Chapter 9

What are the three formal responsibilities of a board of directors?

(1) appoint the firm's officers (the key manager), (2) declare dividends, and (3) oversee the affairs of the corporation.

What is a virtual assistant?

A freelancer who provides administrative, technical, or creative assistance to clients remotely from a home office.

What is the difference between a heterogeneous and homogeneous founding team?

A heterogeneous founding team has members with diverse abilities and experiences. A homogeneous founding team has members who are very similar to one another.

What is a board of directors?

A panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm.

What is an inside director?

A person who is also an officer of the firm.

What is a freelancer/contractor?

A person who is in business for themselves, works on their own time with their own tools and equipment, and performs services for a number of different clients.

What is an intern?

A person who works for a business as an apprentice or trainee for the purpose of obtaining practical experience.

What is a skills profile?

A skills profile is a chart that depicts the most important skills that are needed and where skills gaps exist. (Along with depicting where a firm's most important skills gaps exist, a skills profile should explain how current skills gaps are being dealt with)

What is a board of advisers?

An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. Some start-up firms are forming advisory boards to provide them direction and advice.

What is one of the paths firms can take to overcome liability of newness?

Assembling a talented and experienced new-venture team (experienced management teams that get up to speed quickly are much less likely to make a novice's mistakes. In addition, firms able to persuade high-quality individuals to join them)

What do entrepreneurs use to fill "talent holes."?

Board of advisers

What are the advantages of freelancers and virtual assistants?

Considered to be "independent contractors." As a result, a business is not responsible for costs (such as Social Security and Medicare taxes, workers' compensation insurance, paying into an unemployment fund, and benefits) beyond their hourly or contracted pay. Businesses have to be careful, however, to not incorrectly categorize an employee as an independent contractor to save money on taxes and benefits. The IRS looks closely at the distinction and can levy severe penalties if workers are misclassified.

What groups and individuals provide legitimacy to a firm?

Directors, lenders, investors, advisors all provide legitimacy

What informal responsibilities does a board of directors have?

Ensure firm acts ethically, Provide expert guidance, lend Legitimacy

Name the ways Lenders and Investors Add Value to an Entrepreneurial Venture

Help identify and recruit key management personnel, Provide insight into the industry and markets in which the venture intends to participate, Help the venture fine-tune its business model, Serve as a sounding board for new ideas, Provide introductions to additional sources of capital, Recruit customers, Help to arrange business partnerships, Serve on the venture's board of directors or board of advisors, Provide a sense of calm in the midst of the emotional roller-coaster ride that many new-venture teams experience

Who is legally required to have a board of directors?

If a new venture organizes as a corporation

What is the main reason that causes the high failure rate of new ventures?

Liability of newness

Does a board of advisers have legal responsibility for the firm?

No (unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives nonbinding advice.)

What are the common mistakes made in putting together a new venture team?

Placing unqualified friends or family members in management positions, Assuming that previous success in other industries automatically translates to your industry, Presenting a "one person team" philosophy—meaning that one person (or a small group of people) is wearing all hats with no plans to bolster the team, Hiring top managers without sharing ownership in the firm, Not disclosing or talking dismissively of management team skill or competency gaps, Vague or unclear plans for filling the skill or competency gaps that clearly exist.

What is an outside director?

Someone who is not employed by the firm.

What is a full or part time employee?

Someone who works for a business, at the business's location, utilizing the business's tools and equipment and according to the business's policies and procedures.

What are the two most important issues in the founder's characteristics?

The size of the founding team and the qualities of the founder or founders

What is signaling?

When a high-quality individual agrees to serve on a company's board of directors, the individual is in essence expressing an opinion that the company has potential

What is the primary reason that new ventures turn to consultants for help and advice?

While large firms can afford to employ experts in many areas, new firms typically can't

Do lenders and investors take a role in the companies they finance?

Yes. (lenders and investors have a vested interest in the companies they finance, often causing these individuals to become very involved in helping the firms they fund)

Name other professional involved in business

attorneys, accountants, consultants

Why has the role of the business consultant in decline?

businesses seek specialists to obtain advice on complex issues such as patents, tax planning, and security laws.

What else can entrepreneurs do to overcome the liability of newness besides the choice of their team?

by attending entrepreneurship-focused workshops and events

What is a consultant?

individual who gives professional or expert advice.

In what ways is the role of general business consultant is as important as ever?

it is the general business consultant who can conduct in-depth analyses on behalf of a firm, such as preparing a feasibility study or an industry analysis, Because of the time it would take, it would be inappropriate to ask a member of a board of directors or board of advisors to take on one of these tasks on behalf of a firm.

What members are founders of a venture?

key employees, board of directors, lenders and investors, board of advisers, management team

What are important qualities in the founders of a firm?

level of a founder's education, Prior entrepreneurial experience, relevant industry experience, and networking

What is the first decision that most founders face?

whether to start a firm on their own or whether to build an initial founding team.