Eric von Hippel and John Preston
Massachusetts Institute of Technology
This course is intended for those who want to be involved in the start-up phases of a new technical business. We seek to provide both insights into the process of starting a new company and a basic understanding of the skills needed to do that challenging and exciting task. The course has an "how to do it", practical emphasis. Students who complete the course will know what it's like to develop a business plan, and will have a better idea as to how to proceed with fundamental underlying tasks such as identifying a promising new product or service idea, protecting the idea, financing the company, etc.The heart of this course is a project intended to give students a "hands-on" feeling for some of the critical tasks involved in new venture start-ups. Much of the course work will be done by students working together in small project teams.
February 13:
Introduction to Entrepreneurship: Overview of course
In this introductory lecture, we will provide an overview of course contents and course
requirements. (For a summary of requirements, see the last page of this syllabus.)
We will also discuss the "entreprenurial experience" - the fun and the work of being an
entrepreneur.
-10K Contest to be described by Joost Bonsen, contest organizer.
- Brad Feld - a former student in the course who has created a successful computer software
startup - discusses his experiences.
- Doug DeAngelis - a former student in the course who has created a successful startup company
developing and selling PC-based equipment for timing track and field events - discusses his
experiences.
- Other MIT entrepreneurship activities to be discussed by Joost Bonsen, Brad Feld, Eric von
Hippel and John Preston.
Reading: Timmons, New Venture Creation Chapter 1: "The Entrepreneurial Experience"
February 21 (TUESDAY): (1) Venture Success Factors (2) Choosing a product and market for
your new venture
Presenters: John Preston and Eric von Hippel
The first critical task an entrepreneur faces in his or her business planning is the choice of a product
and market. Elements that make a product (or service) idea attractive from the point of view of a
start-up will be discussed.
Readings: Timmons, New Venture Creation, Chapter 2, "New Venture Ideas," & Chapter 3,
"Opportunity Recognition."
Questions to think about: If you have a new venture idea in mind, think about it and apply some
of the tests suggested in Timmons to it. Does it pass? Do you think the tests are valid? You are
encouraged to bring up your own nascent new venture ideas for initial class discussion.
Assignment on selling will be handed out: 15 minute description of assignment will be provided
by Alex d'Arbeloff. Assignment due March 6.
February 27: Selection of project topics and teams
Presenters: Members of class with ideas for new ventures
In this class all class members select projects that they wish to work on (develop a business plan
for) for the remainder of the semester. Any member of the class with a new venture idea in mind
who wishs to form a project team to work on that idea are invited to present the concept to the
class via a 5-minute talk. Students will then select projects that they wish to work on from those
presented. Please be sure to attend this class session -- it is very important to the organization of
your class project.
Reading: Timmons, New Venture Creation, Chapter 4, "Screening New Venture Opportunities."
March 6: How to Develop the product and market analysis portion of a "Business Plan"
Presenter: Eric von Hippel
In this lecture we introduce the business plan - the framework we will use in this course to organize
and report on the new venture planning of student project teams. Tasks involved in researching the
product and market analysis portion of such a plan rapidly and economically will be discussed.
Readings: Timmons, New Venture Creation, Chapter 11, "The What and Why of the Business
Plan."
Questions to think about: What are the first tasks you should undertake to begin to develop the
product and market analysis of your business plan? How will you do them? How will you divide up
the work among team members? (Suggestion: start with everyone getting familiar with the venture
idea. Otherwise the person bringing the idea will tend to assign work - rather than thinking - to
other team members.)
Assignment: Each team member will conduct and write up a set of telephone interviews with (1)
potential venture customers, (2) competitors, (3) suppliers of key inputs. This assignment will be
described in detail in class. This assignment is due on March 13. Write-up of "selling assigment"
due today.
March 13: Effective Selling
Presenter: Alex d'Arbeloff, Founder and CEO, Teradyne Inc
Ventures need more than a good product or service to sell - they also need to know how to sell.
Alex breaks the process into components, and illustrates effective and ineffective ways to carry out
each component.
Assignment due: Interview write-ups assigned in Feb 28 class are due today. Make a copy to
turn in for grading and a copy for each of your teammates.
Readings: Please refer to readings and assignment (due March 6) that were handed out by Alex
dArbeloff in February 21 class.
March 20: Protecting your innovation - and creating "sustainable competitive advantage" for your
venture
Presenter: John Preston, Director of MIT Technology Licensing Office
We discuss the nature of and effectiveness of various mechanisms that entrepreneurs can use to
protect - and thus increase their benefit from - their innovations. Among the mechanisms discussed:
patents, trade secrets, copyright, lead time, intellectual property law, complementary assets. We
then discuss how ventures can create a sustainable competitive advantage for their innovations.
Readings: The following readings are the best we have been able to find on this topic to date. We
are searching for still better ones. If we succeed, we will announce the substitution in class and/or in
an updated syllabus.
