Explain the term “signaling” in the context of new venture formation and discuss

Question

Explain the term “signaling” in the context of new venture formation and discuss its relevance for new ventures with emphasis on methods used for such “signaling”.Why is “Team Synergy” difficult in general and for new ventures (meaning Startups here) in particular?why is it more difficult to build quality teams for New Ventures (meaning- Startups).

What are the various “liabilities” or “weaknesses” of being a new business venture? What are some ways a new business venture can overcome such liabilities of being “new”.Would you prefer the heterogeneous or homogeneous “founding team” for the new venture? Why? Explain in detail.

What do you think of “synergistic” relationships”? Have you ever been part of a synergic relationship, professionally or personally? Have you ever achieved positive synergy with a your “team”? Have you ever experienced negative synergy? (If so explain)

What is “networking”? Why is it important in assembling a new venture team? If you work for a Startup, how would you network to benefit your organization?

Explanation / Answer

Signaling theory, new venture teams (NVTs) can communicate to venture capitalists and other potential investors both a “value” signal and a “commitment” signal, based on the level of personal investment in a venture. Venture capitalists (VCs) typically want to know if a NVT is really committed to a venture and if its members truly believe that a venture has wealth-creating potential. Team members can convey signals via their investment behaviour. We test our hypotheses based on a sample of 183 VC-backed ventures that we tracked over a ten-year time period. These data indicate that the signals sent to VCs in the early stages of the funding process do not appear to have any significant relationship with long-term venture outcomes. We explore possible explanations for these findings, as well as their implications for signaling theory and future research.

Team Synergy: Synergy meaning "cooperation," and also sunergos , meaning "working together" is the combined working together of two or more parts of a system so that the combined effect is greater than the sum of the efforts of the parts. In business and technology, the term describes a hoped-for or real effect resulting from different individuals, departments, or companies working together and stimulating new ideas that result in greater productivity.

The process of synergy as a way of originating new ideas or making new discoveries can be contrasted to serendipity, in which ideas and discoveries emerge seemingly by accident.

“Team Synergy” difficult in general and for new ventures (meaning Startups here) in particularWhy is it more difficult to build quality teams for New Ventures (meaning- Startups)?

Answer is Managerial Biases

When a synergy program founders, it is usually the business units that take the blame. Corporate executives chalk the failure up to line managers’ recalcitrance or incompetence. We have found, however, that the blame is frequently misplaced. The true cause more often lies in the thinking of the corporate executives themselves. Because executives view the achievement of synergy as central to their jobs, they are prone to four biases that distort their thinking:

First comes the synergy bias, which leads them to overestimate the benefits and underestimate the costs of synergy.

Parenting bias, a belief that synergy will only be captured by cajoling or compelling the business units to cooperate. The parenting bias is usually accompanied by the skill bias

Skills bias, the assumption that whatever know-how is required to achieve synergy will be available within the organization.

Upside Bias, which causes them to concentrate so hard on the potential benefits of synergy that they overlook the downsides. In combination, these four biases make synergy seem more attractive and more easily achievable than it truly is.

Various “liabilities” or “weaknesses” of being a new business venture?

Liabilities of Newness

• New ventures have a high propensity to fail.

• The high failure rate is due in part toLiabilities of liabilities of newness, which refers to the Newness fact that new companies often falter because the people involved can’t adjust fast enough to their new roles and because the firm lacks a track record of success.

• Assembling a talented and experienced management team is one path that firms can take to overcome these limitations

Weakness

Financial Weaknesses: High costs of doing business and limited cash flow are among common financial weaknesses. In some industries, you need expensive equipment, assets, facilities and materials to operate.

Quality Concerns: Some companies struggle with product quality-related weaknesses, which are especially concerning if you want to build a brand on the basis of high quality. Outdated technology can inhibit innovation and design and prevent you from developing differentiated products that stand out from competitors. While you could invest in new technology and focus on quality improvements, this may require a significant investment of new capital.

Production Inefficiencies: Whether you manufacture or resell goods, production efficiency is usually critical. A manufacturer counts on efficient product production to optimize profit on the sale of goods. A weakness of low productivity can be improved with more staff motivation and more efficient equipment or production processes. However, some companies face an uphill battle because they also have weaknesses due to a shortage of skilled workers or their employees are not motivated. An under-motivated workforce usually requires a thorough change in culture or use of incentives or motivational strategies.

Poor Brand Image: If your brand name is unrecognized or considered weak within your target markets, it is difficult to generate sales activity. A poor brand image can result from poor product or service performance, lack of a market budget or poorly conceived promotional strategies. The biggest area for improvement to strengthen your image is product or service quality. With a stronger offering, you can then work on efficient investments in marketing to understand market expectations and promote brand messages centering on quality, service or affordability.

