All entries for October 2009

October 24, 2009

Entrepreneurship and New Venture Creation Exercise 6

Your Great Uncle died and left you a company that you have neither the time nor inclination to run – hence you want to sell. Set out the options for which type of buyer might be interested and the differences in likely value that they might place on the business. Conclude by deciding which buyer you hope will buy it and describe why.

This situation is special for me because a have lived a similar experience with a old bread factory of my family. This company was founded by my grandfather and his brother. The firm grew with a lot of effort and difficulties but was able to create several little shops of sell bread. Over time the next generation had the opportunity of follow with the business but not all members had the opportunity of be proprietary of the shops although they were proprietary of the factory. For a lot of years nobody said nothing because the second generation was essential to the growth of the company in the origin hence they was the managers of the company. When arrived the time of retired, everybody launched his hands to the neck of managers and theirs descendant because they wanted to follow with the factory in order hold the value added to theirs shops.

With this situation the company fall its profit and every year the situation was worse because the investment and maintenance greatly decreased due to everybody wanted get dividends. With this situation several options was evaluated by each member of the whole family. Below I will show some of the main option that was exposed

  • Siphoning cash. This option meant continue with the current situation. And obviously, that will be the worst option because nobody earns enough.
  • Transfer of ownership in family firms. With this option the company follows in hands of the family and retains its values if the buyer is one family member. I and the rest of the family could see how the illusion of the previous family generation continues alive. The knowledge of the market and capabilities are safe but the problem is that the price of sell will be below of market price, and not all owners can be agree with this option.
  • Partial harvest and exit. To analyze this option is important to say that the company had the location of its main asset in Madrid city centre and there was a lot of sellers with intention of make a new building of luxury apartments. With this option the family could divide the money and could move the business outside of the city centre with the investment of the parts of the family interested on it.
  • Acquisition for another company of the sector. It important to remark that the company had several employees working on it, some of them were of the family and not only at management level. Also it is important remark that the value added for the shops was that the bread was made with a traditional methods and near of the point of sell with high degree of acceptance between the customers. With the merge or acquisition the new company can increase the efficiency using economy of scale strategies, recover the morale of the employees, and hold the confidence of the customers.
  • Management Buy in. The option of find a group of people in order to manage the company was discarded from the outset because everybody considered that the knowledge of the market and situation with the shops was important and to lose the management will mean to lose the company. In my opinion likely nobody thought that some of the profit troubles were due to the restrictions in take decisions according with family interests over of the aspects of business.
  • Management Buy Out. This option was the same that transfer the ownership to some family member. That would be really very good option in order to continue with the activity but the market price of the main asset of the company, the location in city centre, was too high and the company would need a big restructure with a great investment and financing.

At the end the option chose was a mix between some of then, because the company was sold to a builder for a high price even over market price and some members of the family carry on an agreement with him to keep the ground floor and continue with partial business but not with the manufacture.

The acquisition might have been a good option but loosing the ownership and the management of company.

In my opinion the 'partial harvest and exit' alternative was very good option, but not the loss of manufacturing that was the origin of company. My recommendations was follow th Partial harvest and exit but continuing with the production activity in another place outside the downtown and managed by me.


Andrew Burke (2009). ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

October 23, 2009

Entrepreneurship and New Venture Creation Exercise 1

Examine an industry that you are familiar with, and assess the nature of the start-ups in that industry. Give examples of no more than four of these start-up firms and allocate them to Bhide’s categories. Why might this matter to an incumbent firm?

All firms have a natural evolution like any living things, some day are created after growth, research the mature and finally died and / or transform. Depending of the first phases of the each business and follow the Bhide’s theory there are four types of business that are: marginal business, promising start-up that can follow evolution in VC-backed start-up or corporate initiatives and the last type y the revolutionary ventures.

The main factors that affect to the type of business are the Investment and Uncertainly. Investment refer to the irreversible commitment of fund, reputation or other resources that the individual or firm undertaking the initiative makes with the expectation or earning a return and the uncertainly refer to unmeasurable and unquantifiable risk (Frank Knight, 1921).

I have some knowledge about the IT industry but to illustrate this exercise I would like to give some examples in other sector as are the retail industry mainly the bakery and diary sectors.

The companies which levels of investment and uncertainly are low, belongs to the marginal business. Some examples are mobility sellers of diary products. One example of company with promising start-up could be DANONE that is a company that started to operate in Spain at the middle of the last century, and now is a very big multinational and is example of corporate venture. It started with a low level of investment and with high degree of uncertainly. BIMBO is an example of company that started to operate in Spain at the middle of the last century with a medium-high level of investment and uncertainly because it was a company that started with capital of Mexican investors and could be an example of the type of VC-backed start-ups.

About the revolutionary ventures type of business is complicate to identify it in this industry because it is very mature market and is very is difficult to launch a venture that ensures a high level of profits. But companies as DANONE can launch a unit of new healthy products. Using its knowledge in the market, the possibilities of inversion monetary, resources and technology can be a example of revolutionary venture with high profit.

