“ENTREPRENEURSHIP”

DEPARTAMENTO DE
CREACION DE EMPRESAS
 Expected course
outcomes

• Develop an understanding of how the NVC

and BD processes work

• Gain knowledge about the key factors

involved in the start-up and/or development
of a venture

• Develop the capabilities needed to create

and lead an entrepreneurial venture
 The Opportunity

• Learn to detect and value business

opportunities. Intuition

• Learn to develop a business plan. Integrate

• Use your own Network and Instituto de

Empresa´s. Development Contacts

• Know how to sell well your project.

Comunication

• Become entrepreneurs. Leadership

• Be the best managers. Reality

 The five key elements

IDEA PLANNING

ENTREPRENEUR

MANAGEMENT RESOURCES
What is an entrepreneur???

What do you
think?
 Average entrepreneur ´s profile

h AGE: 41 YEAR OLD /

h 68,8% BETWEEN 35- 43 YEAR OLD

h SEX: 79.7% MEN / 20.3% WOMEN

h STUDIES: 64% UNIVERSITY STUDENT

5% POSTGRADE
4% STUDENTS
h MARITAL STATUS: 60% MARRIED

h FAMILY BUSINESS: 60,36%

h COMPANY ORIGIN: 76% CREACION

20% INHERITANCE
4% PURCHASE
h FINANCING: OWN/FAMILY/VC
h EMPLOYMENT IN 5 YEARS: 5
h SECTOR: SERVICES
 In my opinion:

• He is fast: He manages information.

• Nonconformist, demanding, persistent
• He regards life as a chance
• Innovator
• He works far more than the average
• He takes risks
• He is pragmatic and calculates risks
• He bears margins in mind
• He thinks about failure as a part of success
 The typical administrator asks . . .

• What resources do I control?

• What structure determines our

organization’s relationship to its
market?

• How can I minimize the impact of

others on my ability to perform?

• What opportunity is appropriate?

The entrepreneur asks . . .

• Where is the opportunity?

• How do I capitalize on it?

• What resources do I need?

• How can I gain control over them?

• What structure is best?

 0,00
5,00
10,00
15,00
Tailandia
India
Chile
Corea
Agentina
Nueva Zelanda
Brasil
Méjico
China
Islandia
EEUU
Irlanda
Canadá
Noruega
Australia
Suiza
Israel
Hungría
Sudáfrica
Dinamarca
Singapur
Italia
Reino Unido
Alemania
Eslovenia
Holanda
España
Finlandia
Polonia
China Taipei
Suecia
Croacia
Hong Kong
Francia
SPAIN VS. THE REST OF THE WORLD

Bélgica
Rusia
Picture nº 3. Total index of Entrepreneurship Activity 2002, per countries

Japón
 Entrepreneurs ´ profile

STAGES

DEFINITION LAUNCHING
PROJECT BUSINESS
OF THE A NEW
PLANIFICATION DEVELOPMENT
IDEA VENTURE

INVOLVEMENT

INNOVATION CREATION DIRECTION AMBITION

The Big Idea!!!
 Modelo de analisis de una
idea de negocio

PROFITABILITY RISK

BUSINESS IDEA

PERSONAL
HOW-BIG
SKILLS
OPPORTUNITIES
 BRILLIANT IDEAS
INVENTION

NEW KNOWLEDGE

DEMOGRAPHICS
LATE MARRIAGES
SOCIAL OR CULTURAL LEVEL
CULTURAL NEW SERVICES NEEDS
LEISURE TIME
CHANGES
NUEVOS USOS
NEW STRATEGIES
MANAGERIAL CONTROL SYSTEMS
MANAGEMENT
DUTIES
 Benetton
Levi Strauss

Zara

3M
Body Shop

Patagon.com
Amazon
 Entrepreneurship as Strategy

Where do you add Is your position

value? defendable?

Procurement Production Distribution Marketing

What is the size of the Is it a profitable

market opportunity? venture?

