The Portable MBA in Entrepreneurship (The Portable MBA Series)

495 Pages·2009·2.54 MB·English

by  William D. Bygrave

The
Portable
MBA
in
ENTREPRENEURSHIP
i
The
Portable
MBA
in
ENTREPRENEURSHIP
F O U R T H E D I T I O N
Edited by
William D. Bygrave, DBA and
Andrew Zacharakis, PhD
John Wiley & Sons, Inc.
iii
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iv
Contents
CompleteListofDownloadableMaterialsforThePortable
MBAinEntrepreneurship vii
PrefacetotheFourthEdition ix
AbouttheContributors xi
1 TheEntrepreneurialProcess 1
WilliamD.Bygrave
2 IdeaGeneration 27
HeidiM.Neck
3 OpportunityRecognition,Shaping,andReshaping 53
AndrewZacharakis
4 EntrepreneurialMarketing 83
AbdulAliandKathleenSeiders
5 BusinessPlanning 109
AndrewZacharakis
6 BuildingYourProFormaFinancialStatements 137
AndrewZacharakis
7 EquityFinancing:InformalInvestment,
VentureCapital,andHarvesting 161
WilliamD.Bygrave
8 DebtandOtherFormsofFinancing 197
JoelM.Shulman
9 ExternalAssistanceforStart-upsand
SmallBusinesses 225
ElizabethJ.GatewoodandCarolMcLaurin
10 LegalandTaxIssues 263
RichardMandel
11 IntellectualProperty 297
KirkTeskaandJosephS.Iandiorio
v
vi Contents
12 SellinginanEntrepreneurialContext 329
MarkP.RiceandH.DavidHennessey
13 BeyondStart-up:DevelopingandSustaining
theGrowingOrganization 355
DonnaKelleyandEdwardMarram
14 Franchising 385
SteveSpinelli
15 SocialEntrepreneurship 411
HeidiM.Neck
Glossary 437
Index 459
Complete List of Downloadable
Materials for The Portable MBA
in Entrepreneurship
OnlineOnly:
Chapter2WebSiteMaterial:IdeaspaceExercise
Chapter4WebSiteMaterial:CustomerInterview
Chapter6WebSiteMaterial:ProFormaFinancialStatements
Chapter7WebSiteMaterial:BFSWCapTable
Chapter9WebSiteMaterial:WheretoFindSBDC’s
OnlineandinManuscript:
DownloadableExhibit2.4:Nine-DotExercise
DownloadableExhibit3.7:ValueChainExercise
DownloadableExhibit3.9:CompetitiveProfileMatrix
DownloadableExhibit3.11:OpportunityChecklist
DownloadableExhibit4.5:ProductDiffusionCurve
DownloadableExhibit4.6:PricingDecisionforanEntrepreneur
DownloadableExhibit5.8:CompetitiveMap
DownloadableExhibit5.11:OperationsFlow
DownloadableExhibit5.13:LaunchTimeline
DownloadableExhibit6.2:FinancialConstructionChecklist
DownloadableExhibit6.5:OperatingExpensesWorksheet
DownloadableExhibit10.4:ComparisonofEquitySharingMethods
DownloadableExhibit11.1:PatentManagementSpreadsheet
DownloadableExhibit14.3:LicenseAgreementKeyProvisionImpactAnalysis
DownloadableExhibit14.6:ChecklistforInternationalFranchising
DownloadableExhibit15.7:WickedversusTameProblems
vii
Preface to the Fourth Edition
Aswewritethefourthedition,theUnitedStatesandworldhavegonethrougheconomic
upheaval. Unemployment, foreclosures, government bailouts to the financial and auto
sectors have created volatility and uncertainty. Yet, while the period has been bleak,
we expect the future to be bright. The one truth for the United States—and for more
and more nations as entrepreneurship has taken hold globally—is that world-changing
new ventures often are born at the depth of economic upheavals. During the Great
Depression, Boeing emerged and changed the nature of aerospace; IBM was founded
duringtheLongDepression(1872–1896);andmanygreatcompaniesopenedshopduring
recessions, including Hyatt and Burger King during the 1957–1958 recession, FedEx
duringthe1973oilembargo,andCNNandMTVduringthe1980–1981recession.Thus,
entrepreneurshipisevenmoreimportanttoeconomicrecoveryandongoinghealthfor
countries worldwide. We hope that this book will inspire the next generation of great
entrepreneursandcompanies.
Today, U.S. small businesses—firms with 500 or fewer employees—employ slightly
morethan50percentofthelaborforceandgenerateapproximatelyhalfofthenonfarm
privategrossdomesticproduct(GDP).IfthesmallbusinesssectoroftheU.S.economy
were a nation, its GDP would rank third in the world behind the non-small-business
sectoroftheUnitedStatesandtheentireeconomyofJapan,andfaraheadoftheentire
economiesofChina,Germany,theUnitedKingdom,France,andItaly.
