Managing the Early-Stage Venture by gabyion


									                           Managing the Early-Stage Venture
                               Course Module in Entrepreneurship
Course Modules help faculty select and sequence HBS Publishing titles for use in segments of a course.
Each module represents subject matter experts’ thinking about the best materials to assign and how to
organize them to facilitate learning. In making selections, we’ve received guidance from faculty at Harvard
Business School and other major academic institutions.

Each module recommends four to six items. Whenever possible at least one alternative item for each
main recommendation is included. Cases form the core of many modules, but we also include readings
from Harvard Business Review, HBS background notes, and other course materials.

I. Overview of suggested content (HBS cases unless otherwise noted)

Title                              Author           Product       Publication    Pages    Teaching
                                                    Number        Year                    Note
       1. Pre-Launch Legal
The Legal Protection of            Roberts          898230        1998           8p       --
Intellectual Property
The Legal Forms of                 Roberts          898245        1998           10p      --
Organization                                                      Rev.2004
(HBS background notes)
Alternative: Sheila Mason &        Roberts          803095        2003           18p      804015
Craig Shepherd
2. The One-Person Enterprise
Malincho (Babson case)             Bygrave &        BAB098        2003           15p      BAB598
                                   Hedberg                        Rev.2004
Alternative: Drawn and             Olivera          900C29        2000           16p      800C29
Quarterly (Ivey School case)
3. Assembling Non-Financial

Ockham Technologies: Living        Wasserman        804129        2004           19p      804148
on the Razor's Edge
Alternative: Ajay Bam (Babson      Bygrave&         BAB070        2000,          17p      BAB570
case)                              Hedberg                        Rev.2004

                                Harvard Business School Publishing
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                     Managing the Early-Stage Venture: An HBSP Course Module

  4. The Impact of Financing
      Models on Business
E Ink: Financing Growth               Sahlman        800252       2000           20p      802139
Alternative: ProfitLogic              Hamermesh &    802110       2002,          21p      --
                                      Roberts                     Rev.2003
      5. Risk Management:
      Introductory Reading
Managing Risk and Reward in           Roberts        803176       2003           7p       --
the Entrepreneurial Venture
(HBS background note)
Alternative: Disciplined              Sull           SMR156       2004           9p       --
(Sloan Mgt. Review article)
  6. Risk Management: Cases
Valhalla Partners Due Diligence       Sahlman        805033       2004           20p      --
Alternative: MAC Development          Hamermesh      802140       2002           24p      803024

II. Rationale for selection and sequencing the items in this module
The purpose of this module is to focus on early-stage ventures, starting with the idea stage, moving on
through the initial development of one-person businesses, and continuing to somewhat larger businesses
to explore issues of risk management.

A pair of HBS background notes is recommended for the opening segment, to explore legal issues at the
foundation of any business venture. An alternative item for “pre-launch” consideration is the case on
Sheila Mason and Craig Shepherd, which examines issues around departing from a firm to start one’s
own business.

The special challenges faced by seemingly simple one-person businesses are examined in segment 2.
Both cases profile businesses with great intuitive appeal and should engage students quickly.

The cases in segment 3 concentrate mainly on connections among people. The protagonist in the
Ockham Technologies case is building an executive team and must face sticky issues regarding the
distribution of authority and financial stakes. The alternative, the Babson case “Ajay Bam,” portrays
staffing and related issues at a somewhat younger venture.

The case protagonists in segment 4 are contending with funding issues. The focus, however, is less on
the nuts and bolts of financing than on the relationship between funding sources and the evolution of
business models.

                                     Harvard Business School Publishing
                           800-545-7685 (Outside the U.S. and Canada 617-783-7600)
                     Managing the Early-Stage Venture: An HBSP Course Module

The final two segments deal with risk management. In segment 5, either the HBS note or the alternative –
a reading from Sloan Management Review – will help students to understand specific challenges
resulting from business environments marked by great uncertainty. The cases in segment 6 examine risk-
management issues in, respectively, a venture capital firm and a real-estate development business.

