deal) ventures


Revolutionary Ventures- Characteristics

Involve a revolutionary idea, innovation or concept

Involve new processes or manufacturing techniques

Can shake up a matured industry or can create a new industry

Examples?


Revolutionary Ventures- Critical Success Factors

Large investments spread over time with uncertain outcomes

Building organizational capabilities and sustainability

Requires a lot of creativity and exceptional managerial capabilities to execute


Revolutionary Ventures and Entrepreneurial Fit

Suits those who want to win or lose on a grand scale

New entrepreneurs can attempt but should be clear about their role in the future growth of the venture

Entrepreneurs should have extraordinary organizing capabilities


Niche Ventures- Characteristics

Need not be a radical concept or idea

Serve segments with a unique need not served by mainstream offerings

Examples?


Niche Ventures- Critical Success Factors

Existence of a niche that can be economically servicedSimple and easy to use product or service Modest managerial and leadership skills


Niche Ventures and Entrepreneurial Fit

Ideal for entrepreneurs with insightful knowledge of the larger market and the niche in particular

Suits entrepreneurs with moderate growth/wealth ambitions and limited resources


Propagatory Ventures-Characteristics

Propagate an emerging technology or a product

Examples?


Propagators- Critical Success Factors

Superior execution – speed and efficiency

Nimbleness rather than a great strategy

Investment and Managerial capacity to attempt market dominance


Propagators – Fit With Entrepreneurs

Ideal for entrepreneurs with proven superior capability to executeSuits entrepreneurs with competence in deal making and fund raising to support growthEntrepreneurs should want be excited by high growth


‘Hustle’ Ventures- Characteristics

Does not need an innovative approach

No avenues to build proprietary assets

Low capital requirements

Limited exit options

Examples?


‘Hustle’ Ventures- Critical Success Factors

Extraordinary ability to execute

Meticulous selection and grooming of resources

Vision and values of the organization


Hustle Ventures- Fit With Entrepreneurs

Suits entrepreneurs with limited resources and modest growth ambitions

Fits those who value professional satisfaction and do not seek high growth

Ideal for entrepreneurs who seek a lifestyle business and satisfactory cash flow as against high growth and wealth creation


Speculative Ventures-Characteristics

An opportunity to buy low and sell highFinancial risks depend on the terms of the dealNo staged commitments- fully exposed once the deal is madeExamples?


Speculative Ventures-Critical Success Factors

Risk Taking AbilityInsight and TimingSpeculative Instinct


Speculative Ventures-fit With Entrepreneurs

Suits those who want quick profits

Those who are willing to take commensurate risks

Those who have the financial strength and staying power to go through the deal


Use of Typology

For understanding the broad strategic issues

Types are not exhaustive and often overlap

For assessing the fit between the venture, resources and the entrepreneur’s preferences

For assessing the growth potential and sustainability

For assessing the nature and level of analysis required before getting the venture off the ground

© Prof.K.Kumar IIMB

Acquiring Resources

Acquiring resources for a new venture is a task of enlisting stakeholders

Customers Financiers Employees Suppliers


What Are the Challenges?

Uncertainty surrounding the venture

Downside risk perceived by the stakeholder (resource provider)


Desirable Attributes in Stakeholders

Well diversified

Experienced and specialized

Has excess capacity

Demonstrated risk seeking disposition


Convincing Stakeholders

Entrepreneurial attributes ( fairness and commitment)

Ham and egging

Basic sales closing skills

Special deals and benefits

‘Mimicry’ ( appearance of stability and size)


Convincing Stakeholders

Framing (accentuating positives and playing down negatives)

Broad search

Incremental commitments (trial orders, pilot projects, ad hoc limits)

Second tier resources

Using social capital

Sources of Finance

Own funds

Outside equity

Debt

Internal generation

Bootstrap Finance

VC is a poor fit for many ventures

Money from outside investors comes with strings attached

Hidden Costs of Outside Money

False sense of security leading to complacency and lack of control

Diminished flexibility to adopt the ‘try it- fix it’ approach required in new ventures

Conflicts between investors and managers can be debilitating

Hence - bootstrap !

How to Bootstrap?

Get operational quickly

Look for quick break even and cash generating projects

Offer high value products or services that can sustain personal selling

Forget about the crack team

Keep growth in check

How to Bootstrap?

Focus on cash, not on profits, market share or anything else

Cultivate the banks before the business becomes creditworthy

Limits to Bootstrapping

Ideal for hustle and niche ventures

Revolutionary ventures can’t be completely bootstrapped

Speculative ventures are even more difficult to bootstrap

Limits to Bootstrapping

Ventures outside the promoter’s knowledge domain are difficult to bootstrap

Ventures that require some critical assets to be deployed even before testing out the business concept can’t be bootstrapped

Need to change tact as the business approaches the growth phase

contributed by: k. kumar, faculty & chair person nsrcel -iim b, india getting started:...

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