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8/8/2019 Resources Needed for New Ventures- Human Resource
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Resources needed for the New Venture
-The Team
Prof. R.S.Mathur
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Prof. R.S.Mathur 2
The Entrepreneurial Team
The success of an enterprise is often determined by theindividuals who lead it forward rather than by its productsor services.
The Team transforms creative ideas into commercial
realities through intelligent hard work and determination. VCs prefer a grade µA¶ Entrepreneurial Team with grade
µB¶ idea rather than the other way round.
The implication is clear; entrepreneurs must provide:
1. Inspiration,
2. Clear direction and guidelines and
3. Create organisations to sustain growth
cont«
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The Entrepreneurial Team
cont.. For independent small businesses the owner must
wear several hats at once; leading, and managing,
For the corporate venture, a company µchampion¶
must assemble a team of like minded peoplecapable of breathing life into an innovation.
For the high-growth new venture an entrepreneur
must have the foresight to find partners or hire
people with complementary skills to race theenterprise toward success.
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Firm¶s Structure
Business ventures must be legally structured to reflect alogical organisation consistent with the firm¶s purpose.
For example: a small tailor shop is unlikely to establish acorporation with a complex board of directors, and an
aerospace manufacturer is unlikely to have sole proprietorshipwith unlimited accountability vested in one person.
The choice of a legal form of a business, its organisationalstructure and the composition of the entrepreneurial teamrelies on a complex set of conditions.
The issue can be divided into two general parts:1. Dealing with the element of creating an entrepreneurial team
and,
2. Addressing the legal formation of new venture
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The Founder¶s Role
An exceptional founder may be a very versatile person withexpertise in many areas.
More likely, he/she may be strong in some areas while not soin many others.
Entrepreneurs must understand that they do need help to
move forward The founders must be aware of their own skills, and
limitations.
Examples: Inventor ±Dentist, and Skilled marketer.
Together, they may form a good team but more importantly
they need to demonstrate their conceptual ability to1. Lead the enterprise,
2. Be financially responsible,
3. Organise and lead the team and
4. Focus their efforts on fulfilling the venture¶s objectives.
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Matching Human Resource
Needs and Skills- Founder¶s Role An exceptional new product positioned in the best
possible market has no life of its own without a capablefounder.
The founder¶s capability in terms of:
1. Personal skill and commitment to head the venture.2. Putting together team needed to launch a venture.
3. Making the team members active stakeholders (rather than hiring µnine-to-fivers¶ in which case the employeecontribution will be limited to their willingness to work for wages.)
Founding entrepreneurs are responsible for definingtheir business and identifying HR needs.
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The Founder¶s Role cont«
During the pre-start stage, entrepreneurs should be able todefine in the business plan the skills needed.
When possible, these team members should be specificallyidentified.
Founding members are expected to fulfill leadership roles. Some times they may be more effective in the background.
For example the dentist- inventor may be more valuable inthe role of a technical advisor rather than in a managementposition.
When the new venture is an independent small business,the founder may have to assume responsibility for all roles.
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Team network alliances,
Sponsors,
Professional staff, and
Co-workers
Advisor, Mentors,
Family
Supporters
Composition of Entrepreneurial
Team
Engineer
Sole
Proprietorship
General
Partnership
Corporate
Enterprise
Planner
Designer Marketer
Champion or
Innovator
Partner¶s network of
Friends, associates,
advisors, mentors, and
Family supporters.
Owner Partner-Sales
Partner-Finance
Partner-Technical
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Role of Team Members
1. The team members are partners in the µemotional¶sense, in that they have joined together to pursuea dream.
2. They are adventurers bound together by a
common purpose.3. In most cases team members have a stake in inthe venture as partners, stockholders or employees who expect to share in success thru¶stock options or bonuses.
4. VCs often become active team players throughboard positions and operational consulting.
5. In corporate environment, employee teams oftencome together thru¶ casual friendship, cont«
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Role of Team Members cont«6. Yet, they become united through their mutual
commitment to achieve their goals.
7. While each team member is responsible for their functional specialisation, they must also
be part of µgeneral management¶ process of planning and problem solving.
