knowledge based entrepreneurship

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Knowledge based

Entrepreneurship

by John Heebll

NOTE: This is a pre-release version for students at DTU 42435, DTU

42705, Copenhagen University SCIENCE and KU-HUM/DTU

Summerschool 2007. For your personal use only.


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mastering the process of getting a business up and running. What better

preconditions for entrepreneurship can one imagine? So the author is a

firm believer in the significance of good entrepreneurship teaching and

training: it creates more and better entrepreneurs and as an inherent

part of that: more and better companies.

The rest of this book is dedicated this purpose.

Being a kind of Mr. Pickwick within entrepreneurship in Denmark for

quite some years, I report on what we may call the emergence of an

academic entrepreneurial culture. Being also an observer of the

American endeavours in this field, I report on similarities anddifferences. Since this is a preface: here are the digests. Consider them

the axioms on which this book rests:

During the late nineteen nineties and early third millennium, a

Danish academic entrepreneurship culture has emerged out of

universities and the knowledge based industries, driven mostly

by political incentives and venture capital plus some inspiration

from the outside world.

This is in parallel to what happened in USA from late nineteen

seventies, and basically we are just some twenty years behind.

Hence, study the American high-tech entrepreneurial culture,

and you will get a fairly good idea of what is going to happen

here in Denmark in the coming decennia.

In the nineteen eighties, entrepreneurship in US was spurred by

concerns about the national twin deficit and the loss of global

economical leadership. The buzzword was globalization to

increase income from exports and decrease expenditures on

import. Entrepreneurs were encouraged to develop

internationally competitive products and start exports. To day,

2007, globalization still ranks high as a political goal for


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promoting entrepreneurship. However, much concern is also

raised on the issue of finding strategic countermeasures to the

fierce competition on classic industrial production from newly

industrialized countries, particularly in Asia. Entrepreneurs are

encouraged to join in the development of a completely new wing

of highly competitive knowledge based industries, capable of

gaining foothold on the international markets and expand, and

we cannot get enough of them: the quicker the better!

The academic entrepreneurial culture deals with complex

commercialization processes, where the presence of capital,

advanced specific knowledge and wideband interdisciplinaryskills and resources combined, create the preconditions for

success. In the start-up phase, the skills and experiences of the

founding team are mission-critical, and venture capital is

prudent. Capital is invested in teams capable of executing.

Hence, you better get to know what execution is about before

you launch your own venture.

High tech business start-up is a complex project to run. Apart from a

mandatory technical knowledge within the core business, it takes an

array of legal, economical and managerial skills and experiences. The

task is also demanding both physically and mentally; you are quickly

whirled into a chaotic and committing working life, which will absorb

almost any free time. During the critical years of gaining your

commercial foothold, it is never off your mind. To some, this is a rich and

rewarding lifestyle. To others it is devastating. And you are probablysomewhere in between. One of the purposes of this book is to introduce

you to this kind of working life so that you can prepare yourself mentally

and professionally - or opt out of it if your priorities are somewhere else.

This book differs as a textbook in that it treats the specific fields in a

holistic approach. You will not be able to find that much specific


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information and tools, but you will be introduced to entireties and

interrelations to enable you to acquire and maintain an overview of your

own situation plus an appropriate set of priorities.

It is not bookkeeper qualifications that make you a successful

entrepreneur. Success depends far more on your ability to maintain

control of a complex situation, your ability to weed out the essential from

the non-essential and your capacity for strategic thinking combined with

energetic tactical execution, a continous focus on serving your

customers needs while maintaining a sense of urgency. These abilities

do not unfold unless you keep an overview of your project, and this is

again is preconditioned by your ability to think in entireties andinterrelations and to grasp a complex and highly detailed project.

The failure rate of new businesses is appalling, and it can be argued

that no wise man or woman should ever engage in a business start-up.

Observations however indicate that with methodical preparations,

common sense, some intelligence, good customer relations, and good

advisors with networks and managemeent experience, only few

ventures flop. Quite a high proportion of them never really expand,

though. Some even close down again, but the entrepreneurs get on,

unhurt, to new endeavours and with increased capabilites. This

viewpoint, admittedly, does not rest on firm data and research, rather

than the surprizing staying power of companies, started together with

the Danish semi-public preseed investors: the innovation environments

(innovationsmiljerne), which methodically pick and choose the winning

teams from their deal flow. Darwin at work, and the sorting criteria are

management competencies and value creation perspectives combined.

This book aims at qualifying the readers capacity for identifying and

pursuing perspective business ventures. You are introduced to the

business plan, which is a mandatory compilation of your considerations,

analyses and calculations. The business plan is your personal basis for

your kick-off decision. It is also the indispensable precondition for

acquiring capital and human resources. In appendix 1 you will find a


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commented recipe on how to make a business plan. Use it with a bit of

imagination; include all the wisdom contained in this book plus a lot of

common sense. Then your start-up project will not fail although no

guarantees are given.

Many classic errors are repeated by one entrepreneur after another. It is

senseless to fall into well-documented pitfalls. Turn to chapter XX and

find them before you fall into them yourself. Equally, successful

business start-ups have common features, which can also be studied in

chapter XX.

Business start-up with success takes efficient resource management,the right kind of ressoruces (like money) at the right time, plus qualified

business management. Read about how to manage your business in

chapter XX, how to raise capital in chapter XX, and how to build up a

competent management in chapter XX.

This textbook is first and foremost designed for the students that sign up

at the entrepreneurial courses at graduate- and PhD-level at Technical

University of Denmark and Copenhagen University. Thus, it addresses

our darling: the knowledge-based high-tech entrepreneur and it takes

you all the way through a venture-backed ambitious and growth-oriented

internationally focussed start-up project. If you can do this, you can do

anything. So if you are more attracted by a less ambitious and probably

less risky concept, creating a sustainable, controllable and highly

awarding working life for you and your co-founders and employees, you

will also find most of what you need in this textbook.

The visiting lecturers at the entrepreneurial courses at Technical

University of Denmark since 1993 have provided a substantial part of

the input used in this book. They are successful and skilled

entrepreneurs, they come from pre-seed and venture capital companies,

they come from the Danish and Southern Swedish business community,


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from other institutions of higher education, or from industrial

development programmes. It is a group of more than 35 competent and

experienced consultants, investors, teachers, and entrepreneurs, all of

whom I wish to thank dearly for their contribution since 1993. None

mentioned none forgotten.

