New Venture Creation: Entrepreneurship for the 21st Century, 7/e
Jeffry A. Timmons,
Babson College Stephen Spinelli,
Babson College
ISBN: 0073102792 Copyright year: 2007
Book Preface
A Book for the Next Generation of
Entrepreneurial Leaders--Worldwide
The evolution of entrepreneurship in America over
the past 35 years has had an extraordinary impact on
the cultural and economic landscape in the United
States. While there will always be opportunities for
improvement and innovation, America's entrepreneurial
revolution has become a model for business
people, educators, and policymakers around the
globe.
People in every nation have enormous entrepreneurial
qualities and aspirations, and that spirit is
finding its way into nearly all world markets. Entrepreneurship
is exploding in countries like India,
China, and in the former Soviet bloc--and affecting
positive social and economic change in such diverse
countries as Korea, Mexico, South Africa, El Salvador,
and Ireland. The 2004 Global Entrepreneurship
Monitor (GEM) study found that in the 34
countries surveyed, 9.3 percent (73 million) of the
784 million people comprising the population of 18-
to 64-year-olds were either nascent entrepreneurs
or the owner/manager of a new business. Significantly,
41 percent of these entrepreneurs were
women.
In our roles as student, teacher, researcher, observer,
and participant in this revolution, we can honestly
say that global adoption of the entrepreneurial
mindset appears to be growing exponentially larger
and faster. That mindset, while informed by new venture
experiences, affects larger corporations and the
not-for-profit world as well. In our assessment, we
are at the dawn of a new age of entrepreneurial reasoning,
equity creation, and philanthropy, whose impact
in the coming years will dwarf what we experienced
over the last century.
An Edition for an Era of Uncertainty
and Extraordinary Opportunity
The new millennium is being defined as much by
worldwide challenges and uncertainty as it is from
the enormous opportunities afforded by technology,
global communications, and the increasing drive to
develop socially, economically, and environmentally
sane and sensible new ventures. As with past generations,
entrepreneurs in this arena face the ultimate
and most demanding juggling act: how to simultaneously
balance the insatiable requirements of marriage,
family, new venture, service to community, and
still have time for one's own pleasure and peace.
A Book about the Entrepreneurial Process:
The Basis for a Curriculum as Well
as a Course! New Venture Creation is about the actual
process of getting a new venture started, growing
the venture, successfully harvesting it, and
starting again.
There is a substantial body of knowledge, concepts,
and tools that entrepreneurs need to know--before
taking the startup plunge, during, and after--if they
are to get the odds in their favor. Accompanying the
explosion in entrepreneurship has been a significant
increase in research and knowledge about the entrepreneurial
process. Much of what was known previously
has been reinforced and refined, while some has
been challenged. Numerous new insights have
emerged. New Venture Creation continues to be the
product of experience and considerable research in
this field, rooted in real-world application and refined
in the classroom.
As with previous editions, the design and flow of
this book are aimed at creating knowledge, skills, and
awareness. In a pragmatic way--through text, case
studies, and hands-on exercises--students are engaged
to discover critical aspects of entrepreneurship, and
what level of competencies, know-how, experience,
attitudes, resources, and networks is required to
pursue different entrepreneurial opportunities. No
doubt about it: There is no substitute for the real
thing--actually starting a company. But short of that,
it is possible to expose students to many of the vital
issues and immerse them in key learning experiences,
such as critical self-assessment and the development
of a business plan.
This book is divided into five parts. Parts I through
IV detail the driving forces of entrepreneurship--
opportunity recognition, the business plan, the founder
and the team, and resource requirements. Part I
describes the global entrepreneurial revolution and
addresses the mindset required to tackle this tremendously
challenging and rewarding pursuit. Part II lays
out the process by which real opportunities--not just
ideas--can be discovered and selected. This section
examines the type of opportunity around which higher
potential ventures can be built (with acceptable risks
and trade-offs), and how entrepreneurs can exit their
businesses profitably--when they want to--rather than
when they have to--or worse, not at all. Part III concerns
entrepreneurial leadership, team creation, and
personal ethics. Part IV addresses franchising as an
entrepreneurial vehicle, marshaling resources, entrepreneurial
finance, and fund-raising. The book concludes
with a section dealing with strategies for success,
managing rapid growth, and harvest issues.
Once the reader understands how winning entrepreneurs
think, act, and perform, he or she can then
establish goals to practice emulating those actions, attitudes,
habits, and strategies. New Venture Creation
challenges readers to think about the process of becoming
an entrepreneur, and seeks to enable entrepreneurs
to immerse themselves in the dynamics of
launching and growing a company. The book addresses
practical issues such as the following:
What are my real talents, strengths, and weaknesses,
and how can I exploit those talents and
strengths, and minimize my weaknesses?
