JWI 575 New Business Ventures & Entrepreneurship, week10 summary, 9/2/13
The final week of NBVE is here. The very last stretch of the JWMI MBA marathon is in view. Everyone is giving their very best to push harder than ever and dash past the finish line.
1. Growing a small business (Welch, video)
****************************
Advantages of small startups
ownership, involvement
speed
transparency - no bureaucratic non-sense
Problem in start ups:
Entitlement culture, lugs (people who may no longer contribute effectively)
Need winners, people with passion, fire in their eyes
Need greater rigor in maintaining quality of the team
Need a disciplined and organized manager with a focus on learning
2.Help from the Outside (Welch & Welch, video)
***********************************************
29 year biochemist, works in small company founded by father 32 yrs ago
worry is - company could disappear altogether
would MBA help ?
Low growth company, fast growing industry.
Only some can take a family owned company to a new development stage.
MBA is the last thing you need right now.
Get an outside hire for the CEO
Go after real talent. Steal a star.
Give authority - operating daily; strategic planning; whom to put in what job, equity.
Give equity - a real piece of the action to get him going.
Let go and give up some equity.
But you still retain majority control.
If things get crazy, and the CEO proves to be a bad choice, move on and get another one.
Remember - the new person's job is not to obey the founders but to save them.
3. Stages of start up life (Week10, Lecture1)
**********************************************
Start-ups need to eventually transition from small to big business.
The team that got you success in start-up stage may not stick around. Even some of the founders may leave.
Management styles:
******************
Start-ups: Scrappy, Improvising, constantly mutating
Mature giants: Corporate, Fact-based, well-understood products
Six stages of companies
************************
1. Idea - lone visionary; slides to pitch
2. Start-up - small founding team
3. Develop product or service - Prototype or customers identified
4. Ship to customers - Early User products, minimal quantities, small revenue
5. Ship at scale - Revenues come in
6. Large-scale operations - significant revenues; quest for new growth
4. Lots of things change
*********************
(i) ownership - structure of the company, composition of BoD evolves
*********************************************************************
Ownership evolution
*******************
sole owner - no board
equity to hired employees & added board members - need to offer ownership stakes; stock options
investors - take positions on the board
Board membership shifts
************************
Initial Board members
**********************
- good at uncertainty and product refinement
- can make key introductions to early customers
- they will hold you to product development milestones
- less concerned about manufacturing at scale
Board members at maturity
*************************
- offer advise and oversight (Week7 Fin Man II)
- concerned about manufacturing and scale
4. New-Product Evolution drives growth path
******************************************
Growth of organization linked to market's adoption of new product
There are critical differences between early stage and late stage companies as technology matures
Reference:Utterback, James (1996). Mastering the dynamics of innovation. Boston: Harvard Business Press.
(i) Product Design
******************
Varied at early stage
Incremental in late stage
eg. Refrigerators
(ii) Labor requirements
***********************
Specialized in early stage. Skilled people assemble parts by hand.
Generalized in late stage. Assembly line, off the shelf components, low-skilled workers assemble them
(iii) Brand awareness & Customer loyalty
*****************************************
Important early on (only game in town; people less concerned about your size and track record)
More important during product maturity (substitute suppliers exist; brand and customer service record matters)
(iv) Competitive environment
****************************
In a new field, the environment supports start-ups
Many small firms, companies adding their own special expressions of a new product or technology, customers experiment
As technology matures, industry settles into economic structure - oligopoly, few major players
eg. Automotive industry
5. Navigate changing culture
*****************************
Growth from scaling up will test team's skills like never before.
Culture is a big issue
***********************
- how does it feel to work at this company?
- how does work get done ?
- how do decisions get made ?
- Rituals that worked before do not scale
eg. Small company of 3 people - dinner outing with spouses and kids to celebrate a milestone builds a sense of community; close-knit culture is important
With 10,000 employees, this is not scalable
Traditions you create give away little signals and become too expensive or awkward to scale.
You will have difficulty undoing them later.
- Decision making becomes distributed
Start-up:
- people good at building products are valued more
- Everyone is in same room and can know everything about every decision
- Consensus is easier to achieve
Mature corporation:
- Consensus builders needed to manage process & complex decisions in large organizations. Such people may not always be great individual contributors
- supplement staff with people who have different skills & integrate smoothly into the organization
At some point you cannot effectively manage your direct reports and will need layers of managers.
When great engineers are asked to move from reporting to you, the CEO, to reporting to a lower level manager they could be alienated
Get key early employees to be on board with the way the management team must evolve.
6. Let Go: Transition-Moment of Truth
**************************************
There will come an emotionally charged and complicated moment for the founder.
Things will never be the same for you as the leader after this.
(i) You will decide to step aside from the business you built.
***************************************************************
- venture may have outgrown you.
- you may be an entrepreneur who likes creating new businesses
- VCs and board members may take you "out for a long walk" to explain it is in company's best interest if you move on to other pursuits.
- there may be other compelling reasons
(ii) Handle the transition, Grow Up & Make a clean break from the company.
**************************************************************************
Let others take over your vision. Give up your identity.
Make it known that new management is in charge.
Culture may be intertwined with you as the founder. Your presence may be key for success of team.
Carefully implement the transition. Move CEO to board chairman or product strategy role that fits the skills or move out of the company altogether.
Your company has reached a new level of maturity and responsibilities.
Cyanora ! Turn the page. Move on to something new and exciting.
This is also how Jack Welch handled transition from GE.
wow ! what a ride, this JWMI MBA.
DNA transforming for sure.
This is much much more than what I thought an MBA will give me.
How so lucky we are to have Jack Welch & Suzy Welch be our teachers and guiding forces.