It is not possible to write a practically oriented book about business start-

up without involving the entrepreneurs themselves. From 1987 to 2000,

Technical University of Denmark ran a centre for start-up companies:

Innovationscenteret. In 2000 Innovationscenteret was acquired by The

Hoersholm Research Center, which again was acquired by Technical

University of Denmark and split into a research park, a pre-seedinvestor: SCION-DTU A/S and an innovation environment : DTU

Innovation A/S. This system naturally is being swarmed with

entrepreneurs and their start-up companies. They are an inexhaustable

source for inspiration, information, experiences and knowledge and

visiting lectures. Thank you for letting me watch from the sideline and

thank you for joining us in the lecture room.

Three major Danish industrial foundations initially funded the first and

second edition of this book:

Tuborgfondet

Karl Pedersens og Hustrus Industri fond

Thomas B. Thriges fond

The foundations charters aim at supporting the development of Danish

industry and business. I hope that this book will help to promote this

purpose, and thank you very much for the economical support from

these great institutions within Danish industry.

The third edition of the book has been funded in a collaborative effort

between the International Danish Entrepreneurship Academy IDEA,

Socialfonden (EU Foundation for the Improvement of Living and


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Working Conditions) and Erhvervs & Byggestyrelsen through grants to

the Technical University of Denmark, Greenhouse+. (Greenhouse+

delivers entrepreneurship teaching and training as well as pre-start

consultancy at the DTU campus in Lyngby, Copenhagen.) Thus, these

three major promoters of entrepreneurship together with Technical

University of Denmark, Department of Manufacturing and

Management have enabled a long needed update of the textbook for

which I and hopefully also my future students - and the reader - are

grateful.

Snekkersten, August 2007

John Heebll


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Summary

The focus of this book is the knowledge-based business: a company,

which to a considerable extent is based on advanced technical

specialist knowledge.

The first chapter concludes that there is a great need for knowledge-

based entrepreneurs in our society. They stimulate the knowledge

diffusion from research to business. They revitalize industry by filling

gaps and by capturing technology-driven business opportunities. They

are important drivers in the continous adaption of industry and

businesses to the ever-changing conditions on national and global

markets. Some of them succeed in creating stunning ventures that

surpass the community of well established, well run companies on

valutation and shareholder value to underline the importance of a vibrant

community of start-ups as the breeding ground for future large and

globally competitive companies. Together, they impact the gross

domestic product (GDP) visibly, and whether big or small, growing or

stationary, they provide exiting and challenging working lives for

founders and employees.

The following chapters XX - XX deal with the fundamentals of starting a

new business. The classic question about how you identify a business

opportunity is discussed. Opportunity-driven creativity as an adaptable

skill as well as some appropriate commercialization strategies for

bringing the ideas via products or services to the market are introduced.

So is the working life in a newly established knowledge-based business.

Observations on the entrepreneurs background, personality, andmotivation are quoted, the classic startup process is introduced, and last

but not least, the classic doctrine of success and failure of the startup is

reviewed.

Then we turn to the mysterious art of creativity. A relative short chapter

explains the origin of ideas, and concludes, that opportunitydriven

creativity can be acquired and perfected. Once the idea is there, action


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must be taken to commercialize but how? For this, the difficult but

important art of developing appropriate business strategies is

introduced..

In chapter XX, the business plan, which is the synthesis of the

preliminary surveys and analyses, with an execution plan and some

budgets on top of that, is introduced. Appendix 1, which is an extension

of chapter 6, is a recipy for business planning, designed as a tool for

systematically analysing and planning a new venture.

The remaining XX chapters dig into classic fields within economy and

law, in order to highlight problems, essential to a knowledge-basedbusiness start-up process. The idea is to provide the reader with

operational and practical solutions to problems and challenges that are

generic to high-tec start-ups. This should remove any excuse for staying

behind your desk for too long. New companies are not created in the

office, at the desk. Hiding among your books, notes and computers for

fear of the real world, where your ideas are put to the test, is one of the

most classic entrepreneurial pitfalls. You need to go out and do it.

The last chapter deals with intellectual property rights (IPR) such as

patents and critical know-how from the start-up companys perspective.

Hopefully, at the end, the reader has acquired an overview of how to

handle a complex commercialization process, which again can be

turned into a realistic business plan, a sound and well founded decision

and, at the end: a successful new business venture, based on good

business management and entrepreneurship.

All the best!


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Contents

Preface ...................................................................................................................................................................... 3

Summary................................................................................................................................................................... 6

Chapter 1................................................................................................................................................................. 11

More Businesses, Please! ....................................................................................................................................... 11

1.1. Our Ancestors were Peasants ...................................................................................................... 11

1.2. Today, We Are a Necessary Evil ................................................................................................ 11

1.3. The Employment Society of the Future ...................................................................................... 12

1.4. The Knowledge-based Entrepreneur of the Future ..................................................................... 12

1.5. The Promotion of Enterprise in the Future.................................................................................. 13

1.6. The Danish Enterprise Culture .................................................................................................... 14

1.7. Summary, Chapter 1. ................................................................................................................... 15

Chapter 2................................................................................................................................................................. 16

Characterization of an Entrepreneur ...................................................................................................................... 16

2.1. Personality Types......................................................................................................................... 16

2.2. Motivation and Driving Force..................................................................................................... 17

2.3. The Personal Requirements......................................................................................................... 18

2.4. The Ideal Team............................................................................................................................ 19

2.5. Summary, Chapter 2. ................................................................................................................... 20

Chapter 3................................................................................................................................................................. 22

The Startup of the Business.................................................................................................................................... 223.1. Types of Businesses..................................................................................................................... 22

3.2. The Start of the Manufacturing Business.................................................................................... 24

3.2.1. The Preparation Phase........................................................................................... 24

3.2.2. The Startup Phase.................................................................................................. 25

3.2.3. The Expansion Phase............................................................................................ 26

3.3. The Startup of Service Businesses .............................................................................................. 26

3.4. Summary, Chapter 3.................................................................................................................... 28

Chapter 4................................................................................................................................................................. 29

The Good Idea ........................................................................................................................................................ 29

4.1. The Birth of an Idea..................................................................................................................... 29

4.2. The Birth of the Good Idea.......................................................................................................... 30

4.3. From Need to Problem ................................................................................................................ 30

4.4. Registration of a Need ................................................................................................................. 33

4.5. From Problem to Idea .................................................................................................................. 34

4.6. From an Idea to a Good Idea; a Systematic Process................................................................... 35

4.7. A Final Check.............................................................................................................................. 36

4.8. Summary, Chapter 4.................................................................................................................... 37

Chapter 5................................................................................................................................................................. 39

Learning from Experience...................................................................................................................................... 39


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5.1. The Universe of the Entrepreneur ............................................................................................... 39

5.2. The Success Factors of the Business........................................................................................... 40

5.3. The Failure Factors of the Business ............................................................................................ 40

5.4. The Bankruptcy Statistics............................................................................................................ 41