Not only are small businesses the engine for job creation, they are also a powerful
force for innovation. They employ 39 percent of all high-tech workers and produce
approximately14timesmorepatentsperemployeethanlargefirms.Sincethepublication
of the third edition, a multitude of new, world-changing companies have been started.
Facebook,Skype,andTwitter,amongothers,arechangingthewaywecommunicateand
interactwitheachother.Andlargeexistingcompaniesthatareentrepreneurialcontinue
tocreateandrejuvenatetheirbusinesses.NoexampleisbetterthanApple,whichsince
2003haslaunchedtheiPhoneandiTouch.Closeto50millionunitshavebeensoldinits
first18months.
No doubt about it, entrepreneurship is what America does best, bar none. No other
advanced industrial nation comes close. U.S. entrepreneurial companies created the
personalcomputer,biotechnology,fastfood,andovernightpackagedeliveryindustries;
transformed the retailing industry; overthrew AT&T’s telecommunications monopoly;
revitalized the steel industry; invented the integrated circuit and the microprocessor;
foundedthenation’smostprofitableairline;andthelistgoeson.
ix
x PrefacetotheFourthEdition
Is it any wonder that more and more people are choosing to be entrepreneurs?
Entrepreneurship courses and programs have proliferated in the past 10 years. It is
estimatedthatmorethan2,000U.S.collegesanduniversities,orabouttwo-thirdsofthe
total,haveatleastonecourseinentrepreneurship.Itispossibletostudyentrepreneurship
incertificate,associates,bachelors,masters,andPhDprograms.Everybusinessstudent,
regardless of their career plans, needs to understand the role of entrepreneurship in
theeconomy.Today,abusinesseducationwithoutanentrepreneurshipcomponentisas
incompleteasmedicaltrainingwithoutobstetrics.
ThePortableMBAinEntrepreneurshipisabookforwould-beentrepreneurs,people
whohavestartedsmallfirmsandwhowanttoimprovetheirentrepreneurialskills,and
others who are interested in entrepreneurship, such as bank loan officers, lawyers, ac-
countants,investors,andconsultants—indeed,anyonewhowantstogetinvolvedinthe
birthandgrowthofanenterprise.Thechaptersarewrittenbyleadingauthoritiesonnew
business creation, including professors, entrepreneurs, and consultants with extensive
experienceinteachingtheartandscienceofstartingandgrowingaventure.Theseau-
thorspracticewhattheyteach.Theyhavestartedbusinesses,servedonboardsofventure
capitalfunds,beenonboardsofdirectorsandboardsofadvisersofentrepreneurialcom-
panies, raised start-up and expansion capital, filed patents, registered companies, and,
perhaps most important of all, have created new products and many new jobs. What’s
more,theyaretirelesschampionsofentrepreneurship.Theybelievethatentrepreneurs
arecrucialtoAmerica’seconomicwell-being.
Wewouldliketothankallthechapterauthorsfortheircontributions,aswellasour
researchassistants,MarkItskovitz,R.GabrielShih,andHenryMcGovern.Wehopeyou
enjoythisbook.
WILLIAMD.BYGRAVE
ANDREWZACHARAKIS
ArthurM.BlankCenterforEntrepreneurship
BabsonCollege
May2009
About the Contributors
Abdul Ali is the President’s Term Chair and an associate professor of marketing at
BabsonCollege.EarlierhetaughtattheUniversityofMarylandinCollegeParkandat
SyracuseUniversity.HeservedasChairoftheMarketingDivisionforsixyears(2000to
2006)atBabsonCollege.Dr.Ali’steachingandresearchinterestsincludenewproduct
management,entrepreneurialmarketing,marketingresearchmethods,marketingstrat-
egy,andmarketinghigh-techproducts.HisworkhasappearedinManagementScience,
the Journal of Product Innovation Management, Managerial and Decision Economics,
the Journal of Business Research, and Marketing Letters. He and two co-authors pro-
duced ACasebookforBusinessStatistics:LaboratoriesforDecisionMaking,published
byJohnWiley&Sons.Healsoco-authoredachaptereachonentrepreneurialmarketing
intwobookseditedbyWilliamBygraveandAndrewZacharakis.
William D. Bygrave, D.Phil., MBA, is a professor emeritus at Babson College. Dr.
Bygrave joined the Center for Entrepreneurial Studies at Babson College in 1985 and
directed it from 1993 to 1999. He was also the director of the annual Babson College–
KauffmanFoundationEntrepreneurshipResearchConferencein1994–1995and2001–
2003.Heteachesandresearchesentrepreneurship,specificallyfinancingofstart-upand
growingventures.In1997,heandMichaelHayattheLondonBusinessSchoolstarted
theGlobalEntrepreneurshipMonitor(GEM),whichexaminestheentrepreneurialcom-
petitivenessofnations.HeisamemberoftheboardoftrusteesofBabsonCollege.
