Technology VenturesFrom Idea to Enterprise

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Technology VenturesFrom Idea to Enterprise

Richard C. DorfUniversity of California, Davis

Thomas H. ByersStanford University

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www.mhhe.com

TECHNOLOGY VENTURES: FROM IDEA TO ENTERPRISE, SECOND EDITION

Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas,New York, NY 10020. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. No part of thispublication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval sys-tem, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in anynetwork or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

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ISBN 978–0–07–352922–6MHID 0–07–352922–2

Senior Sponsoring Editor: Michael S. HackettDevelopmental Editor: Kathleen L. WhiteExecutive Marketing Manager: Michael WeitzProject Coordinator: Tracy L. KonrardySenior Production Supervisor: Sherry L. KaneAssociate Media Producer: Christina NelsonDesigner: John JoranCompositor: TechbooksTypeface: 10.5/12 Times RomanPrinter: R. R. Donnelley Crawfordsville, IN

Library of Congress Cataloging-in-Publication Data

Dorf, Richard C.Technology ventures : from idea to enterprise / Richard C. Dorf, Thomas H. Byers. — 2nd ed.

p. cm.Includes index.ISBN 978–0–07–352922–6 — ISBN 0–07–352922–2 (hard copy : alk. paper) 1. Information technology. 2. Entrepreneurship. 3. New business enterprises. I. Byers, Thomas (Thomas H.).

II. Title.

HC79.I55D674 2008658.1'1—dc22 2006023211

CIP

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For our spouses: Joy M. Dorf and Michele L. Mandell.We recognize their love and commitment to this

publication that will help others create importanttechnology ventures for the benefit of all.

RICHARD C. DORF, THOMAS H. BYERS

DEDICATION

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Richard C. Dorf is professor of electrical and computer engineering and pro-fessor of management at the University of California, Davis. He is a Fellow ofthe American Society for Engineering Education (ASEE) in recognition of hisoutstanding contributions to the society, as well as a Fellow of the Institute ofElectrical and Electronic Engineering (IEEE). The best-selling author of Intro-duction to Electric Circuits (7th Ed.), Modern Control Systems (10th Ed.),Handbook of Electrical Engineering (3rd Ed.), Handbook of Engineering (2ndEd.), and Handbook of Technology Management, Dr. Dorf is cofounder of sixtechnology firms.

Thomas H. Byers is professor of management science and engineering atStanford University and founder of its Stanford Technology Ventures Program,which is dedicated to accelerating high-technology entrepreneurship educationaround the globe. After receiving his B.S., MBA, and Ph.D. from the Univer-sity of California, Berkeley, Dr. Byers spent over a decade in leadership posi-tions in technology ventures including Symantec Corporation. His teachingawards include Stanford’s highest honor in 2005 and three national awards forentrepreneurship educators.

ABOUT THE AUTHORS

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Foreword, xiii

Preface, xv

P A R T I V E N T U R E O P P O R T U N I T Y , C O N C E P T , A N D S T R A T E G Y

1 Capitalism and the Technology Entrepreneur 3

2 Opportunity and the Business Summary 27

3 Building a Competitive Advantage 59

4 Creating a Strategy 81

5 Innovation Strategies 103

P A R T II V E N T U R E F O R M A T I O N A N D P L A N N I N G

6 Risk and Return 133

7 Venture Creation and the Business Plan 157

8 Independent Versus Corporate Ventures 177

9 Knowledge, Learning, and Design 203

10 Legal Formation and Intellectual Property 225

P A R T III D E T A I L E D F U N C T I O N A L P L A N N I N G F O RT H E V E N T U R E

11 The Marketing and Sales Plan 245

12 The New Enterprise Organization 273

13 Acquiring, Organizing, and Managing Resources 299

14 The Management of Operations 319

15 Acquisitions, Mergers, and Global Business 339

vii

BRIEF CONTENTS

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Brief Contentsviii

P A R T IV F I N A N C I N G A N D B U I L D I N GT H E V E N T U R E

16 The Profit and Harvest Plan 357

17 The Financial Plan 379

18 Sources of Capital 403

19 Presenting the Plan and Negotiating the Deal 441

20 Leading a New Technology Venture to Success 455

References, 476

Appendices, 491

Glossary, 641

Index, 651

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Foreword, xiii

Preface, xv

P A R T I V E N T U R E O P P O R T U N I T Y ,C O N C E P T , A N D S T R A T E G Y

Chapter 1Capitalism and the TechnologyEntrepreneur 3

1.1 The Entrepreneur and the Challenge 41.2 Entrepreneurial Activity Based on

Innovation and Technology 71.3 Entrepreneurial Capital and the Value of a

Venture 111.4 Building an Enterprise 141.5 Economics, the Entrepreneur, and

Productivity 151.6 The Knowledge Economy 171.7 The Firm 201.8 Dynamic Capitalism and Creative