How can I recognize when an opportunity is
more than just another good idea, and whether
it's one that fits with my personal mindset, capabilities,
and life goals?
Why do some firms grow quickly to several million
in sales, but then stumble, never growing
beyond a single-product firm?
What are the critical tasks and hurdles in seizing
an opportunity and building the business?
How much money do I need, and when, where,
and how can I get it--on acceptable terms?
What financing sources, strategies, and mechanisms
can I bring to bear throughout the
process--from pre-start, through the early
growth stage, to the harvest of my venture?
What are the minimum resources I need to
gain control over the opportunity, and how can
I do this?
Is a business plan needed? If so, what kind is required
and how and when should I develop one?
Who are the constituents for whom I must create
or add value to achieve a positive cash flow,
and to develop harvest options?
What is my venture worth, and how do I negotiate
what to give up?
What are the critical transitions in entrepreneurial
management as a firm grows from
$1 million, to $5 million, to over $25 million
in sales?
What are some of the pitfalls, minefields, and
hazards I need to anticipate, prepare for, and
respond to?
What are the contacts and networks I need to
access and develop?
Do I know what I do and do not know, and do I
know what to do about it?
How can I develop a personal "entrepreneurial
game plan" to acquire the experience I need to
succeed?
How critical and sensitive is the timing in each
of these areas?
Why do entrepreneurship and entrepreneurial
management seem surrounded by paradoxes,
well-known to entrepreneurs, such as:
Ambiguity and uncertainty versus
planning and rigor?
Creativity versus disciplined analysis?
Patience and perseverance versus
urgency?
Organization and management versus
flexibility?
Innovation and responsiveness versus systemization?
Risk avoidance versus risk management?
Current profits versus long-term equity?
The New Venture Creation models are useful not
only as a comprehensive textbook for a course in entrepreneurship,
but also as a road map for a curriculum
or departmental major in entrepreneurship. Since
the late 1990s, for example, Babson College has been
setting the standard for management education in the
21st century with a new approach based on the model
of the entrepreneurial process in this text. This integrative
program has been a major factor in keeping
Babson College in the top spot among entrepreneurship
schools in America and, now, around the world.
A Summary of Changes in the 7th Edition:
New Cases, New Chapters, New Data,
and Major Revisions
This edition is a significant update from the 6th edition.
New cases, exercises, updated Web sites, and textural
material have been added to capture the current
financial, economic, technological, and globally competitive
environment of this first half-decade of the
new century. A special effort has been made to include
cases that capture the dynamic ups and downs new
firms experience over an extended period of time. By
grappling with decisions faced by entrepreneurs--
from startup to harvest--this text offers a broad and
rich perspective on the often turbulent and unpredictable
nature of the entrepreneurial process.
This edition features major changes and additions:
There has been a major restructuring and reordering
of the flow of the book, which now begins
with a focus on the reader as the aspiring
entrepreneur.
Eight new cases--nearly half of the total--and
two revised cases have been added to this
edition.
This 7th edition contains the latest updates,
including examples of entrepreneurs in action,
coping with the post-Internet bubble era.
Internet Impacts: brief, focused reports relating
to the Timmons Model on how the Internet
has fundamentally changed the business landscape
forever. These are concrete, current examples
of how entrepreneurs use the Internet
to their advantage in every aspect of their venture
from launch to growth and renewal.
For the first time, we have included a dynamic
financial planning model that can be a breakthrough
tool for entrepreneurs evaluating or
planning a venture.
Further refinements of the Timmons Model of
the entrepreneurial process, including the addition
of social, economic, and environmental
sustainability factors.
We have included the latest data and updates on
the significant changes in the whole new world
of capital markets, the economy, and the banking
environment that are relevant to entrepreneurs.
Our classic business plan guide has been updated
with new material on social and environmental
sustainability.
We have added a new exercise that will challenge
students to research, brainstorm, and identify
what are likely to be the upcoming "sea changes"
that will drive the next growth industries.
Professor Tim Habbershon, director of the
Institute for Family Enterprise at Babson College,
has contributed a dynamic new chapter on
family enterprising.
Chapter 1, "The Entrepreneurial Mind:
Crafting a Personal Entrepreneurial
Strategy"--a Major Rewrite
This chapter looks at the entrepreneurial founder
and the unique qualities of that mindset. The Crafting
a Personal Entrepreneurial Strategy exercise toward
the end of the 6th edition has been brought forward
so students can get started on it right away.
There is also an updated and broader discussion and
data on the importance of women and minorities in
the entrepreneurial economy.