8. They contribute to the ventureenthusiastically and are responsible for building the organisational culture.
9. They cannot be µnine-to-fivers¶10. They face crisis together as well as enjoy the
fruits of success.
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Team Members¶ Change
of Roles As the organisation gets established
and begins to grow the roles of team
members too evolves.
A look at the change is seen in the
comparison on the next slide
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Team Members¶ Change of Roles
The team duringfounding days :
1. Prominent as founders.
2. Entrepreneursaccepting risks,
3. Being innovative,
4. Mavericks
5. Focus on operational
issues and immediateproblems
The team in thegrowing/grown phase:
1. Ability to build and growthe organisation,
2. Managers capable of building and leading acapable staff.
3. Being even more
innovative,4. Professional managers
5. Focus on long-rangestrategic issues.
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Team Members¶ Change
of Roles cont«
The founding entrepreneur ultimately has
the responsibility of identifying roles for
guiding the enterprise through change.
Yet assistance in these matters can befound from external sources like the
1. Board of directors
2. Personal Networks and3. Social Networks
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The Board of Directors
A formal board of directors is mandatoryfor incorporated companies and regulatedby Company Law Board
When the company is publicly traded theSEBI regulates the board activities andhold directors responsible for corporate
conduct. Optional for proprietary or partnershipfirms.
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Board Composition
Boards of smaller companies are usually
limited to five or seven.
The board may comprise of insider
members (the founder, family members,friends and active investors) and outsiders
(experts in various areas and statutory
nominees but having no internal positionor investment)
cont«
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Board Composition cont«
Boards comprising mainly of insiders tend to focus onshort term budget and operational problems.
Boards dominated by outsiders tend to focus on externalrelations that augment social and professional networks to
attract capital, clientele and management talent. Apparently lopsided boards- either too internally or tooexternally focused- may be less effective than balancedboards
Though there is no ideal composition but a balanced board
tends to provide:1. Capability to address operational problems,
2. Draw on external expertise and experience and
3. Strengthen external relations
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Poorly Conceived Board
Entrepreneur/
CEO
DIRECTORS:
Investor,
FamilyMembers,
Friends
µPassive¶ decision making
bodies,
Secretive,
Tend to focus on short-
term budgets and
operational problems,
Lack vision and wider horizon
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AWell- Conceived Board Enlightened entrepreneurs select board
members who can help the venture succeed Have executive decision making skills,
Contacts outside the enterprise,
Specialised knowledge and skills,
Insiders as operating- team members andinvestors selected for their potentialcontribution to strategic decisions
Outsider directors (having no internalposition or investment) provide access tocustomers, professional bodies, govt.agencies and financial institutions.
Those with related experience are aware of industry processes, strategies, industrycompetition and suppliers.
Regardless of their connections, theyshould be active decision makers
Entrepreneur/CEO
DIRECTORS:
Operating TeamMembers,
Experts inProfessional Areas,
Attorney,
Investor, Mentor
Statutory nominees
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Role of Directors
Directors are legally responsible for the conduct of business. Ultimately, board directors are accountable for the performance
and professional behaviour of board-appointed officers.
Exactly how this responsibility is translated into board-roomlevel decisions depends on company circumstances and is left
to the courts to interpret. The board must often face the unpleasant prospect of removing the CEO and key officers.
Such an action can be traumatic for the founding entrepreneur,who was initially instrumental in appointing the boardmembers, can be fired by them.
The founder¶s equity will not be at risk but his operatingauthority can be stripped.
Unfortunately such actions take place at sickening regularitywhen entrepreneurs cannot adapt to new roles in growingcompanies. Cont«.
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Role of Directors cont« Though legal responsibilities and governance are
important, it is the board -level assistance that isvaluable to the entrepreneur.
Board members assist in :
1. Determining objectives,
2. Formulating Strategies,
3. Unraveling complex problems,
4. Arbitrating executive conflicts,
5. Monitoring budgets, and6. Providing expertise in legal, financial, and ethical
decisions.
Cont«
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Role of Directors cont«
From the entrepreneur¶s viewpoint, board members areµmentors¶ and consultants who not only perform the legal dutiesbut also provide valuable insights into business operations.
