High­Technology Entrepreneurship

Chuck Holloway and Dennis Rohan
  Stanford University 

Course Description 


Please read this carefully so you understand what the course is trying to convey, the assignments that make up the course, and the ground rules under which we will operate. One of the requirements of the course is to complete a project involving the development of a business opportunity. Completing this in ten weeks is a challenge and it is very important that you and your team get a fast start. Please note the tight time schedule for launching the projects and, to the extent possible, come to the first class with ideas on how you would like to proceed. If you have any questions please call or arrange to talk to one of us. 



MAJOR THEMES AND PERSPECTIVE 

High­Technology Entrepreneurship is offered for students who may want to undertake a career in starting, building, or growing a company in the high­technology area. The course integrates the business disciplines you have learned, and is recommended for second year MBA students. It is structured around a continuum of case studies, readings, lectures, guest speakers, and student projects. Topics include the process of creating new opportunities, methods for assessing the feasibility of a new venture, understanding the competencies required by the entrepreneurial manager and founding team, business plan development, valuation and financing approaches for start ups, structuring of deals, technology acquisition and intellectual property rights, approaches to product development, strategies for leveraging external resources and customers, and plan implementation. 

A special effort is made to take advantage of Stanford's proximity to the entrepreneurial community. In their project, students will interact with experienced entrepreneurs. We welcome student projects on any technology, but in order to provide a start for students who are not focused on a particular technology, we will provide background material on two technologies which have become linked in the market place: Networks, and Multi-Media. The objectives of the course are to help you understand (1) the role of entrepreneurs in developing a business opportunity; (2) the primary tasks and decisions that are required to turn an idea into a sound business opportunity; (3) how business plans are created to define the business opportunity; and (4) the problems faced in implementing a plan for a new business opportunity. 



GENERAL FLOW OF THE COURSE 

The course is organized around a series of steps that new ventures must address. Topics to be addressed are listed below: 

I. IDENTIFYING AND EVALUATING BUSINESS OPPORTUNITY 

  • Identifying new business concepts
  • Developing the business proposition
  • Identifying and accessing customers 
  • Evaluating business opportunities
    •

    II. IDENTIFYING, ACQUIRING AND LEVERAGING RESOURCES 

  • Sources of Capital and Developing a finacing plan
  • Structuring Deals and Intellectual Property
  • Structuring Deals and Financing Alternatives
  • Acquiring human resources
    •

    III. MANAGING THE VENTURE 

  • Developing the organization
  • Designing and delivering products and services
  • Building supplier networks
  • Developing the organization and negotiating with resource providers
  • Marketing and selling
    •

    IV. HARVESTING AND DISTRIBUTING VALUE 

  • Planning and execution
    •

      

    The course will have a number of sessions in which outside speakers, each with a different perspective on entrepreneurship, will participate.  

    Readings from the course text, Timmons, New Venture Creation, Fourth Edition, and selected articles will be part of the assignment for each class. In most classes there also will be a case or discussion questions assigned. 

      



    COURSE OPERATIONS 

    In order to achieve the course objectives, you will be required to: 

  • Prepare cases and readings and participate in class discussion.
  • Prepare one written case assignment.
  • Participate as part of a group of five in a project to develop a business opportunity.
    •

    Each of these is described more fully below. 

      



    Class Discussion 

    The course will rely on case analyses and discussion of the readings as the means for transmitting a large part of the material. Suggested questions to help you prepare the cases are included in each class assignment. These questions should serve only as a starting point. You should decide what the key issues are and how they can best be addressed. 

    In a typical class, one or more class members will be asked to start the session by addressing a specific question. Anyone who has prepared the case and the questions in the syllabus should be able to handle this lead-off assignment. After a few minutes of initial analysis and recommendations, we will open the discussion to the rest of the class. As a group we will try to build a complete analysis of the situation, determine the extent to which the materials in the readings apply, and address the problems and issues presented. Because of the varied background of those in the class, our experience is that the discussion is often improved if we bring in a variety of opinions by calling on people other than those who volunteer, and so we will do that from time-to-time during the discussions. Again, anyone who has read the materials and prepared the case should be able to handle these questions.  