Value Chain / Business

Model
Entrepreneurship is
Dynamic!!!
The Entrepreneurial
Process
A conceptual Model
The Entrepreneurial Process
Copyright © Joseph Pistrui 1999

Resources of
Motivation
the Entrepreneur

Strategic
Environment Growth
Orientation

Resources of
the Firm
Resources of the Entrepreneur

• Skills and Capabilities

– Demographic Profile
• age
• education
• gender
– Previous Experience
• industry experience
• entrepreneurial experience
• managerial experience

• Motivation
– Attitude
– Values & beliefs
 Resources of the Firm

• Financial
• Human
• Technological
• Physical
• Governance (TMT & BOD)
 Strategic orientation

• Technology Orientation
• Growth Sources
– new product development
– market expansion

• Growth Enablers
– internal development (innovation)
– acquisition

• Perceptions of the Environment

 The questions
every entrepreneur must
answer

• Are my Goal well defined?

– personal aspirations
– business sustainability / size
– risk profile
 The questions
every entrepreneur must
answer

• Do I have the right Strategy?

– clear definition
– profitability and growth potential
– durability (sustainability)
– rate of growth
 The questions
every entrepreneur must
answer

• Can I Execute the Strategy?

– resources
– organizational infrastructure
– the founder’s role
Introduction to the business plan

• A good businees idea and a backer will

only connect if the concept is well
articulated
• Having a good business idea is only the
first step
• The business plan`s task is to “tell the
story” to prospective investors
• Drawing up the plan also helps the
entrepreneur to develop his own
perspective on the venture
• Focusing on an integrated business model
will ensure that the plan is consistent &
coherent
Key functions of the business plan
• Give the entrepreneur an objective,
professional perspective on his own
venture
• Stimulate interest from potential
investors
• Signal to the investors that the
entrepreneur will adopt appropiate
standards
• Provide information for due diligence
• Document key legal facts about the
business
• Provide a basis for monitoring and control
• Provide a ‘roadmap’ for value creation
 what is a business plan?

DOCUMENT:

•IDENTIFICATION
•DESCRIPTION OF A BUSINESS OPPORTUNITY
•ANALYSIS

DEVELOPMENT:

hSTRATEGIES + PROCEDURES TO CONVERT A BUSINESS

OPPORTUNITY INTO A SPECIFIC BUSINESS PROJECT

FOR ESTABLISHED COMPANIES:

GROWTH
DIVERSIFICATION FROM THE CORE ACTIVITY
Who reads a business plan?

hInvestors
hClients
hSuppliers
hCollaborators
hEmployees
hBanks
hLawyers
hProfessors
 What investors want to see

• Realistic forecasts based, as far as

possible, in fact
• Monthly / quarterly projections for at
least 1 year
• They do not wish to see:

• Plans full of glowing references to a

prosperous, but ill-defined future
• Unsupported projections or unrealistically
inflated figures
What does an investor do with a
business plan
hLooks to see who sent it
15 sec
hAnalyzes key aspects
sector
location
investment required
60 sec
hReads the plan
15 min
hDecides whether or not
to request a formal
presentation
10min
Total: 25.25 minutos
 The importance of the
management team
• Business success will ultimately depend on
the abilities of the venture’s key personnel

• VC will only invest if the plan shows that

management is experienced, competent and
committed

• Plan must include CVs for all key managers

• Must also state how these key individuals

will work together and the reasons why they
will form the right team for the new venture
what a good business plan contains
h Concise

h Shows clearly that the opportunity

exists in the market

h Management, management,
management

h Realist, logical, convincing

h Clear description of essential

resources

h Risk analysis

h Clear funding needs and return on

capital employed

h When funding is required, specify the

terms of agreement (deal)
 Most typical mistakes in business
plans
hInfatuation with the idea
hInsufficient research
hLack of funding
hNo target group
hOver optimistic sales forecasts not based
on market analysis
hToo long
hbadly written: does not get ideas across
hIllogical
hScant explanation of opportunity
hSuperficial analysis of competitors
hNo executive summary
 Factors determining the
Structure of the business plan

Structure & content of the plan will

depend on the characteristics of the
venture, for example:

•The industry in which the business

operates / will operate (eg biotech)

•Its level of development (eg start –up,

the launch of a spin-off or entering a
new market segment)
 The Business Plan: content

h Index/introduction h CONCEPT
h Business team description/Model
h Market study h OPPORTUNITY

h Production plan
h FEASIBILITY AND
h Marketing plan
STRATEGY
h Purchasing plan
h Organization of hr
h Legal study
h Eco-financial study h VIABILITY
h Risk analysis

h Executive summary
h SYNTHESIS
 Executive summary

• The business plan in miniature

• Comprehensive overview of the entire

business opportunity in 2-3 pages

• Purpose is to catch prospective investor`s

interest and to make them want to read on

• Should be written after the rest of the

business plan has been completed
 Executive summary

hIdea description
hTeam and key resources (hr)
hBusiness/revenue model
hMarket information
hValue chain strategy
hEconomic/financial info
hLegal aspects
hRisk/mitigation
 What is the business model?