In the new case film October Sky, NASA engineer
Homer H. Hickam, Jr.'s autobiography provides the
basis for this movie set in the late 1950s about a
teenager from a coal mining town who overcomes
enormous obstacles in his quest to design and launch
homemade rockets. October Sky is a dramatic mix of
traditional family conflicts, supportive mentoring,
and a young man's entrepreneurial passion and drive.
The Instructor's Manual provides a detailed note for
use with the film. Students can view the film in or
outside of class, and then use it as a basis for class discussion
of the entrepreneurial mind in action:
thought processes, principles of entrepreneurial
thinking and reasoning, entrepreneurial practices,
strategies, and the like.
Chapter 2, "America's Entrepreneurial
Revolution Goes Global"--a Significant
Rewrite with New Material
Chapter 2 represents a major revision from the previous
edition and presents updated empirical evidence
of how America's entrepreneurial drive has sparked a
worldwide entrepreneurial revolution. In this edition
we include updated and new data on the entrepreneurial
economy by incorporating the latest findings
of Babson's Global Entrepreneurship Monitor
(GEM) report. This chapter also addresses the lessons
learned from the recent Internet bubble and
subsequent recession, and introduces the following
relational formula that began in America and is now
seen worldwide:
The new case about Roxanne Quimby tells the
remarkable story of a young woman, living at a subsistence
level in the backwoods of Maine, who sees
an opportunity and grows it in a few years into a
multi-million-dollar venture. What begins as a lifestyle
business doesn't stay that way for long. This case
replaces PC-Build, which will revert to the NVC/
McGraw Web site.
Exercise: Visit with an Entrepreneur: Most students
will know at least several entrepreneurs, but few will
have explored with them in depth the carefully thought
through questions in this exercise. It establishes important
benchmarks, role models, and comparisons that
are referenced throughout the course.
Chapter 3, "The Entrepreneurial
Process"--New and Updated
Material
This is an update on what was a major revision in the
previous edition of New Venture Creation. It further
develops the Timmons Model framework for the entrepreneurial
process and offers a new "real world"
example that illustrates the conceptual model. One
significant change in the model is the inclusion of the
concept of "sustainability," for the community and
the environment.
New in this edition is a discussion of how the new
entrepreneurial paradigm has permeated the not-for-profit
world via venture philanthropy, how corporations
are embracing and inventing their own versions
of entrepreneurial management, and how the e-society
is being embraced by government and becoming
more central to policy debates.
Revised Case: Kurt and John Bauer: This case series
follows an about-to-graduate MBA and his brother
as they explore the idea of turning Kurt's second-year
field project into a business magazine in Eastern
Europe focusing on Poland.
Chapter 4, "The Opportunity: Creating,
Shaping, Recognizing, and Seizing"--
Revisions and Updated Material
This chapter had been significantly revised in the
previous edition. The material focuses on opportunity
assessment and due diligence strategies. The criteria
for evaluating venture opportunities have been
refined further, and new Web-based resources and
tools have been added.
Case: Securities Online, Inc.: This is the second
case in the series that concludes the Bauer brothers'
saga. It's a year later, and the brothers have a significantly
redefined opportunity, strategy, and business
plan. They are seeking venture capital to grow, not a
magazine publishing arm as they had originally set
out to do but instead, an online financial and economic
information service that will provide data to
investment banks, consulting firms, and banks. The
case captures the dynamic creation and shaping of an
Internet-based higher-potential venture.
New Exercise: The Next Sea-Changes: Students
are challenged to research, brainstorm, and identify
new technologies and discoveries that will drive the
next growth industries, just as the integrated circuit
drove the evolution from mainframe computers to
personal computers and PDAs.
Chapter 5, "Screening Venture
Opportunities"--New and
Updated Material
This chapter was substantially enhanced in the previous
edition and builds on the drivers and criteria in
Chapter 4. The classic screening guide has been finetuned
to include sustainability points.
Exercises: QuickScreen and Venture Opportunity
Screening Exercises (VOSE) provide valuable formats
to guide the initial evaluation of an idea and the
due diligence needed to determine its profit potential,
probable risk/reward, and impact on the sustainability
of the enterprise. The VOSE was simplified
and segmented in the last edition into discrete exercises
that can be used separately or in total. This
change allows for maximum flexibility in the syllabus
and when counseling individual students or mentoring
field study projects.
The QuickScreen, a dehydrated version of the
VOSE, helps students to quickly cut through to the
core characteristics of an opportunity.
Case: Burt's Bees: This case follows the Roxanne
Quimby story begun earlier. Roxanne is a remarkable
entrepreneur, whose creative ideas and entrepreneurial
spirit lead her to create a new business
around bee's wax products and derivatives. With her
company experiencing profitable growth, Roxanne
faces a major issue of re-location to North Carolina
and the offer of a significant strategic sale.