5.5. DICs Observations ..................................................................................................................... 42

5.6. The Classic Rules of Thumb ....................................................................................................... 43

Chapter 6................................................................................................................................................................. 44

The Business Plan................................................................................................................................................... 44

6.1. The Purpose of the Business Plan ............................................................................................... 44

6.2. What is a Business Plan?............................................................................................................. 45

6.3. What Does a Business Plan Contain?.......................................................................................... 45

6.3.1. The Introduction.................................................................................................... 45

6.3.2. The Static Part....................................................................................................... 46

6.3.3. The Dynamic Part ................................................................................................. 47

6.3.4. The Conclusion Part.............................................................................................. 48

6.3.5. The Sensitivity Analysis ....................................................................................... 48

6.4. The Gathering and Processing of Information............................................................................ 486.5. Quality Considerations................................................................................................................ 49

6.6. Summary, Chapter 6.................................................................................................................... 51

Chapter 7................................................................................................................................................................. 52

Marketing Economics for Entrepreneurs............................................................................................................... 52

7.1. Michael Porters Market.............................................................................................................. 52

7.2. The Reaction of the Market to a New Product............................................................................ 55

7.3. The Marketing Plan ..................................................................................................................... 57

7.4. Summary, Chapter 7.................................................................................................................... 58

Chapter 8................................................................................................................................................................. 59

Sale and Marketing................................................................................................................................................. 59

8.1. The Art and Ethics of the Sale..................................................................................................... 59

8.1.1. The Salesman Must Believe in the Product.......................................................... 60

8.1.2. The Product Must Create Values.......................................................................... 60

8.1.3. The Unique Advantage of the Product ................................................................. 61

8.1.4. Expand the Visible Offer ...................................................................................... 61

8.1.5. Create an Expectation and Make an Offer............................................................ 62

8.1.6. Quality and Trust .................................................................................................. 62

8.2. Marketing Methods...................................................................................................................... 63

8.3. Summary, Chapter 8.................................................................................................................... 65

Chapter 9................................................................................................................................................................. 67

Export ..................................................................................................................................................................... 67

9.1. Export from Day One .................................................................................................................. 67

9.2. Where to Start .............................................................................................................................. 69

9.3. How to Start ................................................................................................................................. 69

9.4. Distribution on the Export Market .............................................................................................. 71

9.5. Agent, Dealer, or Your Own Marketing Subsidiary................................................................... 72

9.6. An Export Seminar for Sellers..................................................................................................... 75


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9.8. Summary, Chapter 9.................................................................................................................... 77

Chapter 10............................................................................................................................................................... 78

The Finances of a Business .................................................................................................................................... 78

10.1. Book-keeping in Practice........................................................................................................... 78

10.1.1. The Accountant................................................................................................... 8110.1.2. The Book-keeper................................................................................................. 81

10.2. Cash Flow through Budgetary Control ..................................................................................... 82

10.3. The Financial Statements........................................................................................................... 83

10.3.1. The Accounts ...................................................................................................... 83

10.3.2. The Profit and Loss Account .............................................................................. 84

10.3.3. The Balance Sheet............................................................................................... 85

10.3.4. The Notes to the Accounts.................................................................................. 86

10.4. The Budgets of the Business ..................................................................................................... 86

10.4.1. Spreadsheet Models ............................................................................................ 87

10.4.2. The Cash Budget................................................................................................. 88

10.4.3. The Profit and Loss Budget ................................................................................ 88

10.4.4. The Balance Sheet Budget.................................................................................. 8910.5. Summary, Chapter 10................................................................................................................ 90

Chapter 11............................................................................................................................................................... 91

Financing ................................................................................................................................................................ 91

11.1. Capital; for What?...................................................................................................................... 93

11.2. Types of Capital for Running and Investments......................................................................... 96

11.3. Subordinate Loan Capital or Debt Capital? .............................................................................. 98

11.3.1. The Risk of Debt Capital .................................................................................... 99

11.4. How the Investors Assess a Business........................................................................................ 99

11.4.1. Investors Think Three-Dimensionally.............................................................. 101

11.4.2. The Rich-Gumpert Evaluation System............................................................. 102

11.5. Where Does the Money Come From?..................................................................................... 104

11.5.1. Financing of the Preparation Phase .................................................................. 104

11.5.2. Financing of the Startup Phase ......................................................................... 106

11.5.3. Financing of the Expansion Phase.................................................................... 109

11.5.4. Summary, Section 11.5..................................................................................... 110

11.6. Investor Types ......................................................................................................................... 110

11.6.1. Venture Capital ................................................................................................. 110

11.6.2. The Development Investment Companies........................................................ 113

11.6.3. Institutional Investors........................................................................................ 114

11.6.4. Subordinate Loans............................................................................................. 114

11.6.5. Leasing .............................................................................................................. 115

11.7. A Survey of Financing Schemes............................................................................................. 116

11.8. Investors You Should Know Of .............................................................................................. 11711.8.1. Venture Companies........................................................................................... 117

11.8.2. The Danish Fund for Industrial Growth ........................................................... 119

11.8.3. The Development Investment Companies........................................................ 120

11.8.4. 2M Invest .......................................................................................................... 121

11.9. Subordinate Loan Capital Injection in Practice....................................................................... 121

11.9.1. The Investor's Demands Regarding the Return on

Investments................................................................................................ 122

11.9.2. Capital for Business A ...................................................................................... 122

11.9.3. Capital for Business B....................................................................................... 125

11.10. Summary, Chapter 11............................................................................................................ 127


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Chapter 12............................................................................................................................................................. 128

Commercial Law for Entrepreneurs..................................................................................................................... 128

12.1. Corporate Forms...................................................................................................................... 128

12.1.1 The Single Proprietorship.................................................................................. 129

12.1.2. The Partnership ................................................................................................. 129

12.1.3. The Limited Company and the Private LimitedCompany.................................................................................................... 130

12.1.4. Other Corporate Forms ..................................................................................... 131

12.2. The Selection of Corporate Form............................................................................................ 132

12.2.1. Risk Versus Corporate Form ............................................................................ 132

12.2.2. Fiscal Considerations ........................................................................................ 133

12.2.3. Company Image................................................................................................ 134

12.3. Company Conversion.............................................................................................................. 134

12.4. Agreements.............................................................................................................................. 135

12.5. The Danish Sales of Goods Act............................................................................................... 136

12.6. Product Liability ...................................................................................................................... 137

12.7. Rules between the Seller and the Buyer.................................................................................. 138

12.7.1. Rules between the Producer and the Wholesaler ............................................. 13912.8. The Danish Salaried Employees Act....................................................................................... 140

12.9. Summary, Chapter 12.............................................................................................................. 140

Chapter 13............................................................................................................................................................. 142

