Yale School of Management Goldman Sachs Foundation

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• Yale School of Management Goldman Sachs
  Foundation
• Partnership on Nonprofit Ventures
• National Business Plan Competition
• Operational Aspects of Running A Nonprofit
  Venture Panel
• May 13, 2004

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Most organizations are not designed, they
grow. Indeed, there are several studies which
draw on biological analogies to describe
organizational phenomena. But not all
organizations adapt equally well to the changing
environment within which they grow. Many, like
the dinosaur of great size but little brain,
remain unchanged in a changing world. -Charles
Handy What is the major problem? It is
fundamentally the confusion between effectiveness
and efficiency that stands between between doing
the right things and doing things right. There
is surely nothing quite so useless as doing with
great efficiency what should not be done at
all. -Peter Drucker Behaving like a manager
means having command of the whole range of
management skills and applying them as they
become appropriate. -Herbert Simon Everything
should be made as simple as possible, but not
simpler. -Albert Einstein
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Common Business Operational Mistakes(I wish my
clients and/or I hadnt made)

• Ignoring your business and/or marketing plan once
  it is completed
• Not planning and managing to multiple scenarios
  best case, expected case and worst case scenarios
• Explaining away poor results rather than taking
  them seriously and responding aggressively
• Treating your profit center like a cost center
  spending money faster than you earn it
• Not developing and managing to key performance
  indicators
• Hiring substandard talent to play a key role in
  the business
• Not fully appreciating the concept of working
  capital failing to invest some of the profits
  back into the business
• Viewing business development as an expense rather
  than investment
• Failing to become knowledgeable about the
  competition and staying that way
• Failing to understand that debt properly managed
  creates leverage
• Failing to measure and understand the importance
  and interrelationship of both employee and
  customer satisfaction
• Hoping for different results using the same
  strategy and/or tactic that isnt working

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Snapshot of the Small Business Industry
Small Businesses Failure
Closed Doors
1990
1998
1999
Source U.S. Small Business Administration,
Small Business Economics Indicators, 1998. March
2000 Small Business FAQ, December 2000. The
1998 1999 Numbers are estimates.
Total number of employer companies
5.7 million
5.8 million
5.8 million
Number of employer companies that closed
531,400
524,500
528,600
63,912
44,197
37,639
Number of business bankruptcies
Source U.S. Small Business Administration. The
State of Small Business A Report of the
President, 1997.
Percentage of Businesses Still in Operation
Among.
Companies of All Sizes
Companies that Hired
Companies that hired
(Soloists Included)
1 to 4 People
5 or More People
76
92
94
After 2 Years

47
80
87
After 4 Years
38
76
After 6 Years

79
53
70
29
After 8 Years
21
41
62
After 10 Years


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Snapshot of the Small Business Industry
Small Business Failure
Top reasons why small businesses declare
bankruptcy
Source Teresa A. Sullivan, Elizabeth Warren,
and Jay Westbrook. Financial difficulties of
small businesses and reasons for their failure,
Business Bankruptcy Project, University of Texas
at Austin, 1998.
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Entrepreneurship
Characteristics of a Successful
Enterprise
Arthur Rock, one of Americas leading venture
capitalists, cites the following characteristics
as the most important ones for the creation of a
successful enterprise

• Strategy is easy, but tactics are hard.
• The key to turning a good idea into a good
  business comes from the day-to-day management of
  the company. Having the right people can be more
  important than having the right business plan.
• Theres a thin line between refusing to accept
  criticism and sticking to your guns.
• Entrepreneurs must be brutally honest with
  themselves about bad news disappointment while
  still believing in their ideas.
• A great idea wont make it without great
  management.
• Entrepreneurial companies go through three stages
  of growth that require different managerial
  skills. The best entrepreneurs understand how
  vital good management is to their company, and if
  they cant provide it themselves, then they look
  outside and bring the right person in.
• An entrepreneur without managerial savvy is just
  another promoter.
• It is important that entrepreneurs have a style
  that leads people. Best entrepreneurs are
  skilled managers who can be tough-minded with
  themselves and their team, who can say no, and
  who ideally are well versed in the technology on
  which the company is based.

Source Harvard Business Review on
Entrepreneurship. Harvard Business School Press.
1999.
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Determinants of New Venture Performance
Based on the findings of 62 independent research
models, the following functional relationship for
new venture performance becomes evident
New Venture Performance f (E, IS, BS, R, OS)
where
E Entrepreneur IS Industry
Structure BS Business Strategy R
Resources OS Organization structure, systems,
and processes
Source Chrisman, James J., Alan Bauerschmidt,,
and Charles W. Hofer. 1998. The Determinants of
New Venture Performance An Extended Model.
Entrepreneurship Theory Practice. Vol. 23.
No. 1.
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Determinants of New Venture Performance
Organizational Structure, Processes, and Systems
When planning the organizational structure,
processes, and systems of a new venture, keep in
mind that

• In a ventures early stages of growth,
  flexibility of organizational structure,
• processes, and systems has a negative effect on
  its probability of survival,
• but a positive effect on its probability of
  success
• As a venture approaches maturity, formality of
  structure, processes, and
• systems increase the probability of survival
  and success
• A ventures organizational structure, processes,
  and systems are most
• important to its survival during periods in
  which it must make the transition
• from one stage of growth to another

Source Chrisman, James J., Alan Bauerschmidt,,
and Charles W. Hofer. 1998. The Determinants of
New Venture Performance An Extended Model.
Entrepreneurship Theory Practice. Vol. 23.
No. 1.
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Entrepreneurship
Investing in Organizational
Infrastructure
While many start-ups lack formals systems
processes, at some point an entrepreneur needs to
start building some infrastructure in the
ventures. The degree depends on the following

• Delegating tasks
• As the need for delegation arises, entrepreneurs
  may need to establish mechanisms to monitor
  employees and to establish standard operating
  procedures policies.
• However, such mechanisms should not stifle
  employee initiative.
• Specializing tasks
• As a business grows tries to achieve economies
  of scale scope, employees must be assigned
  clearly defined roles and grouped into
  appropriate organizational units.
• However, integrating the units successfully will
  be critical to reaching economies of scale
  scope.

• Mobilizing funds for growth
• Cash-strapped businesses that are trying to grow
  need good systems to forecast monitor the
  availability of funds.
• Creating a track record
• If an entrepreneur hopes to build a company that
  they can sell, then well-kept financial records
  controls are essential in reassuring potential
  public markets potential acquirers.

Source Harvard Business Review on
Entrepreneurship. Harvard Business School Press.
1999.
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Potential Social Enterprise Landmines

• Accountability for Success
• Analysis Paralysis
• Customer Satisfaction
• Organizational Buy-In
• Communication Issues
• Expectations regarding business outcomes
• Funder Perception(s)
• Knowledge/Talent requirements

• Implementation Planning and Execution
• Legal/Tax Issues
• Project Momentum
• Money/Capital Requirements
• Organizational/Staff Passion
• Political Issues
• Preparation/Due Diligence
• Systems/Organizational

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Ed Robinson President Founder Capacity Building
Solutions Inc. 301/774-0383 robin_ed_at_capacity-buil
ding.com