New Venture Creation
(PLCY/ENTP 429)
Fall 2006
Assistant Professor
Nicola Lacetera
Email: nicola.lacetera@case.edu
Office Phone: 216-368-2197
Office 280
Office hours
TBA
Creating and growing a new venture inside
or outside the corporation is a task that few individuals are able to
accomplish, even though many profess the desire. The
primary goal of this course is to provide an understanding of entrepreneurship
and the entrepreneurial process. The
course will broaden a basic understanding obtained in the functional areas as
they apply to new venture creation and growth.
While most of the examples in class will
be drawn from new venture formation, the principles also apply to new business
development in corporate settings and to non-profit entrepreneurship.
Audience: The class is of relevance to students
interested in starting new businesses, as well as to students thinking about
working in consulting or finance.
Teaching method: mostly
case-based, with most part of each class dedicated to student discussion of
cases and topics. You are
expected to come to class well prepared to discuss the case studies and reading
materials. Read the cases in advance.
The articles listed among the
required readings will help you to give some background to the cases and to analyze them with greater details.
You should read at least some of them. The discussion questions at the end of
each section (see below) will guide our in-class discussion.
Assignments: 7 individual, 2-page
case memos, each on one of the cases discussed in class. The memos should be
sent to me the day before the analyzed case is discussed in class. There is no
specific format for the memos. You can use the “Questions for discussions”
reported for each class (see below) as a guide for your written analyses.
Final team
project: elaborate a business plan in teams of 3 or 4. Each team will work on a
business plan throughout the course, will meet with me at least once to discuss
the progress of the work and any other related issue, and will send me,
fortnightly, 10-line progress reports. The last 2 class meetings will be
dedicated to the presentation of the business plans by all teams. In fact, each
team will have a double role. In addition to working on and present its own
plan, each team will be assigned to another team, and will be called to discuss
and evaluate this other team’s business plan. Each team will therefore play the
entrepreneurs with respect to its own plan, and, say, the venture capitalist (or
more generally the financing party) with respect to that team it is matched to.
Grading: Class
attendance and participation will count for 30% of the grade. The (individual)
case memos will count for 25% of the grade. The final project/business plan count
for 30% of the final grade. The remaining 15% of the final grade will be given
by the evaluation of the “companion” business plan.
Make up class: We will
need to re-schedule the September 28th meeting to another
day, since I will be out of town. We will discuss this issue in our first
class.
Course
material Most of the readings will be available in an online reading pack though
www.xanedu.com.
Some readings are freely available online. In the detailed syllabus below
I provide links to these readings.
Students with Disabilities I will be happy to meet with students with
disabilities and who may need individual arrangements. The coordinator of
Disability Services can be contacted at 216-368-5230.
Detailed Program
The class will
meet once a week for fourteen weeks. Cases are indicated with a [C].
1. Introduction
(1 week) Aug.
31
a.
Common
pitfalls facing new start-up firms
b.
Why
do we care about entrepreneurship?
i.
Many
want to start their own business
ii.
Entrepreneurship
as an engine of economic development and growth
[C] “3M: Profile
of an Innovating company”, HBS Case. [Course pack]
“The
Questions Every Entrepreneur Must Answer” by A. Bhide, Harvard Business Review,
November-December 1996, pp. 120-130 (reprint 96603). [Course pack]
“What it Takes to Start a Startup” by. B.
O’Reilly, Fortune, June 7, 1999, pp. 135-140.
Stern, S., 2005:
“Economic Experiments – The role of Entrepreneurship in
Economic Prosperity”, Kauffman Foundation, pages 16-21.
Questions for discussion
Ø
What
are, in your opinion, the main factors explaining the success of 3M? What made
this entrepreneurial venture a giant, admired company? Are these determinants
valid also for other contexts?
Ø
Has
3M been only a technological
innovator? Or has it experimented also in other areas, such as marketing and
internal organization?
Ø
How
are more recent CEOs different from McKnight? Are they more suited to face the
current challenges? Are they as “entrepreneurial”?
Ø
Do
you think that O’Reilly’s and Bhide’s analyses are contrasting? Why or why not?
How do they apply to 3M?
Ø
Is
Bhide leaving out some important questions? If so, which ones?
Ø
Do
any of the entrepreneurs described by O’Reilly look like any of the 3M’s CEOs?
2. Identifying
opportunities and the value proposition. Sept.
7
Generating and evaluating
new venture ideas
Windows of opportunities and
the “why me?” question
[C] “R&R,” HBS Case 9-386-019. [Course
pack]
[C] “Joseph Sanda”, Small Business Week Winners, Ohio
2002 (1 page)
[C] “Diane MacWilliams”, Small Business Week Winners,
Illinois 2002 (1 page)
[C] “Adrian Lugo”, Entrepreneurial Success Award
Winners, Washington (1 page)
[C] Caine, N.,
2006: “Flu jabs kickstart doctor’s firm”, The Sunday
Times, June 18th (1 page)
[C] Economist,
2006: “Surfing the Airways”, July 13th. (1
page)
Levitt, T., 2002: ‘Creativity is not
enough’, Harvard Business Review. [Course pack]
“Creating New Market Space” by W.C. Kim
and R. Mauborgne, Harvard Business Review, January-February 1999, pp. 83-93
(reprint 99105). [Course pack]
Questions for discussion:
Ø
How
are entrepreneurial opportunities identified? What are the criteria you would
use to assess the viability of an entrepreneurial opportunity? What leads to
opportunity windows?
