Entrepreneurial Finance. Robert D. Hisrich

Entrepreneurial Finance - Robert D. Hisrich


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$3,000, which included several rounds of revisions and testing. Before he had even started the venture, he had out-sourced the software development of the upcoming product at a fraction of the price it would have been to develop it in the United States.

      An offensive approach occurs when entrepreneurs discover a new business opportunity that involves maintaining a presence beyond their country's boundary. This was the case of the now famous mobile game Angry Birds, created by Rovio (Kendall, 2011). While their roots are in Finland, home of Nokia Corporation, they decided to pass on the opportunity to do business locally and target their upcoming game to iPhone users predominantly present in the United States. In December 2009, Rovio launched the game Angry Birds through Apple's iPhone app store. It rapidly became a best seller, and since then, the game has been downloaded more than a billion times by smartphone owners from all over the world.

      Being global is not a choice anymore for entrepreneurs. Entrepreneurial ventures need to be able to leverage the global economy and its advantages to become competitive both locally and globally.

      What is Different about Entrepreneurial Finance?

      Finance for entrepreneurs is somewhat different from either corporate- or investment-oriented finance. When we consider traditional financial techniques and concepts, we see that the discipline is based on a number of key assumptions. These assumptions include readily available data, efficient markets, diversification as a way to control risk, and statistical analysis as a means to measure risk. These are the key assumptions or techniques that underlie both the theory and practice of traditional finance.

      When we deal with entrepreneurs or entrepreneurial ventures, especially startups, there are two key points to consider:

      1 there is usually a paucity of any historical data, and

      2 entrepreneurs do not have the ability to diversify or even measure their risk in the normal way.

      Thus, entrepreneurial finance is considerably different from main-line finance. We acknowledge that entrepreneurial finance requires an in-depth knowledge of finance theory and technique and an understanding of the strengths and weaknesses of these theories and techniques. However, the final element that needs to be equally weighted in the entrepreneurial environment is the application of skill and judgment in selecting and applying the appropriate theory or technique given the problem at hand. We do not deny that this is also important in the areas of traditional finance, but we assert that it is more acute with entrepreneurial firms. In the entrepreneurial setting, it is not just a matter of calculating the answer (which is what is usually done in the more traditional areas of finance). The entrepreneur must know:

      1 What to do if historical data are not available

      2 What techniques may be used when certain data are missing

      3 How to compute ranges of outcomes rather than focusing on specific outcomes

      4 How to use projections that are based on data that are not historical

      Summary

      There has never been a better time to explore international opportunities and become a global entrepreneur. Becoming an entrepreneur today is less of a trade-off than it used to be. Between corporate layoffs, foreign competition, and the decline of labor unions, the typical employee may no longer assume that his or her job will be there for the next 3 to 5 years. Entrepreneurs need to have a global mind-set to face a highly competitive global economy. Common traits identified among global entrepreneurs are cultural diversity, desire to achieve, internal locus of control, clear vision, tolerance for ambiguity, integrity, and a global sense of responsibility. Companies are born global, and internationalization is no longer a choice but a requirement for today's global competitive business environment.

      Chapter 2 Business Planning for Entrepreneurs

      Learning Objectives

       To understand the purpose of a business plan

       To understand the elements of a business plan

       To know the process of building a business plan

       To know how to develop the necessary financial information and statements

      Case: TerraPower, Inc.

      Bill Gates, Nathan Myhrvold (the former chief technology officer of Microsoft), and Lowell Wood (a renowned astrophysicist) were brainstorming about new ideas at an intellectual property incubator and licensor, Intellectual Ventures. The three knew that they needed to come up with an idea that would have significant potential by solving a large problem in the future and then developing a strategic plan and eventually a business plan to get there. While looking into the general area of energy, they focused on delivering massive amounts of emission-free energy that could occur in all kinds of weather conditions. This focus eventually led to concentrating on new designs to create and deliver nuclear energy that were technically feasible and developing the necessary plans for achieving this.

      The group formed TerraPower, Inc. in Bellevue, Washington, and hired John Gilleland, founder of Archimedes Technology Group, a company that developed solutions for the disposal of nuclear waste, as CEO of the company. Since TerraPower did not require any public funding, the nuclear power startup could more easily develop an affordable endless supply of electricity through engineering an innovative traveling wave reactor (TWR) technology that would run on depleted uranium. Requiring a very small amount of enriched material to start, the wave reactor would slowly burn over decades the depleted uranium without refueling. This would provide better control of costs and reduce any opportunity for theft by terrorists.

      The supply source of depleted uranium was enormous, with over 680,000 metric tons in just the United States. In addition, the coolant in the reactors would be liquid sodium, which is much softer water, just in case of an earthquake or another natural disaster such as happened in Japan in 2012.

      As called for in the plan, the company had about 60 employees by March 2013 and has the objective of having a prototype ready for testing in 2022. This projected timeline is reasonable despite the technological and particularly the licensing problems associated with nuclear reactors.

      The plan requires developing a brand-new supply chain for the components of the technology, a feat in itself. The distinctive fuel assemblies needed will require nontraditional materials and manufacturing techniques. Over 100 partner sources have been approached such as Massachusetts Institute of Technology, the University of Michigan, Kobe Steel, and Toshiba to develop the supply chain and conduct the necessary research.

      As occurred in the development of TerraPower, Inc., a business plan is an important part of the new venture process, as it provides a road map for implementing the entrepreneurial strategy established. Strategy is defined in the strategic management literature as developing a plan for creating and operating a profitable new enterprise through the obtainment and development of internal and external resources in alignment with the environment (Dess & Miller, 1993; Mintzberg & Quinn, 1991; Pearce & Robinson, 1992; Thompson & Strickland, 1992). Strategy exists at various levels in a new venture, such as enterprise, corporate, business, functional, and subfunctional, so that implementation can occur throughout the firm.

      A key aspect of developing a strategy at each level is establishing goals. Goals need to be difficult to achieve and represent a challenge for the new venture and yet realistic enough to be achieved with effort. Such is the case of the goal of TerraPower of having a prototype traveling wave reactor available in 2022.

      To accomplish the goals established and implement the strategy, it is best to write a business plan before an entrepreneur goes very far in creating and starting a new venture. While the original plan developed will be modified and changed many times, remember, “If you do not know where you are going, any road will get you there.”

      Chart 2.1 presents a schematic representation of the


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