    While you are expected to be an active participant throughout the quarter, please note that the frequency (i.e., the quantity) of your contributions in class is not the key criterion for effective class participation. It is the quality of your participation that is most important. Criteria that are useful in measuring effective class participation include:  

  • Is the participant a good listener? 
  • Are the points that are made relevant to the discussion? Are they linked to the comments of others?
  • Do the comments show evidence of analysis of the case and an understanding of the assigned reading? 
  • Is there a willingness to test new ideas, or are all comments "safe" (for example, repetition of case facts without analysis and conclusions)? A thoughtful question can be an important contribution.
  • Do comments lead to a clearer statement of the concepts being covered and the problems being addressed?
    •

    We would like to emphasize three points. The first is that well posed questions are not only a legitimate way to interact but should be an important part of the discussions. The second is that, in most of the cases we discuss, there will be many different actions and plans that could be undertaken. Enlightened debate about the best plan to implement can add significantly to the understanding of the issues. Thirdly, because of the varied backgrounds in the class, many of you will have important contributions to make based on your personal experience. We will try to learn about your backgrounds over the course of the term, but you are encouraged to bring these experiences to bear on the analysis of the cases and the reading materials. 

    Because every faculty member has somewhat different expectations as to class operations and norms for individual behavior, we would like to outline a few of ours at the outset. 

      

  • We understand that other demands may require you to miss a class, but you should not plan on having more than one absence during the quarter. More than this will affect your class participation grade.
  • Please let one of us know in advance if you must miss a class. If you do miss a class, please find out from a classmate what additional assignments might have been made, and what handouts you may have missed.
  • As a courtesy to your classmates and to the visitors we will have during the quarter, please arrive on time. We plan to operate the class without a break. If there is some reason why you must leave in the middle of class please let us know.
  • To help us learn your names as quickly as possible, we'd like you to use a name card in class. During the second class, we will pass around a seating chart.
  • We plan to be prepared for every class and expect you to be prepared also. Because we frequently call on individuals whose hands are not raised, you should let us know before class if an emergency has made it impossible for you to be prepared adequately for that class.
  • Unless an assignment is designated as an individual assignment, group work is not only acceptable but encouraged. However, at no time should you use notes or papers prepared by others (not in the group) for courses where these materials might have been taught. Such use is considered a violation of the Stanford Honor Code.
  • We would be happy to discuss any specific questions you have in an office visit scheduled through our assistants. For Chuck Holloway: Lu Yujuico, Littlefield 268, tel. 723-1339. For Dennis Rohan: Karen Stock Littlefield 330 tel. 723-7655 
    •

      



    Case Write-up 

    Each student will individually analyze and write-up one of two cases: PacNet or the Universal Robotics case. The write-up should be a thorough analysis of the case, and limited to five pages typed double-spaced, plus exhibits. It is due at the start of class on the day the case is taught. The assignment questions for the case are shown in the Course Outline and Assignments. As guidelines for this written assignment, you should keep in mind the following: 

      

    1. General criteria for evaluation of the written case assignment are:
      1. The completeness and accuracy of the analysis. 
      2. The ability to relate the concepts discussed in class and in the readings to the issues in the specific situation depicted in the case.
      3. The clarity and organization of the presentation and the cogency of the arguments.
      4. The likelihood that your recommendations will resolve the major problems in the situation and provide the desired outcome.
    2. Papers should be printed on 8 1/2 x 11 paper, double spaced, with normal margins. The name of the case should be on the first page of the text in the upper right-hand corner. Your name, the date, and the course number (S356) should be on the back of the last page only. Please do not put your name on the front of the paper.
    3. Exhibits should contain specific types of analyses and information that is relevant, but would be too detailed for the body of the paper. Exhibits should not be simply an extension of the text.