III. Detailed description of recommended items

1. Pre-Launch Legal Considerations
The Legal Protection of Intellectual Property Michael J. Roberts (HBS background note)
Describes several classes of intellectual property: patents, copyrights, trade secrets, trademarks, and
confidential business information. A rewritten version of an earlier note. Subjects: Entrepreneurship;
Ethics; Patents.
The Legal Forms of Organization Michael J. Roberts (HBS background note)
Describes the various legal forms of organization including proprietorships, partnerships, limited
partnerships, corporations, and limited liability companies. Explains the tax and liability attributes of each
form, as well as other issues, which may influence the choice of legal form. Subjects: Entrepreneurial
management; Entrepreneurship; Legal aspects of business; Liability; Organization; Partnerships;

Alternative: Sheila Mason & Craig Shepherd Michael J. Roberts
Describes a marketing executive and an engineer who are starting a company together. Each is still at
his/her former employer, and each has signed a different employment agreement that, on paper, may
prohibit soliciting customers or employees. Focuses on how individuals should think about leaving their
employers in general and how these specific legal agreements may impact the situation. Includes issues
dealing with venture capitalists, nondisclosure agreements, and selecting a lawyer.
Learning Objective: To expose students to intellectual property issues regarding leaving an employer and
starting a new venture. Subjects: Employment; Entrepreneurship; Intellectual property; Legal aspects of
business; Software; Venture capital

2. The One-Person Enterprise
Malincho William Bygrave (Babson case)
Kalin Pentcheve, a recent U.S. immigrant from Bulgaria, starts a business importing Bulgarian feta
cheese in bulk and selling it in the United States. Pentcheve has no previous experience in either the
import/export business or the food industry. Deals with finding opportunity, using a network of existing
contacts and developing new contacts, scraping together money from friends, family, and others to
finance a venture, evolving a sales strategy by trying different "channels," and learning by doing. To
position early in a new ventures course. Subjects: Careers & career planning; Food; Imports; Networking.

Alternative: Drawn and Quarterly Fernando Olivera (Ivey School case)
The founder and only employee of Montreal-based Drawn and Quarterly, a company that publishes comic
books and graphic novels, wondered whether there were changes he should make in how he ran his
company. He loved his job, he was working with excellent cartoonists, and he enjoyed being his own

                                 Harvard Business School Publishing
                       800-545-7685 (Outside the U.S. and Canada 617-783-7600)
                     Managing the Early-Stage Venture: An HBSP Course Module

boss. He wanted to invest in new projects, but his ability to do so depended on getting enough revenue
from sales. He recently made a substantial investment in the publication of an anthology of international
comics and knew this investment could put the company at risk. There were many factors for him to
consider in planning the growth of this small company: management preferences in strategic growth,
marketing in entrepreneurial firms, the comic book industry, and the management of small companies in
cultural industries. Subjects: Entrepreneurship; Values.

3. Assembling Non-Financial Resources
Ockham Technologies: Living on the Razor's Edge Noam Wasserman
Describes the issues facing a founder-CEO regarding building a board of directors, assembling an
executive team, managing tension between co-founders, and outsourcing system development work.
Learning Objective: To look at assembling human resources at three levels: the founding/executive team,
the board level, and the technical development team.Subjects: CEO; Compensation; Entrepreneurship;
Negotiations; Outsourcing; Venture capital.

Alternative: Ajay Bam William Bygrave (Babson case)
Deals with a nascent, high-potential business that is conceived by two MBA students who have no
experience in the industry where they believe they have found a niche for an exciting new product--a
technology platform that enables consumers to pay for merchandise and simultaneously participate in
loyalty programs using any type of cell phone. Deals primarily with building contacts and gathering
resources. Also covers career choice, building a team, venture capital, and boards of advisers. Subjects:
Careers & career planning; Contracts; Entrepreneurship; Teams; Venture capital.

4. The Impact of Financing Models on Business Evolution
E Ink: Financing Growth William A. Sahlman
A set of financial and strategic decisions confront the management of a company trying to develop a
technology for creating "electronic ink." If successful, the company will be able to create "radio paper,"
essentially turning a piece of paper into a computer monitor that has all the characteristics of paper but is
digitally controlled.
Learning Objective: To explore issues about how to finance such a high-technology venture. Subjects:
Entrepreneurial finance; Entrepreneurship; High technology; Technology; Venture capital.

