Introduction to Entrepreneurship and New Venture Creation
2003 edition

Instructor: Rui Baptista, Indiana University and Instituto Superior Técnico.

Office: IN+ Center for Innovation, Technology and Policy Research.

E-mail: baptista_rui@netcabo.pt; rbaptist@indiana.edu.

Appointments: Thursdays: 3pm-5pm, IN+, please confirm by e-mail in advance.



II – Course Format and Student GradingIII – Tentative Class Schedule
I - Overview

Preamble

This course focuses on the fundamentals of the entrepreneurship/new venture creation process and, in particular, on the critical role that opportunity recognition and creation plays in that process. Hopefully, the content of the course will help students learn how entrepreneurs and investors create, find, and differentiate profitable and durable opportunities from “good ideas.”

Venture creation is a set of behaviors undertaken by individuals who detect an opportunity and engage in starting a new business. Since the 1980s, entrepreneurship and new venture creation have become fashionable subjects in business and social sciences. The advent, diffusion and continuous development of “high technology” have contributed to an increasing number of new venture projects and “start-ups” all over the world, particularly in the USA. Very successful entrepreneurs, such as Bill Gates, Michael Dell and Jeff Bezos have become popular household names. Venture creation has become an increasingly familiar activity to an ever-wider segment of the population, not just in America, but also in Europe, as well as in East Asia and high-potential developing countries such as India, China and Brazil.

However, while creativity and innovation led to the proliferation of new business opportunities, the proportion of new business failures has also increased. Research shows that the vast majority of new ventures fail for opportunity-related reasons:
  • demand/market reasons: perhaps the target market simply won’t buy your product/service;
  • industry reasons: the competition is strong and can easily steal your emerging market;
  • entrepreneurial team reasons: the people engaging in the new venture may lack the wide array of competences (technical and/or economic knowledge, ability to execute, connections, propensity for risk) that are needed to deal with the vast forces that combine to bring down a new business.
Many start-up entrepreneurs, as well as the people advising them have stressed the importance of writing a business plan as a foundation of the new venture process. The result of such perception has been an over-supply of business plans that look and sound similar, due to the formatting provided by many software programs, “templates” and literature available from a variety of sources (in particular the internet). Usually, the “ready-made” business plans end up having little relation to reality, being used only as a tool to raise financial backing, and not to plan the business. This course looks at the business plan as the corollary of a process of finding, screening and analyzing business ideas, the outcome of the development of the business concept and not its foundation.


Objectives of the Course
  • To develop a better understanding of entrepreneurial aptitudes, behaviors and goals, in general, and more specifically for yourself.
  • To understand the process of opportunity recognition and analysis.
  • To understand the criteria used in evaluating opportunities and to develop venture screening criteria.
  • To understand the role of teams in the entrepreneurial process and the type of team partners that you might seek in the future.
  • To identify the various sources of financing for ventures.
  • To understand the types of venture partners and alliances that might be beneficial for venture success.
  • To realize how these seemingly preliminary steps lay the ground work for the creation of an effective business plan.

Required Materials

A compulsory reading packet will be made available to students. This syllabus includes a tentative class schedule, pointing out the required texts and/or business cases to be read in advance of each class, as well as the questions students should be prepared to discuss in regard to those readings.

Even though no specific text book is required reading for the course, students are advised to refer to one of the various works available on the subject of entrepreneurship and new venture creation. The following ones are especially recommended:
  • Timmons, Jeffry A., New Venture Creation: Entrepreneurship for the 21st Century, 5th Edition, 1999. Irwin-McGraw Hill. (The “classic”, most complete reference on the topic, including considerably more subject materials than covered in the present course).
  • Kaplan, Jack M., Patterns of Entrepreneurship, 2003. John Wiley & Sons. (Simpler, more compact and basic reference than Timmons, covering very much the same subjects).
  • Mullins, John W., The New Business Road Test: What Entrepreneurs and Executives Should do Before Writing a Business Plan, 2003. FT Prentice-Hall. (Straightforward, business-like book covering the entrepreneurship process only up to the business plan phase).



I - OverviewIII – Tentative Class Schedule
II – Course Format and Student Grading

Course Format and Policies

The course will be taught using a combination of lectures and text/case discussions. Class participation through text/case preparation and discussion is fundamental; hence, attendance is mandatory. Some sessions, concerning sources of financing and entrepreneurial experiences, will benefit from the participation of guest speakers. An additional and very important learning methodology will be actual participation in the idea generation and venture screening process. Students are welcome to use all kinds of connections they may find in the entrepreneurial or financial worlds that may help facilitate that process, whether through direct discussion or the provision of significant business information.


