TYPES OF ENTERPRISES
Professor Laura Huang
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The Enterprise
• Types of enterprises
• Implications for your business and your lifestyle
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The Enterprise
Value
Crea3on
Value
Distribu3on
Reach
• Create
value
through
• Allow
various
par3es
• Reach
“everyone”
–
it’s
opera3ons
to
capture
value
how
to
reach
as
many
(founders,
investors,
people
as
possible
partners,
etc.)
Note:
don’t
confuse
‘type
of
enterprise’
with
‘legal
structure’;
legal
structures
are
a
different
topic
to
be
discussed
in
another
module
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Six types of enterprises are the most common
• High growth (aka ‘venture-backed’)
• Lifestyle
All
have
implica,ons
on
• Small business
1) Business
Expecta,ons
• By acquisition
• Social focused 2) Lifestyle
• Large Corporate-based
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The Venture-backed Startup
A high growth enterprise that delivers large returns to founders and investors
Business
Implica3ons
Lifestyle
Implica3ons
• Getting Started: Firms are often small at “birth”, • Personal life comes second
but designed to become very large, very quickly
• “Must grow” mentality overshadows other
– “scalable startups” concerns
– Typical Silicon Valley startup model
– Can put pressure on personal situation
• Financial: usually depends on several rounds of – Lifestyle may suffer, or may need to “go
Angel and/or Venture Capital investment on pause”
• Growth Expectation: rapid growth – Need to be ready to ‘give it all’ for
business growth
• Exit: usually these firms start out with an “exit
strategy”, as investors want a plan to get their
money back
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Lifestyle Business
Your desired lifestyle drives your business ambitions
Business
Implica3ons
Lifestyle
Implica3ons
• Getting Started: Founders have clear view of ‘end • Usually has a healthy life / work balance as
game’ in terms of desired size (revenue or profit) the founders trade off ‘higher growth’
potential for lifestyle
• Financial: usually funded by the founders
themselves, friends and family, or possibly a bank • May involve personal tradeoffs at
loan; probably does not involve formal private moments, or in beginning, but usually
investors (such as venture capitalists) nothing unsustainable
• Growth Expectation:
– grow to cover equity / debt costs
– stops when founders achieve lifestyle desired
• Exit: usually no formal exit; rather, founders run
business to allow desired lifestyle
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Organic Growth Business
Running a stable and manageable operation
Business
Implica3ons
Lifestyle
Implica3ons
• Getting started: Founders usually focused on • Usually has a healthy life / work balance,
starting one shop and not focused on high growth although running a small business can also
be highly stressful depending on the
• Financial: usually funded by the founders,
business and the needs of the founder
friends and family or possibly a bank loan; does
not usually involve formal private investors • May involve long hours as the company is
usually only a handful of employees
• Growth Expectation:
– grow to cover equity / debt costs
– Typically focused on “providing” not on
“wealth”
• Exit: no formal exit envisioned, founders run
business to support family, lifestyle
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Entrepreneurship by Acquisition
Buying an existing business
Business
Implica3ons
Lifestyle
Implica3ons
• Getting started: Founders look for an attractive • Highly dependent on exit – whether run for
business (possibly underperforming) to buy and cash or run for sale
run (possibly to grow or improve)
• If run for cash can mean that a founder
• Financial: skips over initial (and possibly stressful)
– usually founders, friends & family, bank loan startup phase
– larger acquisition may have larger private • Due diligence is key - like with a house or
funding (Private equity) car, there are always things you don’t know
• Growth Expectation: when you buy; big question is what
– Growth linked with founders ambitions and “skeletons” are in the closet?
investors needs (e.g. return requirements)
• Exit: usually run for existing cash-flow or to
improve profitability; may sell at higher price later
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Social Ventures
Focused on social impact; but may also have a profit mission
Business
Implica3ons
Lifestyle
Implica3ons
• Getting started: Founders pursue growth and • Lifestyle implications depend heavily on
profits in support of a broader social mission type of venture envisioned, it’s reach, the
funding (friends & family vs. formal
• Financial: usually via the founders, friends,
investors)
family, bank loan, and in some cases Angel and/
or Venture Capital investment (if the investors
sense growth potential)
• Growth Expectation: depends on founders and
investors
• Exit: usually focused on achieving social mission,
rarely a formal exit envisioned unless combining
with larger socially oriented firm
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Corporate Intrapreneurship
Jump starting new growth from within a large enterprise
Business
Implica3ons
Lifestyle
Implica3ons
• Getting started: usually started at highest levels • Would be directly linked with internal
of a corporation or in a ‘skunkworks’ manner (i.e. corporate and business unit objectives,
secret project of an executive) goals, needs, and pressures
• Financial: largely funded by either the
corporation or a business unit
• Growth Expectation:
– Usually aimed at jumpstarting growth, entering
a new or fast-paced market that the parent can
not enter easily
• Exit: purpose is to establish new growth engines
or assets for the parent company
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Types of Enterprises
Type
Examples
Venture
Uber
Lifestyle
Custom
pool
tables
Small
Local
town
boot
shop
Acquisi3on
Manufacturing
plant
Social
Cotopaxi
Corporate
Classic
skunkworks
–
Boeing
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Types of Enterprises
Key points:
• Be aware of how the type of enterprise you pursue,
the requirements to get started, and your desired
lifestyle all mesh together
• Ultimately you will need to decide what is right you
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KNOWLEDGE FOR ACTION Entrepreneurship
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