Management Control Systems in Startups Flashcards
Davila and Foster, 2007 discusses what?
Examines adoption of Management Control Systems, in start-ups in a sample consisting of biotech firms, IT firms and others. “The voluntary early adoption of these, indicate that these pass a market test”
Does the rate of adoption of management control systems affect CEO rotation?
Yes. CEO´s choosing to have low MCS intensity have significantly higher hazard ratios.
They often get replaced by CEOs with professional managers with experience, education, and motivation. (Founders are ill suited managers)
Why do you need MCS for growth? With an emphasis on employees
1) When you grow to a certain size, you can no longer supervise and control directly through observation. “We figured our personalities can go through one floor and two walls”
2) External pressure from VCs and investors to centralize decision-making.
What kind of pricing does pharma utilize?
Pharma is value-based pricing (that is, the product is based on the value added to the society – like saving on further hospitalization, increased life expectancy etc.)
Do management control systems impede start-up development?
Maybe, if implemented wrong. But not necessarily. The need for these systems grows when the company grows as owners cannot know everything going on in the company anymore (think 10 employees to 50)
Management Control Systems (MCS) are?
Formal information-based routines to keep or alter behavior in an organization.
Mention the 8 types of management control systems (MCS)?
- Financial planning
Operating budget, cash flow, projections, sales projections - Financial evaluation (evaluation of performance)
Capital investment approval procedures, operating expenses etc. - Human resource planning
Codes of conduct, training program etc. - Human resource evaluation
Performance evaluation and rewards - Strategic planning
Strategic milestone plans, product portfolio plan - Product development management
Project milestones - Sales/marketing management
CRM - Partnership management
Partner monitoring systems
What is the most commonly adopted MCS across the eight categories?
Financial planning
What are the 3 most commonly adopted MCS across the eight categories and what do they have in common?
Planning! Financial planning, strategic planning, and human resource planning
When does the importance of financial evaluation and human resource evaluation increase?
In year 4/5, before that, it’s not very important.
What is the correlation between MCS and growth?
From investment rounds series A to D (VC rounds) – MCS increase across all categories. However, in life science, sales/marketing MCS often don’t increase as much, as you often out license the sales, as building a sales force is a lot of work.
What is the difference between VC backed and non-VC backed biotech startups?
The VC backed once utilize more MCS!
Multiple possible explanations:
- VC backed companies grow faster => demand for MCS.
- VC capital is necessary for firms that are cash flow negative in start-up=> need for financial planning.
- Because it’s a prerequisite by the VCS?
- Is this because it attracts VCs?
- Because they are better businesses because of the MCS?
The razor-blade model is?
Selling the machine cheap and then sell the “razor-blade”/reagents afterwards at a higher price.
What does Christner and Strømsten look into?
How accounting mediates innovation over time
What is the theory of mediation?
A mediating instrument is an instrument that links different actors and domains and both represents and intervene in the economic representation. – Think: Moore’s law made more investments go into chips –> reinforced/mediated the development.
What is IRR? And what does it equal?
Internal Rate of Return = Net Present Value (NPV) = -C0 + Ct/(1+r)^t
What are overhead cost?
The indirect costs of an organization, usually classified as manufacturing, administration, rent etc.
Why are overhead costs difficult?
Because they are more intangible and unclear and indirect. It’s difficult to trace compared to direct costs. Especially as the organization grows.
What is fixed cost?
Costs that are not immediately affected by changes in volume (usually the output).
What is the problem with fixed cost?
If sales go down, you cannot necessarily cover your fixed cost. You need income to cover these as they are not easy to get rid of.
What is direct cost?
Financial items that can be easily traced to a product or service.
What is variable cost?
Costs that may vary in output: e.g. labor (in production) and materials.
What is marginal cost?
The cost of producing one extra unit.
Marginal costs affect your choices. If the marginal cost is very high, it might not be worth it to produce it. If the marginal cost is higher than the expected income from sales, it’s not worth it. It’s forward looking, meaning it’s doing something extra (from producing 1 to producing 10 units for example)
What is Opportunity cost?
The cost of deselecting an opportunity. The cost of the second best option.