• It describes the interdependencies between the

various elements of the business plan

• It identifies the drivers for revenue and costs in

the new venture

• It shows how value will be created for customers

• It analyses the proposal in terms of:

- The opportunity

- The market
- The instruments and resources needed

- The risks involved

 Mapping the business model
onto the business plan
Business model is concerned with the
following headings in a typical business
plan:
• Company description
• Management team
• Products and services
• Market and competition
• Marketing strategy
• Business team
• Assumptions and risks
• Elements of the financial plan
Logical flow in the business model
The opportunity
Solutions offered to customers
Description of product & services

The market
Assessing the external validity and consistency of the
opportunity

The instruments and resources needed

Assessing the internal validity and consistency of the
opportunity

Marketing Business Management Financial

plan system Team & HR Resources

The risks
The core assumptions
 B.plan introduction
hName, status

hTrack record

hNature of the business

hInnovations

hAknowledgements
Description of the business

hName, not registered

hProduct or service

hBusiness record

hCompetitive advantages

hThe environment

hThe market
 The opportunity
• The opportunity consists of the
solutions, in the form of products
and services, that the entrepreneur
intends to offer to the customer
• VC will only invest:
•In ventures that demostrate clear and real
future added value for identifiable
customers
• If the model generates significant value
uplift on the fund`s investment
• If there is a clear path to exit
Focusing on customer benefits
The business concept should always
be described in terms of:
• The value created for customers
• The venture´s unique selling proposition (USP)

Customer need Product/service Value added

• More options Characteristics • 24 hour
• Better performance • Improved products customer
• Lots of service • Ability to do A,B,C service
• Added options X,Y,Z

Unique selling proposition

A better product with more options, plus 24 hour customer

service
 Geographical location of the
company

hLocation

h Geographic scope:
local

regional

national

european

worldwide
 The market
• Will potential customers pay for the new
products/services, at a price that will, at
some point, allow the company to make a
profit?

•The market section of the plan

should address:

• Market analysis

• Analysis of competitors

• Analysis of the broader context

 Market study
hSufficient to:
- convince a “third party”
- define strategies
- financial projection

h Compilation of:

- written documentation
- oral information
- internal and external sources
Content of market study
htype of market:
- situation, outlook
- agents, common practices
hclients:
- segmentation, motivation
- purchasing decision,uses,
- average purchases,etc
hcompetition:
- product,prices,sales,swot,
c.advantages…
hbarriers to entry
hpolitics, administrative..
hconclusions, swot, 5forces
 The market - analysis of
market sectors
• This part of the plan should provide:

- Description of market sector(s)

- History of the market’s evolution
- Identification of the current drivers for
growth
- Information on the size of the market,
available distribution channels,
development to date and estimated
growth in the forecast period

• VCs will seldom decide to support even

a brilliant technology if there is little
room for expansion and growth
 The market - analysis of
competitors
•Wich are the buying criteria of potential
customers?
• Why should they buy our new products
- rather than those of the competition?

Need to consider 3 types of

competitor:
• Industry rivals

• Substitutes
• New entrants
The market – analysis of the
broader context
• The business plan will need to assess the
potential impact of possible/probable
future shifts in the external operating
environment

• The analysis should be conducted in

terms of:
Political/legal forces

Economic factors

Social and cultural influences

Technological change
 Instruments/resources – the
marketing plan (1)
Marketing plan translates into sales
M forecasts elements that have already
a been established:
r
k
e • Opportunity
t
i
• Value created for customers
n
g
• Market segments targeted
p
l • Positioning vis-à-vis the competition
a
n
 Instruments resources – the
marketing plan (2)

Marketing plan should provide details of:

• Promotion
• Proposed marketing / sales channels
• Projected sales volumes
• Communication and distribution strategy
• Pricing
• Estimated profit margin
• Process(es) for selling the product/service
• Customer service issues
 Sales / marketing
hFixing sales strategies

hMarketing mix policies:

