Entrepreneurship and Innovation

1. Entrepreneurshipand Innovation Running the place … creating profits … having fun ...

2. Peter Drucker To attract and hold entrepreneurial people and to promote innovation, companies will have to create new structures with new relationships and new policies and supplemental management compensation, benefits and rewards with those appropriate to the very different realities of entrepreneurialism. The Frontiers of Management, 1986

3. Vijay Sathe Rather than cling to the myth of “entrepreneurial personality”, it may be useful to view entrepreneurship as a result of the interaction between the individual, the organization, and the external environment. Fostering entrepreneurship in the large diversified firm, 1989

4. The Starting Point • Research • Industry • People • Technology • Opportunities Idea

5. Establishment • Organization/Planning • Funding • People • Business Plan Operation

6. Variance Analysis • Check performance against plan • Identify causes for variance • Correct performance Manage

7. Budgeting • Anticipate changes (internal/external) • Quantify changes and build model • Tweak model to meet minimum performance requirements Plan

8. National Compliance • Reporting • Taxation • Companies Office/Registration • Government Intervention/Support • Share Trading Regulations • Patents • Rules

9. International Compliance • Market Acceptance • Political/Economic Risks • Logistics • Legal System • Cultural Norms • Partnering • Profit Repatriation

10. A Look Outside • Market Shifts • Population Changes • Social Trends • Competitive Quicksand • Seasonal/Product Life Cycles • Buying Power Changes

11. Use of Technology • Build or Buy? • Invent or Copy? • Improve or Use as is? • Sustainable/Affordable? • First Mover advantages?

12. Barriers of Entry • Why is no one else doing what you are planning to do? • Who will care if you do it? • Structural Barriers: • Economies of scale • Excess capacity • Product similarity • Capital needs/availability • Access to channels • Conversion/switching costs

13. Barriers of Entry • Direct Barriers • Zoning • Licensing • Registration • Patents • Trade-/ Servicemarks New opportunities D C A B G F E I H Barrier of Entry f d e c a b New competitors

14. Barriers of Entry • Inertia of existing business powers • Capital needs • Business plan uniqueness • Low-tech/low-investment versus high-tech/high-risk

15. Competitive Reaction • PR • Pricing Power • Quality • Feature Matching • Example: Kiwi Air

16. Manfred F.R. Kets De Vries Successful entrepreneurs soon make the transition from a tactical to a strategic orientation so that they can begin to build crucial capabilities and resources. The Dark Side of Entrepreneurship, 1985

17. Strategy Levels • Enterprise Level Strategy • Relationship between the firm and society/environment at large. • Corporate Strategy • Business Management • Diversification • Competition • Functional/Subfunctional Strategy • Departmental activities

18. Resource-Based Strategies • Ricardian Rent • Owning/controlling scarce, valuable resources. • Monopoly Rent • Government protection • Patent/license • High entry barriers • Entrepreneurial Rent • Risk-Taking • Unique strategies

19. Basic Strategy Review • Resource Inventory • Type, strength/weakness, availability, etc. • Capabilities Review • Identification, classification • New firms usually have advantage over existing firms • Competitive Strengths • Develop Resulting Business Strategy • Review, Probe, Criticize, Act

20. Why Strategy? • Focus on Matching Resources with Goals • Identify Pathways to Goals • Identify Obstructions on Pathways • Cost of Obstruction Removal? • Remaining Viability of Firm • Resulting Operational Strategies

21. A Special Person • Achievement • Control • Assumption of the Risk • Management Style

22. A Special Environment? • Self-employment as a desire or necessity? • Opportunity to begin something new • Tales from the rich side

23. The Right Situation? • Knowledge • Money • Support • Attitude • Survive Discrimination • Mentor Availability

24. Business Forms • Sole Trader • “John Wayne Gunsmithing” • Partnership • “Woods and Norman Golf School” • Incorporated Company • “Robert Redford Agency, Ltd.” • Miscellaneous • Trusts, Foundations, etc.

25. Proprietorship/Sole Trader • Unincorporated business • Usually one principal operator • Personal, unlimited liability • IT IS SILLY TO OPERATE THIS WAY! • There is no reason to use this business format, EVER!

26. Partnership • Two or more partners • Carry on as a business • Must be with view to a profit • Must be in common • Personal, unlimited liability • Can be informal • Each partner taxed personally • Complex issues arise when partners leave/join

27. Corporations • A corporation is a separate legal person. It is separate from its shareholders. (s15 Companies Act 1993) • Can enter into contracts • Can sue and be sued • Can be convicted of a crime • Has no natural lifespan and dies through removal from the register

28. The “Corporate Veil” • Protects shareholders, directors and others from liability for acts done on behalf of the company. • Lifted by the courts in the event of fraud. • Different treatment for groups of companies.