    The Group Project 

    The group project is a key part of the learning experience of the course. The limited time available in an academic quarter makes it imperative that groups get off to a fast start. Before the second meeting of the course you should form a team of five individuals. In the second class we ask you to turn in a listing of your team and a preliminary description of the area(s) which you are considering for the Business Plan Project. As described below, we need to have all teams functioning by Wednesday of the second week. 

    The development of a business opportunity and the writing of a business plan is a major course requirement. The purpose of having you write the plan is two fold. Firstly, creating a plan requires that you work through all aspects of a business opportunity. The plan should address each of the activities and functions required for the development of the business. It should be structured so that it could be used as a vehicle for raising capital and to launch and grow the company. Secondly, the plan provides an opportunity to think about how you would move from a strategic vision to an operating plan, specifying the details required to manage and grow the organization. 

    There are two alternatives you can choose among for this project: 

    I. Identify a market opportunity in any area that has the following attributes: 1) It focuses on developing or using technology; 2) It has the potential to become a new business venture. The materials provided may help you think about exploiting the opportunities on the Internet, on the WWW or in multi-media. Projects must be presented to, and approved by, one of the instructors by scheduling a meeting no later than Wednesday 4/9. 

    II. Work on developing a business plan for an existing start-up. If you choose this alternative you must structure it so that you address all aspects of the business in the plan. That is, it cannot be just a market study or just an evaluation of financing alternatives. It must be broad, including all aspects of creating a business. Projects must be presented to, and approved by, one of the instructors by scheduling a meeting no later than Wednesday 4/9. 

    In past years we have had several protential projects suggested by entrepreneurs and venture capitalists. If there are available projects this year we will communicate with those on the class list before class starts. 

    The instructors prior to the final presentation will review the development of the students' business plan twice during the course. The initial checkpoint consists of the instructorsÕ review of the teamÕs proposed business opportunity. The second review will be of an outline of the business plan and the identification of key unresolved issues. 

    The final work product consists of a) written business plan due on the last day of class and b) an oral presentation of your plan to a panel of experienced executives, venture capitalists, and the instructors. The groupsÕ oral presentation will be given during exam week. 

    To assist students in developing their plan, each team will have an advisor. Most of these mentors are now playing or have played major roles in high technology start-ups in Silicon Valley. In some cases the mentors will be venture capitalist who have been involved in high technology companies. The instructors will assign the advisor to the team. The team will have the opportunity to meet with the advisor for three one hour meetings (be prompt and be prepared) throughout the quarter. It is the responsibility for the team to arrange these meetings and to act in a professional manner. The instructors will solicit feedback from the advisors on the quality of these meetings.  

      

    Professional Considerations 

    In this course you will have the opportunity to be exposed to entrepreneurs and high technology companies in their early stage of formation. This exposure will be both in the classroom and in the field. These early stage companies are by their nature fragile. Their plans, and proprietary technology are critical to their survival. You will be expected to treat this information with the utmost professionalism and protect its confidentiality. 

      

    Time Line for Projects 

  • Friday 4/4 Establish Teams: Turn in a listing of your team and a preliminary description of the area(s) that you are considering for the Business Plan Project. If you are interested in one of the opportunities described under class projects, specify that interest at this time and describe why your team wants to undertake the project. 
  • Wed. 4/9 Meet with one of the instructors to review your idea and discuss why you believe it has the potential for developing into a viable business plan project. Schedule a meeting with one of the instructors for no later than Wednesday 4/9 (call Karen Stock (3-7655) for an appointment). 
  • Wed. 4/16 through Friday 4/18 Meet with one of the instructors to present your business opportunity. This should include a write up of approximately 3 pages outlining the basic idea and the business opportunity. The presentation should be 30 minutes in length followed by 30 minutes for discussion. This is not a business plan but it should clearly address the reasons why you believe this can become a viable business, the value proposition, sources of competitive advantage, major sources of risk and uncertainty, any assumptions which underlie your analysis, and steps you will take to resolve the risks and evaluate the assumptions. Please contact Karen Stock (3-7655) or stop by Littlefield 330 to schedule an appointment. 
  • Wed. 5/14, Thurs. 5/15, or Friday 5/16 Teams turn in a 3 to 5 page outline and meet for 1 hour with the instructors. The outline and discussion should review the major sources of uncertainty for the project and steps you will take to resolve them. Please contact Karen Stock (3-7655) or stop by Littlefield 330 to schedule an appointment. 
  • Tues. 6/3 Business plans due.
  • Weeks of 6/2 and 6/9 Meet with panel and present plan.
    •