As conclusion I would like to remark the importance that each company knows its type of business. These types or archetypes can help us build a compressive map of the typical features of entrepreneurial activity and the entrepreneur can be ready to learn of previous experiences.


Andrew Burke (2009). ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

Amar Bhidé (1999), 'The Origin and Evolution of New Businesses'. The Oxford University Press.

October 22, 2009

Entrepreneurship and New Venture Creation Exercise 5

Your business is bringing out a new product which adds on to an existing product, that you already produce. You are keen to ensure that the take up of the add-on product is high, but your manager needs to be assured that you are aware and mindful of anticompetitive practices. Set out the arguments you would give to your manager concerning what the business can and cannot do in this context.

Competition and antitrust laws have increased in importance in most economies and could provoke several limitations in the company strategy. In order to give an opinion about this issue is important to consider the laws that governed in the country's development activity and the environment in which it operates. International agreements like GATT let that the governments of different countries will be coordinated.

Some articles of the law has the intention of void agreements which enable monopolistic behaviours although there are several exception when the target of the initiatives are focused in aspect like enhance efficiency or promote the innovation.

To determinate if the new product can fall in anticompetitive practices is important to study external factors related with the impact in the market, suppliers, consumers and competitors. Also the internal factors as the profit can be a very influence factor if with the launch of the new product the company can increase its profit due to raise prices inordinately.

In the other hand any company has many responsibilities with its stakeholders and even its employees. And those are reasons to fight or even be on the boundaries of the law or the interpretation of laws.

I would like to mention an example of monopolistic behaviour as are the case of Microsoft and its well know browser called Internet Explorer. This product is given away with purchase of the operating system avoiding that the customers can acquire other browser. In this case the dominant position of Microsoft in the operating system market is used to prevent competition entry in the market by ensuring the monopoly of market.

Te argument to follow ahead with the new product is that in the market there are others products with similar characteristics, so the company does not practice monopolistic position in the market. The launch of this product is a bet based on the use of technology and innovation in order to get important levels of profit in free competition.


Andrew Burke (2009). ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

October 21, 2009

Entrepreneurship and New Venture Creation Exercise 2

There is a committee that considers strategic developments on the basis of business plans. It is concerned that it may be too risk averse and requires some new guidance on evaluating business plans. Having worked through the PORES how would you advise the committee?

First to all it is important to remark that I once that the first Business Plan has been done, a lot of troubles can be identify and manage. As said Delmar and Shane to write a business plan helps entrepreneurs to increase theirs capability, but does less true that before to make a business plan could be very important to make a PORES analysis. Through of this kind of analysis it is possible to identify the profit opportunity and the capability to exploit it reducing the risk of failure and maximize profit potential.

With the PORES analysis I can provide to the committee a list of key assumption that I can check and verify if them are correct. From an external point of view there are several aspects that inside of the company can always look like correct but really aren’t.

For these reason it is necessary to review the following: the initial conditions that provoked the new venture; validate the studies realized about the market identifying the buyers, suppliers, and competitors; analyze the resources that are necessary and check if the kind of resources are available or is required a specific skills that can increase the costs. With all of these characteristics that I can provide will be important to add a dynamic point of view because statics aspect are not enough to validate a business. The dynamic aspect should be studied over all characteristics that a business plan cover as are check if the new idea was consequence of solve a problem or is something that appear after to see a vision or strategy. That usually occurs in development of software because a lot of people forget the labour of IT architects that always try to be according with the enterprise architecture. I can to determinate if the study of market have been done thinking in the new competitors or the growth possibilities of the new venture and if have been done a macro economic analysis identifying the risk (i.e. the increase of interest) and creating a mitigation plans.

Once that the key assumptions have been identified and checked with this model we can to review the profitability of each one and try to analyze if the best strategy to exploit it has been chosen.


Andrew Burke (2009. ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

Entrepreneurship and New Venture Creation Exercise 3

Discuss an idea for a new product that will create a new industry niche. To convince others of your idea you need to set out the likely scenario for how the new niche will develop in terms of competition, numbers of firms and how firms compete over time.

Idea background

Some of the most routine labours that are not very much recognized are the home cleaning. In the latest years all the adults’ members of the family (usually the parents) are working almost all day, without too much time to enjoy of theirs children. Some people have the possibility of outsourcing the clean services of his home, but not all of them. Also in the latest years have been a lot of advanced in the clean products that increase its efficiency and decrease its price hence the parents can have more free time to enjoy with his family and can save money, even if they buy clean services.

Then we have studied the idea of launch a new product to the market of clean product's that let to the cleaners to clean the glasses more efficiently, and even forgot that they must to clean the glasses. We are talking about of the automatic cleaner of window glasses. It is device that is put in the window and automatically it starts to clean and stops according with the schedule parameters.

Factors of Industry Evolution

There are several factors that have influence in the decision of launch a new product, its strategy, performance and its exit strategy, some of them are the macroeconomic situation, the regional variation and the industry evolution. According with the industry evolution there are three topics that are important to analyze with more detail to be clear that these will not are problematic during the life of product and we will be ready to launch the appropriate response if that appear. These three factors are the barriers of entry, the minimum efficient scale and the competitive process and business shakeouts.