Destruction 221.9 The Sequential Case: AgraQuest 231.10 Summary 24

Chapter 2Opportunity and the Business Summary 27

2.1 Opportunity Identification 282.2 Trends, Convergence, and Opportunities 322.3 The Entrepreneur and Opportunity 362.4 Evaluating the Opportunity 412.5 The Decision to Act or Continue Looking

Elsewhere 46

2.6 The New Venture Story and Summary 502.7 AgraQuest 552.8 Summary 56

Chapter 3Building a Competitive Advantage 59

3.1 The Vision 603.2 The Mission Statement 633.3 The Value Proposition 643.4 The Business Model 673.5 Business Model Innovation in Challenging

Markets 713.6 Core Competencies and Competitive

Advantage 723.7 Sustainable Competitive Advantage 733.8 AgraQuest 763.9 Summary 78

Chapter 4Creating a Strategy 81

4.1 Venture Strategy 824.2 The Industry and Context for a Firm 854.3 Strengths and Opportunities—SWOT

Analysis 894.4 Barriers to Entry 914.5 Achieving a Sustainable Competitive

Advantage 924.6 Matching Tactics to Markets 954.7 AgraQuest 994.8 Summary 100

Chapter 5Innovation Strategies 103

5.1 First Movers Versus Followers 1045.2 Imitation 110

ix

CONTENTS

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Contentsx

5.3 Alliances 1115.4 Creativity and Invention 1145.5 Technology and Innovation Strategy 1175.6 Types of Innovation 1215.7 New Technology Ventures 1245.8 AgraQuest 1275.9 Summary 129

P A R T II V E N T U R E F O R M A T I O NA N D P L A N N I N G

Chapter 6Risk and Return 133

6.1 Risk and Uncertainty 1346.2 Scale and Scope 1426.3 Network Effects and Increasing Returns 1466.4 Finding Disruptive Applications 1516.5 Risk Versus Return 1526.6 AgraQuest 1536.7 Summary 154

Chapter 7Venture Creation and the Business Plan 157

7.1 Building a New Business 1587.2 The Business Plan 1597.3 Cluster Dynamics 1667.4 The Socially Responsible Firm 1687.5 AgraQuest 1737.6 Summary 174

Chapter 8Independent Versus Corporate Ventures 177

8.1 Types of New Ventures 1788.2 Nonprofit and Public Sector Ventures 1798.3 Family-Owned Businesses and

Franchising 1838.4 Corporate New Ventures 1868.5 The Innovator’s Dilemma 189

8.6 Incentives for CorporateVenture Success 191

8.7 Building and Managing CorporateVentures 194

8.8 AgraQuest 2008.9 Summary 200

Chapter 9Knowledge, Learning, and Design 203

9.1 The Knowledge of an Organization 2049.2 Managing Knowledge Assets 2059.3 Learning Organizations 2069.4 Product Design and Development 2119.5 Product Prototypes 2169.6 Scenarios 2199.7 AgraQuest 2219.8 Summary 222

Chapter 10Legal Formation and Intellectual Property 225

10.1 Legal Form of the Firm 22610.2 Company Name 22910.3 Intellectual Property 23010.4 Trade Secrets 23210.5 Patents 23310.6 Trademarks 23710.7 Copyrights 23810.8 Licensing 23810.9 AgraQuest 23910.10 Summary 240

P A R T III D E T A I L E DF U N C T I O N A L P L A N N I N G F O RT H E V E N T U R E

Chapter 11The Marketing and Sales Plan 245

11.1 Marketing 24611.2 Marketing Objectives and Customer Target

Segments 247

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Contents xi

11.3 Product and Offering Description 24911.4 Market Research 25011.5 Brand Equity 25211.6 Marketing Mix 25411.7 Customer Relationship Management 25811.8 Diffusion of Technology and

Innovations 26111.9 Crossing the Chasm 26311.10 Personal Selling and the Sales Force 26711.11 AgraQuest 26911.12 Summary 271

Chapter 12The New Enterprise Organization 273

12.1 The New Venture Team 27412.2 Organizational Design 27512.3 Leadership 27812.4 Teams 28212.5 Management 28412.6 Emotional Intelligence 28512.7 Organizational Culture 28612.8 Social Capital 28912.9 Attracting and Retaining Talent 29112.10 Ownership and Stock Options 29312.11 Board of Directors 29412.12 AgraQuest 29612.13 Summary 297

Chapter 13Acquiring, Organizing, and ManagingResources 299

13.1 Acquiring Resources and Capabilities 30013.2 Influence and Persuasion 30213.3 Location 30313.4 Facility Planning 30413.5 Telecommuting and Teleconferencing 30513.6 The Internet 30513.7 Vertical Integration and Outsourcing 30813.8 Innovation and Virtual Organizations 312

13.9 Acquiring Technology and Knowledge 314

13.10 AgraQuest 31513.11 Summary 316

Chapter 14The Management of Operations 319

14.1 The Value Chain 32014.2 Processes and Operations

Management 32314.3 The Value Web 32814.4 Strategic Control and the Balanced

Scorecard 33014.5 Scheduling and Operations 33314.6 AgraQuest 33414.7 Summary 336

