New Venture Creation ◾ 99
drive Windows and Mac computers. The mobile chip market is composed
of giants such as Qualcomm Inc. and M Holdings. Even with these forces
arrayed against them, PCs have not suddenly disappeared; with their com-
fortable keyboards and large storage capacity, PCs are nonetheless superior
for tasks requiring large amounts of data input. Table5.4 presents a side-by-
side comparison of PC sales and tablets, as of April 2013.
6
5.5 A Small Company Is Not a Little Big Company
This is the title of an inuential paper in the Harvard Business Review by
Welsh and White.
7
This 1981 business commentary is as relevant today as it
was when originally published.
The authors argue that a traditional assumption among managers has
been that small businesses can use essentially the same managerial prin-
ciples “as the big boys,” only on a suitably reduced scale. The basic assump-
tion is that small businesses are like big businesses except that small
companies have lower sales, smaller assets, and fewer employees.
Nothing could be further from the truth. Smallness creates what the
authors call a special condition referred to as resource poverty. Resource
poverty distinguishes small rms from their larger counterparts and thus
requires critically different management styles and strategies. This can be
summarized as shown in Table5.5.
As we can see from Table5.6, small businesses do not have the resources
compared to big business, so how can they operate and survive? The
Table5.4 Worldwide Devices Shipments by Segment (Thousands of Units)
Device Type 2012 2013 2014 2017
PC (desk-based
and notebook)
341,263 315,229 302,315 271,612
Ultramobile 9822 23,592 38,687 96,350
Tablet 116,113 197,202 265,731 467,951
Mobile phone 1,746,176 1,875,774 1,949,722 2,128,871
Total 2,213,373 2,411,796 2,556,455 2,964,783
Source: Gartner, Inc. April 2013. www.Gartner.com
100 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
owners of small businesses need to wear many hats and have multiple skill
sets. From nance to accounting, from marketing to human resources, from
operations to negotiations, the small-business person needs to understand
all the elements of doing business.
So where and how does the small-business owner have the time to fulll
all these fundamental needs and functions, while at the same time create
Table5.5 “Resource Poverty” Applicable to Small Companies
Executive salaries Represents a much larger percentage of overall costs
Human resources Difculty in attracting expensive but necessary talent
Salaries vs. stock options—“skin in the game”
Business activities Cannot afford large personnel expenditures in
accounting, nance, marketing, sales, promotions, etc.
Products launch expenses
External environment Government regulations, industry standards
Seasonal sales variations
Insurance and banking needs
Stakeholder demands
Internal environment Cash ow management
Reaching break-even point
Table5.6 Disruptive Technology Examples
Old Technology New Technology
Slide rules Handheld calculators
Chemical photography Digital photography
Movie theaters VCR rentals
Vinyl records CDs
Typewriters Computer word processors
Open-chest coronary bypass
surgery
Catheter-based coronary stents
Exploratory gastro-enteric surgery Capsule endoscopy (pill that you swallow
that transmits continuous images via
telemetry)
New Venture Creation ◾ 101
the necessary innovations? Churchill and Lewis identied eight factors, four
related to the enterprise and four related to the owner, as follows:
A. Company-related factors:
1. Financial resources, including cash and borrowing power
2. Personnel resources, relating to numbers, depth, and quality
3. Systems resources, relating to information, planning, and control
4. Business resources, relating to customer relations, market share, sup-
plier relations, manufacturing, technology, and company position in
its industry
B. Owner-related factors:
1. Personal goals and business goals
2. Operational abilities relating to marketing, inventing, producing,
and distribution
3. Managerial ability and willingness to delegate responsibility
4. Strategic abilities in matching strengths and weaknesses of the
company
5.5.1 Cash Is King
“Without cash there is nothing to manage.”
A startup can survive as long as there is cash in the bank. The story is told
and retold about the owner asking his accountant at the end of each month,
“How much money do I have left in the bank?” Liquidity is a matter of life
or death for the startup.
When you start a business, the vast majority of the time, your motivation
is (and should be) rst to break even and then to make a prot. Scott Allen,
former About.com Guide, advises:
8
One of the most important lessons entrepreneurs have to learn, often
painfully, is that cash really is king. Not just paper money—but also cash
ow. Simply put, it doesn’t matter how much money will be coming in the
future if you don’t have enough money to get from here to there. Employees
can’t wait on paychecks until your customers pay. Your landlord doesn’t
care that you’re talking to investors and will have the money in a couple of
months. Suppliers may not be willing to extend your credit any further and
you may not be able to purchase the goods you need in order to deliver to
your customer and receive payment.
102 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
More businesses fail for lack of cash ow than for lack of prot. Why is
this? Two main reasons:
1. Business owners are often unrealistic in predicting their cash ow.
They tend to overestimate income and underestimate expenses.
2. Business owners often fail to anticipate a cash shortage and run out of
money, forcing them to suspend or cease operations, even though they
have active customers.
Let us start by differentiating between protability and cash ow:
Prot is the difference between income and expenses. Income is cal-
culated at the time the sale is booked, rather than when full payment is
received. Likewise, expenses are calculated at the time the purchase is
made, rather than when you pay the bill.
Cash ow is the difference between inows (actual incoming cash) and
outows (actual outgoing cash). Income is not counted until payment is
received and expenses are not calculated until payment is made. Cash ow
also includes infusions of working capital from investors or debt nancing.
This is illustrated in Figure5.7.
Cash ow is often calculated on a monthly basis, since most billing cycles
are monthly. Most suppliers will typically allow somewhere close to thirty
days to pay. However, in a cash-intensive business with a lot of inventory
turnover, such as a restaurant or convenience store, it may be necessary to
calculate on a weekly or even daily basis.
Commercialization Process
Initial
screening
(concept)
Proof of
concept
Product
development
Startup
activities
Market
launch
Strategic
Innovation
Critical Need=Initial Sales
Figure 5.7 Innovation continuum—Innovation is your ticket to commercial and eco-
nomic success.
New Venture Creation ◾ 103
5.6 Your Innovative Organization
“Innovate and change the world.”
Most startups that rely on complex technology begin their business life by
innovating a product or service. “Innovation is the ability to see change as
opportunity, not a threat,” as Steve Jobs famously quipped.
The process starts with an invention, and then progresses to innova-
tion. Invention is the creation of new products or processes through new
knowledge or from a combination of existing knowledge. Innovation is the
initial commercialization of invention by producing or selling a new product,
service, or process. Commercialization is the process of turning the inven-
tion, concept, or innovation into a product or service that can be sold in the
marketplace. The entire process can be visualized as seen in Figure5.8.
5.6.1 Types of Innovation
“Innovate or perish.”
A culture of innovation can be the startup’s primary source of competitive
advantage. However, to create this culture you cannot merely hold a couple
Innovation Continuum
RadicalIncremental
Laparoscopic
“key hole” surgery
Minimally invasive diagnostics
PET/CAT/IVUS
Fiber optics
Nanotechnology
Biopharmaceuticals
Online sales
Greek yogurt
Fat free foods
Gourmet coees
Internet browsers
Experience
Existing knowledge
Customer feedback
Risk taking
Technological breakthroughs
Discontinuous
Sustaining
Figure 5.8 Porter’s value chain—The total value of an organization is greater than its
component parts.
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