Ways a new business venture can overcome such liabilities of being “new ”?

1.    Financing: Not having the money to make the changes that you want to make. Begin with good payback projects. For example, almost all projects related to energy efficient lighting will have a good payback since it will immediately decrease your energy bill. This frees up some money and demonstrates the case for sustainability initiatives, which can help you secure additional funding for future projects. Since many organizations and utilities are available to help small businesses, also look for rebates and other financial assistance to help your sustainability project

2.    Time: Not having the time to make the changes that you want to make. There are actually three strategies that you can use here.

3: Employee Engagement: Employees aren’t engaged. To have employees who are engaged, you need to give them opportunities for engagement. This might seem obvious, but you would be surprised at how many times I talk to business owners who wish for employee engagement but yet haven’t created the proper channels. In his book Drive: The Surprising Truth About What Motivates Us, Dan Pink identified three elements that create true motivation in people: autonomy, mastery, and purpose.

If you want employees to be engaged, you need to allow them to have some autonomy, some say in the initiatives that your business is working on, and that must contribute to their sense of purpose. This is also in line with what the experts recommend for engaging employees in sustainability. One of the best ways to do this is to form a green team.

4: Where to Start : Not sure how to get started or identifying what sustainability initiatives make sense for your business. Here, the strategy used by many businesses—and the one that I recommend—is to use existing frameworks such as Green Business Certification and B Corp Certification. If you’re just getting started, you can build on the proven best practices other businesses. Time and again, I hear business professionals say that they learned a lot by going through the process of certification. These two certifications will provide frameworks that you can use to ensure that you’re building a good sustainability foundation for your business. An added benefit is that you’ll also get some public recognition for your efforts.

5: Lack of information: Lack of information about specific topics, and finding it hard to keep up with trends. This is quite understandable. You’re busy, and you don’t have enough time (see #2). And sustainability is a quickly evolving field. Unless you work in this field (and even if you do!), it can be a challenge to stay on top of all of the changes. To complicate things further, when it comes to small business sustainability, there is no one place that you can go to to get the latest information. I’m working to change this—join the Cultivating Capital newsletter to stay up-to-date with developments. (As a bonus, you’ll also get regular access to someone who can help you!)

6: Company Culture : Company culture doesn’t support sustainability. This usually becomes evident when only a minority of individuals at a company are thinking about sustainability. Take a three-pronged approach to address this.

7: Support from Vendors Lack of support and limited options from vendors. Two options exist for working with vendors.

8: Support from Management: Lack of support from upper management. To make the case for sustainability to upper management, you’ll need clear numbers. What will the payback be for a given project? What are the metrics that you’re tracking? If you’re not already tracking metrics, three common areas to start with are waste reduction, energy usage, and water consumption. Get a baseline of your current service levels and monthly usage, and identify projects that will help you to reduce those levels. Finally, calculate the overall savings. Once you present this information, support will likely follow.

Heterogeneous or Homogeneous “founding team” for the new venture?

Founding team is referred as a team of individuals chosen to start a new venture; has an advantage over firms started by an individual because a team brings more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur.

Heterogeneous team is a team whose individual members are diverse in term of their abilities and experiences.

Homogenous team is a team whose individual member’s experiences and areas of expertise are very similar to one another, they are likely to have different points of view about technology, hiring decisions, competitive tactics, and other important activities.

Synergistic Relationships? A synergistic relationship is the ideal one clients is always destructive. It sets up a win/lose rela- between client and life coach. And when your clients lose, the coach/client relationship loses, and the coach loses as well.

Self-destructive relationships consume more resources than they produce and the result of their joint effort is a net loss. Static relationships involve an even mix of unproductive, back-stabbing behaviour and productive, team-oriented behaviour. What is desirable is synergistic relationships where individuals work together to produce a total effect that is greater than the sum of their separate efforts.

Five basic skills that help foster synergy.

1.    Establish prerequisites.  Build the motivation (common goals and interdependence) and abilities (empowerment and participative management) that are the foundation for synergy (within the established and agreed upon boundaries).

2.    Support permeability. Help people express and be open to learning new ideas, perspectives, meanings, values, feelings, behaviours, and attitudes they would not otherwise accept or exchange.

3.    Encourage paradoxical thinking. Help people live through the frustration and confusion that occurs when they attempt to understand apparently contradictory ideas, viewpoints, feelings, or attitudes.

4.    Facilitate creativity. Teach people to value the integration of opposing views, causing a shift from “either/or” opposing relationships to “both/and” supportive relationships.

5.    Structure discipline. Use the new, mutually supported concepts to pursue specific objectives, assign task responsibility and stick to the schedule until the change is fully accomplished.

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