Chapter 15Acquisitions, Mergers, andGlobal Business 339

15.1 Acquisitions and Mergers and the Questfor Synergy 340

15.2 Acquisitions and Mergers as a GrowthStrategy 342

15.3 Global Business 34715.4 AgraQuest 35215.5 Summary 353

P A R T IV F I N A N C I N G A N DB U I L D I N G T H E V E N T U R E

Chapter 16The Profit and Harvest Plan 357

16.1 The Revenue Model 35816.2 The Profit Model 35916.3 Managing Revenue Growth 36416.4 The Harvest Plan 37016.5 Exit and Failure 37316.6 AgraQuest 37516.7 Summary 376

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Contentsxii

Chapter 17The Financial Plan 379

17.1 Building a Financial Plan 38017.2 Sales Projections 38217.3 Costs Forecast 38317.4 Income Statement 38317.5 Cash Flow Statement 38317.6 Balance Sheet 38617.7 Results for a Pessimistic

Growth Rate 38917.8 Breakeven Analysis 39217.9 Measures of Profitability 39717.10 AgraQuest 39817.11 Summary 399

Chapter 18Sources of Capital 403

18.1 Financing the New Venture 40418.2 Venture Investments as

Real Options 40618.3 Sources of Capital 40918.4 Bootstrap and Seed Financing 41118.5 Angels 41218.6 Venture Capital 41418.7 Corporate Venture Capital 42018.8 Valuation 42118.9 Terms of the Deal 42618.10 Debt Financing 42718.11 Initial Public Offering 42818.12 AgraQuest 43618.13 Summary 437

Chapter 19Presenting the Plan and Negotiating theDeal 441

19.1 The New Venture Story 44219.2 The Short Version of the Story 44519.3 The Presentation 446

19.4 Negotiating the Deal 44819.5 Critical Issues for the

Business Plan 45019.6 AgraQuest 45219.7 Summary 453

Chapter 20Leading a New Technology Venture toSuccess 455

20.1 Execution of the Business Plan 45620.2 Stages of a Business 45920.3 The Adaptive Enterprise 46520.4 Ethics 46920.5 AgraQuest 47220.6 Summary 473

References 476

AppendicesA. Business Plans 491

EZGuard 492I-MOS Semiconductors 509

B. Cases 537World Indigo Inc. 538Biodiesel Incorporated 565Yahoo! 1995 569Barbara Arneson 585Jon Hirschtick’s New Venture 589Artemis Images 602RADCO Electronics 623

C. Information Sources on the Internet 636

Glossary 641

Index 651

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by John L. Hennessy, President of Stanford University

I am delighted to see this book on technology entrepreneurship by Dorf andByers. High-technology companies are both an important part of our world’seconomic growth story as well as the place where many young entrepreneursrealize their dreams.

Unfortunately, there have been relatively few complete and analyticalbooks on high-technology entrepreneurship. Dorf and Byers bring their yearsof experience in teaching to this book, and it shows. Their personal experi-ences as entrepreneurs are also clear throughout the book. Their connectionsand involvement with start-ups—ranging from now established companies likeSun Microsystems and Yahoo to new ventures just delivering their firstproducts—add a tremendous amount of real-world insight and relevance.

One of the most impressive aspects of this book is its broad coverage ofthe challenges involved in high-technology entrepreneurship. Part I talks aboutthe core issues involved in deciding to pursue an entrepreneurial vision andwhat characteristics are vital to success from the very beginning. I am pleasedto see that building and maintaining a competitive advantage and the criticalissue of market timing are key topics. During the Internet boom, while severalgreat new companies were built, too many entrepreneurs and investors forgotseveral key principles: have a sustainable advantage, create a significant barrierto entry, and be a leader when the market and the technology are both ready.Hopefully, the material in these chapters will help prevent future irrationalbehavior by both entrepreneurs and investors.

Part II examines the major strategic decisions that any group of entrepre-neurs must grapple with: how to balance risk and return, what entrepreneurialstructure to pursue, how to find and cultivate the best employees and help makethem productive, and the critical issues of intellectual property. Indeed, theseare problems that every company faces, and ones that must be continuouslyexamined by the leadership in any organization.

Part III discusses the operational and organizational challenges that all entre-preneurs must tackle. Virtually every start-up led by a technologist that I havebeen close to inevitably wonders whether it needs sales and marketing. Some-times in such companies, you hear a remark like: “We have great technology andthat will bring us customers; nothing else matters!” I remind them that withoutsales, there is no revenue, and without marketing, sales will be diminished.Understanding how to approach these vital aspects of any successful business iscrucial. The related topics of building the organization, thinking about acquisi-tions, and managing operations are also important. If you fail to address theseaspects of your company, it will not matter how good your technology is.

xiii

FOREWORD

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Forewordxiv

Finally, Part IV talks about putting together a solid financial plan for thecompany, including exit and funding strategies. Of course, such topics arecrucial, and they are often the sole or dominant topics of “how-to” books onentrepreneurship. Certainly, the financing and the choice of investors are key,but unless the challenges discussed in the preceding sections are overcome, it isunlikely that a new venture, even if well financed, will be successful.