First to explain with a little bit of detail over these topics is necessary remark that the region where initially will be launched will be Spain. Although now in terms of macroeconomic situation is not the best moment, we think that in Spain the weather is not bad during a lot of time of the year and there are a lot of hours of sun light each day. That is a important factors to clean the glasses of the windows.

  • Barriers of entry

The new product is a technological product and required a lot of investment, hence money and financial resources. For these reason the main barrier could be the switching cost, because the price of the product will be more expensive that a simple rag and bucket. Nonetheless the situation can change with appropriate level of advertisement explaining to the customer the benefits in long terms.

  • The minimum efficient scale.

Only a few companies can develop the technology to make the product. It is a product differentiation that needs specific components. The new product will have the company patent in order to fight against the copies.

  • The competitive process and business shakeouts.

About the competitive process we have already explained some aspects in the last two paragraphs. We can think that if there are specific components, we can have troubles with the suppliers, but there is not problem because the raw components are very common (‘circuits’) but has a specific firmware made by the company.

In order to be prepared for a shakeout, some of the best solution is to sell the patent but another can be use the infrastructure available in develop new products with similar technology.

As conclusion in the follow table we can see the evolution of the new product over the time identify the most important characteristics:

Barriers to Entry


Competitive process

Market Entry

The switching cost

Almost all markets will be for us, but the customers are low.

Use generic components.

Market Development

Avoid the temporary.

Create Patent to avoid the increase the number of companies that can copy the technology.

Continuous marketing plan.


Sell the patent.

Use the technology for other products.

Sell the patent.

Use the technology for other products.

Sell the patent.

Mature Phase

Hold the patent for all derivates products and evolutions.

Use the economy of scale.

Create a secondary market with the spare parts.


Andrew Burke (2009. ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

George S. Day. ‘Strategies for Surviving a Shakeout’, Harvard Business review March-April 1997.

October 19, 2009

Entrepreneurship and New Venture Creation Exercise 4

There is the opportunity to lead a new team that will introduce a new (or substantially amended) service. Conduct a self-assessment exercise as suggested in the notes and outline how your sectoral, managerial and personal skills match the service.

The quality of the people involved in a new venture is most important than the strength of he business idea. The key to effectiveness to carry on any task is the combination of ability and effort. With the self-assessment we can assess whether a individual has the ability to perform the task required for profit exploitation and has the enough motivation to do this.

To carry on the self assessment there are three steps that should be performed, these are: study the own life experience, a formal audit of business sector managerial and personal skills, and at the end seeks to identify important goals in one’s life. I am going to focus on developing the analysis of the step two, identifying my strengths and weaknesses to respond aspects of Sector Skills, Management Ability and Personal attributes.

Personals Skills



Sector skills

Wide experience but not deep experience in sectors different to Public sector.

My experience started from technological areas to functional areas. For these reason I have an inclination to technology 

Experience in IT services as IT Architect and Project Manager.

Experience in Public Sector, developing citizen services. Some experience in Telco, Utilities and Financial.

Experience in big companies. I work at IBM for almost ten years and I was four years in Lucent Technologies.

Management ability

No experience as people manager.

No experiences in management of departments.

Experience as Project Manager in a medium size IT projects for almost seven years.

Personal Attributes

No very strict with the staff.

Needs a lot of data in order to take decisions with the intention of please everyone.

Honest with the managers and staff.

Responsible with my goals and projects.

Always try to innovate.

In order to identify fits and gaps I am going to use the Belbin’s (1984) managerial profiling of people’s managerial styles. Through of this framework, I have answered seven questions in order to identify which one is the most appropriate profile for me.

Belbin’s team role profiles

Figure.1. Belbin’s team role profiles.

The result of the test show that I fit better with the Coordinator profile and Completer finisher. Both are very good profiles in order to carry on the launch of the new service, but would be convenient that the team have some profile with creativity and team builder.

Personal Aspirations

I have lived in a family with own business and for a lot of time I have thought to avoid the familiar business and follow my own way in a big company. Nonetheless it is difficult to forget the intention to create your own company, mainly because is a way to satisfy a lot of aspirations as are be able to carry on a firm, create employment, etc… Currently I am working in IBM and is a company that can help me to get my own goals, because it's a company where I can get the knowledge, experience and networking necessary to create a company or to have the opportunity of manage a department where carry on the goals aimed at developing technologies and products that make life easier for others.


Andrew Burke (2009. ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

Belbin Web Site:

October 2009

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Most recent comments

  • Hi Luis, interesting to hear what happened in a real life situation – in your conclusion it would be… by Harminder Singh on this entry
  • Hi Luis, an appropriate use of Bhide, however because it was an historical example it has meant that… by Harminder Singh on this entry
  • Hi Harminder thank you very much for your comments, I will take them into account in the revision of… by on this entry
  • Hi Luis, perhaps more discussion of the individual points you have made, and if you have any example… by Harminder Singh on this entry
  • Hi Luis, you need to look at how the industry evolves over time as the answer is insufficient at the… by Harminder Singh on this entry

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