homework # 10 - Yi Liu ENGRI 127 Homework 10 Section 4 1...

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Yi Liu ENGRI 127 Homework # 10 Section 4 1. The liability of newness refers to the fact that entrepreneurial ventures often falter or even fail because the people who start them can’t adjust quickly enough to their new roles and because the firm lacks a “track record” with customers and suppliers. These limitations can be overcome by assembling a talented and experienced new-venture team. 2. A board of directors is a panel of individuals who is elected by a corporation’s shareholders to oversee the management of the firm. An inside director is a person who is also an officer of the firm. An outside director is someone who is not employed by the firm. 3. The lenders and investors lend legitimacy to a firm by bringing instant credibility and positive buzz to the firm and expressing an opinion that the company has potential. Well-known, respected and high quality lenders and investors and individuals would be reluctant to fund a low-quantity firm because that would put their reputation and money at risk. So when the high-quality individual does agree to fund a firm, the individual is in essence “signaling” that the company has potential to be successful. With this credible signal, the potential customers, investors and employees would identify the high-quality start-ups. 4. Q&A: I would ask the firm’s founders to provide detailed information about their new-venture team including founders, board of directors and advisors, key employees and investors. Also I would like to know the new-venture team’ abilities and their plans to provide guidance, counsel and advice, lend legitimacy, declare dividends and oversee the affairs of the corporation.
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