Venture Planning Chapter 1 Dowling Dowling BA 560 Fall 2005.

Venture PlanningVenture PlanningChapter 1Chapter 1

DowlingDowlingBA 560BA 560

Fall 2005Fall 2005

BA560 Venture Planning Prof. DowlBA560 Venture Planning Prof. Dowlinging

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The Entrepreneurial RevolutionThe Entrepreneurial Revolution

During the last 30 During the last 30 years, America has years, America has unleashed the most unleashed the most revolutionary revolutionary generation the nation generation the nation has experienced has experienced since its founding in since its founding in 1776.1776.


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Nearly four of Nearly four of ten households in ten households in America – 39.5% – America – 39.5% – includes someone includes someone with a primary role with a primary role in a new or in a new or emerging business.emerging business.

Uniformly, the Uniformly, the self-employed self-employed report the highest report the highest levels of personal levels of personal satisfaction, satisfaction, challenge, pride challenge, pride and remuneration.and remuneration.


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More than 90% of the Inc. 500 More than 90% of the Inc. 500 founders and 80% of the executives founders and 80% of the executives said smaller entrepreneurial companies said smaller entrepreneurial companies have become role models for the way have become role models for the way businesses should operate.businesses should operate.

69% of entrepreneurs, but only 40% of 69% of entrepreneurs, but only 40% of executives, say “I love what I do for a living.”executives, say “I love what I do for a living.”

1/3 of executives say, if they could live their 1/3 of executives say, if they could live their lives over again, they would choose to run their lives over again, they would choose to run their own company.own company.


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The Entrepreneurial RevolutionThe Entrepreneurial Revolution New industries replace and New industries replace and displace older ones in the creative displace older ones in the creative birth and destruction process, birth and destruction process, articulated by Joseph Schumpeter.articulated by Joseph Schumpeter.

Birch reported the pace of this Birch reported the pace of this process increased from the 1960s through process increased from the 1960s through the 1990s. In the 1960s, it took 20 years to the 1990s. In the 1960s, it took 20 years to replace 35% of firms on Fortune 500. By the replace 35% of firms on Fortune 500. By the 1990s, the same level of replacement 1990s, the same level of replacement occurred every 3 to 4 years. occurred every 3 to 4 years.


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Fully Fully 95%95% of the wealth in America of the wealth in America

was created after 1980.was created after 1980.


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Drucker’s PostulateDrucker’s Postulate

A tenfold increase in the A tenfold increase in the productivity of any technology productivity of any technology results in economic discontinuity. results in economic discontinuity.


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How important are entrepreneurs How important are entrepreneurs and entrepreneurship?and entrepreneurship?

Leadership: Management, economic and social renewalLeadership: Management, economic and social renewal

Job creationJob creation

InnovationInnovation

R&D effectivenessR&D effectiveness

Competitiveness & productivityCompetitiveness & productivity

Formation of new industriesFormation of new industries

Regional economic developmentRegional economic development

Risk capital formationRisk capital formation


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David Birch: David Birch: The Job The Job Creation Process, Creation Process, groundbreaking researchgroundbreaking research

New & growing businesses New & growing businesses generate generate 81.5% of all new of all new jobs.jobs.


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mismis-Fortune 500?-Fortune 500?

Since 1980, Since 1980, 34 million new 34 million new jobs created. jobs created.

In same period, In same period, 5 million jobs lost 5 million jobs lost from Fortune 500 from Fortune 500 firms.firms.

-10,000,000

10,000,000

30,000,000

Total New Jobs Fortune 500 Firms

New Job CreationNew Job Creation1980-20001980-2000


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Small business creates

81.5%of all new jobs in the U.S.

NotableNotable99% of all employers are small businesses, and their numbers are rising. In 1975 there were 13.3 million small businesses in the U.S. In 2000, there were 27.5 million – an increase of 107%.

Source: Small Business Survival Index 2001; Raymond J. Keating, Small Business Survival Committee


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The Entrepreneurial The Entrepreneurial RevolutionRevolution

Small Business Survival Index

Oregon Rank: 36Oregon Score: 50.01

ComparisonsNevada Rank: 1Nevada Score: 27.06

Washington Rank: 3Washington Score: 32.01

Rhode Island Rank: 50Rhode Island Score: 59.01

NotableNotableRank shows Oregon’s overall placement among national totals. Lower scores are best, and figure in such factors as taxes, level of bureaucracy, minimum wage levels and other indicators of small business success.

Source: Small Business Survival Index 2001; Raymond J. Keating, Small Bus. Survival Committee


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Oregon Firms By IndustryOregon Firms By Industry

Manuf.7%

Service35%

Other27%

F.I.R.E.8%

Trade23%

Service businesses Service businesses make up fully 35 make up fully 35 percent of total percent of total Oregon firms.Oregon firms.

Note: F.I.R.E.: Finance, Insurance and Real EstateNote: F.I.R.E.: Finance, Insurance and Real Estate

Source: Source: Corporate Demographics: Corporate Corporate Demographics: Corporate Almanac;Almanac; Cognetics, Inc. 2001 Cognetics, Inc. 2001


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Oregon Firms By RevenueOregon Firms By Revenue

<$500K83%

$500K-$5M15%

$5M-$50M2% $50M-

$500M0%

Oregon ranks 16Oregon ranks 16thth in in the nation in the nation in percentage of percentage of businesses businesses grossing $500,000 grossing $500,000 or less each year.or less each year.

SourceSource: : Corporate Demographics: Corporate Corporate Demographics: Corporate Almanac;Almanac; Cognetics, Inc. 2001 Cognetics, Inc. 2001


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Oregon Firms by Survival RateOregon Firms by Survival Rate

0

20

40

60

80

100

Oregon’s overall Oregon’s overall survival rate for survival rate for 1996-2000 of 81.5 1996-2000 of 81.5 percent compares percent compares favorably with favorably with California (80.6%) California (80.6%) and Washington and Washington (80.0%).(80.0%).