Alternative: ProfitLogic Richard G. Hamermesh and Michael J. Roberts
Describes an "application software" company that has been through several evolutions--from consulting
firm to applications service provider (ASP). The firm has received significant venture funding to pursue the
ASP model but this has not worked, at least at the time the case ends. The company faces a choice:
continuing with its current ASP business model, increasing its burn rate to convert to a licensed software
model, or decreasing its burn rate to offer a more custom version of the ASP product.
Learning Objective: Focuses on the articulation of P&L and cash flow models associated with each of the
three business models articulated in the case. Encourages students to sort through the advantages and
disadvantages of these alternatives. Subjects: Business models; Entrepreneurship; Software.

                                 Harvard Business School Publishing
                       800-545-7685 (Outside the U.S. and Canada 617-783-7600)
                     Managing the Early-Stage Venture: An HBSP Course Module

5. Risk Management: Introductory Reading
Managing Risk and Reward in the Entrepreneurial Venture Michael J. Roberts (HBS background note)
Discusses techniques entrepreneurs use to manage risk and reward in the early stages of the venture.
Subjects: Entrepreneurship; Risk management; Uncertainty.

Alternative: Disciplined Entrepreneurship Donald Sull (Sloan Management Review article)
Although the pursuit of opportunity promises outsized rewards to entrepreneurs and established
enterprises, it also entails great uncertainty. The critical task of entrepreneurship lies in effectively
managing the uncertainty inherent in trying something new. Some entrepreneurs foolishly try to ignore
uncertainty; others go to the opposite extreme of attempting to avoid it altogether by believing naively that
every contingency can be anticipated. Instead, entrepreneurs should manage uncertainty by taking a
disciplined approach. Over the past five years, the author conducted systematic research into how
entrepreneurs manage the inevitable risks while pursuing opportunities. A synthesis of the research
revealed that discipline--and its byproduct, the successful management of uncertainty--comes through the
adoption of an iterative experimentation model. In this three-step process, an entrepreneur formulates a
working hypothesis about an opportunity, assembles the resources to test the hypothesis, and finally
designs and runs real-world experiments. Depending on the results of a round of experimentation, the
entrepreneur may revise the hypothesis and run another experiment, harvest the value created through a
sale, or abandon the hypothesis and pull the plug. The model provides insights into some of the most
daunting questions entrepreneurs face--including how to screen an opportunity, how much money to
raise, when to make key hires, and how to use limited resources most efficiently. Subjects: Corporate
strategy; Entrepreneurship; Innovation; Models; Risk; Risk management; Technology; Uncertainty.

6. Risk Management: Cases
Valhalla Partners Due Diligence William A. Sahlman
The Valhalla Partners venture capitial firm introduced a new approach to the due-diligence process. An
internal due-diligence report analyzes Telco Exchange, a startup company in the IT software space. An
extended excerpt examines the trade-offs involved in the new due-diligence process and whether
Valhalla should invest in Telco Exchange.
Learning Objective: Students gain real-world insight into the process of due diligence and the way it is
used to manage risk. Subjects: Business plans; Due diligence; Entrepreneurial finance; Entrepreneurship;
Investment management; Investments; Risk management; Telecommunications.

Alternative: MAC Development Corp. Richard Hamermesh
Deals with MAC Development's efforts to develop a 41-acre site near Chicago. Reviews two years of
efforts and highlights the remaining issues of: 1) gaining town approval for development and tax
reductions, 2) meeting the bank's debt covenants, including finding a buyer for the first lot, and 3)
agreeing on a final purchase price with the seller. Includes color exhibits.
Learning Objective: To illustrate what it is actually like to work with a lending institution and its covenants .
To analyze how the company has managed and staged the risks of this very complicated project so far
and how risks should be managed in the future. Subjects: Bank loans; Entrepreneurship; IPO; Loans;
Real estate; Risk management

                                  Harvard Business School Publishing
                        800-545-7685 (Outside the U.S. and Canada 617-783-7600)

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