resources needed for new ventures- human resource

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Resources needed for the New Venture

-The Team

Prof. R.S.Mathur



Wednesday, December 01, 2010

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«




Prof. R.S.Mathur 3

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.




Prof. R.S.Mathur 4

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




Prof. R.S.Mathur 5

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.




Prof. R.S.Mathur 6

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.



Wednesday, December 01, 2010 Prof. R.S.Mathur 7

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.




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




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«




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.




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




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.




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




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.




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«




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




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




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




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«.




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«




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



W

ednesday, December 01, 2010 Prof. R.S.Mathur 22

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.



W


Entrepreneur

Spouse

Family Members

Co-Workers

Family Doctor

Friends

Personal Network

Accountant/CAFamily Attorney

Co-Workers Acquaintance

Co-WorkersIn-Laws

AcquaintanceFriendsAcquaintance

Friends



W


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



Wednesday, December

01, 2010

Prof. R.S.Mathur 25

Legal Forms of Business in

Perspective



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01, 2010

Prof. R.S.Mathur 26

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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01, 2010

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Organizational Chart and

Reporting



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01, 2010

Prof. R.S.Mathur 28

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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01, 2010

Prof. R.S.Mathur 29

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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01, 2010

Prof. R.S.Mathur 30

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



Wednesday, December

01, 2010

Prof. R.S.Mathur 31

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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01, 2010

Prof. R.S.Mathur 32

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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01, 2010

Prof. R.S.Mathur 33

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



Wednesday, December

01, 2010

Prof. R.S.Mathur 34

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



Wednesday, December

01, 2010

Prof. R.S.Mathur 35

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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