High Potential Venture
The High Potential venture is an emerging company that is venture-backed, with a seasoned management team that possesses relevant experience. This type of venture is growing rapidly, and is characterized by proven market acceptance (significant sales). With growth comes the need to fund continued product development and marketing.
While this venture type has medium to high ratings in all categories, and as such is well balanced, there is room for improvement in each area.
Figure 1: "B/K" Diagram
ADVICE:
Work to increase Value and decrease Appropriability. This will increase "keeping money" => (which implies) Persistence and the opportunity to utilize Flexibility to retain and adapt Core Competencies and to foster Innovation.
Figure 2: Target "Bulls-eye" Diagram
Venture Example:
This case was prepared by Team Lynx as an entrepreneurship project at the University of Victoria. It is designed to illustrate the venture archetypes used in the New Venture Template through story and case description. Though the case is based on a true story and actual businesses, its name and likeness has been altered. The case is quite brief, so you should be able to read it quickly
Bill Denton was working feverishly in front of his home computer when suddenly the telephone rang. Putting his project aside momentarily, he answered. It was his old friend and business associate, Peter Guage. Denton, an accountant (CPA), had worked with Guage on many projects in the past and thought quite highly of him. Over the years, Guage had developed a unique talent for raising new venture capital. After a friendly greeting, Guage requested Denton's immediate assistance in helping to develop a business plan for a new venture. The name of the venture was 'Value Plus Heating & Air Conditioning,' and it was to be run by a group of highly competent and motivated heating, ventilation, and air conditioning (HVAC) specialists.
BACKGROUND
Value Plus Heating & Air Conditioning arose from the ashes of a company formerly known as 'Prime Ventilation.' Prime, headed by David Sommer, was a mid-sized, unionized HVAC company in Ohio which had just recently filed for bankruptcy. Ironically, the company's successful bid for a large job in the eastern United States led to its untimely demise. In April 1991, Prime secured a large contract at a site in New York. From the onset, however, the job was plagued with problems. The unionized workers at the site, representing the cement, carpentry, electrical, and plumbing trades resented the Prime employees; they were perceived as a direct threat from outside the New York area to the stability and high wages that the local unions had fought to gain for years. In turn, the union workers made it very difficult for Prime to operate efficiently. Sabotage, vandalism, verbal disputes, and even physical violence on the site hindered the company from completing the job on time and on budget. Ultimately, supply damages and low worker productivity dramatically increased working capital costs. After several months, Prime had little money left to pay its creditors, and the company filled chapter 11 bankruptcy.
Shortly afterward in the Ohio State Bankruptcy Court, Prime Ventilation was poised for disassembly when suddenly David Sommer and a team of five lower-level Prime managers rushed in with a last minute proposal. They presented a business plan to the court judge for a new HVAC company. The company was to be called Value Plus. It would be a new and improved HVAC firm - one with equal ownership, profit sharing, and continuing education. It was a refined model, born out of experience, and advanced by a group of diehard employees who saw great potential in the existing company. Sommer and his team knew the HVAC industry well and saw a long-term need for the installation, replacement, maintenance, and update of HVAC equipment. The group proposed many interesting changes, and they were determined to show the bankruptcy court that they had the skills and capabilities to make their idea work. The old organization was highly structured, inefficient, and plagued by union hold-ups and poor decision-making. The new company on the other hand, was designed to overcome these drawbacks: better management, more effective decision-making, no company union, and a flexible, cost-efficient, team- and incentive-based work approach would make Value Plus a driving force in the HVAC industry.
With Denton's help in presenting the new venture, Sommer and his team were granted a second chance to create a better, more competitive HVAC company. Each of the six men was forced to mortgage their homes to pay off the Prime creditors. The new venture, under the name of Value Plus Heating & Air Conditioning, became a legal entity, with the six team members retaining equal ownership. All experience requirements for insurance were carried over from the previous company, and 'key-man' insurance was purchased to protect each of the newly-leveraged partners and their families from misfortune. Lower costs, greater overall efficiency, greater control, and a highly skilled, competent, and non-unionized workforce gave Value Plus a competitive edge. The company became an immediate success, winning its very first bid for a lucrative $280,000 contract in Ohio. Since costs for the project were only $40,000, Value Plus had banked almost a quarter million before any work had even begun. Today, the company has doubled in size and, aside from one of the partners selling out and the odd political battle, has remained extremely healthy.
THE CONCEPT
The HVAC business concept refined by Sommer and his team combined a number new features, unique to the industry, to give the proposed company a competitive advantage in the marketplace. First, the new team was made up of middle- and lower-level managers who witnessed all of the stupidities and mistakes in Prime but were powerless to make any changes. Once elevated to the decision-making level, Sommer and the new managers immediately replaced all of the unproductive upper-level people who did not understand the industry and/or did not know how to manage a HVAC company effectively. In addition, an outside board of directors was created to advise on strategic and other issues affecting the company's survival, and to help ensure that it be kept flexible and adaptable in times of change. Many of the mistakes in the old company occurred because management had a very limited and narrow strategic outlook. The new Value Plus executives were committed to taking control; they wanted to secure their livelihoods and become a dominant force in the industry, and so they looked at every little thing that was wrong and fixed it. The new board, on to which Denton was invited, was their attempt to create a diverse 'seedbed of vision' for the future, and included several of the owners wives among other interested parties.
With the decision-making/planning issue resolved, the new managing team sought to reorganize the work specificity of the company. They understood exactly how the work teams functioned and all of their intricacies and complexities. With a little thought, the managers were able to put together a workforce that could perform significantly better jobs. The assembly and installation processes were modified, and departmental communication was enhanced through cross-functional teams. Moreover, since state government did not enforce unionization in the industry, Value Plus, unlike any other company in the industry, was allowed to function without union interference. In turn, union hold-up problems were minimized. Even though employee wage rates were freed from union intervention, they were set to be highly competitive and flexible.
Once the union issue was eliminated, employee remuneration could be made job-specific. An incentive-based profit sharing plan was implemented which effectively lowered production costs. Before bidding on a job, management would gather everyone together to decide on its individual worth. Employees then, would receive hourly rates of pay that were significantly lower than those paid out by a unionized competitor.
Greater efficiency of work and lower hourly employee wages substantially reduced production costs. Value Plus was now in a position to bid low on various contracts while still providing equal value to the customer. When the job was complete and the profits generated put through the company, employees would receive their respective shares of any remaining money based upon hours worked and the nature of the activity performed. Ultimately, the non-unionized Value Plus employees would earn more money than their unionized counterparts. This incentive in turn reinforced the morale and productivity of the workers, allowing the company to minimize costs further and distribute even greater profits to all within the company.
Effective planning and decision making models helped to significantly reduce Value Plus management's exposure to risk resulting from not having every piece of information, all the time, about everything (bounded rationality). Consequently, management was able to modify the specific work requirements of the company and thus fulfill their promises to their employees, investors, bankruptcy court, customers and vendors (stakeholders of the company) and, in turn, make it cut-throat competitive. The end result was an operation significantly different from any other in the HVAC industry.