- product: definition, comparison

- prices: determination, margins,

comparison

- placement: strategy, teams,

invoicing and payment, discounts

- promotion: strategy, means planning,

cost, promotional measures or others

hFixing a sales forecast

 Operating plan
DEVELOPMENT
Product
PRODUCTION

hTechnical description of Service

hPersonnel, operative cycle

hLocation and space, team

hCost
 Purchasing plan

List of raw materials and equipment and

technology needed
To produce and/or commercialize
the product or service

Suppliers: list, delivery conditions

payments, discounts, rotation

Warehouse: requirements
and cost
 Instruments / resources –
management team/key personnel
• The management team is one of the most
important elements of the business concept
• VC needs to be able to see that the team
will be capable of running the new venture
• All relevant skills, knowledge and
experience should be reported in the plan
• Plan should also detail proposed
remuneration and Individuals’ other
business interests (if any)

• If the team needs strengthening, the plan

Should describe how these gaps will be
filled
 Organization of human resources
profile
hDirectors’ functions responsibilities
remuneration
policies
categories
tasks
h Line functions shifts
remuneration
hOrganization INTERNATIONAL & NATIONAL ADVISORY BOARDS
*Entrepreneurship work group

EXECUTIVE STAFF

chart FACULTY

AREA
Academic
Activities
EXTERNAL RELATIONS

DEPARTMENT
Extra academic
Activities
CENTER
International & Network
Development

Full Time Profesors Full Time Staff Full Time Staff

Part Time Profesors 40 Tutors

Entrepreneurship Course Elective Courses

 Financial plan

• Enables entrepreneur and potential

investors to gauge the overall viability of
the venture

• Minimum requirements are:

• Monthly/quarterly cash flow for at least 2

years
• Profit/loss statements for the first 3-5 years

• Balance sheet for the first 3-5 years

• Sensitivity analysis
 Instruments / resources – ownership
details (partnership)

The plan must provide:

• A description of the partnership structure

• Partners´ other business interests (if any)

 Instruments /resources – ownership
Details (limited company)

The plan must provide:

• Details of the board of directors:
executive / non-executive directors;
board’s purpose; how it will operate
• Details of all shareholders: number and
%age of shares held; any special rights;
any debt/other assistance provided for the
business
• If any of the shareholders are corporate
bodies, a list of their shareholders

• Details of any other business interests of

the shareholders / owners
 Economic/Financial study

Forecasts: revenues/ overheads

Break-even point
Profit and loss account
- five years (1st month by
month)
- three hypotheses
- sensitivity analysis

Portfolio (investments)
Profit levels (roc, payback)
Other ratios ( roi, irr)
 Instruments /resorces – financial
resources (1)
• Brings together the numeriacal elements
of the other sections to produce a
snapshot of the financial resources that
will be required

• This information:

-Is needed by potential investors in

order to make the investment decision

-Enables the entrepreneurship and the

VC to monitor the execution of the
business plan and operations in the
early years
 Instruments/resorces – financial
resources (2)
Drawing up an implementation plan/schedule:

• Forces the entrepreneur to think through the

activities and processes in a linear sequence
• Enables the entrepreneur to project sales/costs
associated with each activity / business function
• Allows the entrepreneur to test the sensitivity of
the business model to changes in key parameters
• Helps the VC to consider the exit possibilities
• Helps to identify the level & structure of external
funding needed to start and develop the venture
• Helps the entrepreneur to draft financial
projections for the early years of the venture
Risk analysis/ mitigation

hRecession
hNew technologies
hObsolescence
hCompetitor’s reaction
hChanges in demand
hDeviation from forecasts

CONTINGENCY PLANS!
 Minimising risk
The entrepreneur can minimise the risk
by:

• Having a sound grasp of the

business logic behind the venture

• Developing a strong business

model founded on a robust set of
assumptions
 Risk – core assumptions
• The entrepreneur should ensure that the
assumptions he makes:

- Can be justified

- Are consistent with generally accepted views on

the economy, market forces, social trends, etc

• The entrepreneur should make his core assumptions

explicit in the plan

• The entrepreneur and the VC will normally draw up best

– case and worst – case scenarios
 Final tips
hHave a clear idea of your ambitions and
personal objectives

hEvaluate your entrepreneurial skills

hDefine a plan

hFind a tutor, an adviser, a coach...