Chapter 6, "The Business Plan"--
Updated Material and a New Case
This important chapter has been moved up in the text
to enhance the flow of practical tools and to expose
students earlier to the process of developing a business
plan. The biggest change is the incorporation of
sustainability aspects into the opportunity and business
plan development.
New Case: Newland Medical Technologies: It had
all seemed like a perfect plan. With two assertive angel
investors guiding her medical device company on
what seemed to be an acquisition fast track, young
entrepreneur Sarah Foster and her husband decided
that the time was right to start a family. However, by
the middle of her first trimester, everything had
changed. As co-founder and president, Sarah was
now compelled to seriously reconsider the course
she'd set for her medical device venture. In doing so,
she was going to have to make some tough choices in
order to strike a balance between motherhood and
her professional passions.
Chapter 7, "The Entrepreneurial
Manager"--Updated Material
and a New Case
Chapter 7 discusses the skills and requirements of
the founder as the company grows through various
stages. It looks at the leadership issues inherent in
building a company from scratch. The chapter emphasizes
that the ability to shape and guide a cohesive
team is particularly critical in high-tech firms, where
the competitive landscape can shift dramatically in
the face of disruptive technologies. Exhibits have
been further refined.
Exercise: Management Skills and Know-How Assessment:
An organized inventory of management
skills enables students to obtain feedback and to assess
their skills, know-how, and competencies, and
the relevant experience that is necessary to pursue
the opportunity they are developing.
New Case: Jim Poss: Jim Poss's enterprise, Seahorse
Power Company, is an engineering startup that
encourages the adoption of environmentally friendly
methods of power generation by designing products
that are cheaper and more efficient than 20th century
technologies. Poss is sure that his first product, a
patent-pending, solar-powered trash compactor,
could make a real difference. This case chronicles the
evolution of this green venture and places Poss at the
critical juncture of deciding how best to deal with potential
investors and funding alternatives.
Chapter 8, "The New Venture
Team"--Revisions and a New Case
This chapter puts the zoom lens on the "people"
portion of the Timmons Model--the entrepreneurial
team. The issues of building the team, leading the
team, the delicate allocation of equity and compensation,
and critical issues and pitfalls faced in the
process are discussed. Some new Web sites and
information on compensation patterns in higher
potential ventures are included.
New Case: Maclean Palmer: Palmer, an African
American, is the founder of a new private equity fund
in 2000. The case details his meticulous and thoughtful
approach to putting a team together from scratch
for a potential lifelong partnership.
Exercise: Rewards: This carefully structured exercise
guides students through the issues, trade-offs,
and decisions that are confronted in determining equity
ownership and compensation in the team.
Chapter 9, "Personal Ethics and the
Entrepreneur"--New and Updated
Material
Chapter 9 addresses the complex and thorny issues of
ethics and integrity for the entrepreneur and the
implications for future success. It seeks to build
understanding of the critical importance of high ethical
standards and awareness in the team and the
company.
Case: Wayne Postoak: This is the story of a highly
successful basketball coach and teacher who becomes
an entrepreneur. It is a short but rich case, particularly
since it involves a Native American who builds a successful
company with sales in excess of $10 million.
Exercise: Ethics: This short exercise compels students
to make various ethical choices and utilizes
their answers to focus discussion on the issues raised
by the assignment and in the chapter.
Chapter 10, "Resource
Requirements"--New and Updated
Material, plus a New Financial
Planning Template
The zoom lens now focuses on the third element of
the Timmons Model, managing the resources. This
chapter examines strategies and techniques used by
entrepreneurs to identify and marshal resources.
Frugal bootstrapping strategies are discussed, as well
as the implications of the Sarbanes-Oxley Act of
2002--a sweeping financial disclosure law that is having
an affect even on small ventures.
New Financial Tool: The Shad Business Planning
Model: An interactive financial tool that can be used
and modified to develop financial projections for the
income statement, balance sheet, and cash flow statement,
this template can save entrepreneurs dozens, if
not hundreds, of hours. The model is fully integrated
so that any change in, for example, revenue, margins,
or capital raised (both debt and equity) will immediately
be calculated and shown on each of the three
statements. Available for download through the
NVC/McGraw Web site.
Exercise: Build Your Brain Trust: This exercise is
modeled after the Babson Brain Trust, a program at
Babson College designed to create collisions and
networking opportunities for student entrepreneurs as
they seek to identify significant venture opportunities.
Exercise: How Entrepreneurs Turn Less into More:
A short field project requiring students to identify and
interview--in depth--entrepreneurs who have created
companies with sales over $3 million, having started
with less than $50,000 of seed capital. This can be a
powerful and revealing exercise for students.
Case: Quick Lube Franchise Company: This case
examines how one of the original founders of the Jiffy
Lube franchise becomes a leading franchisee and is
then faced with harvesting issues. The complex valuation,
timing, deal structuring, and negotiating issues
are an important aspect of the case.