Student Evaluation Criteria

Classroom Participation 30%
Venture Screen Report 40%
Presentation and Discussion 30%


Class Participation

Much of the learning that takes place in a course is a result of classroom discussion. Therefore, classroom participation by a student, defined in terms of her/his contribution to a positive learning environment, will constitute a significant portion (30%) of the student’s final grade. Classroom participation is often viewed as an individualistic activity, where students compete for “air time” to demonstrate personal conceptual superiority. In contrast, students who excel in contributing to a positive learning experience take personal responsibility for the overall quality of the discussion. A student contributes to a positive learning environment through a number of avenues:
  • making thoughtful, insightful comments, not just speaking to be heard;
  • asking interesting questions, not just answering questions;
  • building on others’ comments in a meaningful way;
  • identifying and integrating concepts from the various readings or cases;
  • asking thoughtful questions of speakers;
  • providing feedback to others’ presentations.
Students can’t contribute to a positive learning environment unless they are in attendance. Attending class is a minimum part of class participation. However, there will be times when students need to be absent for reasons. In the case of a missed session, students have the option of doing a make-up assignment. This works as follows: the student should study the assigned readings for the missed session and draft a brief typed response to the “questions to contemplate” associated with that session, as listed on the syllabus.


How Students should Prepare for Class

Classroom discussion is facilitated through appropriate pre-class preparation. For each class, students should:
  • carefully read the texts and business case (in case there is one) assigned for that class in the tentative schedule below, taking notes of difficult points and jargon ;
  • review the questions associated with the assigned readings and be prepared to discuss them in class in a valid and coherent manner;
  • when a business case is included in the assigned readings, students should look for associations that exist between/among the assigned texts and the case and make notes of them.
  • For one class, students will be assigned a preparation exercise that requires the developing a business idea. This exercise needs to be completed for class discussion, but the actual results are not graded, because there are no “right” answers.

Term Paper: Venture Screen

The class should be divided into teams of two to three students. Each team should write, present and discuss a venture screen report. Teams have a choice of whether to screen:
  • a venture idea generated by the team members;
  • a venture idea provided by an outside source.
In the first option, the venture screen exercise works out as a preparation for the writing of a business plan and the eventual pursuit of a new venture. Hence, even though the work involved in researching the market and collecting information from sources may be more strenuous, the future benefits from the exercise may also be higher in both academic and business terms. In the second option, students may look at a business idea/plan which is already being launched, hence having easier access to information sources, but the venture screen exercise will be more of a “self-contained” piece than a work in progress. However, such a case study might also develop into (or contribute to) a masters’ dissertation.

A one-page summary of the venture idea should be submitted by session (week) #5. Presentations will be made in the final session (#10). Each team will be allocated about 10 minutes for presentation plus 10 minutes for discussion, depending on the number of teams. The final report should be handed in up to a week after the presentation date (there will be no tolerance for delays). The venture screen will make up for 70% of the final grade (30% - presentation and discussion; 40% - final report).


Some Hints for Doing a Better Venture Screen

The text packet for the course will include some examples of venture screen reports. The screen report and presentation should be roughly organized into the following categories:
  • Concept/Technology;
  • Customer/Market;
  • Competitors/Competitive Advantage;
  • Funding Options and Financial Returns;
  • Management/ Personal Fit; and
  • Overall Opportunity Evaluation Summary.
Specific criteria developed from cases, readings, and discussion during the course should be used to screen the venture idea. In addition to those materials, there are a number of characteristics of a good venture screen that should be taken into account:
  • The better the venture idea the easier it is to screen because there is a natural tendency to evaluate venture ideas positively (a tendency to false positives);
  • Typically the idea should generated from work or other personal experiences and previous knowledge from at least one of the team members;
  • Information is gathered from other sources in addition to the Internet. Visiting potential competitors, reading business magazines or published works about the industry and technology chosen, calling pertinent trade associations, etc., produces a better concept and screen.
  • Team members need to talk to potential customers, suppliers, and partners. You can’t screen an idea in a vacuum.
  • Remember that that what is expected from you is more than just a report on your venture concept; it is an analysis of whether this would be a valuable business opportunity to be pursued by your team or anyone else.



I - OverviewII – Course Format and Student Grading
III – Tentative Class Schedule

The following pages present a tentative schedule for the 10 classes, providing a general plan for the course and detailing the readings and exercises required for each session. The instructor reserves the right to make deviations to this plan as necessary. Please pay attention to the due dates for assignments and discussions of readings and cases, as these are fundamental for student learning and evaluation.

Session # and Date Topic Readings Deliverables
1 – Jan 22nd Introductions
Course Outline and Student Evaluation
The Entrepreneurship Process and the Entrepreneurial Mind
None None
2 – Jan 29th Innovation, Technology and Entrepreneurship: Venture Ideas and Opportunity Recognition Stevenson & Gumpert: The Heart of Entrepreneurship, HBR 1985;

Drucker: The Discipline of Innovation, HBR 1998
Discussion Questions for The Discipline of Innovation:

1. Drucker points out four areas as sources of innovation. Provide an example for each of these categories from an industry of your choice. Can you think of additional sources of innovation?