Business Management for Entrepreneurs ............................................................................................................ 142

13.1. The Core Group and the Employees ....................................................................................... 142

13.2. The Board ................................................................................................................................ 145

13.2.1. The Board in Practice........................................................................................ 146

13.2.2. The Board Work in the New Business ............................................................. 148

13.2.3. The Main Tasks of the Board ........................................................................... 149

13.2.4. The Useful Effect of the Board......................................................................... 151

13.2.5. The Directors Fee ............................................................................................ 151

13.3. Summary, Chapter 13.............................................................................................................. 153

Chapter 14............................................................................................................................................................. 154

Intellectual Property Law..................................................................................................................................... 154

14.1. The Patent; Capitalism or Business Promotion....................................................................... 154

14.2. The Basics of Intellectual Property ......................................................................................... 155

14.3. The Patent ................................................................................................................................ 155

14.3.1. Patentability....................................................................................................... 155

14.3.2. The Patent Application and the Regulatory

Requirements............................................................................................. 157

14.3.3. The Scope and Time of the Patent.................................................................... 15814.3.4. The Commercial Protection of the Patent......................................................... 159

14.3.5. The Interaction between Patents....................................................................... 159

14.3.6. The Patent Procedure........................................................................................ 161

14.4. The Utility Model.................................................................................................................... 162

14.5. Design Protection..................................................................................................................... 163

14.6. Trademark................................................................................................................................ 163

14.7. Trade Secrets............................................................................................................................ 164

14.8. The Buying and Selling of Intellectual Property Rights........................................................ 165


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14.9. Patent Strategies for Knowledge-Based Entrepreneurs.......................................................... 167

14.10. The Search Report ................................................................................................................. 169

14.11. Summary, Chapter 14............................................................................................................ 169

Danish Development Investment Companies as of 27th July 1995 .................................................................... 171

Appendix 1 ............................................................................................................................................................... 1


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Chapter 1

Summary

Entrepreneurs are important to us: they create jobs, they

innovate, they challenge the existing industry and business

community, and their activities even impact the gross domestic

product of nations. The Danish entrepreneurial activity level as

such is average in an international context, but our entrepreneurs

dont really seem to expand their ventures. [GEM 2005: Global

Entrepreneurship Monitor: a cooperation between universities all

over the world, providing compatible researc on entrepreneurial

activities on a national level] This is a serious problem, which

needs special attention. This book is part of that.

New business ventures have a high mortality rate, but

countermeasures such as starting in teams, get acces to

experiences, acquiring entrepreneurial skills, apply common

sense, do sanity checks, and communicate with the customers

before start-up, have a dramatic impact on the staying power of

new ventures.

A such sanity-check list from MIT is presented. The importance of

applying it before throwing resources into a new business venture

cannot be emphasized strongly enough.

Next, the personal traits of the entrepreneur are presented. So is

the importance of developing a strong founding team, if you plan

to start a complex high tech venture.

Consequently, the art of team-formation is presented. What kind


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of skills, experiences and personalities do you need, and how do

you attract such people? Some ideas and answers are given.

Finally, personal incentives and preconditions for starting a new

business as well as the working life in nacent businesses are

presented.

By the end you have developed a a more comprehensive picture

of what knowledge-based entrepreneurship is about and what it

requires from you. If it doesnt appeal to you then dont do it. If it

does: read on!

More Companies, please

Do we need entrepreneurs?

An obvious question: do we really need more entrepreneurs?

We invest a lot of attention, time, money, energy and

enthusiasm in encouraging, promoting, supporting and teaching

entrepreneurship in virtually all its many forms. Almost from

kindergarden to retirement. Does it really matter?

The Global Entrepreneurship Monitor (GEM) is a sensible

starting point in the quest for answers. GEM represents a

collaborative effort between universities in many countries aiming

at establishing global standards for monitoring entrepreneurial

activity on a national level, supporting monitoring programs

worldwide, based on the GEM standards and of course

submitting periodical reports on their findings.

So letss have a look at what GEM has to say about the

importance of a sound and active entrepreneurial culture to a


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nation. In the very first GEM report 1999, following questions are

discussed:

1. Does the level of entrepreneurial activity vary between

countries, and, if so, to what extend?

Answer: Yes it does. In the 1999 cohorte of nations, it

spanned from 1,4% to 8,4% of the adult population having

been involved in a start-up venture per year. We will

have a look at the 2005 situation later on and include

Danish figures in a global cross section

2. Does the level of entrepreneurial activity affect a

countrys rate of economic growth and prosperity?

Anser: Yes it does. The level of entrepreneurial activity is

positively correlated with recent gains in GDP1. Variation in

the rates may account for as much as one-third of the

variation in economical growth. This finding was most

certainly an eye-opener that infused a lot of attention and

action into industrial development programs and industrial

policy-making in the early years of the first decennium of

the third millenium

3. What makes a country entrepreneurial?

Answer: In the most active countries, entrepreneurship is

an integral and accepted feature of economical and

1A region's gross domestic product, or GDP, is one of several measures of the size of itseconomy. The GDP of a country is defined as the market value of all final goods and servicesproduced within a country in a given period of time. Until the 1980s the term GNP or grossnational product was used. The two terms GDP and GNP are almost identical. The mostcommon approach to measuring and understanding GDP is the expenditure method:

GDP = consumption + investment + government spending + (exports imports)


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personal life. In the remaining GEM countries, entrepre-

neurship through enterprise creation remains a structural

and cultural anomaly.Clearly this indicates that there is no

easy road to change. GEM consequently conludes, that in

such countries, it may take decades of sustained changes

in many national, cultural, political and economic

institutions, if they are to join the elite of entrepreneurial

economies.

In Denmark, this and other impacts revitalized the

puplic interest in furthering entrepreneurship. Since then,

perspective entrepreneurial programs within education and

industrial development have been initiated and maintained.

By example: public pre-seed capital available to

perspective start-up projects and public investments into

the development of quality entrepreneurship teaching in

further and higher education. Thus, we have embarked on

change and here in 2007, it seems quite likely, that

entrepreneurship will change from a structural and cultural

anomaly into an accepted feature of economical and

personal life. And now, let the numbers have their saying.