 Ten rules for writing a business plan

1- The truth – and nothing but the truth

2- Everyone in the team is a planner

3- An effective plan demands complete

professionalism
4- Make all issues explicit – present a detailed
argument of the team’s vision for the new venture
5- The action plan details real actions, toguether with
implementation schedules and responsabilities
6- All supporting information is unbiased and traceable
7- State all assumptions and risks explicitly
8- Use consultants / other professionals to provide
support
9- The whole team is proactive in selling the plan

10- Rehearse presentations before ´entering the ring`

Venture Capital Investing
 How does an investor read a
business plan?

h Analyzing the characteristics of the company or proyect and of

the sector or industry in which it is to compete
h Some venture capital firms specialize in certain sectors
h Analyzing the characteristics of the team or entrepreneur
h Analyzing the terms of the deal
h Reading the latest balance sheet and profit and loss account or
forecasts
h Examining the innovative content of the proposal
 Criteria and Objetives

BANKERS VENTURE CAPITAL

h Opportunity for loans h Investment opportunity

h New client h Part of a portfolio

h Long term profitability, other h Compensation for risk and

services reward

h Reduced risk h Return on capital

employed
 The VC Process

•Investment by an independent
capitalist

•In shares or other similar securities

•As a minority shareholder

• For a limited period

•To support the company in its

development and/or growth
The VC Value Equation

•Capital
•Advice and support
– Experience
– Information
– Networks and contacts

•Board representation
•A door-way to future capital
 Investment Types
•Seed capital
– Design of new products
•Start-up capital
– Launch of a new product (or
company)
•Development capital
– Expand sales or production
•Consolidation capital
– Consolidate and/or reinforce market
position
 Investor Strategy

IPO

$$$

>$20,000,000 Traditional
Private VC

>200,000 Angels

1-3 years 3-7 years

Time
The Angel Investor
 The Angel Investor

• High net worth individual ($1 million

to invest) who provides financing,
advice, and networking to early
stage companies.
Non-economic Incentive for Angels

• Mentoring other entrepreneurs

• Involvement in start-ups without

immersion

• Networking benefits

• Intellectual Challenge

• Social benefits
The Angel Investing Process

Deal Sourcing

Screening & Due Diligence

Term Negotiations

Post-investment Involvement

Exit
Angel Key Investment Criteria

• Geography (close to home)

• High growth industry
• Growth Potential of the venture
• Personal attributes of the
entrepreneur and team
• Track record of entrepreneur
and team
 Angel typologies
High

Operational
Guardian
Expertise
Angel
Angel
Relevant
industry
experience Professional
Financial
Entrepreneur
Return Angel
Angel
Low

Low Relevant High

entrepreneurial
experience
The professional VC
 The VC Investor
• Portfolio approach to investing
• Capital distributed in
stages/multiple rounds
• Active investors
– Periodic review and evaluation
– Board participation
Elements of the Agreement
•Amount and timing of
investment
•Form of investment
•Terms of investment
•Rights
– Puts and call
– Registration
– Preemptive and first refusal
•Vesting/buy-back provisions
•Board representation
VC Control Mechanisms

• Convertile Preferred
securities

• Syndication of investment

• Staging of capital infusion

Funding alternatives

hPreferential loans
hSelf - funding
hTaking on debts
hCapital
Entrepreneur or family
hFamily & friends
hindustrial
hfinancial
hventure capital
hstock market
 Source of finance
Profits from business 72%
Bank loans 43%
Own Savings 22%
Supplier credit 15%
Investments/venture capital 10%
Management team’s savings 8%
Government scheme 7%
Private Investors 7%
Family/friends 4%
Buyer credit 3%
Other 4%

Percentage of Europe’s 500 Dynamic Entrepreneurs

largely or wholly dependent on a given source of finance
 The funding decision

Bootstrapping Equity Financing

Capital from:
Founders’ capital
Early sources Family/friends
Savings
Angels
Credit cards
Early stage VC

VC firms
Loans
Corporate VC
Later sources Acconts receivable
Private placement
Strategic Partners
Investment banking
Retained earnings
Public markets