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TEAM BUILDING

"The way a team plays as a whole determines its success. You may have the greatest bunch of individual stars in the world, but if they don't play together, the club won't be worth a dime."

- Babe Ruth

The Entrepreneurial Approach to Resources

Resources include (1) people, such as the management team, the board of directors, lawyers, accountants, and consultants; (2) financial resources; (3) assets, such as plant and equipment; and (4) your existing business, but especially the customer base and industry network under­standing. Successful entrepreneurs view the need for and the ownership and management of these resources in the pursuit of opportunities dif­ferently from the way managers in many large organizations view them. Remember, great entrepreneurs create or seize an opportunity and pur­sue it regardless of the resources currently controlled.

"This definition was developed by Howard H. Stevenson and colleagues at the Harvard Business School. His work on a paradigm for entrepreneurial management has contributed greatly to this area of entrepreneur ship. See Howard H. Stevenson, "A New Paradigm for Entrepreneurial Management," in Proceedings from the 7th Anniversary Symposium on Entrepreneurship, July 1983 (Boston: Harvard Business School, 1984).

Deciding what resources are needed, when they are needed, and how to acquire them are strategies that fit with the other driving forces of entrepreneurship. Your role as a leader of an organization is to use the minimum possible amount of all types of resources at each stage in your venture's growth. Rather than own the resources, seek to control them.

Consider some basic approaches to pursue growth with reduced risk:

Staged Capital Commitments

"Staging" capital means using only the resources necessary to get you to a higher level of value in your business. The capital infusions are staged to match critical milestones that will signal whether it is prudent to keep going, and thus infuse the second stage of capital, or abort the effort at growth. Both the founder's and investor's financial exposure, and dilution of equity ownership, is reduced.

Capital. The amount of capital required is simply smaller, thereby reducing the financial exposure and the dilution of the founder's equity.

Flexibility. Entrepreneurs who do not own a resource are in a bet­ter position to commit and decommtt quickly.1 One price of owner­ship of resources is an inherent inflexibility. With the rapidly fluctuating conditions and uncertainty with which most entrepre­neurial ventures have to contend, inflexibility can be a serious curse. Response times need to be short if a firm is to be competitive. Most time-decision windows are small and elusive. And while it can be dif­ficult to predict accurately the resources that will be necessary to grow, you have an industry knowledge advantage. In addition to being nimble, the entrepreneurial approach to resources permits iter­ations or strategic experiments in the venture process - that is, ideas can be tried and tested without committing to the ownership of all assets and resources in the business, to markets and technology that change rapidly, and so forth. Consider also, for example, the inflex­ibility of a company that commits permanently to a certain technol­ogy, software, or management system.

• Low sunk cost. Sunk costs are lower if the firm exercises the option to abort a plan at any point. Consider, instead, the enormous up-front capital commitment of a nuclear power plant and the cost of abandoning such a project.

Costs. Fixed costs are lowered, thus favorably affecting breakeven. Of course, the other side of the coin is that variable costs may rise. But if your business model doesn't provide forgiving and rewarding economics, you shouldn't be growing! If it is, then there still will most likely be ample gross margins in the venture to absorb this rise.

Reduced risk. In addition to reducing total exposure, other risks, such as the risk of obsolescence of the resource, are also lower.

It is a myth that a company that cannot afford a resource shouldn't be growing. The truth is that not owning resources provides advantages and options. Of course, these decisions are extremely complex, involving such details as the tax implications of leasing versus buying and so forth.

Bootstrapping Strategies: Marshaling and Minimizing Resources

Minimizing resources is referred to in colloquial terms as bootstrap­ping, or, more formally, as a lack of resource intensity, defined as a multistage commitment of resources with a minimum commitment at each stage or decision point.2 When discussing his philosophy on boot­strapping, Greg Gianforte (who retired at the age of thirty-three after he and his partners sold their software business, Brightwork Develop­ment Inc., to McAfee Associates) stated "a lot of entrepreneurs think they need money . . . when actually they haven't figured out the busi­ness equation."3 According to Gianforte, lack of money, employees, equipment - even lack of product - is actually a huge advantage, because it forces the boot-strapper to concentrate on selling to bring cash into the business. Thus, to persevere, entrepreneurs ask at every step how they can accomplish a little more with a little less and pursue growth. As was outlined in Exhibit 1.2, just the opposite attitude is often evi­dent in large institutions that usually are characterized by a trustee or custodial viewpoint. Managers in larger institutions seek to have not only enough committed resources for the task at hand but also a cush­ion against the tough times.