Entrepreneurship in Denmark, 2005

One very active observer of the Danish entrepreurial culture,

Vaekstfonden has released a number of analysis that shed some

light on entrepreneurship in Denmark in an international

comparative context. In an analysis of GEM data, Vaekstfonden

draws following picture:

Pct. of the Adult Population involved in Entrepreneurial Activities, per Year.Red line indicates global average

0

2

4

6

8

1012

14

16

18

20

New Australi Ireland USA Denmar Finlan U


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As such, this picture does not indicate any serious problems

though room is still left for improvement. However, in October

2005, GEM published a report on growth perspectives: GEM

2005 Report on High-Expectation Entrepreneurship.Look at

the synopsis: The first global study of high expectation

entrepreneurship has found that just 9.8% of the world's

entrepreneurs expect to create almost 75% of the jobs

generated by new business ventures. The report defines high

expectation entrepreneurship as all start-ups and newly formed

businesses, which expect to employ at least 20 employees

within five years. These ventures have far reaching

consequences for the economies in which they operate,

particularly because of their impact on job creation and

innovation.

So in other words - the entrepreneurial activities as presented

in fig. 1 above do not present the full information needed to

assess the state and importance of the entrepreneurial culture.

We need to look at ambitions and growth also.

GEM concludes that differences between nations are high. By

example: 5% of US entrepreneurs are HE-entrepreneurs. The


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Nordic countries display a discouraging 0,7%. Since these more

ambitious entrepreneurs are the true job- and wealth creators,

we have a problem here. It cohers with figures from

Vaekstfonden, concluding that whereas up to 15% of newly

founded companies start to grow rapidly in the best countries,

only 5% of Danish start-ups are able to expand out of the

cradle.

This rollercoaster ride to perceiving the Danish entrepreneurial

culture thus leads to the conclusion that we have an acceptable

entrepreneurial birthrate, but the new businesses for whatever

reasons dont grow. This is probably the singlemost important

challenge to policy-makers within entrepreneurship and

certainly also an important issue in entrepreneurship teaching

and training: we need more entrepreneurs willing to and

capable of expanding their ventures.

This book is very much about growth. Throughout he

subsequent chapters, a number of preconditions for growth,

such as appropriate venture strategies, good business

management and venture capital backing are treated to turn

you, dear reader, into the qualified and successful high-

expectancy entrepreneur, that we need so much

Applied EntrepreneurshipTo most of us, entrepreneurship is synonymous with risk and luck.

This perception is justified by the discouraging fact than less than

half of newly founded companies in Denmark live to celebrate

their five years birthday. A closer look, however, disclose a more

encouraging picture of the knowledge-based entrepreneurial

activities.


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First, we are dealing with a small proportion of the app. 15 -

20.000 companies being started per year in Denmark. No

statistical data are available, and, of course, numbers depend on

definition. A guesstimate around less than 1.000 companies,

being started to commercialize advanced knowledge per year in

Denmark, is probably not far from reality. Among these, less than

2 - 300 are backed by venture capital. These companies have a

completely different staying power and a capacity for growth.

They tend to stubbornly stick to life and fight for a break through to

success.

Secondly, succesrate increases with experience. The so-called

Serial entrepreneurs prove this beyond any reasonable doubt.

Coming from USA, where venture capital backed

entrepreneurship has a long and distinguished track record, serial

entrepreneurship descripes the phenomenon that founding,

developing and selling companies becomes a lifestyle of gifted

entrepreneurs with a talent for identifying and exploiting business

opportunities. This is really intriguing. Clearly these people

demonstrate that success in starting a business is more than just

random luck. So how do they do it? Where is the hidden secret?

Can it be learned?

The answer is complex but predominantly yes. Complex

because part of the causes for success are embedded in personal

behaviour and characteristics such as energy, aggressiveness,

self-confidence, vanity, boldness, stubbornness, integrity etc.,

which together form the enterprising and executive person.


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The more straightforeward part of the answer is that starting

knowledge-based companies requires vocational skills that are

generic to business venturing and which can be acquired. What

more efficient learning procedure can one imagine than learning

by doing? (Well - maybe learning from others successes and

failures could be a more cost-efficient way so carry on reading!)

Personal networks and personal credibility are also part of the

preconditions for repetitive success. Hence, serial entrepreneurs

are prudent and carefull about their personal track records. Not

that they try to hide failure but they turn failure into a learning

process and a precondition for future success. And they are

generally believed and rightfully so. Some home-spun

philosophy here: not long ago, flopping a start-up venture here in

Denmark meant loss of credibility and social denouncement. The

so-called Janteloven, defined as a set of views that scorns

individual success and those who set themselves above others;

the who-do-you-think-you-are to-be-better-than-us mentality,

prevailed, in particular in what might be defined as the

tradesmans entrepreneurial culture, where it may still live a

miserable life. It does not apply within the academic

entrepreneurial culture that developed rapidly in DK since the

start of the millennium. Here, it is acceptable even

courageous to fold, as long as the company flops for reasons

that are an inherent part of high-risk high gain ventures, and as

long as no third parties are economically or otherwise

devastated by the disaster. In other words: even well thought

out and well managed start up ventures may crash on the

impact with reality. You cannot possibly cover all aspects in

your preparations, and luck also has some saying. So, as long

as the quality of preparations, decisions and management is


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impeccable, your personal standing is not harmed by a

company collapse. It could even be strengthened, and surely

you gained valuable and recyclable experience.

Serial entrepreneurs tend to operate in regional business

communities such as the well-known entrepreneurial hotspots like

Silicon Valley or Route 128, Boston, where business

opportunities, customers and venture capital are found in

abundance and where getting known in the right networks is

achievable. In such communities, entrepreneurs can raise to the

level of rock stars. In Denmark this phenomina is less developed,

but still we have samples such as the Navision Billionaires and the

Giga-man.

Finally, it is important to notice, that high-tec venturing is a team

sport. Even though the entrepreneur is often very visible, rest

assured that there is a team behind every good one. Often

carefully designed to match the challenges of the start-up and

early development stages.

And now to the question: what can we learn from all that:

Personal characteristics are important to success. Hence:

when you form your entrepreneurial team, you should think

about what skills and personalities you need to access. We

dig into this later.

Personal networks are also important to success. If you

succeed in getting connected in the regional business

communities, you get access to knowledge and resources


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that can be applied when needed. You also get access to

experienced advisors, who may even join your

management at some point in time. And you get access to

their networks too. Quite often this allows you to recruit

your personell, to find your founding partners and your

funding sources or even better: to get access to your first

customers. Networks are also an indicator of your ability to

involve other people, which again is a precondition for

growing a business. With entrepreneurship you are really

in the people-business. Enjoy!

The skills: indisputably, the repeated successes of serial

entrepreneurs depend on acquired skills, which allow them

to act almost by instinct whenever they sense a business

opportunity. This sense of opportunity and how to act upon

it- at least to some extend - can be acquired through

teaching and training. Just like good airmanship can be

acquired to some extend in the flight simulator. So read

on to get airborne!

