340 ENTREPRENEURSHIP
HENthe entrepreneur creates the organization for the new venture, he or she
is building fences. These early organizational decisions have a lasting impact
on the venture and become part of the company’s DNA. As the opening
quote indicates, setting and determining boundaries—what is “in” versus what is
“out”—affects not only the venture itself but also its neighbors: suppliers, customers,
competitors, and stakeholders. The “in” functions are those the organization does
through its own people. “Out” functions are performed by other firms, businesses that
provide goods and services at the market price.
“Good fences” are boundaries that make sense for the venture’s strategies, its transac-
tions with its neighbors, and the resources that provide its sustainable competitive advan-
tage (SCA). When good fences are built, relationships with other organizations—with
neighbors—will also be good: that is, profitable and sustainable for both vendors and
customers. In setting boundaries the entrepreneur makes choices: what to make versus
what to buy; what to own versus what to obtain from other firms; how to grow; and
what constitutes sensible growth. All these decisions are part of the process of creating an
organization and setting its boundaries. For example, consider a hypothetical new
Internet venture. Should it develop its own software or license software from a reputable
source? Should it compete with a large established rival (like a Google or Yahoo), or try
to develop a partnership with these larger firms? Should it grow through the acquisition
of other small start-ups, or through the organic growth in its own customer base?
Usually, before these boundaries are set and these difficult issues addressed, entrepre-
neurs look for help. They have the difficult task of almost simultaneously launching the
new venture and making the transition to professional management. Among their many
tasks is assembling a top management team. Members of the team will help the entre-
preneur determine organizational boundaries in two ways. First, they provide advice and
add their own input. Second, depending on their unique individual or collective skills
and experiences, they serve as human resources with the four attributes of SCA: rare,
valuable, hard to copy, and nonsubstitutable. These people can help determine the best
places to draw the lines around the organization.
From the viewpoint of the founding entrepreneur, this team is assembled by examin-
ing the characteristics of top managers and by understanding the process and dynamics
of how teams are formed and maintained. Because research shows that some teams pro-
duce at higher levels than others, it is helpful to look at high-performing teams.
Next it is important to study the basics and principles of what are called “visionary
companies.” Such firms were started by ingenious entrepreneurs who figured out how
to endow their companies with the kind of organizational culture and leadership that
would stand the test of time. They made the successful transition from entrepreneurial
to professional management without compromising on either style. This section of the
chapter distills the major findings originally presented by Collins and Porras in their
best-selling book, Built to Last.^1
Several factors affect the boundaries of entrepreneurial organizations, including an
unusual but highly effective form called the “virtual organization.” From this follows a
discussion of organizational design and structure. Given a set of boundaries and activi-
ties, each organization must decide how to delegate authority and responsibility and
how to make use of the productive power of specialization. These are the key elements
of organizational structure.W