New Venture Creation (PLCY/ENTP 429)

Fall 2007

 

Wednesday, 6pm-8pm

Room PLB 106

 

Assistant Professor Nicola Lacetera

Email: nico.lacetera@case.edu

Office Phone: 216-368-2197

Office 280

Office hours

Thursdays, 2-4:30pm at Arabica Cafe

 

 

 

Introduction: Creating and managing a new venture inside or outside a 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 formations, 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 20% of the grade. The final project/business plan count for 35% 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 October 10th meeting to another day, since I will be out of town.

 

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.

 

Academic Integrity University policy on plagiarism and academic integrity will be rigorously enforced. The University does not tolerate cheating or plagiarism in any form. Cheating or plagiarism will result in a failing grade. Ignorance is not considered an excuse. If you are not sure whether or not something you plan to submit would be considered either cheating or plagiarism, please do not hesitate to ask me, or your other faculty.

 

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. Spotting (creating?) and exploiting opportunities                 Aug. 29

 

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] “R&R,” HBS Case 9-386-019. [Course pack]

 

Economist, 2006: “Searching for the invisible man”, March 9th. [Blackboard]

Bhide, 1996: “The questions every entrepreneur must answer”, Harvard Business Review (12 pages) [Course Pack]

Stern, S., 2005: “Economic Experiments – The role of Entrepreneurship in Economic Prosperity”, Kauffman Foundation, pages 16-21.

“What it Takes to Start a Startup” by. B. O’Reilly, Fortune, June 7, 1999, pp. 135-140.

 

 

 

Questions for discussion

 

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  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  What is the business Bob Reiss is considering to enter?

 

Ø  Are there entrepreneurial opportunities in this business? Is this a new product?

o    Analyze the demand conditions (will people buy the product? What evidence do we have?) and the supply conditions (are there other competitors? What are their characteristics? Are they doing well in the business?)

o    Does Bob Reiss have the characteristics to be successful in this business? Which ones?

 

Ø  How did Bob Reiss organize the production and distribution of the product?  Did this differ from the competitors?

o    How many people did Trivia, Inc. employ?

Ø  Was Reiss successful? How do you assess this?

Ø   

Ø  Should Reiss go for “Whoozit”? Why or why not?

Ø   

Ø  Comment the following claim: “Entrepreneurial opportunities are not found: they are created.”

 

 

Suggestion for further reading:

B. Nalebuff and I. Ayres, Why Not?, Harvard Business School Press.

 

 

 

 

2.      Business plans and business models: creating and capturing value                           Sept. 5

 

 

“How to Write a Great Business Plan” by W.A. Sahlman, Harvard Business Review, July-August 1997, pp.98-108 (reprint 97409). [Course pack]

 

[C] “Zipcar: Refining the Business Model,” HBS Case 9-803-096.

 

Zweidler, A. et al., 2005: “The Real Option approach to capital decisions”

 

 

Questions for discussion:

 

Ø  What is Zipcar’s Business Plan?

o   Characteristics of the Business

o   The People involved

o   The Context – industry and environmental characteristics

 

Ø  What is Zipcar’s Busines Model?

o   Major drivers of revenues, costs economic performance: play with some numbers! (Revenues/costs per car, subscribers...)

o   How has the business model changed from Dec. 1999 to May 2000?

o   Are the preliminary results encouraging?

o   What would you tell an investor, in two minutes, to convince him/her to invest in Zipcar?

o   As an investor, what would you ask to Zipcar?

o   As a consultant for Mycitywheels, and given the experience of Zipcar, what would you prescribe?

 

Suggestion for further reading

R.G. McGrath and I. MacMillan, The Entrepreneurial Mindset, HBS Press, 2000

 

 

 

 

3.      Strategies for start-up: how to compete against established firms?                            Sept. 12

 

[C] “Ikea Invades America”, HBS case. [Course pack]

 

[C] “Judo in Action” HBS 9-703-454. [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]

 

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 US? How could they make it, against a solid and established “local” competition?

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?

 

 

 

Suggestions for further readings

 

R.G. McGrath and I. MacMillan, The Entrepreneurial Mindset, HBS Press, 2000

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.

 

 

 

 

 

4.      Organizational issues:                                                                                         Sept. 19

Incentives in organizations

Alliances, licensing, joint ventures

 

 

[C] Ghemawat, P. 1995: “Competitive advantage and internal organization: Nucor revisited”, Journal of Economics and Management Strategy [Blackboard]

[C] Kerr, Steven. 1975: “On the Folly of Rewarding A, While Hoping for B”, Academy of Management Journal 18:769-83 [Jstor]

[C] “Abgenix and the Xenomouse”, HBS Case [Course Pack]

 

 

Questions for discussion

 

Ø  What makes Nucor so successful?

Ø  Is the company working in a profitable industry or niche?

Ø  How are the competitors doing?

Ø  What incentives does Nucor provide to its workers?

o   Is Nucor’s incentive system an example of the ‘folly to reward A while hoping for B”? Why or why not?

 

Ø  What are the upsides and downsides of these three alternatives for Abgenix? [Look both at financial and organizational issues!]

o   Licensing the technology to Pharmacol

o   Teaming up and co-develop the technology with Biopart

o   Go it alone with clinical trials?

o   Something else?

What option would you choose, and why?

 

 

 

 

5.      Financing issues: banks, venture capital, and government initiatives                        Sept. 26

 

[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] (Read only pages 145 to 152)

 

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]

 

 

Questions for discussion

 

Ø  Go back to our discussions on business plans and business models.

o   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, Small Business Administration specialist                                 Oct. 3

Challenges in financing new ventures

 

 

6.      Managing growth                                                                                                            Oct. 17

 

[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 why not? What specific managerial actions 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?

 

 

 

 

7.            Guest speaker – Glenn Mercer (McKinsey)                                                              Oct. 24

 

The evolution of the automobile industry, foreign makers’ entry in the US, and entrepreneurial spawning

 

 

 

 

 

8.      Exit: success or failure?                                                                                                  Oct. 31

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 discussion

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. 6

 

[C] “3M Optical Systems: Managing Corporate Entrepreneurship” HBS case 9-395-017. [Course pack]

 

Govindarajan-Trimble, 2005 HBR: “Building breakthrough businesses within established organizations”. [coursepack]

 

 

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  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?

 

 

 

 

 

10.  Guest speaker – Frank Nagorney (Cowden, Humphrey, Nagorney and Lovett Co., LPA   Nov.7

 

Legal issues in new business creation

 

 

11.  Family businesses                                                                                                            Nov. 14

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.

 

 

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?

 

 

 

NO CLASS ON WEDNESDAY, NOVEMBER 21st

                                                                                   

 

12. Student Presentations                                                                                         Nov. 28

                                                                                                                                    Dec. 5