Build Your Brain Trust

Team Building begins with an honest assessment of the current players in your company. Evaluating the team must be done in the context of the growth plan you are pursuing. That plan dictates the skills neces­sary to achieve your goals. Take, for example, Eric Johnson. Eric pur­chased Baldwin Ice Cream Co. in 1997 when it had total sales of under $2 million. Then, he purchased Richardson Foods in 1999. The com­bined sales of the company were under $6 million. T had a plan to grow. And you don't grow a company without an 'A' team. Together we estab­lished aggressive goals for the company and for the leadership. People that couldn't or wouldn't keep up usually opted out. We recruited some new players, forming a truly 'A team." Baldwin Richardson Foods will top $70 million in sales in 2003. Eric Johnson knew what he needed to fill in the gaps on the team. He focused on identifying individuals with the know-how, experience, and networks that have access to critical tal­ent, experience, and resources that can make the difference between success and failure.

Using Other People's Resources (OPR)

Obtaining the use of other people's resources, particularly in the start­up and early growth stages of a venture, is an important approach for entrepreneurs. In contrast, large firms assume that virtually all resources have to be owned to control their use, and decisions center around how these resources will be acquired and financed - not so with entrepreneurs.

The key is having the use of the resource and being able to control or influence the deployment of the resource. Other people's resources can include, for example, money invested or loaned by friends, relatives, business associates, or other investors. Or resources can include people, space, equipment, or other material loaned, provided inexpensively or free by customers or suppliers, or secured by bartering future services. In fact, using other people's resources can be as simple as benefiting from free booklets and pamphlets, such as those published by many of the Big Four accounting firms, or making use of low-cost educational programs or of government-funded management assistance programs. How can you begin to tap into these resources? Howard H. Steven­son and William H. Sahlman suggest that you do "two seemingly con­tradictory things: seek out the best advisors - specialists if you have to - and involve them more thoroughly, and at an earlier stage, than you have in the past. At the same time, be more skeptical of their creden­tials and their advice."4 A recent study found that social capital, includ­ing having an established business network and encouragement from friends and family, is strongly associated with entrepreneurial activity5

Exhibit 3.1 Hypotheses Concerning Networks and Entrepreneurial Effectiveness

Effective entrepreneurs are more likely than others to systematically plan and monitor network activities.

Effective entrepreneurs are able to chart their present network and to discriminate between productive and symbolic ties.

Effective entrepreneurs are able to view effective networks as a crucial aspect for ensuring the success of their company.

Effective entrepreneurs are able to stabilize and maintain networks, in order to increase their effectiveness and their efficiency

Effective entrepreneurs are more likely than others to undertake actions toward increasing their network density and diversity.

Effective entrepreneurs set aside time for purely random activities - things done with no specific problem in mind.

Effective entrepreneurs are able to check network density, to avoid too many overlaps (because they affect network efficiency) while still attaining solidarity and cohesiveness.

Effective entrepreneurs multiply, through extending the reachability of their networks, the stimuli for better and faster adaptation to change.

We would add:

• Effective entrepreneurs are able to leverage and create value for their networks.

In addition to networking with family, friends, classmates, and advisors, Stevenson and Sahlman suggest that the human touch enhances the relationship between the entrepreneur and the advisors to the venture.6 Accuracy in social perception, skill at impression management, skill at persuasion and influence, and a high level of social adaptability may be relevant to the activities necessary for successful new ventures.7

There are many examples of controlling people resources, rather than owning them. In real estate, even the largest firms do not employ top architects full-time but rather secure them on a project basis. Most smaller firms do not employ lawyers but obtain legal assistance as needed. Technical consultants, design engineers, and programmers are other examples.

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