In this sense, directors are members of the entrepreneurial teamwho do not µrubber-stamp¶ decisions but actively participate indirecting the company.
Interaction between the founders and the board membersdepends on how their personalities mesh.
If the entrepreneur is reluctant to share decision-makingauthority, the board may exist as an advisory body.
At the other extreme, the board may behave as if it is in
partnership with the founders. For unincorporated proprietorships or partnerships, boards do
not have a legal status and are limited to advisory roles.
Nevertheless they render yeoman¶s service by solving problemsand building social and professional networks
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Networking ±Extending Human
Relations
Networking is the process of creating alliances withpeople and organisations beyond the immediateboundaries of the venture.
It is the process of linking with the right people to getthings done,
The difference between success and failure often restswith µ knowing the right people in the right places¶.
Outside directors better placed to provide this linkage.
Regardless of board activities, the entrepreneur mustconstantly explore ways to develop effective networks
that open channels to resources, markets andexpertise.
Simply speaking they must establish rightconnections.
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Entrepreneur
Spouse
Family Members
Co-Workers
Family Doctor
Friends
Personal Network
Accountant/CAFamily Attorney
Co-Workers Acquaintance
Co-WorkersIn-Laws
AcquaintanceFriendsAcquaintance
Friends
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Entrepreneur Suppliers
Distributors
Board Members
Lenders
Club Members
Social Network
InvestorsCustomers
Other
Suppliers
Potential
Investors
Potential
Investors/
Customers
Potential
Customers
Potential
Investors
Friends/
AcquaintancesFriends
Friends
Potential
Customers/
Investors
AccountantsConsultants
Attorneys
potential
Investors
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Legal Forms of Business in
Perspective
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HR Issues at Hand
Organizational chart and reporting
Selection and recruitment
Induction, grooming and mentoring
Setting goals and KRAs
Appraisal and performance measurement
Growth, promotion, compensation Impact of employee turnover
Contracts and IP protection
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Organizational Chart and
Reporting
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Selection and Recruitment
Referrals, advertisements, head hunters,
campus placement
Technical test, aptitude test and interviews
Background checks
Cultural compatibility -- age, background,
previous jobs Other issues -- relocation, time to join,
competing offers
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Selection and Recruitment
-- Issues
Fast team ramp up (in ratio terms)
No separate HR function
Team hard pressed for time
Financial bottlenecks
Asymmetrical information Recruitment in booms and glooms
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Induction, Grooming and
Mentoring
It is good to have the ³Employee Handbook´ready
Prepare some induction material ± corporate
information, product information
Formal introduction to all team members
Assign a personal mentor
Technical jobs ± small projects / assignments
Evaluation of hands-on capabilities beforeassigning responsibilities
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Setting Goals and KRAs
Individual goals and KRAs
Group goals and KRAs
Clear understanding of how to handle³attribution´ issues
Fairness and transparency
Technical and non-technical goals ³Extra-curricular´ goals
Genuineness of the whole process
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Appraisal and Performance
Measurement
Productivity of knowledge workers very difficult
to measure ± intangible
Quarterly appraisal
Bosses evaluate subordinates and vice versa
Best to quantify ± sales per quarter, training
programs per month, lines of code per month Convey the findings of appraisal immediately
and have a debriefing session
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Growth, Promotion,
Compensation
Career growth ± training, skill development
Lateral movements in the organization
Compensation -- base + benefits + bonus Stock options -- ESPO pool
Exercise Price (usually higher than face value)
Vesting schedule
Lock-in period
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Impact of Employee Turnover
Position remains vacant for a while and so theschedule suffers
Affects morale of other people
Competitors may get a part of the technology
Costs of new recruitment, induction, and culturalfitting-in
If the employee was a key person, the entire
product line will be affected Typical turnover rates in software companies: 20-25
percent
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Contracts and IP Protection
Appointment letter is replaced by the³employee contract´
ESOP, vesting schedule
Notice period
Non-compete clause
Confidentiality / non-disclosure agreement Possession of the company IP
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