In looking through this sage and comprehensive treatment, my over-whelming reaction was, “I wish I had read a book like this, before I startedmy first company (MIPS Technologies in 1984).” Unfortunately, I had to learnmany of the topics covered here in real-time and often by making a mistakeon the first attempt. In my experience, it is the challenges discussed in the ear-lier sections that really proved to be the minefields. Yes, it is helpful to knowhow to negotiate a good deal and to structure the right mix of financing sources,especially so that as much equity as possible can be retained by employees. If,however, you fail to create a sustainable advantage or have a sales or marketingplan that is solid, the employee’s equity will not be worth much.

Those of us who work at Stanford and live near Silicon Valley are in theheart of the land of high-technology entrepreneurship. With this book, manyothers will get to share the extensive and deep insights of Dorf and Byers onthis wonderful process that builds tomorrow’s companies and business leaders.

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Entrepreneurship is a vital source of change in all facets of society,empowering individuals to seek opportunity where others see insur-mountable problems. For the past century, entrepreneurs have created

many great enterprises that subsequently led to job creation, improved pro-ductivity, increased prosperity, and a higher quality of life. With one-third ofthe world’s population lacking access to basic energy needs and two-thirds withannual incomes of less than $2,000, entrepreneurship can play an importantrole in finding solutions to these challenges facing civilization.

Many books have been written to help educate others about entrepreneurship.Our textbook is the first to thoroughly examine a global phenomenon known as“technology entrepreneurship.” Technology entrepreneurship is a style of businessleadership that involves identifying high-potential, technology-intensive commer-cial opportunities, gathering resources such as talent and capital, and managingrapid growth and significant risks using principled decision-making skills. Tech-nology ventures exploit breakthrough advancements in science and engineering todevelop better products and services for customers. The leaders of technology ven-tures demonstrate focus, passion, and an unrelenting will to succeed.

Why is technology so important? The technology sector represents a sig-nificant portion of the economy of every industrialized nation. In the UnitedStates, more than one-third of the gross national product and about half ofprivate-sector spending on capital goods are related to technology. Althoughmaking up only 15 percent of the S&P 500, the technology sector generates45 percent of the daily trading volume on the New York stock markets. It isclear that national and global economic growth depends on the health and con-tributions of technology businesses.

Technology has also become ubiquitous in modern society. Note the pro-liferation of cell phones, personal computers, and the Internet in the pastdecade and their subsequent integration into everyday commerce and our per-sonal lives. When we refer to “high technology,” we include informationtechnology and electronics companies, life science and biotechnology busi-nesses, and those service firms where technology is critical to their missions.At the beginning of the 21st century, many technologies show tremendouspromise, including photonics and Internet advancements, medical devices anddrug discovery, nanotechnology, and materials technologies related to energyand the environment. The intersection of these technologies may indeedenable the most promising opportunities.

The drive to understand technology venturing has frequently been associ-ated with boom times. Certainly, the often-dramatic fluctuations of economiccycles can foster periods of extreme optimism as well as fear with respect toentrepreneurship. However, some of the most important technology companies

xv

PREFACE

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Prefacexvi

have been founded during recessions (e.g., Intel, Cisco, and Amgen). Thisbook’s principles endure regardless of the current state of the economy.

APPROACH

Just as entrepreneurs combine things to create innovations, we integrate themost valuable entrepreneurship and technology management theories fromsome of the world’s leading scholars, educators, and authors. We also providean action-oriented approach to the subject through the use of examples, exer-cises, and lists. By striking a balance between theory and practice, we hopeour readers will benefit from both perspectives.

Our comprehensive collection of concepts and applications provides thetools necessary for success in starting and growing a technology enterprise. Weshow the critical differences between scientific ideas and true business oppor-tunities. Readers will benefit from the book’s integrated set of cases, examples,business plans, and recommended sources for more information.

We illustrate the book’s concepts with examples from the early stages ofboth traditional high-technology firms (e.g., Microsoft, Google, and Genentech)and those that use technology strategically (e.g., Starbucks and Wal-Mart). Howdid they develop enterprises that have had such positive impact, sustainableperformance, and longevity? In fact, the book’s major principles are applica-ble to any high-growth, high-potential venture. This includes nonprofit enter-prises such as Conservation International and the Kauffman Foundation.

AUDIENCE

This book is designed for students in colleges and universities, as well as othersin industry and public service, who seek to learn the essentials of technologyentrepreneurship. No prerequisite knowledge is necessary, although an under-standing of basic accounting principles will prove useful.

