THE ENTREPRENEURIAL PROCESS ENG IN CONSTRUCTION AND REAL ESTATE VENTURES MASSACHUSETTS NSTITUTE by OF TECHNOLOGY LEOPOLDO V. SEN MAY 3 0 2000 Bachelor of Science in Civil Engineering De La Salle University, 1995 LIBRARIES Submitted to the Department of Civil and Environmental Engineering and the Center for Real Estate in Partial Fulfillment of the Requirements for the Degrees of MASTER OF SCIENCE IN CIVIL AND ENVIRONMENTAL ENGINEERING and MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2000 C 2000 Leopoldo V. Sen All rights reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Signature of Author:......................................................................- -- ---- .-.-.-.... Leopoldo V. Sen Department of Civil and Environmental Engineering, Center for Real Estate A May 12. 2000 C ertified by :................................................................. John B. Miller Associate Professor of and Environmental Engineering Thesis Supervisor U A ccepted by: ..................... .... ~.---------.-.-. --.-.-.-..-.-.- . William C. Wheaton Chairman, Interdepartmental Degree Program in Real Estate Development Center for Real Estate A ccepted by: ..................... ...... le Daniele Veneziano Chairman, Departmental Committee on Graduate Studies Department of Civil and Environmental Engineering THE ENTREPRENEURIAL PROCESS IN CONSTRUCTION AND REAL ESTATE VENTURES by LEOPOLDO V. SEN Submitted to the Department of Civil and Environmental Engineering and the Center for Real Estate on May 19, 2000 in Partial Fulfillment of the Requirements for the Degrees of Master of Science in Civil and Environmental Engineering and Master of Science in Real Estate Development ABSTRACT This study determines the fit of the success pattern defined by Timmons' model with the entrepreneurial process of two successful ventures. One is Northland Investment, a real estate venture, and the other is Collaborative Structures, a construction-related Internet venture. The results show a strong fit between the model and the two successful ventures, which generally exhibited characteristics of higher potential ventures as described by the model. There are, however, some characteristics of the ventures that did not fit certain criteria defined by the model. In these instances, mitigating circumstances tend to suggest that the opportunities were not necessarily lower potential Thesis Supervisor: John B. Miller Title: Associate Professor of Civil and Environmental Engineering 2 ACKNOWLEDGMENTS I would like to express my sincerest and deepest gratitude to the following: God, for always being there for me, especially during the most trying times. My parents, Pedro and Flora Sen, for their unwavering support, trust, and confidence. I am very fortunate to have parents who understand the essence and value of a great education. My mentors, Ed Ortega and Roland Abalos, for their guidance and moral support. I thank them for helping me to get to where I am today.. My thesis supervisor, Professor John Miller, for his guidance and supervision, and for agreeing to be my thesis supervisor while allowing me the opportunity to pursue a thesis topic of my interest, and the flexibility to undertake it. My case study entrepreneurs, Bob Danziger and John Macomber, for sharing their knowledge and experience. For a brief period of time, I had the opportunity and privilege to learn a great deal about their entrepreneurship. Their patience and understanding were highly gratifying and are very much appreciated. My professors at the Department of Civil and Environmental Engineering (DCEE), the Center for Real Estate (CRE), and the Sloan School of Management for sharing their knowledge. I have, indeed, learned a great deal during my stay at MIT. I have also learned a great deal from Friends in MIT and Boston. Special thanks to Lawrence Pak and Jeff Chi for offering to review and comment on my drafts. The Admissions Committee at DCEE & CRE for allowing me the honor and a privilege to accept their offer of admission into MIT. My brief and meaningful stay at MIT has been a life-changing experience. 3 TABLE OF CONTENTS ABSTRACT...................................................---- ...------------............................. 2 ACKNOW LEDGM ENTS ............................................................................... ..... 3 TABLE OF CONTENTS ................................................................... 4 LIST OF TABLES.................................................................7 1. INTRODUCTION .................................................................... .8 1.1 T h e O b jectiv e ........................................................................................ .......................... 8 1.2 Background on the Model........................................................................................ 9 1.3 Review of Some Literature ...................................................................................... 9 1.4 Methodology..........................................................................-.. -------------------------............... 11 1.5 Organization of Chapters .................................................................................. ...... 12 2. A MODEL OF THE ENTREPRENEURIAL PROCESS...................................16 2.1 The Opportunity ............................................... 17 2.1.1 Industry and Market.......................................................................................17 2 .1.2 E co n o m ics...................................................................................... ............... 2 0 2.1.3 Harvest Potential............................................................................................ 22 2.1.4 Competitive Advantage ................................................................................... 24 2 .1.5 F atal Flaw ........................................................................ ............... ........ 2 5 2.1.6 Strategic Differentiation................................................................................ 25 2.2 T he Team ....................................................--............. --. .............. .--------------..... 28 2.2.1 T eam Q ualities ....................................................................... ........ ......... 28 2.2.2 Personal Qualities......... ......... 30 2.3 T he R esources ................................................................................................... 33 2.3.1 P eople.................... .............. .......................... ............. .......... 33 2.3.2 Financial Capital.........................................................................................35 2.3.3 The Business Plan ........................................................................................ 36 2.4 The Fit, Balance, and Timing..................................................................................... 37 2.4.1 The Fit.................................................................................... ........... 38 2.4.2 The Balance...................................................................................... ... 39 2.4.3 The Timing..........................................................................................-....- 40 3. THE NORTH LAND INVESTMENT CASE......................................................43 3.1 The Entrepreneur's Personal Background................................................................ 44 3.2 The Entrepreneur's Work Experience....................................................................... 45 3.3 T h e Startu p ................................................................................................------------------...... 4 8 3.4 Creative Marketing and Sales Strategies..................................................................... 51 3.5 The Key Managers....................................................................................52 3.6 Growing in Difficult Times....................................................................................... 54 3.7 More Difficult Times................................................................................................. 56 3.8 The Mature Organization ............................................................................................ 57 3.8.1 Real Estate Investment................................................................................... 57 3.8.2 Residential Development .............................................................................. 58 3.8.3 Commercial Development........................................................................... 59 3.8.4 Asset Management ....................................................................................... 59 4 3.8.5 Finance and Administration ......................................................................... 61 3.9 The Competitive Advantage........................................................................................ 61 3 .10 Th e H arvest .......................................................................................................-.------------.. 62 3.11 The Entrepreneur Today ........................................................................................... 64 4. ANALYSIS AND DISCUSSION OF THE NORTHLAND INVESTMENT CASE ..........................................-----------------------------...............................................