Common sense and rational decisionmaking: This is the

hallmark of fine businessmanship. Take a look at stunning

successes, and you will find them almost without exeption

easy to comprehend. Further, success seems to follow as

a logic consequence of apparently uncomplicated, rational

and obvious decisions. But this picture is deceptive: to

analyse a complex business opportunity, to distill the

essential information, to formulate the conclusions and

formulate the decisions, requires the combination of

knowledge, experience, time and work.


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The knowledge-part and some experience can be acquired

by learning and training, and that is where the highlights of

this textbook comes in and here it comes:

be relentless in complying with the following five basic

rules. If you are, you have a business opportunity, and

aswers to questions on how to pursue it come easy.

The Entrepreneurs Five Basic

Rules

The following rules2are the singlemost important checkpoints

in this book. Learn them by heart and put them to the test

whenever you consider a new business venture. If you

comply, you have increased your chances of succeeding,

even more than you may imagine!

Rule No. 1.

Where is the Pain?

If you cannot identify a real pain = a strong need in the market,

you should turn your attention to better start-up projects.

Please be loyal to this! And be carefull too: pain can be so

difficult to identify or interpret. By example: an entrepreneur

invents a wireless diaper that trickers an alarm when fouled.He thinks that the pain is in the mothers anxiety and guilt

when baby rash (inflammation of private parts) occur. Well

2The fundamental rules as presented here are copied from the MIT Sloan School of Business

executive entrepreneurial course: MIT Entrepreneurship Development Program, in which the author

participated, Cambridge, Boston Massachusetts, January 30 February 3, 2006 with the kind

support of IDEA: International Danish Entrepreneurship Academy.


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there is some pain here, but the real pain that eventually

caused a major distributor to acquire the entrepreneurs

company was the need to differentiate an established diaper

brand in a highly competitive and stagnant market with five big

companies, fighting for market shares. So what the

entrepreneur first perceived as a large competitor turned out to

be his real business opportunity and here he found pain on a

large scale.

Rule No. 2.

What is Your Value Proposit ion?

You need to really kill the pain. There is so much noise out

there and so many fighting for the customers time and money,

that unless you really can do something extraordinary, you

dont get any attention. This applies in particular to new

businesses without a track record.

Rule No. 3.

Quantify Your Value Proposit ion.

You cannot sell on qualitive statements in professional

business-to-business markets, which is where almost all high-

tec ventures operate. And you dont get any attention from

your customer, unless you are able to quantify the value

creation that comes with buying your product or service. A lot

of other questions like your selling price also find their

answers, once you have made some calculations on the value

creation. By example: the selling price is determined by the

values that your product or your service creates for your

customer not by what it costs to produce and sell it and a

good deal is equally beneficial to buyer and seller. So once

you know your quantified value proposition, you also know


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your selling price. Simple and logic isnt it? But it is certainly

not always easy to get the information needed to calculate the

QVP. The diaper-case: introducing a high-end wireless diaper

is expected to increase the sales of ordinary dispensable

diapers by some 3 - 5% simply because it draws attention and

adds a flavour of high-tec and better baby care to the brand.

With an annual turnover of USD 250 mill. and annual net

profits around USD 50 mill. on the existing product portfolio,

the wireless diaper thus will increase profits by 1.5 to 2.5 mill.

USD. A price for the start-up company is agreed upon, based

on a simple payback time of two years worst case - and the

entrepreneur walks away with USD 3 mill. plus some

performance-based options. Not bad for inventing, developing

and testing a simple wireless diaper, which took him three

years and some USD 100.000 to procure.

Rule No. 4.

Who is Your Jury?

Who decides to buy? You focus on your customer, but quite

often several stakeholders have to be catered for, before your

customer is allowed to sign the order form. Identify the

decision makers and prepare yourself for rule no. 5. The

diaper case: the jury is not only the worried mother. Its the

management in particular the CEOs of the large distribution

companies. So Mr. Big is on your jury too.

Rule No. 5.

Prepare Your Elevator Pitch. (1 minute max.)

Now, this rule is very American and somewhat alien to us

Danes. It does hold some qualities though. An elevator pitch


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by definition: imagine yourself entering an elevator, and there

you meet Mr. Decision Maker and CEO of a very important

company, whom you have dreamt of meeting, whithout being

able to get even close. You now have one minute to catch his

attention, explain your value proposition and get a meeting set

up, before the elevator reaches its destination and Mr. D.

Maker steps out. You probably acknowledge that this requires

a very well prepared speech, where Mr. D. Makers pain is

identified and the perspectives of killing it are cut out

unmistakingly.

Elevator pitches do not work in Denmark for the sheer lack of

high-rises, but there are other ways of bumping into Mr. Big.

Further, the importance of presenting your companys reason

for being, shortly, precisely and to the point, cannot be

underestimated. If you cannot do it, you most likely dont have

a business case.

If you can do it, you can conquer the world at least you can

get a lot of people interested, and thats what your company

thrives on.

The Entrepreneur

Given the importance of the business birth rate, it comes as

no surprise that the personal traits and motives of

entrepreneurs have been exposed to comprehensive

research. By example, one of the American grand old men

within entrepreneurship research, Professor Karl H. Vesper of

University of Washington Business School in his book New


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Venture Strategies" identifies a wide variety of personalities,

all of whom deserve the right to be called entrepreneurial:

- The single self-employed individual; independent,

hard-working people who work without help from others. In

this group we find small retailers and businessmen as well as

the Mom and Dad company..

- The job-shopper: someone who is always brewing on a

new start-up venture. Goes for any interesting business

opportunity, which pops up randomly and only rarely goes all

the way to a commercial breakthrough. Quite often, otherwise

sensible entrepreneurs in economical distress turn into job

shopping to survive. Not so bad provided they get back on

their trail once they enter fair weather.

- The team builder; this type is able to turn even the

most modest of enterprise projects into large corporations

through an incredible ability to find the right employees and

fully exploit their knowledge and talent.

- The independent innovator: the Edison-type who is

primarily a remarkable inventor, but rarely a great business

talent. Once in a while, they hit the jackpot, and that is

remembered. Great innovators that are able to team up with

executive and skilled business people often produce very

successful start-up ventures. Such teams are the darlings of

venture capital companies.

- The pattern multiplier type: enters an already existing


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business area with a phenomenal business and

organizational talent and turns a local shop into a global

player. In Denmark we have a fine sample in Lars Larsen

from Jysk Sengetoejslager. (Sells reasonably good quality

towels, bed linen, pillows, etc., at moderate to low prices

globally!).

- The economy-of-scale exploiter is the type who knows

how to bring down the cost level and thereby increase the

earnings through economies of scale and well-thought out

logistics. Henry Ford is one of the most well known.

- The capital aggregator. This type pulls together a

substantial financial stake, which is used on starting a large

business, which almost from one day to the other establishes

itself as dominating on its market. Not a frequent phenomina

in Denmark, though.