Entrepreneurship was traditionally taught only to business majors. Becauseentrepreneurship education opportunities now span the entire campus, we wrotethis book to be approachable for students of all majors and levels includingundergraduate, graduate, and executive education. Our primary focus is on sci-ence and engineering majors enrolled in entrepreneurship and innovationcourses, but the book is also valuable to business and other students with aparticular interest in technology ventures.

For example, the courses at Stanford University and the University ofCalifornia, Davis, based on this textbook regularly attract students from majorsas diverse as computer science, product design, political science, economics,pre-med, electrical engineering, history, biology, and business. Although thefocus is on technology entrepreneurship, these students find this material appli-cable to the pursuit of a wide variety of endeavors. Entrepreneurship educationis a wonderful way to teach universal leadership skills, which include beingcomfortable with constant change, contributing to an innovative team, and

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Preface xvii

demonstrating passion in any effort. Anyone can learn entrepreneurial thinkingand leadership. We particularly encourage instructors to design courses wherethe students form study teams early in the term and learn to work togethereffectively on group assignments.

WHAT’S NEW

Based upon feedback from readers and new developments in the field of high-technology entrepreneurship, numerous enhancements appear in this secondedition. Recent compelling academic theories and practitioner insights inentrepreneurship are included in the text. Upgraded examples and exercisesplace even more emphasis on technology ventures worldwide. A special exer-cise called the “venture challenge” at the end of each chapter steps the readerthrough the formation of a venture.

Business plan development materials and tools are expanded and sum-marized in a single chapter. This includes an annotated table showing how tobest organize the contents of a professional business plan. A bundled DVDhas numerous video clips that highlight specific sections and cases in the bookwith inspirational comments by entrepreneurs, investors, and teachers. Twonew full-length cases are included in the appendix. Some minor reordering ofchapters streamlines the remaining content.

FEATURES

The book is organized in a modular format to allow for both systematic learn-ing and random access of the material to suit the needs of any reader seekingto learn how to grow successful technology ventures. Readers focused on busi-ness plan development should consider placing a higher priority on chapters 7,10, 12, 17, and 18. Regardless of the immediate learning goals, the book is ahandy reference and companion tool for future use. We deploy the followingwide variety of methods and features to achieve this goal, and we welcomefeedback and comments.

Principles and Chapter Previews—A set of 20 fundamental principlesare developed and defined throughout the book. They are listed in theinside front cover as well. Each chapter opens with a key question andoutlines its content and objectives.Examples and Exercises—Examples of cutting-edge technologies illustrateconcepts in a shaded-box format. Information technology is chosen formany examples because students are familiar with its products and serv-ices. Exercises are offered at the end of each chapter to test comprehensionof the concepts.Sequential Exercise and Case—A special exercise called the “venturechallenge” guides readers through a chapter-by-chapter formation of anew enterprise. In addition, a case study about an actual biotechnologyfirm, AgraQuest, runs from one chapter to the next.

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Business Plans—Methods and tools for the development of a business planare gathered into one special chapter, which includes a thoroughly annotatedtable of contents. Two complete business plans are also provided as sam-ples in appendix A.Cases—Seven comprehensive cases are included in appendix B. A map-ping of how these cases relate to specific chapters in the book is providedin Table P1. Additional cases from Harvard and ECCH are recommendedon the textbook’s websites.References—References are indicated in brackets [Smith, 2001] and arelisted as a complete set in the back of the book. This is followed by a list ofentrepreneurship-related websites in appendix C and a comprehensiveglossary.Chapter Sequence—The chapter sequence represents our best effort toorganize the material in a format that can be used in various types of entre-preneurship courses. The chapters follow the four-part layout shown infigure P1. Courses focused on creating business plans can reorder thechapters with emphasis on chapter 7 among others.DVD Media Package—A DVD of video segments is bundled with the book.Special icons throughout the book denote when to view these commentsfrom world-class entrepreneurs, investors, and teachers. More free videosclips and podcasts are available at Stanford’s Educators Corner website(see http://edcorner.stanford.edu).Websites and Blog—Please visit websites for this book at both McGraw-HillHigher Education (http://www.mhhe.com/dorfbyers2e) and StanfordUniversity (http://edcorner.stanford.edu/techventures) for supplementalinformation applicable to educators, students, and professionals. For

TABLE P1 Mapping of cases.

Cases in appendix B Reference chapters Issues

World Indigo 3 to 7, 12, 15, 20 Business model and strategy,team, global business, execution

Biodiesel 2, 3, 11, 17 Opportunity, finance, marketing

Yahoo! 1995 3, 4, 7, 17, 18 Business concept, finance, business plans

Barbara Arneson 12, 17 Stock options, finance

Jon Hirschtick 4, 12, 17, 18, 19 Strategy, team, finance, negotiations

Artemis Images 2, 3, 12 Opportunity, value proposition, team

Radco 3, 12, 20 Business model, team, ethics

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Preface xix

example, a complete syllabus for an introductory course on technology en-trepreneurship and a PowerPoint presentation for each chapter are providedfor instructors. Visitors to either website can link to the author’s blog to in-teract with the authors and other readers.