Chapter 11, "Franchising"--Revised
with Updated Material
Chapter 11 examines franchising as an opportunity
and as a risk-reward management strategy. It examines
the entrepreneurial aspects of franchising--including
structural and strategic alternatives available
to entrepreneurs, selection criteria, resource and experience
requirements, and the building and managing
of the franchise system--as well as the complex
set of relationships that can evolve.
Case: Mike Bellobuono: This case follows the
story of an undergraduate who becomes enamored
with a bagel shop concept and chooses franchising to
grow his concept.
Chapter 12, "Entrepreneurial
Finance"--Revised Material
with an Updated Case
This chapter discusses what entrepreneurs need to
know about entrepreneurial finance, such as determining
capital requirements, the free cash flow
format, and developing financial and fund-raising
strategies.
Revised Case: Midwest Lighting: Always a favorite,
this is a classic partners-in-conflict case. The valuation,
the future estimates of the business's potential,
and a mechanism for getting one of the partners out
are embedded in the case. The teaching note shares
the methodology that breaks the logjam and the subsequent
success stories of each. This is the 2005 version,
with totally updated numbers that bring it into
the current period. The fundamental content, issues,
and lessons from the case are timeless.
Chapter 13, "Obtaining Venture and
Growth Capital"--a Significant
Revision with Updated Exhibits, New
Material, and a New Case
This chapter discusses sources of informal angel equity
and venture capital, how angels and venture capital
investors evaluate deals, and how to deal with investors.
Included are significant new and updated
materials such as data and exhibits on capital markets,
discussion of the venture capital environment in
the aftermath of the dot.com mania and subsequent
recession, and new Web site resources. The concept
and framework for a capital markets food chain remain
a chapter anchor.
New Case: Forte Ventures chronicles the development
and fund-raising challenges of Maclean Palmer
(see Chapter 8) as he attempts to create his own private
equity firm during the worst period in the history
of the U.S. venture capital industry: 2000–2001.
Chapter 14, "The Deal: Valuation,
Structure, and Negotiation"--a Rewrite
with New Material
Chapter 14 lays out in detail the various valuation
methodologies used by entrepreneurs and venture
capitalists, pre- and post-money, deal structuring
principles, and negotiation issues faced by entrepreneurs.
It also discusses the pitfalls and sand traps
encountered by entrepreneurs.
Case: Paul J. Tobin: This is the story of an Army
private who rises to be the president of Cellular One
in Boston. The case examines Tobin's strategies to
build and finance a growing telecommunications
business. The case describes his journey, how he
identified opportunities, developed strategies, and
raised venture capital to build the business. Unfortunately,
the strategy is flawed, and now the company
must be re-created or go under.
Chapter 15, "Obtaining Debt Capital"--Revised Material with a New Case
The various sources of debt capital are discussed in
detail, including the managing and orchestrating of
the banking relationship--before and after the loan.
The chapter examines how the bank looks at a loan
proposal; including criteria, covenants, and personal
guarantees, and what to do when the bank declines
the loan. The tar pits and time bombs awaiting the
unwary borrower are also covered.
New Case: Bank Documents: "The Devil Is in the
Details": Based on an actual bank loan and review by
a lending institution, this case provides students with
an intimate journey through the financial statements
and money flows of the company. It examines how
and why the bank considers such a loan, the issues of
whether to renew the credit line, and the thinking
and perspective of both the company and the bank.
Developed by Professor Leslie Charm at Babson
College, this is the best case we have ever seen on the
subject.
Chapter 16, "Managing Rapid
Growth"--New and Updated Material
This chapter places a zoom lens on the unique issues
and demands of managing rapid growth in entrepreneurial
companies. The role of leadership, culture,
and current climate are discussed. Three entrepreneurial
leadership models for the 21st century are examined.
Case: EverNet Corporation: Jim Kenefick is facing
a major crisis. While his $20 million telecommunications
business is doing very well, he is out of cash and
out of prospects for securing vital additional funding.
Vendors are demanding to be paid, and Kenefick
must act quickly and decisively in order to save his
company.
Chapter 17, "The Family as
Entrepreneur"--New Chapter by Tim
Habbershon, Director of the Institute
for Family Enterprise at Babson
College; a New Case
This new chapter, which is based on Professor Habbershon's
model and his extensive research, outlines
the significant economic and entrepreneurial contribution
families make to communities and countries
worldwide, and examines the different roles families
play in the entrepreneurial process. The chapter describes
the six dimensions for family enterprising,
provides a model to assess a family's relative mindset
for enterprising, and identifies key issues for family
dialogue.