2. Do you agree with the fundamental premise of the reading that innovation can result from a systematic and disciplined search? Why or why not?

3. Are there any similarities or differences in the underlying message between this reading and the earlier reading for sources of new venture ideas?
3 – Feb 5th Analyzing and Evaluating Business Opportunities: The Structural Analysis of Industries Porter: Note on the Structural Analysis of Industries, HBS,1975

Timmons: Outdoor Scene, Inc. (business case), in New Venture Creation, 5th Ed., 1999
Discussion Questions for Outdoor Scene, Inc.:

1. Assess the strength and weakness of Egnew and Moore as an entrepreneurial team.

2. Use the strategic frameworks developed by Michael Porter to analyze the tent industry. What is the most likely source of competitive pressure?

3. What should Egnew and Moore do?
4 – Feb 12th Analyzing and Evaluating Business Opportunities: Ideas, Resources and Competitive Advantage Timmons: Opportunity Recognition, excerpted and modified from Timmons: New Venture Creation, 4th Ed., 1994 Individual Assignment:

Using the following questions as a guide, choose a venture idea and produce a 1 page description as a basis for a 3-5 minute presentation to the class:

1. What is the venture concept?

2. What is the need or want in the marketplace that this concept will meet?

3. What are industry characteristics: life cycle stage, competitive structure, and profitability?

4. What are the opportunity/competitive advantages? Is it sustainable?

5. Why you?
5 – Feb 19th Analyzing and Evaluating Business Opportunities: Screening Independent New Ventures Bhide: Analyzing New Ventures, HBS, 1992 Discussion questions for Analyzing New Ventures:

1. If an entrepreneur and an investor were analyzing the same venture, the entrepreneur to lead it and the investor to finance it, would they necessarily come to the same conclusion?

2. Map the venture ideas in Outdoor Scene, Inc. on the grid provided by Bhide. Would Bhide consider this an attractive venture?

3. Compare and contrast the frameworks for assessing venture viability developed by Bhide in Analyzing New Ventures and by Timmons in Opportunity Recognition

Deadline for handing in a 1 page description of the venture idea your team has chosen to screen.
6 – Feb 26th Analyzing and Evaluating Business Opportunities: Financing and Survival Shephard: Venture Capitalist’s Assessment of New Venture Survival, Management Science, 1999

Timmons, Securities Online (business case), 1996
Discussion questions for Venture Capitalists' Assessment of New Venture Survival:

1. What are the characteristics important to venture success according to VCs? How does this differ from what we have seen so far?

2. Do you agree with the VC emphasis placed on industry experience and "educational" capability? Does this contradict the notion that venture capital is the preferred source of finance for high-risk ideas?

Discussion Questions for Securities Online:

1. Use the findings of the reading Venture Capitalists' Assessment of New Venture Survival to analyze the case.

2. Evaluate the SO opportunity using the criteria by Bhide and Timmons examined in sessions 4 and 5.

3. Would you invest in SO? Why or why not? Should the entrepreneurs invest their time and resources in pursuing this opportunity?
7 – Mar 4th Financial Resources Roberts & Stevenson: New Venture Financing, HBS 2002 1st Part of Session – Discussion of Readings:

1. The readings discuss numerous sources of financing for a new venture. How would you go about selecting what resources you should tap for your venture?

2. What are the requirements for securing these funding sources?

2nd Part of Session – Guest Speaker:

Prof. Miguel Cruz, POE: Government Sources of Financing for start-up firms in Portugal.
8 – Mar 11th The Role of Teams in the Entrepreneurship Process Dingee et al.: Characteristics of a Successful Entrepreneurial Management Team, in Pratt’s Guide to Venture Capital Sources, 1997

Resnick et al.: Competent Team Members, in Teamwork, 1998

Bommer et al.: Biotecnol LDA Pharmaceutica: A Case Study, Business Case Journal, 2002
1st Part of Session – Discussion of Readings:

1. Of the seven management functions listed in the first reading, which do you, believe to be the most important in the start-up phase? Why?

2. What are the important issues for team success?

3. What would be the ideal characteristics for team members for your venture idea? At start-up phase? At a later phase?

2nd Part of Session – Guest Speaker:

Eng. Pedro Pissarra, Biotecnol: Case Study Discussion. Suggested questions:

1. How important was the entrepreneurial team in the early stages of the venture?

2. Which sources of financing were more important at each stage of the venture?

3. How has the venture evolved since 2002?
9 – Mar 18th Business Planning Dayhoff: Business Planning Guide, Mimeo, Indiana University Kelley School of Business

Sahlman, Some Thoughts on Business Plans, HBS 1996
This session presents the structure and main components of a business plan. Even though there are no specific deliverables, students should cover the mandatory readings in order to be able to follow the presentation.
10 – Mar 25th Venture Screen Presentations None Final Written Reports to be handed in until April 1st, 2004