- The acquirer is at the lookout for businesses, which are

ready to be straightened out, instead of starting from the

bottom. In this group we find the corporate raiders who take

over troubled companies, break them up, sell off the best

pieces, dump the rest, and use the profit to live a life in the

utmost luxury. See the movie Pretty Woman with Richard

Gere and Julia Roberts in which the underlying business

ethics are commented amongst other issues. This approach

however should not hide the fact that many good companies

have been developed by talented acquirers, so this could be a

fine way of getting started. In fact many companies are

acquired when the original founder retires. New management

often works wonders with such companies.


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There are many types of entrepreneurs to choose from, and if

this - on the one hand - creates more confusion than clarity, it

contains the positive message, that on the other hand most of

us have some of the characteristics, which match one or more

of these types. This again underlines that there is a kind of an

entrepreneur in all of us. The challenge is rather to identify

what the start-up project requires and then think of getting

yourself a team with a match.

The Entrepreneurial TeamMost high-tech ventures are founded by teams or by partners,

if you like. For many good reasons. Stress and loneliness is

one. You need capacity and you need to share and discuss

your thoughts. The required wide band skills and experiences

needed to handle a technology venture is another good one.

Here is a third from the authors own library of experiences:

once the going gets tough, you invariably get frustrated and

exhausted and ready to give up at some point in time, but

then there is always someone else in the team in a better

condition than you, who manages to revitalize optimism and

pull through to better times. (The hallmark of a real good team

member: he/she knows how to act in difficult times.) Finally,

given the importance of networks, teams have larger

networks than individuals.

So you need a team. But who should they be, and how do

you attract them? Answers to these two questions depend on

preconditions and objectives of your business venture. You


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Founding Team Competen cies

0

2

4

6

8

10General Business Experience

Strategic Business Management

Specific Market Experience

Sales & Marketing

Start-up Experience

Business Administration

Production & Logistics

Technology

will find some of the basics about how preconditions and

strategies relate to your team in subsequent chapters. The

rest can be picked up below.

A good tool to assist you in identifying your vocational and

professional needs is the spider web graphical presentation of

skills. Start by considering what kinds of expertice and

experiences you think you need to establish a team, capable

of handling the tasks and challenges, you expect to meet

during the start-up phase. Then draw up a diagram like a

spider web, letting each radial represent a competence or

experience. Then for each competence or experience -

estimate on a scale from say zero to ten, the level that you

have access to already. Draw a polygon, and it will indicate

where you are compared to where you should be. If you have

a technical-scientific background, your polygon will probably

lay askew as indicated below. Here, we have fictious team of

a scientist from a technical university and a production

engineer, who have joined forces with a retired CEO. Clearly,

this venture needs access to people with some background

within sales, specific market experience and business

administration.


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Now, professional skills are not enough to form the complete

founding team. Different personalities that supplement each

other are essential too. Here, we get some help form the

famous American economist, Dr. Ichak Adizes3, who divides

human personal traits into four categories, claiming that you

find them all in each of us, but one of them would typically

prevail. Here they are, and Dr. Adizes recommends that you

try to get them all into your team to get a group capable of

handling any situation:

Producer (P)Producers like to produce. They stay busy and get thingsdone. They focus on what we are doing and this makes theorganization functional. They would rather work than go tomeetings. They have no time for filing or planning. They finishone project and are ready to start another. They would rather

work alone because they have no time to train others. Needsomething done? Give it to a Producer.

Administrator (A)Administrators like to organize. They like rules, systems, andprocedures. They focus on how we do our work. If you donthave a policy on this, they will create one for you. They makesure we are doing things right, and by the book. Time is aprimary orientation. They are on schedule and would likeothers to be also. Need something organized? Give it to an

Administrator.

Entrepreneur (E)Entrepreneurs are thinkers and risk takers. They create anddevelop ideas of what to produce in the future. They areenergetic and enthusiastic. They are always on the move,

3

Learn more about the Adizes Methodology at: www.adizes.com


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sometimes not looking where they are going. Need to startsomething new? Give it to an Entrepreneur.

Integrator (I)Integrators bring people together and help people feel

involved. Their focus is on who is helping and how well we areworking together. This makes an organization organic, orinterdependent, like a living entity. Need to connect withothers or resolve conflicts? Call an Integrator.

How you find such partners ?

Part of the answer is, that it is a marketing job. You need to

sell your visions and your project. So start by preparing your

elevator pitch and a brief business plan. Your prospects will

ask for the latter, once their interest is spurred by the first.

Allow them to put your assumptions to the test. If they involve

themselves even as opponents - the first hurdle is passed.

Secondly, you find your partners via networks. So if you go

about the team creation in a serial way, your acces to

networks increase whenever the next partner is identified.

We also cannot conceil that success in team formation

depends on your own personal traits. Most remarkable

entrepreneurs are very extrovert and charismatic people. It

cannot be taught but it can be promoted. So dont be shy.

Once you feel confident that the business opportunity is really

there and you have checked the five basic rules: considerwhat kind of back-up you need and start your quest for

partners and consultants. And also keep one of Soeren

Kierkegaards most famous statements in mind: if the

individual does not act, destiny cannot prevail.


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The IncentivesWe need more entrepreneurs and we need better ones

with a high expectancyand a capacity for growth. But the

risks involved and the advanced broad-band skills needed

are counterproductive to this. Add to this, that real good

entrepreneurs usually dont need to look for a job and

good entrepreneurs are capable of creating really

interesting working lives for them selves and others. So why

would they bother to start up something of their own?

This question is highly interesting to those who want to

further high-expectancy entrepreneurship. Consequently, a

lot of efforts have been invested in understanding what

trickers an entrepreneur.

As the personal driving force and motivation, Karl Vesper

lists the following:

- An intense need for freedom

- Finds joy in creating

- A need to see concrete results

- Financial profit

- Threats in the present job

- Stimulation by challenging and risky jobs

- Obsessed with the role of entrepreneur- A need to direct others

- A need to prove own competence to him/herself and

to others

- A need to dominate

- A need to get a job


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Vaekstfonden has also been here and found, that among

the many motives, the predominant ones here in Denmark

are the need for creating tangible and much-admired results

and to make money on it.

In USA you often hear that we are in it for fun and profit.

That is very good reasoning!

According to Karl Vesper, the entrepreneurs place

themselves low on Maslows hierarchy of needs in regards

to the need for safety and love, but high when it comes to

creating respect for themselves. That fits nicely with the

above statements

Within the five management disciplines; planning,

organizing, human resources, management, and control,

the entrepreneurs turn out to be very good at planning

activities and to select and motivate staff members, but they

are not very good at organizing and controlling the

activities. Thus Karl Vesper.