New Exercises: Mindset and Methods Continua:
The mindset continuum establishes the family's financial
risk and return expectations and their competitive
posture in relation to the marketplace. The
methods continuum establishes the organization's entrepreneurial
orientation and actions. It reflects the
beliefs of the shareholders and stakeholders on how
the leaders incite entrepreneurship in the organization.
The point of these assessments is to surface family
members' beliefs and fuel the family dialogue.
Plotting these scores into the Family Enterprising
Model provides a visual tool for constructive family
dialogue.
New Case: Indulgence Spa Products: Robert and
Ulissa Dawson had become role models in the
African-American community. Their family enterprise,
Dawson Products, was one of the last remaining
privately held black enterprises in the personal
care products industry. They had taught their daughters,
Angela, 39, and Jimella, 32, to be self-sufficient
at a young age. Bright, energetic, and independent,
the talented young women have become key figures
in the growth trajectory of this family enterprise.
Now Jimella wants to strike out on her own rather
than stay and grow the core family business. This case
is loaded with classic issues facing a family firm.
Chapter 18, "The Entrepreneur
and the Troubled Company"--New
and Updated Material
This chapter addresses the signs and symptoms that
are indicative of companies heading for trouble, what
the turnaround experts look for, and the strategies
and approaches of resuscitating stalled or disintegrating
ventures.
New Case: Lightwave: In the mid-1990s, seasoned
entrepreneurs George Kinson and Dr. Schyler Weiss
shocked the staid lighting industry with their full
spectrum digital lighting prototypes. After taking the
award for Product of the Year at a major trade show,
their company rapidly evolved from a fledgling
startup to one of the most talked-about companies in
the industry. Then the Internet bubble burst, and
Lightwave was forced to abandon its plans for going
public. By 2003, however, the company was back on
track. The question for the team now was whether to
move ahead with an additional round of financing in
anticipation of an IPO, and how to price and structure
that deal.
Chapter 19, "The Harvest and
Beyond"--Revised Material New Venture Creation concludes by looking at the
entrepreneurial process as a journey and not a destination,
harvest options and their consequences, and
beyond the harvest.
Case: Boston Communications Group, Inc., picks
up the story of Paul Tobin and examines the orchestrating
and managing of an eventual harvest in the
mid-1990s, through either a strategic sale to the likes
of GTE or an initial public offering (IPO). The case
provides an intimate look at the anatomy of valuation
and pricing of an IPO, the role and selection of underwriters,
and the nature of the robust and tumultuous
capital markets in mid-1996.
OF SPECIAL INTEREST TO ENTREPRENEURSHIP EDUCATORS
We believe that we can positively change the world
through entrepreneurship education. In 1984, we
launched the Symposia for Entrepreneurship Educators
(SEE) to teach educators from institutions
around the globe. Since then, we have trained over
1,150 academics and entrepreneurs from 355 different
academic institutions, government organizations,
and foundations in 48 countries to teach entrepreneurship
in a way that combines theory and practice
to tens of thousands of students each year. We are
committed to helping colleges and universities develop
creative and innovative entrepreneurship curricula,
to increase teaching effectiveness, and to develop
the teaching skills of entrepreneurs who are
interested in engaging in full- or part-time teaching.
Our Symposia for Entrepreneurship Educators
program include:
Price-Babson Symposium for Entrepreneurship
Educators: Our flagship program, created in
partnership with the Price Institute for Entrepreneurial
Studies, is held each spring on our campus
to build an international cadre of educators who
understand the importance of combining entrepreneurship
theory and practice in teaching. Crossdisciplinary
educators from around the world attend
Price-Babson SEE.
Babson-Olin Symposium for Engineering Entrepreneurship
Educators (SyE3): Designed and
delivered in partnership with Olin College of Engineering
and funded through a grant from the NSF
Partnerships for Innovation program, this specialfocus
program is offered to engineering educators
who want to incorporate entrepreneurship content
and pedagogy into their engineering courses and curricula.
Babson-Olin SyE3 alumni will develop engineering
graduates who can successfully transform innovations
into the products, systems, services, and
companies that drive economic growth.
Babson Symposium for Entrepreneurship Educators:
Our customized programs are hosted on multiple
occasions throughout the year at institutions
around the world. Babson SEE programs foster
global entrepreneurial growth and economic development
through entrepreneurship education.
REFLECT: Our reunion program is hosted for all
SEE alumni. REFLECT provides an opportunity to
network and share lessons learned in entrepreneurship
education.
For more information on any of these SEE
programs, go to http://www3.babson.edu/ESHIP/
outreach-events/symposia/.
