Entrepreneurial Finance

Concepts and Cases

Miranda S. Lam, Gina Vega

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317746683
• Edition: 1
• Topic: Business
• Subtopic: Imprenditoria
• Index: Business

Entrepreneurial Finance: Concepts and Cases addresses issues that are often overlooked in traditional finance textbooks, namely, how to handle the unique financial challenges faced by start-ups and small businesses.

The book is structured around seven modules or building blocks designed to be taught across a full semester with natural break points built into each chapter within the modules. The building blocks present macro-concepts which are explored in greater detail in each of the chapters. A starting chapter provides guidance about the use of cases for students and a concluding chapter delivers information about how to win business plan competitions. Each concept is illustrated by a short case, and followed by thoughtful questions to enhance learning. The cases, previously unpublished, are written by an international group of experienced case writers from the field of finance, and deal with real companies, real problems, and currently unfolding issues. A case teaching manual geared to finance in general, and short cases in particular, is provided for the instructor and includes specific tips, techniques, and activities for each case in the text.

Written for upper level undergraduate students of entrepreneurship, this highly accessible book breaks down complex concepts, and includes hands-on cases and exercises, making learning a breeze!

Module 1
Getting Started with Cases

1
Case Preparation and Analysis for Students

What is education but a process by which a person begins to learn how to learn?

Peter Ustinov

Why Are You in this Class?

Perhaps you are concentrating on entrepreneurship or small business management. Perhaps you are a finance major who is taking this class as an elective. Maybe you are a business major who wants to learn a bit more about entrepreneurship and finance. Maybe the class was the only one open that fit into your schedule.

None of that matters. What does matter is your willingness to participate in your own learning, rather than wait for someone to tell you what to learn.

What to Expect from a Case-Based Class

If you are used to a traditional lecture format class, a case class will be a big change for you.

In a traditional class, you are the recipient of knowledge. The instructor is the giver of knowledge, and you receive her words of wisdom passively.

In a case class, you are the creator of knowledge and the discoverer of insights. The instructor is your guide and your facilitator, and she shares in the creation and discovery processes with you.

In a traditional class, the instructor works hard and you sit quietly. You can send in a tape recorder and listen to the lecture later. You can watch a video and play computer games. You can check your email. You can update your Facebook account.

In a case class, you both work hard and are very much present. You are alert the whole time, because you are responsible for your learning and the learning processes of your classmates. Case learning is social learning and requires active involvement.

Here’s how it works:

• You read the assigned case ahead of class. You might consider trying the “three reads model” given in Appendix 1.1.
  • Take notes as to the individuals involved, the situations presented, and any connections you can make to theory or analogous characters or situations you have been exposed to before, either in classes or in your work or life experience.
  • Identify your assumptions and the information that is missing for you to make a thorough analysis.
  • List the problems and select one problem to focus on at a time. Most cases present multiple problems; your ability to identify a key problem will give your case analysis structure and meaning.
  • Do any preliminary analysis you can, such as financial comparisons and ratios, statistical analysis or other quantitative exploration. If your analysis is to be qualitative, determine the foundation of your analysis and articulate reasons for and against a strategy or position.
  • Write down as many possible recommendations as you can, then select one and commit to it.
• Go to class and get ready for an engaged discussion.
  • The instructor may start off with a précis of the case (or ask you to provide one) and then toss out some icebreaker questions—easy questions to get the conversation moving.
  • The instructor may continue to toss questions to the group or, depending on personal style, may ask questions or opinions directly of one individual.
  • The instructor will tease out a series of analyses, decision-making perspectives, and positions from the class members.
  • The class reaches a conclusion, recommendation, decision, or final analysis.
• You may be assigned to a team.
  • If you have been assigned to a case team before the classroom discussion, your preparation should take place with this team.
  • You can expect a lot of lively discussion during the preparation phase, and you will generally (but not always) come to an agreement before class.
  • The class discussion will be between team positions rather than individual positions and will proceed as before.

Hints for success in a case class

• Be prepared.
• Participate actively.
• Allow your emotions to become involved along with your critical analysis.
• Respect your peers’ input.
• Try to understand the alternative perspectives put forth in the classroom.
• If in a team, be a “good” team member—no one likes a free rider.

Two Different Types of Case

There are two different kinds of case: decision-based cases and descriptive or illustrative cases (Table 1.1).

In either kind of case, your job will be clear to you, if not from the narrative, then from the questions that follow the case. Be sure to read and think about those questions, and use them as guidance in your analysis.

