Chapters 7 11 14 and 15 Study Terms Chapter 7 Building the Founding Team advisory board venture succeed o An informal panel of experts and other people who are interested in seeing the new o Useful and less costly alternative to a formal board of directors o Can provide a new venture with needed expertise without the significant costs and loss of control associated with a board of directors Step in the direction of making a more professional organization because using an advisory board avoids the risk of developing tunnel vision o Can range from meeting once or twice a year to meeting regularly and they are provided an equity stake in the company o Often used when a board of directors is not required or in the startup phase when the board of directors consists of the founders only Professional personal advisors Professional advisors o o Attorneys professional who typically specialize in one area of the law and can provide a wealth of support for a new venture Can advise the entrepreneur in selecting the correct organizational structure ask about and prepare documents for acquisition of intellectual property rights and licensing agreements negotiate and prepare contracts assist in complying with laws represent in any legal actions as advocates Accountants NOT an advocate cannot defend a client who does something that violates GAAP Beginning set up the company s books set up control systems for operations and payroll A rich networking source Bankers should be thought of as a business partner who can be a source of information and networking help make decisions regarding capital needs assist in preparing pro forma operations and cash flow analyses and evaluate projections assist in all facts of financing Insurance agents help an entrepreneur determine the needed coverage at the appropriate times Board of directors required and elected by shareholders in a corporation Provide expertise that fills gaps in the founding team s knowledge assist in establishing corporate strategy and philosophy Advisory board Mentor board individuals whom the entrepreneur respects and trusts Serve as a sounding board for ideas and act as coaches to raise the entrepreneur s spirits and warn the entrepreneur when they are heading down the wrong path Personal advisors board member o Assist with business development act as arbitrators for dispute resolution and give credibility to the new company s image o Do not have the power to sign contracts or commit the corporation legally o Elect officers of the corporation who are responsible for day to day activities o Advise provide expertise that fills gaps in the founding team s knowledge o Research has not provided any clear results on whether inside or outside board members are better outside board member Someone with no direct connection to the business o o Beneficial for succession planning and for raising capital o Bring a fresh point of view to the strategic planning process o Have expertise the founders may not inside board member o One who is a founder employee family member or retired manager of the firm o Advantage of complete knowledge about the business o Generally more available and have demonstrated their effectiveness in the particular positions they occupy in the business Consultants o Provide a variety of services for a new venture can train the sales staff management conduct market research prepare policy manuals act as temporary key management solve problems recommend market strategy design engineer products design a plant layout and equipment conduct research and development recommend operational and financial controls o Tend to be fairly expensive best used for critical one time advising or problem solving assignments but cost effective because they are accustomed to working within the constraints of a fixed budget o Generally paid in a monthly retainer hourly rate or project fee some have also been known to ask for equity stake entrepreneur s extended network o Critical to the entire entrepreneurial process o When an entrepreneurial firm interacts with other firms in its industry it creates additional extended networks o Achieved status derives principally from the entrepreneur s education and experience investors will place their bets where the perceived probability of success is greater the implication is that their ability to achieve success in one field will transfer to another o Affiliation status the benefit of being associated with a prestigious institution o Ascribed status refers to unchangeable characteristics such as the gender and ethnicity of the entrepreneur independent contractor o Own their own businesses and are hired by the entrepreneur to do a specific job under control of the entrepreneur only for the results of the work they do Include consultants manufacturers distributors employee leasing firms professional employer organizations PEOs and professional advisors o o Outsourcing companies use independent contractors to undertake functions the entrepreneur doesn t want to handle o Real growth in outsourcing has come from small and midsize companies o Key areas for outsourcing businesses processes and manufacturing o When using an independent contractors new ventures don t have to supply medical insurance and retirement benefits provide unemployment insurance or withhold payroll taxes o Hidden costs to outsourcing The cost of searching for an contracting with an independent contractor Transferring activities to the independent contractor Managing the independent contractor Bringing the activity in house o Leasing staff is a way for a new business to enjoy the advantage of major corporations without incurring many of the expenses o A professional employer organization PEO assumes the payroll and human resource functions for the business for a fee that generally ranges from 3 5 of the gross payroll o Each pay period the new venture pays the PEO a lump sum to cover payroll plus the fee leasing staff o Services the PEO provides include payroll processing taxes safety and risk management benefits administration and human resource management o Type of independent contractor Chapter 8 Calculating Startup Capital Requirements Bootstrapping business o Term often applied to the minimizing of resources required to start and open a o Entrepreneurs beg borrow or lease resources whenever possible so they can keep their overhead fixed costs as low as possible cash inflows o Records all the inflows of cash into the business when they are