Age of firms


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Oregon Firms by EmployeesOregon Firms by Employees

1 to 476%

5 to 1918%

20 to 995% 1000+

0%

100 to 9991%

Oregon is reliant on Oregon is reliant on small businesses – small businesses – only seven states only seven states have a higher have a higher percentage of percentage of businesses with only businesses with only 1 to 4 employees.1 to 4 employees.



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Woman-ownedWoman-owned businessesbusinesses

in 1970:in 1970:

Employed fewer than Employed fewer than 1,000,000 workers1,000,000 workers

Totaled 4% of all Totaled 4% of all businessesbusinesses

Woman-ownedWoman-owned businessesbusinesses

in 2001:in 2001:

Employed more than Employed more than 18,000,000 workers18,000,000 workers

Totaled 35% of all Totaled 35% of all businessesbusinesses


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Increasingly DiverseIncreasingly Diverse

621,000621,000 African-American African-American business owners with business owners with sales of sales of $32 billion$32 billion. .

706,000706,000 Asian-American Asian-American business owners with business owners with sales of sales of $1.0 trillion$1.0 trillion. .

1.5 million1.5 million Hispanic Hispanic business owners with business owners with sales of sales of $200 billion$200 billion..


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The Entrepreneurial The Entrepreneurial RevolutionRevolution

‘‘Radical Innovation’Radical Innovation’

Since WWII, small Since WWII, small

entrepreneurial firms have entrepreneurial firms have

been responsible for half of all been responsible for half of all

innovation and 95 percent of innovation and 95 percent of

all radical innovation in the all radical innovation in the

United States.United States.


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‘‘Radical Innovation’Radical Innovation’

Smaller firms generated twice as Smaller firms generated twice as many innovations per R&D dollar many innovations per R&D dollar as the giantsas the giants

Twice as many innovations per Twice as many innovations per R&D scientists than the giantsR&D scientists than the giants

24 times as many innovations 24 times as many innovations per R&D dollar versus firms with per R&D dollar versus firms with more than 10,000 employeesmore than 10,000 employees


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Venture CapitalVenture Capital

““Venture capital has Venture capital has deep roots in our deep roots in our history … and is history … and is the rocket fuel the rocket fuel of America’s of America’s entrepreneurial entrepreneurial engine.”engine.”

(Timmons, P.9)(Timmons, P.9)


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Angels Among Us?Angels Among Us? AngelsAngels invest $60-80 billion in the invest $60-80 billion in the

entrepreneurial process, and can serve as entrepreneurial process, and can serve as coach, confidant, mentor and cheerleader. coach, confidant, mentor and cheerleader.

Who are these ‘Angels’?Who are these ‘Angels’? Private investors. Moderately wealthy to very Private investors. Moderately wealthy to very

wealthy, they generally invest close to home wealthy, they generally invest close to home with limited portfolios of activities – activities with limited portfolios of activities – activities about which they are very familiar. about which they are very familiar. Conversely, traditional venture capitalists are Conversely, traditional venture capitalists are into whatever’s ‘hot,’ not necessarily the into whatever’s ‘hot,’ not necessarily the industries they know.industries they know.


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Key points – Chapter 1Key points – Chapter 1

Successful entrepreneurs are obsessed Successful entrepreneurs are obsessed with opportunity and driven by it.with opportunity and driven by it.

The lead entrepreneur can make a The lead entrepreneur can make a significant difference in the odds of successsignificant difference in the odds of success


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Key points – Chapter 1 Key points – Chapter 1 (Cont.)(Cont.)

To build a major small company from the initial To build a major small company from the initial venture, additional management team members venture, additional management team members are usually required.are usually required.

A business plan can provide the entrepreneur A business plan can provide the entrepreneur with the robust framework and discipline for with the robust framework and discipline for evaluating and shaping the startup opportunity, evaluating and shaping the startup opportunity, evaluating the gaps, identifying the necessary evaluating the gaps, identifying the necessary resources to make it happen, and securing resources to make it happen, and securing needed capital. needed capital.


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Discussion QuestionDiscussion Question

‘‘We are at the dawn of the new age of equity We are at the dawn of the new age of equity creation … Entrepreneurs create value and creation … Entrepreneurs create value and realize that value through the creation of equity realize that value through the creation of equity through ownership. The entrepreneurial process through ownership. The entrepreneurial process is about making the pie bigger.’ is about making the pie bigger.’ Timmons, P. 14Timmons, P. 14

Do you agree with this assessment of the Do you agree with this assessment of the American/global economic scene? American/global economic scene?


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Discussion QuestionDiscussion Question

Many people prefer Many people prefer predictabilitypredictability to to unpredictabilityunpredictability. Yet, the entrepreneurial . Yet, the entrepreneurial process is inherently chaotic and process is inherently chaotic and unpredictable. Who will succeed and who unpredictable. Who will succeed and who will falter in this dynamic process? What will falter in this dynamic process? What skills and mindsets are required?skills and mindsets are required?


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Interview an EntrepreneurInterview an Entrepreneur

• Step 1:Step 1: Contact the person Contact the person • Step 2:Step 2: Identify specific Identify specific

questions questions • Step 3:Step 3: Conduct the interview Conduct the interview• Step 4:Step 4: Evaluate what you’ve learned Evaluate what you’ve learned• Step 5:Step 5: Write a thank-you note Write a thank-you note

Venture Planning Chapter 1 Dowling Dowling BA 560 Fall 2005.

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