New Business Ventures Session #2: Venture Creation – A Process Framework

1. New Business Ventures Session #2: Venture Creation – A Process Framework PROFESSOR BALAGOPAL VISSA INSEAD 1, Ayer Rajah Avenue Singapore 138676 --- Office: (65) 67995382 Hand phone: (65) 94244573 Email: balagopal.vissa@insead.edu These notes are intended to support class discussions. They should not be considered a comprehensive set of issues to be dealt with.

2. (II) Fledgling new firm (III) Adult population Nascent entrepreneur (I) Established new firm CONCEPTION GESTATION INFANCY ADOLESCENCE Crucial: How to get from idea to business? A macro-perspectiveon new venture creation Source: Based on Reynolds (1994)

3. Easy to enter, tough to survive • High levels of start-up activity in most industrial societies • Most founding attempts reproduce existing organizations • Low survival rates • Misguided idea / design • Failure to mobilize needed resources • Failure to control resources & organizational boundaries • Failure to execute properly (e.g., making sales, managing cash) etc…

4. Is venture creation an accidental process? “Our venture idea came from an accidental process that just happened to uncover the concept” Source: Hills and Shrader, “Successful Entrepreneurs’ lusights into Opportunity Recognition”, 1998

5. Process of business-building:Concept development/implementation Supply & Demand Boundary Organization Creation Business Concept Customer Product Development Commitment to Venture Creation Stimulated Opportunity Recognition Market Operational Feedback Strategic Feedback Implementation stage Concept stage Source: Adapted from Bhave (1994), Journal of Business Venturing 9: 223-242

6. Most new ventures have little novelty • Business Concept:High Novelty (H) orLow Novelty (L) • Production Technology:High Novelty (H) orLow Novelty (L) • Production Technology Development:Yes (Y) or No (N) • Organization Creation: Resources Needed,High (H), Moderate (M) or Low (L) • Product Development:Yes (Y) or No (N) • Product:High Novelty (H) or Low Novelty (L) Source: Bhave (1994)

7. Writing a business plan • Designing the business model • Establishing a legal entity Creating legitimacy • Initiating discussions with potential customers • Asking financial institutions/people for funds Generating social relationships • Purchasing raw-materials, inventories, supplies, components • Developing product • Conducting marketing and promotion • Buying/renting/leasing facilities, equipment, property Transforming resources What do entrepreneurs do?

8. Gaining legitimacy is crucial Undertaking activities to generate legitimacy: • Enhances chances of survival in first 24 months of venture’s existence • Is generally a precursor to other organizing activities • Enhances chances of survival even more if undertaken before other organizing activities

9. Social ties support the entrepreneurial process • Personal networks grant access to: • Social support • Emotional support • Material support • Important network dimensions • Diversity of social ties • Affective/emotional strength of social ties • Strong, weak, or indeterminate • Predictors of business creation • Number of people in network • Proportion of nascent entrepreneurs in network

10. Sources of entrepreneurial knowledge How do founders know what resources to pursue and how to transform them? • Imitation & copying from existing organizations • Common practices (frequency imitation) • Practices of high-status organizations (trait imitation) • Successful practices (outcome imitation) • Advice from experts • Previous work experience

11. Types of experience relevant for entrepreneurs • General management experience • Formal education • Supervisory experience (« has supervised others ») • Management experience (« has supervised managers ») • Experience specific to certain business context • Similar/same customers, suppliers, products in venture as in previous employment • Entrepreneurial experience • Managed own business before Source: Gimeno, Folta, Cooper and Woo (1997), ASQ.

12. Key Takeaways ….. • Creating a new venture from scratch is a process – what you do and how you do it are more crucial than your personality or cultural background • Opportunities are like diamonds in the rough – need to be polished thru hard work • Luck matters a great deal – but on the other hand, fortune favors the prepared!!

13. Course administration

14. Course format • Project Teams • Teams of 2 to 4 members • Choose your team members wisely • Different skills, approaches to problem solving, etc. • Team grade will determine part of your final grade • Project • Irreversible choice • What if you find out it does not work? • External projects • Guest Speakers

15. Scheduling: Guests in P4 • Darran Nathan, VP Strategy - Project Proteus • Tuesday, 31st August 2004 (Session #3) • Jason Ma, CEO – Congruent Partners LLC • Tuesday, 21st September 2004 (Session #9) • Lim Teck Sin, CEO - KOOPrime Pte Ltd & • Madan Padaki, Director (Biz Dev) - Merittrac • Thursday, 30th September 2004 (Session #13)

16. Your job • Before class • Prepare the case & readings • Submit any assignments due • During class • Be prepared to lead case discussion and summarize readings • Be prepared to summarize lessons learnt in that class • Follow up • Do individual assignments (if any)

17. My job • Before class: • Prepare the case and other readings • During class: • Facilitate discussion • Evaluate your contributions to the class discussion • Lecture on theoretical issues • Follow up • Upload slides / other notes on the course web page • Suggestions for further exploration on your own • Provide face to face time as desired

18. Course evaluation • Class participation (Individual) (35%) • Individual assignment (20%) • Term project (Group grade) (45%)

19. Contact details • Bala Vissa #315, x 5382 • Mon, Wed and Fri pm is best. • Secretary, Tina Alias #335, x5391