ACKNOWLEDGEMENTS

Many people have made this book possible. Our editors at McGraw-Hill wereSuzanne Jeans, Michael Hackett, and Katie White. We thank all of them for theirinsights and dedication. We also thank Tracy Konrardy and the McGraw-Hillproduction team for their diligent efforts.

Our colleagues at Stanford University and the University of California,Davis, were helpful in numerous ways. We are indebted to them for all of their

1Capitalism

and theTechnology

Entrepreneur

5InnovationStrategies

4Creating

a Strategy

3Building a

CompetitiveAdvantage

Part I

2Opportunity

and the BusinessSummary

Venture opportunity,concept, and strategy

6Risk andReturn

10Legal Formationand Intellectual

Property

9Knowledge,

Learning, andDesign

8Independent

Versus CorporateVentures

Part II

7Venture

Creation andthe Business

Plan

Venture formationand planning

11The

Marketingand Sales

Plan

15Acquisitions,

Mergers,and GlobalBusiness

14The

Managementof Operations

13Acquiring,Organizing,

and ManagingResources

Part III

12The NewEnterprise

Organization

Detailed functionalplanning forthe venture

16The Profit

and HarvestPlan

20Leading a New

TechnologyVenture toSuccess

19Presenting the

Plan andNegotiating

the Deal

18Sources

ofCapital

Part IV

17The

FinancialPlan

Financing and building theventure

Outcomes

FIGURE P1 Chapter sequence.

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Prefacexx

great ideas and support. At Stanford, they include Scott Cannon, Eric Carr,Emily Cox, Kathleen Eisenhardt, Forrest Glick, Kailash Gopalakrishnan,Yvonne Hankins, John Hennessy, Randy Komisar, Thomas Kosnik, KelleyPorter, James Plummer, Elisabeth Pate-Cornell, Emily Ma, Rajit Marwah, AshaNayak, Ted Sacerdoti, Tina Seelig, Robert Sutton, and Adam Wegel. At UCDavis, they include Robert Smiley, Andrew Hargadon, Nicole Biggart, JeromeSuran, Ben Finkelor, Kurt Heisinger, and Marc Lowe.

Practitioners and industry leaders who provided key input included BrookByers, Ken Byers, Gordon Eubanks, Bob Fung, Jeremy Jaech, Pamela Mar-rone, and John Walter. We also express sincere appreciation to all of the review-ers of the first and second edition manuscripts and media packages: GeorgeAbe, University of California, Los Angeles; Ronald Baecker, University ofToronto; David Barbe, University of Maryland; Edgar Blevins, Southern Uni-versity and A&M College; John Callister, Cornell University; David Charron,University of California, Berkeley; W. Andrew Clark, East Tennessee StateUniversity; Robert Crocket, California Polytechnic and State University,San Luis Obispo; Maryann Feldman, University of Toronto; Alan Flury, Geor-gia Institute of Technology; Buck Goldstein, University of North Carolina,Chapel Hill; Susannah Howe, Smith College; Andrew Isaacs, University of Cal-ifornia, Berkeley; Jim Jindrick, University of Arizona; Liz Kisenwether, Pen-nsylvania State University; Clifton Kussmaul, Muhlenberg College; SalvadorLanderos, National University of Mexico; Anthony J. Marchese, Rowan Uni-versity; Thomas Mason, Rose-Hulman Institute of Technology; Mel I. Mendel-son, Loyola Marymount University; Arlen Meyers, University of Colorado;Tom Miller, North Carolina State University; Steve Nichols, University ofTexas, Austin; John Ochs, Lehigh University; David Pistrui, Illinois Instituteof Technology; Robert Podlasek, Bradley University; Jon D. Pratt, LouisianaTech University; Edward Rubesch, Mahidol University; Erik Sander, Univer-sity of Florida; Tammy Schakett, Columbus State Community College; JerrySchaufeld, Worcester Polytechnic Institute; Gerry Scheffelmaier, Middle Ten-nessee State University; Michael Song, University of Missouri, Kansas City;James L. Stevenson, Massachusetts Institute of Technology; Brent Strong,Brigham Young University; Joseph Toth, Duquesne University; Rodrigo VarelaVillegas, Universidad ICESI; Ken Vickers, University of Arkansas; StephenWalsh, North Carolina State University; William J. White, Northwestern Uni-versity; Charles Wright, Florida A&M University; Wei Zhang, Tsinghua Univer-sity; Ed Zschau, Princeton University.

Richard C. Dorf, University of California, Davis, rcdorf@ucdavis.eduThomas H. Byers, Stanford University, tbyers@stanford.edu

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GUIDED TOUR

Student DVD

A DVD packaged with the book pro-vides over 25 short video clips ofworld-class entrepreneurs, investors,and teachers sharing their insights onkey topics in the book.