So where does that bring us? Well, at least one usefull

statement can be deducted: when you set up your founding

team, you need to motivate your tentative partners to join,

and here, you may draw upon the above in attracting good

entrepreneurs: being part of a visible success apparently is

one of the strongest incentives. The possible obscene gain

is another. So be it. Enter these perspectives in your draft

business plan to facilitate your team building.


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The Personal Preconditions

Finally lets have a look at the working life that awaits you, and at

some of the essential personal preconditions and traits that helps

you getting through the tough years of business formation.

In his Guide for Entrepreneurs and Smaller Businesses [18],

Niels Ravn points out that the entrepreneurs must be prepared to:

- Make decisions under pressure

- Take chances; that is make decisions on a loose

ground

- Cut through

- Be a good loser

- Work hard

- Cope with deprivation; vacations, family, other interests

- Delegate responsibility

Consequently, the requirements of an entrepreneur thus are a

good health, a patient family, and a capacity to work under

stressing conditions witout getting too stressed.

Next a Swedish viewpoint on the subject: Peter Tovman and

Bengt-Arne Vedin claim in their book Start Your Own Business -

With Success [41], that the ideal personal specifications of the

entrepreneur are:

- Motivation and energy

- Experience within the business area

- Work experience


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- A positive life situation

- A good education

- Focus

The point of views of Tovman and Vedin are interesting from

several perspectives: they underline the business experience as

an important precondition for success, and they also warn against

staring a business out of dire necessity.

In fact, Tovman and Vedin indirectly suggest that you prepare

your business from a secured social and economical position and

settle down in a business area where you feel at home - without

violating the Salaried Employees Act and the Marketing Practices

Act. The latter is the authors addition with a view to the inherent

conflict of interests that arise, when a good employee quits her job

to start her own in the very market where she was previously

paied to operate.

This could be a good place to comment on the relationship

between established companies and entrepreneurial employees.

In the academic entrepreneurial culture and amongst knowledge-

based industries, such divorces are generally peacefull and they

often end in cooperation with the old company as the first

customer, maybe even co-owner and represented in the

management based on an investment through its corporate

venture division. This is in stark contrast to the situation among

Danish industries in the late previous century, where active

entrepreneurship was perceived as disloyalty and handled

consequently. But thats behind us now. The essence of spinning

out new companies from existing ones is that of course you must

be methodical in not violating the rights of your employer. Rather,


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you should look for mutual interests and act based on the

assumption that your employer is governed by common sense

and professionalism when you present you start-up visions.

Types of BusinessesBefore digging into the issues of business formation, we need to

establish some categories of start-up companies.

The differences between different types of start-ups are

pronounced, and without a sensible divison into types, we loose a

lot of type-sensitive information. Here is a way of looking at this:

A. The traditional start-up company.

New businesses within trade, manufacturing, service etc. like car

repair shops, hairdressers, bicycle shops, plummers, etc.

Companies like lawfirms, dentists, etc. also arguably belong to

this group. These businesses are much needed. They keep many

hands and heads busy. They keep the existing business

community on the marks. They create some wealth, they provide

a breeding ground for entrepreneurship in general and they

deserve all the back up they can get from regional business

development programs, since it is not easy at all to get such

companies up and running. It requires a lot of hard work,

continous attention and high-level vocational skills and

craftmanship. Though highly esteemed, they are however not the

focus of this textbook.

B. Knowledge based companies

This is our field of interest. These companies depend on specific


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and advanced knowledge. They thrive on research results and

close relations to universities, research institutions and major

knowledge based industries. They are often started by teams of

highly skilled academics and business people, and occasionally

they create stunning values to their owners, customers and

employees. Since the late nineteen nineties, a venture capital

industry has emerged in Denmark to stimulate the growth and

success of such companies through early-stage high-risk high-

gain investments. A lot more about this later in this book.

Knowledge-based companies operate in a wide variety of

business areas, and their need for capital and competencies differ

correspondingly. For the purpose of this book, it is convenient to

divide them according to their need for resources to get into

business.

The underlying reasoning is, that from the entrepreneurs point of

view, a resource-demanding and growth-oriented start-up

company is very different in objectives, working life and

management skills from a start-up company with a capacity for

breaking even, based on own earnings, the founders savings plus

maybe a little from family and friends.

One may argue that the divison into types should include a divison

into biotech, life sciences, information technology, communication

and industry, since the capital requirements and the investors in

the venture capital market reflect this kind of mapping. However,

the preconditions for venture capital funding are basically the

same, independent of types, so for the purpose of this book, such

subdivision does not really matter.


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What really matters in the way a start-up venture is managed, is

the need for resources to break even. So a sensible subdivision

related to the following chapters would be

1. Resource demanding business ventures. By example:

a. Drug development companies

b. Manufacturing companies

c. Research and development companies

2. Self-contained business ventures. By example:

a. Software companies

b. Consulting companies

Whether your start-up venture belongs to one type or the other

depends on whether or not it can get up and running based on a

combination of following three resources:

1. FFF = Family, Friends and Fools, who invest in your

venture.

2. In kind = using facilities that belong to someone else,

benevolent to your course.

3. Your first customers money. That is really the best.

If you can do that, you dont need to bother about professional

funding like venture capital and hence, your company belongs to

group 2 unless you want it kick-started and expanded rapidly,

which again requires external fundig.

If funding is what you want or need, you have to acquire capital

from the financial markets, and that is quite a challenge, which we

are going to spend quite some time on studying closer.


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Here is another statement that may surprise you: the rest of this

book is about catergory 1: the resource demanding and venture

capital backed business ventures. The reasoning is simple: if you

can do that, you can do anything including starting self-

contained business ventures.

In the lecture rooms at the Technical University of Denmark, this

approach invariably provokes some of the students, who find it

arrogant and over-ambitious. But this is an unjust interpretation.

As pointed out unambiguously in chapter 1, we need more high-

expectancy entrepreneurs. Insight in what it takes to start a new

company with a venture capital potential is your personal

precondition for deciding, if you want to do it. Finally, there is a lot

to learn from venture capital backed business formation. Study

what it takes and you become a better entrepreneur and business

manager, whether you decide to go for external backing of your

business venture or not.

Enough of this. Lets for a moment have a look at the fundamental

precondition for a start-up venture: the business idea. You need to

have an idea, so you need to do some creative invention to start

with.

Opportunity-driven Creativity

Two schools with very different vews on the importance of

creativity and the ability to train creativity seem to coexist:

(According to the Hunter Center of Entrepreneurship, University of

Strathclyde, Scotland)


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The elitist view:

1. Creativity is a rare talent

2. Creativity cannot be taught or learned

knowledge based entrepreneurship

Documents