      



    GRADING 

    Your course grade will be based on the two pieces of written work and on class participation. These will be weighted as follows:  

    Written case analysis:  20% 
    Group Project:  45% 
    Class participation:  35%  


    One final comment with regard to the Honor Code. You are encouraged to work together in preparing for every class for which you are not handing in a written case analysis. All of the analysis and the actual preparation of the written case analysis should be done on an individual basis. Working together or using material prepared by others on such an assignment will be considered a violation of the Stanford Honor Code.  


    Course Outline and Assignments

    Text: Timmons, New Venture Creation, Fourth Edition, Irwin

    I. A PERSPECTIVE ON ENTREPRENEURSHIP

    Class 1 Wednesday 4/2 
    Introduction, Discussion of Class Operations and Introduction to the WWW 

    Read:  

  • Course Description
  • New Venture Creation Preface, Chapter 1, The Entrepreneurial Process ( Pages 1 to 26) & Chapter 2, New Venture Ideas (Pages 39 to 49)
  • The Start-Up Process
  • The Trillion Dollar Selling Tool: The next step in Internet investing

    • II. IDENTIFYING AND EVALUATING BUSINESS OPPORTUNITY


    Class 2 Friday. 4/4 
    Identifying new business concepts


    Read:  

  • New Venture Creation Chapter 3, Opportunity Recognition (Pages 87 ­ 109)
  • An Overview of the Interactive Media Market


    • Prepare: 

    3DO Case 

  • What was required to turn Hawkins' original idea into a business opportunity? What were the main features of 3DO's business opportunity? What aspects of the value chain as described in "An Overview of the Interactive Multimedia Market" is 3DO targeting?
  • Based on the information in the readings on opportunities and trends in multimedia, what were the strongest and weakest aspects of their business opportunity?
  • Identify the main risks faced by 3DO at the time of their IPO. What control, if any, did they have over these risks?
  • If you were starting a new video game software company, on which multimedia platform would you choose to run your application? Why?

    • Team Assignment: Turn in a listing of your team and a preliminary description of the area(s) which you are considering for the Business Plan Project at the end of class today. You must schedule a meeting with one of the instructors for no later than Wednesday 4/9 (call Karen Stock (3-7655) for an appointment) to review the idea and discuss why you believe it has the potential for developing a business plan for this course.


    Class 3 Tuesday 4/8
    Developing the business proposition

    Read:  

  • New Venture Creation Chapter 4, Screening Venture Opportunities (Pages 139 ­ 145)
  • A Note on the Internet S-OIT-15


    • Optional: On reserve 

  • "Building the Data Superhighway", Byte
  • The Internet Report, Morgan Stanley 

    • Assignment: 

  • Sign on to the WWW, access Greet Street (http://www.greetst.com), and investigate their product application. Also visit the sites for Amazon.com Books (www.amazon.com) and 1-800-Flowers (www.1800flowers.com). What do these internet content providers have in common? What are the differences?
  • Consider possible extensions of these uses of the Internet and come to class prepared to discuss how these ideas could be turned into a business opportunity using this new channel of distribution. 

    • Speakers: Fred Campbell and Tony Levitan founders of Greet Street


    Appointments: Please contact Karen Stock (3-7655) (or stop by Littlefield 330 to schedule an appointment for presenting your business opportunity outline to one of the instructors April 16, 17 or 18.

