creating a new venture team

A primer in Entrepreneurship

Prof. Dr. Ulrich Kaiser

Institute for Strategy and Business EconomicsInstitute for Strategy and Business Economics

University of Zurich

Fall Semester 2009

Chapter 9: Building a New Venture Team

Table of Contents

I. Creating a New Venture TeamA. The Founder or FoundersB R iti d S l ti K E lB. Recruiting and Selecting Key EmployeesC. The Role of the Board of Directors

II. Rounding Out the Team – The Role of Professional Advisors A. Board of AdvisorsB. Lenders and InvestorsC. Other Professionals


ISU – Institute for Strategy and Business Economics

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I. Creating a New Venture Team

1. A new venture team is the group of founders, key employees, and advisers that move a new venture from an idea to a fully‐functioning firm.

2. Usually the team doesn’t come together all at once. Instead, it is built as the new firm can afford to hire additional personnel.

3. The team also involves more than paid employees. Many firms have boards of directors, boards of advisers, and professionals on whom they rely for direction and advice.y



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Liabilities of Newness1. New ventures have a high propensity to fail.

2. The high failure rate is due in part to what researchers call the liability of newness, which refers to the fact that companies often falter because the people who start the firms can’t adjust quickly enough to their newthe people who start the firms can t adjust quickly enough to their new roles and because the firm lacks a “track record” with outside buyers and sellers.

3 A bli t l t d d i d t t i th3. Assembling a talented and experienced new venture team is one path that firms can take to overcome these limitations.



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Elements of a New Venture Team



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1 Si f F di T

A. The Founder or Founders

1. Size of Founding Team

a. The first decision that most founders face is whether to start a firm on their own or whether to build an initial founding team. Studies show gthat teams or partners start 50 to 70 percent of all new firms (CH: 47 percent).

b. It is generally believed that new ventures started by a team have anb. It is generally believed that new ventures started by a team have an advantage over those started by an individual, because a team brings more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneurventure than does a sole entrepreneur.



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S l f t ff t th l f t th t i t ti fi


c. Several factors affect the value of a team that is starting a new firm.

i. First, teams that have worked together before, as opposed to teams that are working together for the first time, have an g g ,edge.

ii. Second, if the members of the team are heterogeneous, meaning that they are diverse in terms of their abilities andmeaning that they are diverse in terms of their abilities and experiences, rather than homogeneous, meaning that their areas of expertise are very similar to one another, they are likely to have different points of view about important issueslikely to have different points of view about important issues. These different points of view are likely to generate debate and constructive conflict.



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2 Q liti f th F d


2. Qualities of the Foundersa. One reason the founders are so important is that in the early

days of the firm, their knowledge, skills, and experiences are the most valuable resource the firm has.

b. Several features are thought to be significant to a founder’s success. These factors include:success. These factors include:

The level of the founder’s educationPrior entrepreneurial experienceR l i d iRelevant industry experienceNetworking (the depth of the founder’s professional network)



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2 Q liti f th F d


2. Qualities of the Founders



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2 Q liti f th F d2. Qualities of the Founders



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1 F d diff i t f h th h th t k f iti d

B. Recruiting and Selecting Key Employees

1. Founders differ in terms of how they approach the task of recruiting and selecting key employees. Some founders draw on their network of contacts to identify candidates for key positions, while others use executive search firms.

2. An executive search firm is a company that specializes in helping other companies recruit and select key personnelcompanies recruit and select key personnel.



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3 M f d b t hi i th f k l

B. Recruiting and Selecting Key Employees

3. Many founders worry about hiring the wrong person for a key role. Because most new firms are strapped for cash, every team member must make a valuable contribution, so it’s not good enough to hire someone who is well‐intended but who doesn’t precisely fit the job.

4. Some founders approach the task of hiring by creating a formal hiring plan. Others approach the task more informally, and hire personnel asplan. Others approach the task more informally, and hire personnel as funds become available and opportunities emerge.



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1 If t i ti it i l ll i d t h

C. The Role of the Board of Directors

1. If a new venture organizes as a corporation, it is legally required to have a board of directors – a panel of individuals who are elected by a corporation’s shareholders to oversee the management of the firm.

2. A board is typically made up of both inside and outside directors. An inside director is a person who is also an officer of the firm. An outside director is someone who is not employed by the firm.

3. A board of directors has three formal responsibilities: Appoint the officers of the firm, declare dividends, and oversee the affairs of the corporation.

http://www.ubs.com/1/g/media_overview/media_switzerland/images/boardofdirectors.html



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4 If h dl d l ’ b d f di t b i t t


4. If handled properly, a company’s board of directors can be an important part of its new venture team. Two ways a board of directors can help a new firm get off to a good start and develop what, it is hoped, will become a sustainable competitive advantage are by providing guidance and lending legitimacy.