ACKNOWLEDGMENTS
The seventh edition of the original manuscript for the
book celebrates over 35 years of intellectual capital
acquired through research, case development, course
development, teaching, and practice. The latter has
included risking both reputation and wallet in a wide
range of ventures, involving both former students and
others. All of this was possible only because of Jeff's
wife, Sara, and their full-grown daughters, and Steve's
wife, Carol, and their grown son and daughter. It has
also been made possible by the support, encouragement,
thinking, and achievements of many people:
colleagues at Babson and Harvard, former professors
and mentors, associates, entrepreneurs, former students,
and our many friends who till this soil.
This edition was possible because of the tremendous
effort of our colleague, friend, and former Babson
MBA student, Carl Hedberg, who took complete
charge of the editing, project management, much of
the research, and much of the writing and revising of
various cases and other materials. All of this was accomplished
on schedule, with the most cheerful
mindset, and during a period of enormous other distractions
in Carl's life. We are extremely grateful for
your Herculean effort, Carl, and for all your work and
contributions to Babson and the Arthur M. Blank
Center for Entrepreneurship. The major upgrades in
earlier editions were made possible in large part by
the superb assistance of my research assistants,
Christy Remey Chin and Rebecca Voorheis--both of
whom have since gone on to complete MBAs at Harvard
Business School and Duke, respectively.
The original book (1977) stemmed from research
and concepts developed in Jeff's doctoral dissertation
at Harvard. Later work with various co-authors from
earlier editions, his course development work and research
in new ventures at Northeastern University in
the 1970s, and in new ventures and financing entrepreneurial
ventures at Babson College in the 1980s
contributed heavily to the evolution of this text. From
1989 to 1995, Jeff's research in venture capital and
his course development work in the course electives
at Harvard have enabled him to make major additions
and improvements in many of the chapters.
Once again, Jeff has found it an absolute delight
and rewarding experience to work with Steve
Spinelli. This is the second edition he has joined as
co-author, and his ideas and insights, disciplined
work style, and great collegial approach to everything
make him a world-class colleague. Since the last edition
Steve has been promoted to the newly created
position of vice provost for entrepreneurship at Babson
College. He was a co-founder of Jiffy Lube International
and largest franchisee in the nation, and a
franchising expert.
We have drawn on intellectual capital from many
roots and contributors, and have received support
and encouragement, as well as inspiration. To list
them all might well take a full chapter by itself, but
we wish to offer special thanks to those who have
been so helpful in recent years, especially Jeff's former
colleagues from Harvard Business School, who
have been a constant source of encouragement, inspiration,
and friendship. Thanks to William Sahlman
for his superb work in entrepreneurial finance, much
of which is evident in this text, and Howard Stevenson
for his tremendous support and encouragement
over many years.
The seventh edition was made possible by the
tremendous support of Babson College and the wonderful
$30 million gift by the Franklin W. Olin Foundation
to build the F.W. Olin Graduate School of
Business and to fund the chair now held by Jeff Timmons.
Special thanks to William F. Glavin, former
president at Babson, for convincing Jeff to return to
Babson College full time, and for always providing
complete support for his work. Other key supporters
at Babson include our president, Brian Barefoot;
Michael Fetters, our provost; Mark P. Rice, the
Murata Dean of the MBA program and first Jeffry
A. Timmons professor of entrepreneurial studies;
Patricia Greene, dean of the undergraduate school;
and Fritz Fleischman, dean of faculty, for his support
for entrepreneurship at Babson College and this
project vis-à-vis a sabbatical for Professor Timmons.
We are extremely appreciative of Professor Timothy
Habbershon for his contribution of the new chapter
on family enterprising. Tim is doing groundbreaking
work on family enterprises and at Babson
College. Readers will find this chapter the most useful
material on the subject that they have seen.
Thanks to our other colleagues in Babson's Entrepreneurship
Division, especially long time partner Bill
Bygrave, for continuing friendship and support. And
a special thank you to Arthur M. Blank for his generous
support and gift that provided for our wonderful
facility, the Arthur M. Blank Center for Entrepreneurship.
Thanks to Julian E. Lange for his original
contribution of the chapter on the Internet, and for
his ongoing council and advice on Internet-related issues.
The adjunct faculty members at Babson College--
whom we call our entrepreneur faculty--continually
share their expertise with their academic
colleagues and our students. Leslie Charm and Edward
Marram have each contributed significantly to
the chapters on debt equity, managing rapid growth,
and managing the troubled company. They are fabulous
teachers and colleagues, while still remaining active
in the business world. We are also very grateful to
colleagues and friends Fred Alper, Michael Gordon,
Elizabeth Riley, and Ernie Parizeau for sharing their
insights with this seventh edition of New Venture
Creation. All these colleagues continue to be an immensely
valuable resource! Thanks also to Steve
Spinelli's able MBA assistant, Jeffrey Palter.