Preparing a Written Case Analysis

Table 1.1 Types of Case

	Decision-based cases	Descriptive or illustrative cases
Description	Decision-based cases will require you to make a reasoned recommendation, supported by facts and theory, for the case protagonist to follow.	Descriptive or illustrative cases do not conclude with a call for a recommendation. Instead, they present a situation that has occurred and your job is to analyze the protagonist’s actions.
Example	Your recommendation might be for the protagonist to seek alternative sources of funding rather than depending on friends and family. These might include a bank line of credit, loans, or angel investors. These three sources involve less emotional investment and more straightforward financial analysis to convince lenders.	You may determine that the protagonist should have taken a different set of action steps that might have led to a better outcome. Or you may decide that the actions taken were justified and provided the best outcomes under the existing circumstances. Or your recommendation might be to take advantage of a favorable economy to expand now rather than waiting until the company has accumulated more assets. Even though the protagonist tends to a conservative approach to expansion, it makes sense to exploit opportunities that present themselves. This may be a less secure position to take, but the potential rewards might be greater.

The cases in this book are short, designed specifically to help you focus primarily on the financial aspects of problems presented. You will, of course, find information in the cases that is not financial in nature. Pay attention to this information, as it is likely to be important in your analysis. However, it will not drive your analysis, which should be focused, instead, on the financial components presented in each case.

The analysis of a full-length case can be expected to take a significant period of time to complete. The analysis of a short case should be, by its nature, short. It will contain all (or most) of the elements described next, but the elements will be short and concise. It is likely that your analysis will include answers to (or take direction from) the questions at the end of the case.

Although it might sound easy to write a short case analysis, do not allow yourself to be tricked into thinking that such an analysis is a snap to put together. It requires discipline to write concisely and to explain complex concepts using simple, clear language. That will be your challenge throughout this course.

Written Analysis of a Short Decision-Based Finance Case

If you are preparing for a class discussion, the “three reads method” (Appendix 1.1) will suffice. However, if you have been assigned a written analysis of a decision-based case, it can be hard to know where to start. The following model can help you complete a clear and organized decision-based analysis. You can generally use tables, formulas, or matrices instead of narrative sentences if they will support your analysis better.

1. Executive summary Write this section last even though it appears first in the case analysis. The goal of the executive summary is to provide a brief overview of the main issues, the proposed recommendation, and the actions to follow. (2 or 3 sentences).
2. Statement of the problem Describe the core problem(s) of the case and the decision(s) to be made by the protagonist. Include the symptoms of the problem(s) and differentiate them from the problem(s) themselves. For example, the spots on your face are a symptom. The problem is that you have the measles (or acne, or an allergy to some skin product, or some other infection). This statement of the problem is a diagnostic process, and you need to build the rationale for your diagnosis into this section. (2 or 3 sentences).
3. Causes This section is an exploration and discussion of potential causes of the main case problem(s). Support your exploration by the application of relevant theories from this course or others. Be sure to use financial tools that will support your decision-making process and will illustrate your analysis. (2 or 3 sentences).
4. Possible solutions or alternatives Surface as many possible solutions or alternative actions as you can. You should not limit your possibilities to what you think is easy to accomplish or logical, but rather entertain a wide variety of options. You do not have to recommend all of these options, but you need to make your instructor aware that you have considered them. (2 or 3 sentences).
5. Selection of criteria and analysis of alternatives Select the criteria for determining the basic feasibility of the alternatives identified. These criteria will guide you in considering the pros and cons of each feasible alternative. Consider at least three alternatives in this section. Sometimes, a tabular format will keep this section organized and clear. You should be prepared to provide financial analysis in this section. (2 or 3 sentences or a small matrix).
6. Recommendation What do you recommend that the protagonist do? Support your recommendation with a rationale that is based on both facts and the appropriate theory for the problem (i.e., market analysis, financial statements analysis, the impact of organizational structure, supply chain management, or other disciplinary focus). (2 or 3 sentences).
7. Implementation Your instructor may state that no case analysis is complete without providing the action steps to implement the recommendation. What steps should the protagonist take in order to make your recommendation happen? Identify, to the greatest extent possible, the responsibilities, costs, timeline, and measurement of success of the final implementation.

Appendix 1.2 provides a sample written analysis of a short decision-based case.

Written Analysis of a Short Descriptive or Illustrative Finance Case

If you are preparing for a class discussion, the method already mentioned or the “three reads method” at the end of the chapter will suffice. However, if you have been assigned a written analysis of a descriptive or illustrative finance case, it can be hard to know where to start. The following model can help...