*Shih, "The Semiconductor Chip Protection Act of 1984: Is Copyright Protection for Utilitarian
Articles Desirable", Computer Law Journal 7:2 (Fall, 1986) pp.149 - 156. (The section of the
article assigned contains a compact description of patent protection.)
*Strong, The Copyright Book, pp.24-40 and 57-72;
*Lieberman, Who Owns What In Your Head, Chaps 1and 3 (This book discusses practical
aspects of "trade secrets")
Questions to think about: How will you / can you protect your innovative product or service
from competitors? What will your "sustainable competitive advantage" be?
April 3: Financing the early-stage firm, and the way a venture capital firm really works
Presenter: John Preston
NOTE: Partial drafts of student project team reports due at the start of this class. All students
should hand in a draft of the Product and Market portion of their plan at the start of class. During
this class, we will make an appointment with each individual team to discuss the drafts you have
submitted, problems you are having, ideas for improvement, and the next steps you will take to
continue building your plan. We hope to schedule all of these meetings in the week of April 4. After
all - time remaining in the term is short, and you still have lots to do! Gordon Baty will provide an
overview of the several stages typically found in the financing of the early stage firm, the various
types of capital available, and investor decision-making. He also will discuss what really happens to
your proposal inside a venture capital firm -only one of 100 get funded. Also - how does a venture
capitalist work with you (or against you?) once the firm has given you an initial round of funding?
Readings: Timmons, Chapter 10, "Resource Requirements," Chapter 12, "Entreprenurial
Finance," Chapter 13, "Obtaining Risk Capital," Chapter 15, "Obtaining Debt Capital."
Question to think about: When will we need outside investors for our new venture - if ever?
Why do we need the money? How much will we need? Where do we expect to get it from?
April 10: Legal Issues involved in New Venture Startups: Practical Considerations for Venture
Founders
Presenter: Joseph Hadzima, Jr. Sullivan and Worcester. Dan and Joe will discuss legal issues
related to founding your company, and also discuss how to choose and use a lawyer effectively.
Readings:
*Timmons, Chapter 15; "Forms of Doing Business"
*Chapter 5 in Coopers and Lybrand, Guide to Growing Your Business; Sullivan and Worcester,
"Considerations for Founders: Issues in Structuring Relationships Among Members of the Founding
Firm"
Questions to think about: Why and When do I really need a lawyer? How do I find the right
one?
April 24: (1) Partnering with others (2) How to develop the rest of your business plan
Presenters: Eric von Hippel and John Preston
How you can best organize to carry out the development of the major remaining portions of your
new business plan, the financial plan and the organizational plan. Some key points we will develop:
Start from the product/market segment of your plan; Venture capital is expensive -start by
contracting out all but key functions;. Do an event and cost flowout as a basis for your pro-formas
and test sensitivity of outcomes to your assumptions (e.g. -what happens if it costs twice as much?).
Readings: Timmons, New Venture Creation, Chapters 14, "The Deal: Valuation, Structure and
Negotiation."
Questions to think about: What are the first tasks you should undertake to begin to develop the
rest of your business plan? How will you do them? How will you divide up the work among team
members? Get some ideas and be prepared to discuss them with your teammates.
May 1: How to build your venture team: Deciding on needed skills, choosing people, agreeing on
the job to be done, evaluating and rewarding performance
Presenters: Alex d'Arbeloff, CEO of Teradyne, and Dan and Bob Rizika, founders of Reflective
Technologies (and former 15.375 students).
The people currently on your class team are great colleagues for the task of developing a business
plan. But running and growing a technical business represents a different set of challenges. How
should you build the right team for this job?
Reading:
*Timmons, New Venture Creation, Chapter 7;
*Edward Roberts and Alan Fusfeld, "Staffing the Innovative Technology-Based Organization" in
Readings in the Management of Innovation, Second Edition, editedby Tushman and Moore,
Ballinger, 1988, pp 310-326.
May 8: Class Project Presentations
In this class each team will give a short presentation (with overheads) of key elements of their
business plans.
Assignment Due: Complete business plans due at the start of this class.
May 15: Completion of Class Project Presentations: Discussion of next steps for you and your
venture
Reading:
*Timmons, New Venture Creation, Chapter 18,
*"The Harvest and Beyond."
Reading Materials Text: Jeffry A. Timmons, New Venture Creation, 4th ed. (Homewood, Ill.: Richard D. Irwin, 1990).
How Grading Will Be Done
- 50% of your course grade will be based on a new enterprise business plan, including its presentation in class, to be produced jointly by teams of 2-4 students. A common grade for this project will be assigned to all students on a team except under unusual circumstances.
- 25% of your grade will be based on individual class participation and on your having done the assigned reading.
- 25% of your grade will be based on your individual performance on the interview assignment you will be given on February 28.