Time to sprint faster than ever to the finish line this week
Dr DP
The final week of NBVE is here. The very last stretch of the JWMI MBA marathon is in view. Everyone is giving their very best to push harder than ever and dash past the finish line.
1. Growing a small business (Welch, video)
****************************
Advantages of small startups
ownership, involvement
speed
transparency - no bureaucratic non-sense
Problem in start ups:
Entitlement culture, lugs (people who may no longer contribute effectively)
Need winners, people with passion, fire in their eyes
Need greater rigor in maintaining quality of the team
Need a disciplined and organized manager with a focus on learning
2.Help from the Outside (Welch & Welch, video)
***********************************************
29 year biochemist, works in small company founded by father 32 yrs ago
worry is - company could disappear altogether
would MBA help ?
Low growth company, fast growing industry.
Only some can take a family owned company to a new development stage.
MBA is the last thing you need right now.
Get an outside hire for the CEO
Go after real talent. Steal a star.
Give authority - operating daily; strategic planning; whom to put in what job, equity.
Give equity - a real piece of the action to get him going.
Let go and give up some equity.
But you still retain majority control.
If things get crazy, and the CEO proves to be a bad choice, move on and get another one.
Remember - the new person's job is not to obey the founders but to save them.
3. Stages of start up life (Week10, Lecture1)
**********************************************
Start-ups need to eventually transition from small to big business.
The team that got you success in start-up stage may not stick around. Even some of the founders may leave.
Management styles:
******************
Start-ups: Scrappy, Improvising, constantly mutating
Mature giants: Corporate, Fact-based, well-understood products
Six stages of companies
************************
1. Idea - lone visionary; slides to pitch
2. Start-up - small founding team
3. Develop product or service - Prototype or customers identified
4. Ship to customers - Early User products, minimal quantities, small revenue
5. Ship at scale - Revenues come in
6. Large-scale operations - significant revenues; quest for new growth
4. Lots of things change
*********************
(i) ownership - structure of the company, composition of BoD evolves
*********************************************************************
Ownership evolution
*******************
sole owner - no board
equity to hired employees & added board members - need to offer ownership stakes; stock options
investors - take positions on the board
Board membership shifts
************************
Initial Board members
**********************
- good at uncertainty and product refinement
- can make key introductions to early customers
- they will hold you to product development milestones
- less concerned about manufacturing at scale
Board members at maturity
*************************
- offer advise and oversight (Week7 Fin Man II)
- concerned about manufacturing and scale
4. New-Product Evolution drives growth path
******************************************
Growth of organization linked to market's adoption of new product
There are critical differences between early stage and late stage companies as technology matures
Reference:Utterback, James (1996). Mastering the dynamics of innovation. Boston: Harvard Business Press.
(i) Product Design
******************
Varied at early stage
Incremental in late stage
eg. Refrigerators
(ii) Labor requirements
***********************
Specialized in early stage. Skilled people assemble parts by hand.
Generalized in late stage. Assembly line, off the shelf components, low-skilled workers assemble them
(iii) Brand awareness & Customer loyalty
*****************************************
Important early on (only game in town; people less concerned about your size and track record)
More important during product maturity (substitute suppliers exist; brand and customer service record matters)
(iv) Competitive environment
****************************
In a new field, the environment supports start-ups
Many small firms, companies adding their own special expressions of a new product or technology, customers experiment
As technology matures, industry settles into economic structure - oligopoly, few major players
eg. Automotive industry
5. Navigate changing culture
*****************************
Growth from scaling up will test team's skills like never before.
Culture is a big issue
***********************
- how does it feel to work at this company?
- how does work get done ?
- how do decisions get made ?
- Rituals that worked before do not scale
eg. Small company of 3 people - dinner outing with spouses and kids to celebrate a milestone builds a sense of community; close-knit culture is important
With 10,000 employees, this is not scalable
Traditions you create give away little signals and become too expensive or awkward to scale.
You will have difficulty undoing them later.
- Decision making becomes distributed
Start-up:
- people good at building products are valued more
- Everyone is in same room and can know everything about every decision
- Consensus is easier to achieve
Mature corporation:
- Consensus builders needed to manage process & complex decisions in large organizations. Such people may not always be great individual contributors
- supplement staff with people who have different skills & integrate smoothly into the organization
At some point you cannot effectively manage your direct reports and will need layers of managers.
When great engineers are asked to move from reporting to you, the CEO, to reporting to a lower level manager they could be alienated
Get key early employees to be on board with the way the management team must evolve.
6. Let Go: Transition-Moment of Truth
**************************************
There will come an emotionally charged and complicated moment for the founder.
Things will never be the same for you as the leader after this.
(i) You will decide to step aside from the business you built.
***************************************************************
- venture may have outgrown you.
- you may be an entrepreneur who likes creating new businesses
- VCs and board members may take you "out for a long walk" to explain it is in company's best interest if you move on to other pursuits.
- there may be other compelling reasons
(ii) Handle the transition, Grow Up & Make a clean break from the company.
**************************************************************************
Let others take over your vision. Give up your identity.
Make it known that new management is in charge.
Culture may be intertwined with you as the founder. Your presence may be key for success of team.
Carefully implement the transition. Move CEO to board chairman or product strategy role that fits the skills or move out of the company altogether.
Your company has reached a new level of maturity and responsibilities.
Cyanora ! Turn the page. Move on to something new and exciting.
This is also how Jack Welch handled transition from GE.
wow ! what a ride, this JWMI MBA.
DNA transforming for sure.
This is much much more than what I thought an MBA will give me.
How so lucky we are to have Jack Welch & Suzy Welch be our teachers and guiding forces.
Time to sprint faster than ever to the finish line this week
Dr DP
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