Ø
Why
was the TV Guide Trivia Game an entrepreneurial opportunity for Reiss? How
successful was he?
Ø
What
risks and obstacles were there to overcome for Reiss? What should he do now?
Ø
Why
do some people (and not others) identify opportunity windows? What is special
about Reiss, Joseph Sanda, Diane MacWilliams, Adrian Lugo, Charles Levinson and
Craig McCaw? What do they have in common? Were they just lucky?
Ø
Do
you agree with Levitt’s analysis? How does it apply to R&R? What does it
mean that rigidity can be a good thing?
Ø
Did
Reiss create new market space? Was his strategy similar to any of the examples
brought by Kim and Mauborgne?
Ø
Look
at some of the ideas listed at the following website: http://www.whynot.net/.
Which ones suffer from the problems Levitt points to? Which ones looks viable
to you, and why?
Suggestion
for further reading:
B. Nalebuff and I. Ayres, Why Not?,
3. Business
plans, designs, models: how to capture value? Sept.
14
[C] “Zipcar: Refining the Business Model,”
HBS Case 9-803-096.
“How
to Write a Great Business Plan” by W.A. Sahlman, Harvard Business Review,
July-August 1997, pp.98-108 (reprint 97409). [Course pack]
Zweidler, A. et al., 2005: “The Real Option approach to capital decisions”
Questions for
discussion:
Ø
What
is Zipcar’s business model, and how has the model changed? What changes, if
any, would you make to the business model?
Ø
Is
Zipcar model valid in other contexts?
Ø
Did
you find Sahlman’s suggestions useful? Is he, in your opinion, missing anything
of major importance?
Suggestion for further reading
R.G. McGrath and
4. Strategies
for start-up: how to compete against established firms? Sept. 21
[C] “Ikea Invades
[C] “Judo in Action” HBS 9-703-454.
[Course pack]
Yoffie, D. and Kwak, M., 2002: “Judo
Strategy: 10 Techniques for Beating a Stronger Opponent”, Business
Strategy Review, 13, 1, 20-30.
Ian C. MacMillan, Rita Gunther McGrath,
1997: “Discovering new points of differentiation”, Harvard Business Review,
1997. [Course pack]
Questions for discussion
Ø
What
made IKEA successful, abroad and in the
Ø
What
was the competitors’ reaction, if any? Or, do you expect incumbent to react
more forcefully?
Ø
Is
IKEA a case of “clever” differentiation? In what sense?
Ø
Is a
differentiation strategy a form of Judo Strategy?
Ø
How
can new ventures compete against established firms, which have both more resources
and an established reputation?
Ø
Is
the “Judo strategy” approach applicable to any firm, industry, and technology?
How would you apply the approach, for example, to the case of low cost airlines
like RyanAir?
Ø
What
did you learn about the “vignettes” of “Judo in Action” that can be applicable
to your entrepreneurial project?
Ø
Suggestions
for further readings
R.G. McGrath and
Adner, R., 2006:
“Match your Innovation Strategy to your Innovation Ecosystem”, Harvard Business
Review
"How do Entrepreneurs craft
Strategies that Work?" by Amar Bhide HBR March-April 1994
Yoffie and Kwak, Judo Strategy, HBS Press,
2001
Brandeburger-Nalebuff, Coopetition.
5. Organizational
issues: TBD
Building a winning team and
delivering value
Organizational culture (1
week)
[C] “Whole Food
Market”, HBS case. [Course pack]
“The New Venture Team” by J.A. Timmons,
Chapter 7 in New Venture Creation, Irwin
McGraw-Hill, 1999.
[Blackboard]
Peteraf, M.,
1993: “The Cornerstones of Competitive Advantage”, Strategic Management
Journal, 14, 3, 179-191. [Jstor]
Barney 1986:
“Organizational Culture: Can It Be a Source of Sustained Competitive
Advantage?”,
Questions for discussion
Ø
How
would you explain the success of Whole Food? What is different and what is
similar (if anything) to the case of IKEA? Is this success sustainable in the
long run?
Ø
How
are Timmons’, Peteraf’s, and Barney’s considerations useful to understand the success
of Whole Food?
Ø
What
can you learn from the Whole Food case for your entrepreneurial idea?
Ø
What
did you learn from the three articles, of any use for your business idea?