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Function Importance of Function

Ways a Board of Directors Can Help a New Venture Get Off to a Good Start

Provide

Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance

and support to the firm’s managers. Many founders and CEOsGuidance

and support to the firm s managers. Many founders and CEOs interact with their board members frequently and obtain

important input and advice.

Lend LegitimacyAnother important function of a board of directors is to lend

legitimacy to a firm. Well‐known and respected board members bring instant credibility to a firmmembers bring instant credibility to a firm.



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5 F f M ti d C ti


5. Frequency of Meetings and Compensation

Most boards of directors meet three to four times a year.New ventures are more likely to pay their boards in company stock or y p y p yask them to serve on a voluntary basis rather than pay a cash honorarium.



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Chapter 9: Building a New Venture Team

Table of Contents

I. Creating a New Venture TeamA. The Founder or FoundersB R iti d S l ti K E lB. Recruiting and Selecting Key EmployeesC. The Role of the Board of Directors

II. Rounding Out the Team – The Role of Professional Advisors A. Board of AdvisorsB. Lenders and InvestorsC. Other Professionals



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II. Rounding Out the Team – The Role of Professional Advisors

Board of Advisersoa d o d se s

Lenders and Investors Other Professionals



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II. Rounding Out the Team – The Role of

A Board of Advisors

Professional Advisors

1. A growing number of start‐ups are forming advisory boards to provide them with direction and advice

A. Board of Advisors

them with direction and advice.

2. An advisory board is a panel of experts who are asked by a firm’s managers to provide counsel and advice on an ongoing basis.managers to provide counsel and advice on an ongoing basis.



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A Board of Advisors


3. Unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives nonbinding advice


responsibility for the firm and gives nonbinding advice.

4. An advisory board can be established for general purposes or can be set up to address a specific issue or need. For example, some firms haveup to address a specific issue or need. For example, some firms have customer advisory boards that help the firm identify new product and service ideas.

5. Most boards of advisors have between five and 15 members. Companies typically pay the members of their board of advisors a small honorarium for their service, either annually or on a per‐meeting basis., y p g



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A Board of Advisors


Guidelines for Organizing a Board of Advisers


1. Advisers will become disillusioned if they don’t play a meaningful role in the firm’s development and growth.

f h ld l k f b d b h bl d2. A firm should look for board members who are compatible and complement one another in terms of experience and expertise.

3 When inviting people to serve on its board of advisors a company3. When inviting people to serve on its board of advisors, a company should carefully spell out to the individuals involved the rules in terms of access to confidential information.



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Board of Advisers of Ugobe (http://www ugobe com/)


Board of Advisers of Ugobe (http://www.ugobe.com/)

Name Profession Role on Advisory Board

Steven Mayer

Curtis Sasaki

Adviser to corporations such as Intel and Nintendo

Vice President, Sun Mi

Adds legitimacy and provides the firm advice on management issues

Adds legitimacy and provides the fi d i d / k i

Phil Schlein

Microsystems

Partner, U.S. Venture Partners

firm advice product/market issues

Adds legitimacy and provides the firm advice on financial‐related issues

Abraham Wei

Managing Partner, Hillard

Senior Managing Director, Chinavest Merchant Bank

Adds legitimacy and provides the firm advice on financial‐related issues

Adds legitimacy and provides the firm Bill Hillard Equities/Sonn‐Hill

Consultingadvice on financial‐ and management‐

related issues



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B Lenders and Investors


1. Lenders and investors have a vested interest in the companies they finance, often causing them to become very involved in helping the

B. Lenders and Investors

, g y p gfirms they fund.

2. As with the other non‐employee members of a firm’s new venture team, lenders and investors help new firms by providing guidance and lending legitimacy, and assume the natural role of providing financial oversight.

3. In some instances, lenders and investors also work hard to help new firms fill out their management teams.



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B Lenders and Investors


B. Lenders and InvestorsBeyond Financing and Funding: Ways Lenders and Investors Add Value to an Entrepreneurial Venture

Help identify and recruit key management personnel

Provide insight into the industry and markets in which the venture intends

to participateg p to participate

Help the venture fine‐tune its business Serve as a sounding board for new model ideas

P id i d i ddi i l S h ’ b d fProvide introductions to additional sources of capital

Serve on the new venture’s board of directors or board of advisors



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C Other Professionals


At times, other professionals assume important roles in a new venture’s success. Attorneys, accountants, and business consultants are often good

C. Other Professionals

sources of counsel and advice.

a. A consultant is an individual who gives professional or expert advice. N i h h h l b i l fNew ventures vary in how much they rely on business consultants for direction.

b Consultants fall into two categories: paid consultants and consultantsb. Consultants fall into two categories: paid consultants and consultants who are made available for free or at a reduced rate through a nonprofit or government agency.



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creating a new venture team

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