    Class 4 Friday 4/11
    Identifying and accessing customers     

    Read:  

  • New Venture Creation Chapter 10, Resource Requirements (Pages 331­344) 

    • Prepare: Vinod Khosla and Sun Microsystems (A) 

  • What were the key features of Vinod KhoslaÕs strategy for starting up Sun? How were these reflected in Sun's business plan? 
  • What are the common characteristics of the founding team? Were they right to resist the venture capitalists' push for more experience? 
  • Which resources were the most difficult for the Sun team to obtain? Why do you think this was the case? 
  • What should Vinod Khosla and Sun do in the face of Computervision's decision? 

    • Speaker: Vinod Khosla, Partner Kleiner Perkins Caufield and Byers

    Class 5 Tuesday 4/15 
    Evaluating business opportunities

    Read: 

  • New Venture Creation Chapter 11, The What, Whether and Why of Business Plans (Pages 375-377 and 418-421) 
  • New Business Ventures and the Entrepreneur, Chapter 5, The Business Plan  
  • Business Plan Outline 

    • Prepare: Fax International, Inc. (pages 386-418 in New Venture Creation) 

  • Evaluate the opportunity and the Fax International Business Plan. What are Fax's sources of competitive advantage?
  • How can Fax compete in the long run against AT&T, MCI, Sprint, and Cable and Wireless?
  • What competencies are critical in the management team? Are these competencies present? What unique features, if any, are there in technology?
  • How would you modify the business plan to increase the opportunity for success?

    • Class 6 Wednesday 4/16 to Friday 4/18 (Note we will not meet as a class) 
    Presentation of Business Opportunity

    Read:

  • S356 Business Opportunity Outline

    • Assignment: 

    Each group will meet with one of the instructors to present its business opportunity. This should include a write up of approximately 3 pages outlining the basic idea and the business opportunity. The presentation should be 30 minutes in length followed by 30 minutes for discussion. This is not a business plan but it should clearly address the reasons why you believe this can become a viable business, the value proposition, sources of competitive advantage, major sources of risk and uncertainty, any assumptions which underlie your analysis, and steps you will take to resolve the risks and evaluate the assumptions. 

    Groups should keep the appointment they have previously scheduled with one of the instructors.  


    III. IDENTIFYING, ACQUIRING AND LEVERAGING RESOURCES


    Class 7 Tuesday 4/22
    Sources of Capital and Developing a finacing plan

    Read: 

  • "Bootstrap Finance: The Art of Start-ups" HBR Nov-Dec 1992 
  • Teaching Note on Valuing Venture Capital Deals 
  • Wetzel, "Venture Capital" 

    • Prepare: PacNet 

  • Evaluate the business opportunity presented in PacNet's business plan. What are PacNet's potential sources of competitive advantage? 
  • What critical competencies are needed in the management team and how are they to be provided? 
  • If you were a potential investor in PacNet ,what issues would be of most concern to you? 
  • What are the strategies and financial interests of the Hong Kong and California investors? How should Kevin Wang position the plan to effectively negotiate with each group and convince them to invest in his proposed venture? 

    • Class 8 Friday 4/25
    Structuring Deals and Intellectual Property

    Read:  

  • New Business Ventures and the Entrepreneur, Chapter 8, Deal Structure and Chapter 10 Intellectual Property 
  • New Venture Creation, Appendices III,IV,V, and VI (Pages 755-780) 
  • Corporate Partnering: Structuring and Negotiating Domestic and International Alliances , Chapter 3 (Skim the entire chapter placing emphasis on Sections A, B, F, H, I, L, M, O, and S. 
  • Iandiorio, "Intellectual Property" 

    • Speaker: Joshua Green, Partner, Venture Law


    Class 9 Tuesday 4/29 
    Structuring Deals and Financing Alternatives

    Read:  

  • New Venture Creation, Chapter 7, The New Venture Team (Pages 253­265) 
  • Morris, "The Pricing of a Venture Capital Investment" 

    • Prepare: Universal Robotics
    NOTE: This is one of two options for a case write-up. If you choose this option, please prepare an analysis of the case, not to exceed 5 pages plus exhibits. This is an individual assignment and group discussion is not appropriate. 