29. Separate Entity Principle • Is there injustice? • Is there fraud? • Is there knowledge? • “The position of the brain of the company”

30. Case Study Mr Ivory instructed the plaintiff to use a certain grass herbicide, but failed to instruct on proper protection of their raspberry crop. The crop was lost and Mr Ivory and his company were sued. Trevor Ivory Ltd v Anderson (1992) 6 NZCLC 67, 611 in Understanding Commercial Law, Gerbic/Lawrence 4th Edition

31. Case Study The Court held that Mr Ivory had acted as the company, and to hold him personally liable would interfere with the principle of corporate personality. Mr Ivory mad made it clear to the world that he was trading as a company and there was no reason for personal liability. The Court further stated that in order to establish a personal duty to a third party, the breach of which might entail personal liability, it was necessary to see whether there was an implied or actual assumption of the duty of care. “Something special is required to find personal liability” Trevor Ivory Ltd v Anderson (1992) 6 NZCLC 67, 611 in Understanding Commercial Law, Gerbic/Lawrence 4th Edition

32. Incorporated Corporation • Shareholders own in perpetuity • Limited liability for shareholders • Corporate structure with director(s) and operator(s) • Transferable ownership, usually with some restrictions in small firms • Taxed as a whole • Shielded by a Corporate Veil • Annual/special meetings

33. Advantages of Incorporation • Ease of investment/divestment • Ease to increase scale of operation • Perpetual life • Separation of ownership and control • Limited liability • Borrowing • Acceptance • Corporate Veil

34. Corporate Liability • Some criminal liability, except were prohibited by statute (manslaughter: “the killing of one human by another…”) • Civil liability • Contracts • Torts, for employee/agent actions (“vicarious liability)

35. Fiduciary Duty • “A duty to act for someone else’s benefit while subordinating one’s personal interests to that of the other person. It is the highest standard of duty implied by law.” • A promoter owes a fiduciary duty to the company.

36. Incorporation • Minimum Requirements: • Name • 1 shareholder • 1 director • 1 share • Registered Office/Address for Service

37. Incorporation • Name Selection • Must include “Limited” • Certain words excluded (“Crown”) • May not be in use, misleading, prohibited, offensive • Anyone can select a name • Name Reservation • Application for Registration • Funding

38. Incorporation • Name Selection • Name Reservation • Pay the Companies Office • Anyone can reserve a name • No incorporation without name reservation • Application for Registration • Funding

39. Incorporation • Name Selection • Name Reservation • Application for Registration • Shareholder consent • Director consent • Name approval/reservation • Constitution (if any, not needed) • Registrar MUST issue certificate • Funding

40. Incorporation • Name Selection • Name Reservation • Application for Registration • Funding • May trade immediately after incorporation certificate is issued • Loans (repayment by its terms) • Shares (dividends, no scheduled repayment, right to sell with restrictions, surplus at liquidation)

41. Registered Office • Anywhere in NZ • Street address required • Indicates good address for communication, does not have to be trading location • Mail to the Registered Office is “good” notice • Can change address at any time with notice to Companies Office

42. Case Study: Valid Service? The plaintiff served a s218 notice of demand under the Companies Act 1955 at the defendant’s registered office and a copy was sent to the defendant’s place of business. Subsequently, a notice of an application to wind up was served at the defendant’s place of business. The winding up order was granted and the defendant applied to set it aside on the basis, inter alia, that it had had no notice. Kensington Swan v New Zealand Fisheries Ltd (1990) 5 NZCLC 66, 186 The Law of Business Organizations, Watson, 3rd Edition

43. Case Study: Name Confusion A company called Stanley-Hunt Earthmovers Ltd appealed against the decision of the Registrar not to require a company called Stanley-Hunt Earthmovers (1996) Ltd to change its name. Stanley-Hunt Earthmovers v Registrar of Companies (1997) 9 NZCLC 261, 403 The Law of Business Organizations, Watson, 3rd Edition

44. Case Study: Name Confusion Flight Centre (NZ) Ltd objected to the use of the name Rotorua Flight Centre. Flight Centre (NZ) Ltd v Registrar of Companies (1994) 7 NZCLC 260, 612 The Law of Business Organizations, Watson, 3rd Edition

45. Shares, “Equity” • Right to vote • Director elections • Major transactions • Liquidation • Any other resolutions • Must vote in bona fide company interests • Share in Dividends • Share in Surplus Assets • Transferable

46. Shares, “Equity” • Right to vote • Share in Dividends • Different classes of shares attract different rights to dividends, votes • Only if solvent (pay debts when due, assets greater than liabilities) • In each class, shareholders are equal • Share in Surplus Assets • Transferable

47. Shares, “Equity” • Right to vote • Share in Dividends • Share in Surplus Assets • Last in line • Transferable • Usually restricted in small firms • Pre-emptive rights of firm to purchase shares

48. Payment for Shares • Value set by the Board • No ‘par value’ given per share, as value constantly changes • Can pay with any ‘good’ consideration • Cash • Products • Services • Later services