Dr. Bygrave has founded a venture-capital-backed high-tech company, managed a
division of a New York Stock Exchange–listed high-tech company, co-founded a phar-
maceutical database company, and been a member of the investment committee of a
venturecapitalfirm.Hewasthe1997winneroftheErnst&YoungEntrepreneurofthe
YearawardinthesupportercategoryforNewEngland.
He has written more than 100 papers on topics that include venture capital, en-
trepreneurship, nuclear physics, hospital pharmaceuticals, and philosophy of science.
Heisalsoco-editorofEntrepreneurship(2007);TheVentureCapitalHandbook(1999);
ThePortableMBAinEntrepreneurship(thirdedition,2003);ThePortableMBAinEn-
trepreneurshipCaseStudies(secondedition,1997);RealizingEnterpriseValue(1993);
andFrontiersofEntrepreneurshipResearch;hewasalsoaneditorofEntrepreneurship
TheoryandPractice.Hehasservedonthereviewboardsofthreeentrepreneurshipjour-
nals.TranslationsofhisbookshavebeenpublishedinChinese,Japanese,Spanish,and
Bahasa Indonesia. Areas of expertise include entrepreneurship, new venture creation,
informalinvestment,andventurecapital.
xi
xii AbouttheContributors
Elizabeth J. (Betsy) Gatewood, PhD, has been the director of the University Office
of Entrepreneurship & Liberal Arts at Wake Forest University since 2004. She served
as the Jack M. Gill Chair of Entrepreneurship and director of the Johnson Center for
Entrepreneurship & Innovation at Indiana University from 1998 to 2004. She was the
executive director of the Gulf Coast Small Business Development Center Network,
an organization providing training and consulting services to entrepreneurs and small
business owners in the 32 counties of the greater Houston region, from 1989 to 1998.
Dr.GatewoodfoundedtheCenterforBusinessandEconomicStudiesattheUniversity
ofGeorgiaandservedasitsdirectorfrom1983to1989.
SheisamemberoftheDianaProject,aresearchstudyofwomenbusinessownersand
equitycapitalaccess,whichwontheFSF-NUTEKInternationalAwardforscientificwork
of outstanding quality and importance in the field of entrepreneurship. Dr. Gatewood
servesontheboardofdirectorsofDeltaApparel,Inc.(AMEX:DLA)andontheAdvisory
BoardforSpringMillVentures,aventurecapitalfirmoftheVillageVenturesnetwork.
She is a past chair of the Entrepreneurship Division of the Academy of Management.
She received the 1996 Advocate Award for outstanding contributions to the field of
entrepreneurshipfromtheAcademyofManagement.SheholdsaBSinpsychologyfrom
Purdue University and an MBA with a concentration in finance and a PhD in business
administrationwithaspecialtyinstrategyfromtheUniversityofGeorgia.
H. David Hennessey, PhD, is Professor of Marketing and International Business at
BabsonCollege.Aftergaininghisundergraduatedegreeineconomicsandbusinessad-
ministrationatNorwichUniversity,Northfield,Vermont,andanMBAfromClarkUni-
versity,Worcester,Massachusetts,Dr.Hennesseyworkedasaseniormarketinganalyst
fortheAmericanCanCompany.HethenbecamemarketingdirectorforInterpaceCor-
poration,basedinNewJersey.HecompletedhisPhDatNewYorkUniversityandjoined
Babson College in 1982. He has taught courses on global marketing, marketing strat-
egy,salesmanagementstrategy,andfoundationsofmanagementandentrepreneurship,
and written numerous articles and case studies. He has co-authored Global Marketing
Strategies(6thedition,2004,withJean-PierreJeannet);GlobalMarketing:AnInterac-
tiveApproach(2ndedition,2006,withJean-PierreJeannetandKateGillespie);Global
AccountManagement(2004,withJean-PierreJeannet);andHowtoWriteaMarketing
Plan(3rdedition,1996,withRobertJ.Kopp).
Dr.HennesseyhashadexecutiveandMBAteachingexperienceinprogramsatBab-
son College, Ashridge, IMD International, Rotterdam School of Management (RSM)
Erasmus,andHelsinkiSchoolofEconomicsandBusinessAdministration,aswellasin
Costa Rica, France, Holland, Germany, Switzerland, Finland, Hong Kong, and Japan.
Participantsarefrommanycompanies—forexample,Electrolux,Unilever,IBM,Procter
& Gamble, Investment Company Institute (ICI), Novartis, BBC, Cable and Wireless,
BTGroup,Compaq,Unisys,Philips,andNokia.
ProfessorHennesseyisthefacultydirectoroftheEveningMBAprogramatBabson
College. He served as faculty director for the Irving Oil marketing program and the
GTECHCorporationgrowthprogram.
Joseph S. Iandiorio is a partner in the law firm of Iandiorio Teska & Coleman in
Waltham,Massachusetts.Thefirmspecializesinpatents,trademarks,copyrights,trade
secrets, licensing, litigation of intellectual property matters, employee and consultant