  • How should arrangements among Reed, Baker and Carlton be structured? Address issues such as titles, board representation, stock interests, relative salaries, decision making, Baker's proposed royalty and any other questions you feel are important. 
  • What factors do you consider most important in choosing among the proposed financing alternatives? List them in the order of importance and explain your reasoning. 
  • Analyze the first three financing alternatives (the father-in-law, Prestige and Beacon proposals), leaving out the R&D Partnership. Which one should they pursue? Are there any features of your suggested alternative which you think should and could be modified? If so, in what way?

    • Class 10 Friday 5/2
    Acquiring human resources

    Read: 

  • New Venture Creation Chapter 5, The Entrepreneurial Mind in Thought and Action and Chapter 6, The Entrepreneurial Manager (Pages 206­222) 

    • Prepare: Case to be distibuted 

    Appointment: 

    A group member should contact Karen Stock (3-7655) (or stop by Littlefield 330 to schedule an appointment with the instructors for Wednesday 5/14, Thursday 5/15, or Friday 5/16. 


    IV. MANAGING THE VENTURE

    Class 11 Tuesday 5/6
    Developing the organization

    Read:  

  • New Venture Creations , Chapter 16, Managing Rapid Growth (Pages 575-583) 
  • Cisco Prospectus, February 1990 

    • Assignment: 

    Given the frameworks we have discussed in the course, which aspects of Cisco's business opportunity carry the most risk? How important is Cisco's technology? The management team? 
     
    Speaker: John Morgridge, Chairman, Cisco 

    Class 12 Friday 5/9
    Designing and delivering products and services

    Read:  

  • Revolutionizing Product Development, Chapter 2, The Concept of a Development Strategy (Pages 28-53) 
  • Software Engineering Chapter 1 (Pages 4-18), Chapter 25 (Pages 483-492) 
  • PEM Chapter 3, "Guiding Visions" (Pages 57-78) 
  • PEM Chapter 7, "Prototyping: Rapid Learning and Early Testing" (Pages 202-222) 

    • Prepare: DX Development Inc.--to be distributed

    Class 13 Tuesday 5/13
    Class will not meet on Tuesday, May 13. Preparation for presentation.

    Class 14 Wednesday-Friday 5/14-16
    Presentation of Business Plan Outline and Identification of Key Unresolved Issues


    Assignment: 

    Groups should turn in a 3 to 5 page outline and meet for 1 hour with the instructors at their previously scheduled times to go over the outline of their business plan.

    Class 15 Tuesday 5/20
    Building suppliers networks

    Read:  

  • Note on an Expanded View of the Supply Relationship

    • Prepare: Interactive Finacial Services-to be distributed 

    Speaker: Steven Aldrich, President and CEO

    Class 16 Friday 5/23
    Developing the organization and negotiating with resource providers

    Speaker: Heidi Roizen

    Class 17 Tuesday 5/27
    Marketing and selling

    Read: 

  • New Venture Creation, Ch. 19, Crafting a Personal Entrepreneurial Strategy (Pages 683-688) To the extent you are interested, examine your entrepreneurial inclination by completing the exercises on pages 689-710. 

    • Prepare: Arbor Software to be distributed 

    Speaker: Jim Dorrian, President and CEO Arbor Software 

    V. HARVESTING AND DISTRIBUTING VALUE

    Class 18 Friday 5/30
    Planning and execution

    Read:  

  • New Venture Creation, Chapter 18, The Harvest and Beyond 

    • Optional:  

  • New Business Ventures and the Entrepreneur Chapter 9, Securities Law and Private Financing 
  • New Business Ventures and the Entrepreneur Chapter 15, Securities Law and Public Offerings 

    • Prepare: Rasna Corporation to be distributed 

    Speakers: David Pidwell, Ex-CEO and Keith Kratch, Ex-COO

    Class 19 Tuesday 6/3
    Summary and Review