Overview

Entrepreneurship definition
Critical factors for start-up
Components of start-ups
Evaluating Opportunities
Ask questions as they come up

Meeting
Today
What is entrepreneurship?
 A person who destroys the existing economic order by introducing new
products and services, by creating new forms of organization, or by
exploiting new raw materials - Schumpeter
 Someone who perceives an opportunity and creates an organization to
pursue it - Bygrave

 Most current:

A way of thinking and acting that is opportunity obsessed, holistic in

approach and leadership balanced for the purpose of wealth creation -
Babson College
What is the Entrepreneurial Process?
The process that involves the functions, activities and
actions associated with perceiving opportunities and
creating organizations to pursue them.
At the Heart of the Process:
1. Creation/Recognition of opportunity
2. Desire and ability to seize the opportunity
3. Willingness to take calculated risk
Entrepreneurship is a full contact sport.
The value comes in the “collision”.

Spontaneity; Discipline;
opportunism processes
Start-up Stats

So, how can we evaluate

the potential of a new
venture?
Due Diligence
Not just for investors
Thorough investigation into all aspects of potential
venture
If initial due diligence is encouraging write a full
business plan
 The Opportunity

Opportunity Driven

#1 Market demand is a key ingredient to measuring

an opportunity
Market share & growth potential =
20%+, 20% annual growth, and durable?
Is the customer reachable? Opportunity
Customer payback < 1 year
The Opportunity
Take a few minutes and write down a list of businesses
with the following characteristics:
 Market share & growth potential =
20%+, 20% annual growth, and durable?
 Is the customer reachable?
 Customer payback < 1 year

Opportunity
 The Opportunity

Opportunity Driven

#2 Market size and structure

Emerging and/or fragmented
Proprietary barriers to entry

Opportunity
 The Opportunity

Take a few minutes and write down a list of businesses with

the following characteristics:
Emerging and/or fragmented
Proprietary barriers to entry

Opportunity
 Life Cycle
100M

50M

y
ni t
r tu
25M

po
op
of
ow
nd

3M
Wi

1M Start up High Maturity Stability

Growth
Time (years)
 The Opportunity

Opportunity Driven

#3 Margin analysis helps differentiate an opportunity from an

idea
Low cost provider? (40% gross margin)
Low capital requirement versus the comp.?
Break-even in 1-2 years?
Value added increase of overall P/E? Opportunity
 The Opportunity

Opportunity Driven

#3 Margin analysis helps differentiate an opportunity from an

idea
Key question:
What are the financial manifestations of
your competitive advantage(s)?
Opportunity
 The Opportunity

Take a few minutes and write down a list of businesses with

the following characteristics:
Low cost provider? (40% gross margin)
Low capital requirement versus the comp.?
Break-even in 1-2 years?

Opportunity
The Opportunity
Evaluating an opportunity = The 3 M’s
#1 Market demand – value proposition, name potential
customers
#2 Market size and structure - $100m+, emerging or
fragmented (not perfectly competitive)
#3 Margin Analysis – 40%gm
 Understand and use Resources

Don’t be driven by them

Minimize and Control

versus
Maximize and Own

Unleash creativity
Resources

THINK CASH LAST

Resources:
Environmental
Hotbeds - Silicon Valley, 128 Tech. Highway
Role models
Resources: VCs, Banks, Lawyers, other resources
Resources:
Environmental (cont.)
Family factors
Experience, Optimism, Youth
Contacts
Awareness of resources

.
 Resources
Fortune 500 start-up capital
25% less than Rs5,000
50% less than Rs25,000
75% less thanRs$100,000
Fewer than 5% began with more than Rs1 million

Too much cash too early in a new venture’s life

cycle can be detrimental to creating a culture of
creativity and resourcefulness.
Entrepreneurial Frugality
Low overhead
High productivity
Minimal ownership of capital assets
Bootstrapping
Start-up capital
 Debt
 Loans
 Collateral - 25% of loan
 Equity
 Outside investors
 VCs
 Family
 Friends
 Informal
 Angel
 Sweat equity
Profit potential:
Benchmarks
Benchmarks
5% = net income for most companies
10% = doing very well
15% = truly exceptional
Reality
50% of fortune 500 make 5% or less
Only 13% of fortune 500 make more than 16%
Profit potential:
Running the numbers
Salary
Benefits
Opportunity cost
Return on personal investment (40% on high risk)
Profit potential: Cash flow
KEY: don’t mistake cash flow for profit
Outgrowing your resources
Profit potential: Return on investment
The two ingredients that determine ROI are
Amount invested
Annual amount earned on that investment
40%+ on start-up or seed investment
 The Entrepreneurial Team

The “lead” entrepreneur is key

Quality and diversity of team

An “A” team with a “B” idea is

better than a “B” team with
an “A” idea

Entrepreneur
Entrepreneurial Team Characteristics
Tolerance of risk and Communicators
ambiguity Commitment and
Motivation to excel determination
Leadership Team locus of control
Creativity Adaptability

RELEVANT EXPERIENCE
AND
OPPORTUNITY OBSESSION
Entrepreneur and Management Team
Relevant industry experience
Getting involved in something you love to do

Passion!
Entrepreneur Characteristics
Burning desire to achieve - getting out there
Internal locus of control - I control my destiny
10 D’s
 Dream, Decisiveness, Doers, Determination, Dedication, Devotion,
Details, Destiny, Dollars, Distribute
Critical factors for start-ups
#1 Opportunity
#2 Entrepreneur
#3 Resources
 The Timmons Model: EOR

Uncertainty

Opportunity Entrepreneur

Business Plan
Fits & Gaps
Uncertainty Uncertainty

Resources

Uncertainty
How do I use the model?

Opportunity
Entrepreneur

Business Plan
Fits & Gaps

Resources
“If I am in control, I’m
probably moving too slow!”
- Mario Andretti