Cases in this and previous editions would not be
possible without the collaboration and support of
sharing entrepreneurs. We wish to thank Mike
Healey; Gary and George Mueller; Roxanne
Quimby; Paul Tobin; Wayne Postoak; Jim Kenefick;
Mike Bellobuono; Thomas Darden, Jr.; Jim Poss;
Gloria Ro Kolb; Joe, Eunice, and Ursula Dudley; and
case writer Sandra Sowell-Scott, who have all given of
their time and talent. In addition to sharing their stories
for the cases, they continue to make class visits at
Babson as well as other academic institutions across
the country, enriching the educational experience of
our students.
One of the most inspiring and rewarding sources
of our energy for this project and the entire entrepreneurial
mission is the nearly 1,150 alumni (from over
355 institutions and 48 countries) who are our partners
and colleagues in the Price Babson Fellows program.
In 2006 we will celebrate the twenty-second
year of our annual Symposium for Entrepreneurship
Educators (SEE). Gloria Appel, the late president of
the Price Institute for Entrepreneurial Studies, was a
phenomenal partner, friend, mentor, and supporter
from the beginning and, despite her passing, continues
to be an inspiration for my work.
In 2004, we partnered with our neighbors at Olin
College of Engineering on the Babson College campus
to create a sister program to SEE for engineering
colleges and received a three-year National Science
Foundation grant to design, develop, and deliver this
program. The first highly successful pilot program of
the Babson-Olin Symposium for Engineering Entrepreneurship
Educators was held in June 2005. This
program, which will now be held annually at Babson
and Olin Colleges, is aimed at increasing the entrepreneurship
literacy of engineering faculty and students,
and the technology literacy of business faculty
and students, and thereby improving prosperity in
America.
Since 1991, Jeff's colleagues and dear friends at
the Ewing Marion Kauffman Foundation in Kansas
City have continued to be a source of both support
and inspiration. Their important work in accelerating
entrepreneurship in America has made important
strides in so many arenas. It is a joy to have colleagues
who share our passion for entrepreneurship: the late
Mr. K (Ewing Marion Kauffman), Michie Slaughter
(retired), Kurt Mueller, Bob Rogers, Bert Berkeley,
Pat Cloherty, Bob Compton, Willie Davis, Jeff's fishing-
buddy Mike Herman, Tony Maier, Judith Cone,
and Jim McGraw. We can think of no other organization
in America that has done more to advance education,
research, public policy, entrepreneurial thinking,
and practice than the Kauffman Center.
We continue to derive great inspiration from our
Native American colleagues who were the very first
to create entrepreneurship curricula and centers in
America's trial colleges and institutions. Michele
Lansdowne at Salish Kootenai College and Lisa Little
Chief Bryan from Rosebud Reservation, and now
teaching at Black Hills State University, have both
worked tirelessly to write and produce two sets of
case studies and case videos based on Native American
entrepreneurs. With support from the Kauffman
Center and the Theodore R. and Vivian M. Johnson
Scholarship Foundation they have worked to build an
American Indian entrepreneurship curriculum. The
Johnson Foundation has also provided ongoing
support of training for tribal college faculty in this
curriculum to ensure its continued use. Florence
Stickney from San Francisco State University has
led groundbreaking efforts at Pine Ridge Reservation.
For the Cherokee Nation, Charles Gourd continues
his strong efforts to bring entrepreneurship
education to rural Oklahoma. In 2004, Jeff worked
closely with Dwight Gourneau, a founder and pastpresident
of the American Indian Society for Engineers
and Scientists, to present a day-long workshop
on entrepreneurship at their annual meeting in Anchorage,
Alaska, along with Charlie Gourd and Lisa
Little Chief Bryan.
The relevance and richness of the cases and materials
in this text can be traced in considerable measure
to Jeff's involvement with both ventures and venture
funds. His colleagues at BCI Growth Capital
(Don Remey, Hoyt Goodrich, Steve Ely, and Ted
Horton) have contributed ideas and cases, and Brion
Applegate, Bill Collatos, and Bob Nicholson and
their associates at Spectrum Equity Investors have
been generous with their time and ideas in contributing
to cases and by coming to Jeff's classes.
In addition to all those acknowledged and thanked
in previous editions, a special thanks and debt of
appreciation is due to all our current and former students
from whom we learn, and by whom we are inspired
with each encounter. We marvel at your accomplishments,
and sigh in great relief at how little
damage we have imparted--usually!
We would like to extend a special thanks to those
professors who have reviewed previous editions of
New Venture Creation, as they have helped to shape
the direction of the text.
Finally, I want to express a very special thank-you
to Bruce Gin, Allison Belda, and Ryan Blankenship at
Irwin/McGraw-Hill for their highly competent and
professional effort in advancing this revision.
J.A.T. and S.S.
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