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Lecture 14

Lecture 14. Social Capital. Why Social Capital?. Who will manage the business? What qualifications do they have? What are the strengths/weaknesses of the management team? What social capital can you access? What consultants or specialists are needed? How will you use them?

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Lecture 14

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  1. Lecture 14 Social Capital

  2. Why Social Capital? • Who will manage the business? • What qualifications do they have? • What are the strengths/weaknesses of the management team? • What social capital can you access? • What consultants or specialists are needed? • How will you use them? • Compensation and ownership

  3. External Assistance • WISC • http://WISC.uww.edu • Wisconsin Technology Council • http://www.wisconsintechnologycouncil.com/ • Wisconsin Innovation Network • Wisconsin Entrepreneurs Network • http://www.wenportal.org/ • Wisconsin Angel Network • www.wisconsintechnologycouncil.com/angel_network/

  4. More Resources • Milwaukee 7 initiative http://www.mmac.org/display/router.asp?docid=662 • BizStarts Milwaukee initiative • http://www.bizstartsmilwaukee.com/display/router.aspx • Service Corps of Retired Executives (SCORE) • http://www.scoremilwaukee.org/ • www.score.org • http://www.madison.com/communities/score/

  5. Important information for management plan • Summary of backgrounds • Evidence of appropriate ability • Evidence of commitment • Evidence of prior successes • Evidence of functional balance • Definitions of roles and responsibilities • Insiders/board members/advisory board • Compensation/Ownership structure • Investors & restrictions • Employment agreements/stock options

  6. Task Roles • Creator – source of the new • Driving Force – gets beyond today • Organizer – efficiency + details • Marketer – selling • Money Bags – getting money/how much • Watch Dog – is the help really helping you • Maker – making the stuff

  7. Inside Team Members (General Requirements) • Personal/Financial match with business • Complementary values • Fill gaps in entrepreneur’s knowledge • Fill gaps in each others’ knowledge • Honesty about limitations • Matched with opportunity • Commitment to the long haul • Harvest mind-set • Sharing of harvest • Commitment to value creation • Equal inequality

  8. Recruiting issues • Familiars versus Unfamiliars • Possess resources that are • rare • valuable • hard to duplicate • not easily substituted • Help the firm acquire/employ resources that meet the above

  9. Outside Team Members • Advisory Board • Fiduciary Board • Accountant • Lawyer • Banker • Outsourced Services

  10. Outsourced Services • Consultants • Marketing - WISC • Operations • Accounting • Design • Computing • Manufacturing Support • Sales Support • Service Agencies • Payroll • Computing/Data Processing • Temp Clerical • Buying Offices • REMEMBER: • You are the client • Get multiple opinions before you commit

  11. Slicing the pie • Share wealth with those who create value • You get more by dividing a bigger pie • Work backward from IPO • Success of first venture is more important than 100% ownership of first venture

  12. Rewards • Extrinsic Rewards • Stock • Salary • Fringes • Promotions • Work conditions • Personal Rewards • Growth • Goals • Autonomy • Skills • Visibility

  13. Lifecycle of rewards • Intangible rewards available throughout • Some financial rewards dependent on stage of success • Rewards should be consistent with goal of harvest or IPO • Rewards on performance, not effort • Contributions change, so rewards should change • Relationship with external funding may determine some requirements

  14. Timing of rewards • Stock as a way of attracting early contribution • Stock proportions will change only infrequently • New members dilute existing positions, but do not usually induce redistribution

  15. BENEFITS • health insurance • disability insurance • life insurance • retirement plan • flexible compensation (cafeteria plans) • leave from work • bonuses • service awards • reimbursement of employee educational expenses • other benefits appropriate to employee responsibility

  16. CLEAR Agreements • Specification of ownership, • Commitments of time, money and resources • Rules for resolution of disagreement • How a team member can leave or be fired

  17. Managing Teams • Cannot anticipate all problems • Loose, flexible relationships • Flat hierarchy • Shared responsibility • Keyed to rapid learning • Keyed to responsive decision making • Grade A team with grade B idea beats the reverse • Dangers • Groupthink • Risk polarization • Satisficing

  18. Pitfalls in Team Formation • Insufficient time clarifying team issues in “moonlighting” phase • Untested limits to expertise or resources • Insufficient flexibility in initial agreements • Need for “graceful divorces” • Taking trust for granted • Equality isn’t always functional • Micro management and laissez faire

  19. Hiring Mistakes • Inept associates • Character flaws • Personality conflicts • Disagreements over policy

  20. Mistakes in Team Formation • Forming team by chance • Forming team casually • Team members with different/incompatible personal goals • Family members as professional advisors • Shares or options without buy-sell agreement

  21. Evolution of Team Formation • Analogy of marriage and family • No team starts perfectly • No team stays perfect • Some teams are built, some are born • Roommates sometimes get more review • Turnover exceeds the divorce rate

  22. Central Roles • Need Management vs. Leadership • Create agenda Planning/Budgeting Establishing Direction • Build Network Organizing/staffing Aligning People • Execution Controlling/Prob. Solving Motivating/Inspiring • Outcomes Predictability and order Change

  23. Challenges for Family Firms • Finding Capital (Resistance to Dilution) • Business need for capital vs. Family need for cash • Estate planning (taxes) • Succession • Accomplishing shift of power • Sibling/Cousin rivalry • Competence/motivation of next generation • Finding competent senior level non-family managers • Conflict in cultures of family, board and business

  24. + Both spouses work long hours + Spouses can take shifts at work/home + Marriage and careers are intertwined - Too much togetherness - Business issues dominate homelife Divorce my cause loss of business for at least one parner Entrepreneurial couples

  25. General Characteristics of Team Members • Proven Profit and Loss Experience • Same Industry, Technology, Market and/or Service Area • Complementary Skills • Integrity • Honesty about limitations • Personal/Financial match with business • Fill gaps in entrepreneur’s knowledge • Fill gaps in each others’ knowledge • Complementary values

  26. Organizational Chart

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