Featured videos include a series ofclips Pam Marrone, founder ofAgraQuest, the company highlighted inthe running case throughout the text, aswell as a video on the “Early Choicesfor the Founders, Investors, and Advi-sors” of Yahoo!.

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MEDIA SUPPLEMENTS FOR STUDENTS AND INSTRUCTORS

Other video clips featured

on the DVD include:

■ “Changing the Business Plan in Response to aChanging Environment”—Gordon Ringold(Surromed)

■ “Measuring Success: You Measure WhatMatters”—John Thompson (Symantec)

■ “Global Outsourcing”—Jeff Hawkins (Palm)

■ “Small Innovations for Reducing Company Costs:PayPal and SpaceX”—Elon Musk (SpaceX)

Videos are organizedby chapter sectionand are identified inthe book with a “Seethe DVD” icon.

More free video clips and pod-

casts are available at Stanford’s

Educators Corner website

http://edcorner.stanford.edu.

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The 2nd edition is supplemented by twowebsites, collectively bringing studentsand instructors the most extensiveresources available for technologyentrepreneurship courses. Visitors toeither website can link to the author’sblog in order to interact with the authorsand other readers.

MEDIA SUPPLEMENTS FOR STUDENTS AND INSTRUCTORS

Lecture PowerPoints provide instructors witha framework for organizing their lectures, andreference topic-related videos on the corre-sponding DVD.

McGraw-Hill Website

www.mhhe.com/dorfbyers2e

Accessed with a password, the McGraw-Hill website for instructors features:

■ Answers to end-of-chapter exercises

■ Teaching notes in Word and PDF for-mat for the cases in Appendix B

■ Extensive lecture PowerPoint presen-tations based on the text

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Also provided on the Stanford site, a sample syllabusderived from an actual Stanford University class includes 24 sessions with all related content.

Stanford University Website

http://edcorner.stanford.edu/techventures

MEDIA SUPPLEMENTS FOR STUDENTS AND INSTRUCTORS

Page 1 of 2file:///Volumes/epc-users/Users/ecarr/Desktop/www-book/book/chapter_1.htm

IntroductionAbout This Site

About The Textbook

About The Authors

McGraw-Hill Book Website

Book ContentsTable of Contents

I Venture Opportunity, Conceptand Strategy

II Venture Formation andPlanning

III Functional Planning fo heVenture

IV Financing and Building theVenture

Business Plans (App. A)

Case Studies (App. B)

Online Sources (App. C)

Sample SyllabusCourse Overview

Calendar of Sessions

I Entrepreneurial Perspective

II Idea or Opportunity

III Gathering Resources

IV Managing Ventures

V Entrepreneurship and You

AdditionalResourcesSTVP Educators Corner

Courses Using This Textbook

Authors' Textbook Blog

Entrepreneurs provide the creative force capitalism needs to work. Entrepreneurs strive to make a differencein our world and contribute to its betterment. They are also motivated by achievement, independence, and theaccumulation of wealth. In this chapter, we describe the characteristics of the people called entrepreneurs andthe process they use to create new enterprises. We describe the four types of entrepreneurship used torespond to opportunity: incremental, innovative, imitative, and rent-seeking. Engineers and scientists oftenrespond to the challenge to build important new enterprises by combining their knowledge of new technologieswith sound business practices. The technology entrepreneurÕs role in the improvement of an economy and therole of knowledge in the creation and growth of new enterprises are described. Finally, the firm ororganization as the key structure for a new enterprise and the system of innovation used by new ventures aredepicted.

Download Chapter 1 Text [PDF] for evaluation purposes.

Vinod Khosla and Sun MicrosystemsDescribes how Vinod Khosla got Sun Microsystems started, and a critical marketing challenge the companyfaced at the end of the first year. Objective is to illustrate how bold creative thinking can make or breakstart-ups.

Heidi Roizen 1998: Career StrategyDescribes Heidi Roizen's career from graduation at Stanford University in 1980 through her careercrossroads upon leaving Apple Computer in 1997. In the summer of 1997, Heidi is assessing differentcareer options that will allow her to play to her strengths, enjoy her work, and achieve work-life balancethat has become increasingly important to her as a parent. Heidi must find answers to the followingquestions: 1)What combination of career opportunities would allow her the greatest personal achievementand at the same time the greatest benefit for her family? 2)How would she leverage her experience inSilicon Valley as she examined her future options? 3)How long would she continue to try out the optionsbefore settling on a choice?

Chemdex.comAn Internet start-up company is developing an online marketplace for specialty chemicals and reagents.David Perry has been named a runner-up in the 1st annual HBS Business Plan contest and now faces seed-stage financing questions--how much money to raise, at what valuation, in how many stages, and fromwhom.

