Building a New-Venture Team

What do we learn?

a.     What is the liability of newness concept?

Ø  Liability of newness:

·         Refers to the fact that companies often falter because the people who start them aren’t able to adjust quickly to their new roles.

·         Firm lacks a “ track record” with outside buyers and suppliers.

·         To overcome limitations: assemble a talented and experienced new- venture team.

·         To overcome liability of newness: attending entrepreneurship focused workshops and events.

b.    What is the new- venture team and the primary elements that form such team.

Ø  New- venture team:

·         the group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm.

·         Key to success isn’t the idea but rather the ability of the initial founder or founders to assemble a team that can execute the idea better than anyone else.

·         The way the founder/ founders build new- venture team sends an important signal to potential investors, partners, and employees.

Ø  7 primary elements:

v  The founders or founders

·         The characteristics of the founder or founders of a firm and their early decisions have a significant impact on the manner in which the new venture team takes shape.

·         Size of the founding team:

o   The first decision that most founders face is whether to start a firm on their own or whether to build an initial founding team.

o   Teams bring more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur.

o   Several issues affect the value of the team:

§  Teams that have worked together before, as opposed to teams that are working together for the first time, have an edge.

§  If the member of the teams are:

·         Heterogeneous: they are diverse in terms of their abilities and experiences.

·         Homogeneous: their areas of expertise are very similar to one another.

·         Qualities of the founders

o   Level of a founder’s education is important. ( it is believed that entrepreneurial abilities such as search skills, foresight, creativity, ad computer skills are enhanced through obtaining a college degree)

o   Factors That May Contribute to a Founders’ Success

§  Firm started by a team: provide greater resources, a broader diversity of viewpoints, and a broader array of other positive attributes

§   Higher education: Entrepreneurial skills are enhanced through higher education.

§  Prior entrepreneurial experience: more likely to avoid costly mistakes than founders without similar experience.

§  Relevant industry experience: more likely to have, better established professional networks and more applicable marketing and management skills.

§  The ability to “network” effectively: have potential access to additional know-how, capital, and customer referrals.

v  Management team and key employees

·         Technique to help prioritize their hiring needs is to maintain a skills profile ( a chart that depicts the most important skills that are needed and where skills gaps exist.)

·         4 different sources of labor:

1.      Employee: someone who works for the business.

2.      Intern: who works for the business as an apprentice or trainee.

3.      Freelancer: the person who is in the business for themselves.

4.      Virtual assistance: freelancer who provides administrative, technical, or creative assistance.

v  The roles of the board directors

·         Board of directors:

o   a panel of individuals who are elected by a corporation’s shareholders to oversee the management of the firm.

o   Typically made up of both inside and outside directors.

o   Meet formally 3 or 4 times a year.

·         3 formal responsibilities:

1.      Appoint the firm’s officers (the key managers).

2.      Declare devidens.

3.      Oversee the affairs of the corporation.

·         2 functions:

1.      Provide expert guidances: pick board members with needed skills and useful experiences who are willing to give advice and ask insightful and probing questions.

2.      Lend legitimacy: when a high- quality individual does agree to serve on a firm’s board, the individual is in essence “signalling” that the company has potential to be success.

c.      Professional advisers and their role with a new- venture team.

·         Board of advisors

o   Advisory board: panel of experts who are asked by a firm’s managers to provide counsel and advice on ongoing basis.

o   Possesses no legal responsibility for the firm and gives nonbinding advice.

o   Can be established for general purposes or can be set up to address a specific issue or need.

o   Most boards advisers have between 5 to 15 members.

·         Lenders and investors

o   have a vested interest in the companies they finance, often causing them to become very involved in helping the firms they fund.

o   help new firms by providing guidance and lending advice.

o   assume the natural role of providing financial oversight.

d.      Why new- venture team might use consultants?

·         Consultant:

o   an individual who gives professional or expert advice.

o   Importance: seek specialist to obtain advice on complex issues such as patents, tax planning, and security laws.

o   Can conduct in-depth analyses on behalf of a firm such as preparing a feasibility study or an industry analysis.

o   2 categories:

1.      Paid consultants: includes large international consulting firms. (provide a wide array of services but are beyond the reach of most start-ups because of budget limitations)

2.      Consultants who are made available for free or at a reduced rate through a non-profit or government agency.