6. Financing
issues: banks, venture capital, and government initiatives Oct. 5
[C] Walnut Venture Associates (A), HBS
case 9-899-062. [Course pack]
[C] Walnut Venture Associates (D), HBS
case 9-899-097. [Course pack]
Gompers, P. and
Lerner, J., 2001: “The venture capital Revolution”, Journal of Economic
Perspectives, 15, 2, 145-168. [Jstor]
Zider, B., 1998:
“How venture capital works”, Harvard Business Review. [Course pack]
Background reading
Sahlman, W.,
1992: “Note on the Financial Perspective: What Should Entrepreneurs Know?”, HBS
Note. [Course pack]
(You can spread
this week’s reading, excluding the cases, over this and next week).
Questions for discussion
Ø
Go
back to our discussions on business plans. Are the issues a new venture
stresses in its business plan the same as a venture capitalist looks at, as
emerge from the Walnut Venture Case? Look both at the “facts and features”, and
at the “numbers” the different parties seem to focus on.
Ø
Why
is it difficult for a new venture to get financed? What is your experience on
this matter?
Ø
Comment
on this sentence: “Financing a company, and more so a new company, is not just
a “financial” problem. It is a genuine organizational problem”.
Guest speaker – Kate Kerr, SBA specialist Oct.
12
7. Managing
growth Oct.
19
[C] Anasazi Exclusive Salon Products,
Inc.,” HBS case 9-295-111. [Course pack]
“Note on Building the Self-Sustaining
Firm” by A. Bhide, HBS Note 9-395-200. [Course pack]
Questions for discussion
Ø
Do
you agree with Anasazi’s new strategic plan to meet its milestones? Why or
Ø
why
not? What specific managerial action should be taken to implement the
recommendations?
Ø
What
does Bhide have to say on this matter? Do you agree? Why or why not?
Ø
Have
you experienced “growth problems” in your business career? If so, did they look
like the ones described in the Asanazi case?
8. Exit:
success or failure? Oct.
26
a.
When
to go public?
b.
Learning
from failure
[C] Nantucket Nectars,” HBS case
9-898-171. [Course pack]
The Harvest and Beyond by J.A. Timmons,
Chapter 18 in New Venture Creation, Irwin
McGraw-Hill, 1999, pp. 573-580. [Blackboard]
McFarland, A.,
2004: “Entrepreneurial Failure: get used to it”
Questions for discussions
Ø
Should
Nantucket Nectars undergo an IPO or sell a part of the company? Why? If you recommend
the latter, who should it sell to and why?
Ø
Have
you ever “failed” in you business experience? Do you agree that it can be a
good thing, for you and for society? Why or why not?
9. Intrapreneurship:
can you be entrepreneurial within an established company? Nov. 2
[C] “3M Optical Systems: Managing
Corporate Entrepreneurship” HBS case 9-395-017. [Course pack]
[C] Tripsas, M. and Gavetti, G., 2000:
“Capabilities, Cognition, Inertia: Evidence from Digital Imaging”, Strategic
Management Journal, 21, 10, 1147-1161. [Jstor]
Govindarajan-Trimble,
2005 HBR: “Building breakthrough businesses within established organizations”.
Questions for discussion
Ø
In
what ways is entrepreneurship different in the context of an established firm
relative to an independent start-up?
Ø
Have
you ever tried to advance a new idea within an established company, or have you
seen anybody trying to do that? How did it go, and why?
Ø
Is
the Govindarajan-Trimble analysis similar or in contrast with Levitt’s
considerations (see section 2) on the role of rigidity?
Ø
As
Andy Wong in the 3M case, how would you handle the authorization for
expenditure (AFE) for the relaunch of the privacy screen?
Ø
As
Paul Gehler in the 3M case, would you approve the AFE if Wong sent it to you?
Ø
Is
Tripsas and Gavetti analysis convincing?
10. Legal
issues in new business creation Nov.
9
Guest speaker – Frank P. Nagorney (Cowden, Humphrey, Nagorney and Lovett
Co., LPA)
11. Family
businesses Nov.
16
a.
Nepotism
vs. professionalism. The management and the family
b.
Succession
and continuity
[C] “Hancock Land
Company and Hancock Lumber Company”, HBS case. [Course pack]
[C] “Precista
Tools Ag, A and B”, HBS Case. [Course pack]
[C] Bridge, R.,
2006: “Son overtake stationary dad”, The Sunday Times,
July 9th.
Wasserman, N.,
2003: “Founder-CEO Succession and the Paradox of Entrepreneurial Success”,
Organization Science, 14, 2, 149-172. [ProQuest]
Villalonga, B.
and Amit, 2004: “How do Family Ownership, Control and Management affect Firm
Value?”, working paper.
Questions for discussion
Ø
How
would you handle the situation at Precista? What went wrong? Why (and how) are
the things that went wrong related to Precista being a family Business?
Ø
Why
would you ever leave your company to a family member rather than going “the
market” to find the best available owner and manager? What is the benefit to
keep a company within the family?
Ø
Have
you ever had direct or indirect experience of family businesses that went very
well or very bad? In either case, can you attribute the results to the business
being family-run?
Ø
Do
you believe the findings of Wasserman and Villalonga-Amit? If you do, what are
the entrepreneurial, strategic, and organizational implications? If you do not
believe the results (or some of them), why?
12. Student presentations Nov.
30
Dec.
7