Vermeer Technologies (A): A Company is BornCharles Ferguson has just heard from a venture capital (VC) consortium that it is willing to finance VermeerTechnologies, a company he has cofounded for developing Internet software. The funds are sorely needed,but the VCs have imposed some onerous conditions, including a request that Vermeer's first CEO be anoutsider. Learning objectives include identifying several tasks that need to be performed before a businessidea can be realized as a business entity. Highlights the process of early product definition and the key roleof employee selection in building an organization.

Jeff Hawkins: The Accidental Entrepreneur: Palm HistoryHawkins on the development of Palm: I never really wanted to start a company. I consider myself an

IntroductionAbout This Site

About The Textbook

About The Authors

McGraw-Hill Book Website

Book ContentsTable of Contents

I Venture Opportunity, Conceptand Strategy

II Venture Formation andPlanning

III Functional Planning fo heVenture

IV Financing and Building theVenture

Business Plans (App. A)

Case Studies (App. B)

Online Sources (App. C)

Sample SyllabusCourse Overview

Calendar of Sessions

I Entrepreneurial Perspective

II Idea or Opportunity

III Gathering Resources

IV Managing Ventures

V Entrepreneurship and You

AdditionalResourcesSTVP Educators Corner

Courses Using This Textbook

Authors' Textbook Blog

About This Website

This website provides instructors and students of high-technology entrepreneurship with learning resourcescomplementing Technology Ventures: From Idea to Enterprise with Student DVD, a McGraw-Hill HigherEducation textbook written by Richard C. Dorf and Thomas H. Byers (ISBN #007329442X for hardcover editionand ISBN #0071246223 for international student edition). Containing a wide variety of recommended media, thewebsite includes case studies, short video clips, articles, and PowerPoint slides all focused on the creation andmanagement of technology ventures. This site will continue to evolve with new media and features.

Start Here to View Media By:Book Contents provides relevant media for each chapter in Technology Ventures, including videos andcase studies from Harvard Business School and Stanford University. Additional resources are providedregarding how best to best integrate the book's business plans and case studies into entrepreneurshipcourses.

Sample Course Syllabus is derived from an actual Stanford University class including 24 sessions with allrelated content.

This website is free and open to students and instructors alike. It is a part of the Stanford Technology VenturesProgram's Educators Corner, which is a digital archive of entrepreneurship education materials. Instructorsseeking detailed teaching notes and answer keys related to the textbook should visit the "Instructor Only"section of the course website hosted at McGraw-Hill Higher Education.

Copyright 2006 Stanford University. All Rights Reserved.

IntroductionAbout This Site

About The Textbook

About The Authors

McGraw-Hill Book Website

Book ContentsTable of Contents

I Venture Opportunity, Conceptand Strategy

II Venture Formation andPlanning

III Functional Planning fo heVenture

IV Financing and Building theVenture

Business Plans (App. A)

Case Studies (App. B)

Online Sources (App. C)

Sample SyllabusCourse Overview

Calendar of Sessions

I Entrepreneurial Perspective

II Idea or Opportunity

III Gathering Resources

IV Managing Ventures

V Entrepreneurship and You

AdditionalResourcesSTVP Educators Corner

Courses Using This Textbook

Authors' Textbook Blog

As a contrasting example to Yahoo!, we examine the case of Advanced Inhalation Research (AIR), a youngbiotech startup and the challenges specific to life science entrepreneurs. We will learn that the entrepreneur'svision and personal goals are important considerations.

Relevant Texbook ChaptersChapter 2 Opportunity and the Business SummaryChapter 3 Building a Competitive AdvantageChapter 5 Innovation Strategies Chapter 15 Acquisition, Mergers and Global Business

Discussion Questions 1. What makes AIR an opportunity and not just a good idea? How will it make money?2. What are the major technology, market, team and financial risks of this venture?3. What are the advantages and disadvantages of each business model and funding option?4. How are life sciences startups different from information tehcnology startups?5. Should Edwards and McGuire sell the company to Alkermes? Why?

Primary Case Study: Advanced Inhalation ResearchThis case study describes the early start-up phase and development of Advanced Inhalation Research (AIR),a company engaged in the development of a new drug-delivery technology. Focuses on the risks, the stepstaken to manage it, and the manner in which the company was financed. Also presents the situation of anacquisition offer.

Alternative Case Study: Biodiesel Inc. Biodiesel Inc. is a mini-case study that involves three UC Davis students exploring an opportunity inbiodiesel, an renewable organic product that can replace or complement original diesel fuel. The studentscome up with a business model starting with local producer's cooperatives.

Paul Yock: FDA and medicareEntrepreneur, inventor and professor Paul Yock explains the two important contextual organizationsaffecting the life sciences industry. FDA and medicare have a huge influence on time to market andwhether or not a life sciences idea can become an opportunity.

Copyright 2006 Stanford University. All Rights Reserved.

Rich with content, the author-createdStanford website provides relevant mediafor each chapter in Technology Ventures,including:

■ Videos and case studies from HarvardBusiness School and StanfordUniversity

■ Resources on how to best integrate thebook’s business plans and case studiesinto entrepreneurship courses

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