Chapter Six

Entrepreneurship

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Entrepreneurship

Entrepreneurship the process by which enterprising individuals

initiate, manage, and assume the risks and rewards associated with a business venture

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Entrepreneurship

Small business A business having fewer than 100 employees,

independently owned and operated, not dominant in its field, and not characterized by many innovative practices.

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Entrepreneurship

Entrepreneurial venture A new business having growth and high

profitability as primary objectives.

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Some Myths About Entrepreneurship

1. Anyone can start a business

2. Entrepreneurs are gamblers

3. Entrepreneurs want the whole show to themselves

4. Entrepreneurs are their own bosses and completely independent.

5. Entrepreneurs work harder than managers in big companies.

6. Entrepreneurs experience a great deal of stress

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Some Myths About Entrepreneurship

7. Entrepreneurs are motivated solely by the quest for the dollar

8. Entrepreneurs seek power and control over others9. If an entrepreneur is talented, than success will happen

quickly10. Any entrepreneur with a good idea can raise venture

capital.11. If an entrepreneur has enough start-up capital, s/he can’t

miss.12. Unless you attained a high score on your SATs or GMATs,

you’ll never be a successful entrepreneur

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Entrepreneurship

Entrepreneur Individuals who

establish a new organization without the benefit of corporate sponsorship.

Intrapreneurs New-venture creators

working inside big companies.

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Who is The Entrepreneur?

Figure 6.2

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The Idea

A great product, a viable market, and good timing are essential ingredients in any recipe for success.

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The Opportunity

Technological discoveries

Demographic changes

Lifestyle and taste changes

Economic dislocations

CalamitiesGovernment

initiatives and rule changes.

An entrepreneur should consider opportunities in:

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The Opportunity

Franchising An entrepreneurial alliance between a franchisor

(an innovator who has created at least one successful store and wants to grow) and a franchisee (a partner who manages a new store of the same type in a new location).

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The Next Frontiers

One fascinating opportunity for entrepreneurs is outer space.

Other new ventures in space include satellites for automobile navigation, tracking trucking fleets, monitoring flow rates, and leaks in pipelines.

Testing designer drugs in the near-zero-gravity environment.

Using remote sensing to monitor global warming, spot fish concentrations, and detect crop stress for precision farming.

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The Internet

Five successful business models Transaction fee model

• Charging fees for goods and services. Subscription model

• Charging fees for site visits. Advertising support model

• Charging fees to advertise on a site.

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The Internet

Intermediary model • Charging fees to bring

buyers and sellers together.

Affiliate model• Charging fees to

direct site visitors to other companies’ sites.

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Side Streets

Side street effect Starting a new business can be risky. Side street effects can be those unexpected

opportunities that arise as you come to unknown places in your new business.

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What does it take, personally?

Commitment and determination – successful entrepreneurs are decisive, tenacious, disciplined, willing to sacrifice, and able to immerse themselves totally in their enterprises.

Leadership – self-starters, team builders, superior learners, and teachers.

Opportunity obsession – intimate knowledge of customers’ needs, market driven, and obsessed with value creation and enhancement.

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What does it take, personally?

Tolerance of risk, ambiguity, and uncertainty – calculated risk takers, risk minimizers, tolerant of stress, able to resolve problems.

Creativity, self-reliance, and ability to adapt – open-minded, restless with the status quo, able to learn quickly, highly adaptable, creative, skilled at conceptualizing, and attentive to details.

Motivation to excel – clear results orientation, set high but realistic goals, strong drive to achieve, know your own weaknesses and strengths, and focus on what can be done rather than on the reasons things can’t be done.

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Entrepreneurial StrategyMatrix

Figure 6.3

P&G new product, small investment

Virgin Galactic’s space tourism

Low startup cost, no competition

Most small businesses

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Success and Failure

Anticipate riskConsider the role of the economic environmentUtilize business incubatorsRealize there are common management

challengesGoing public with an initial public offering (IPO)

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Percentage of Companies Using Source of Capital

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Success and Failure

Business incubators Protected

environments for new, small businesses

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Common Management ChallengesExhibit 6.4

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Common Management Challenges

You might not enjoy it If you don’t want to sell, you don’t want to be an entrepreneur

Survival is difficult Small businesses feel mistakes more strongly

Growth creates new challenges Start-up mentality is often “high performance, cheap labor” Growth requires hiring people at higher wages that are less

dedicated than the foundersIt’s hard to delegate

Leadership deteriorates into micromanagementMisuse of funds

Failure to use money that is available properly

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Common Management Challenges

Poor controls Aversion to record keeping People like to spend money, don’t focus on fundamentals

like customers and creating valueMortality

Companies outlive entrepreneurs when:• the company has gone public• the entrepreneur has planned an orderly succession, usually to a

family member.Going public

Initial stock offerings (IPOs) - selling to the public, for the first time, federally registered and underwritten shares of stock in the company.

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Planning and Resources Help You Succeed

The first step in planning is to do an opportunity analysis.

Opportunity analysis A description of the good or service, an

assessment of the opportunity, an assessment of the entrepreneur, specification of activities and resources needed to translate your idea into a viable business, and your source(s) of capital.

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Opportunity Analysis

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Planning

The next step is to develop a business plan.

Business plan A formal planning step

that focuses on the entire venture and describes all the elements involved in starting it.

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Outline of a Business Plan

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Outline of a Business Plan

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Five Key Factors

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Five Key Factors

People should be energetic and have skills and expertise directly relevant to the venture.

Opportunity should allow a competitive advantage that can be defended.

Identify current competitors and their strengths and weaknesses, predict how they will respond to the new venture, indicate how the new venture will respond to the competitors’ responses, identify future potential competitors, and consider how to collaborate with actual or potential competitors.

Context should be favorable, regulatory and contain economic perspectives.

Risk must be understood and addressed as fully as possible.

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Selling the Plan

The goal is to get investors to agree on and back up the written plan.

The plan should be marketed in order to obtain the necessary funding for the business.

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Nonfinancial Resources

LegitimacyNetworksTop-Management TeamsAdvisory BoardsPartners

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Nonfinancial Resources

Legitimacy People’s judgment of a company’s acceptance,

appropriateness, and desirability, generally stemming from company goals and methods that are consistent with societal values.

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Nonfinancial Resources

Social capital A competitive advantage in the form of

relationships with other people and the image other people have of you.

Social capital provides a lasting source of competitive advantage.

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Nonfinancial Resources

Top management teamAdvisory Boards

Assemble a group of people willing to serve as an advisory board.

Partners Partners can help one another access capital,

spread the workload, share the risk, and share expertise.

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Corporate Entrepreneurship

Build Support for your ideas Clear the investment with your immediate boss Make cheerleaders who will support your idea Horse trading for support, time, money, and

other resources Get the blessing of relevant higher-level officials

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Building Intrapreneurship

Skunkworks A project team

designated to produce a new, innovative product.

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Building Intrapreneurship

Bootlegging Informal work on projects, other than those

officially assigned, of employees’ own choosing and initiative.

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Managing Intrapreneurshipis Risky

Failing to foster innovation Overreliance on a single projectSpread intrapreneurial efforts over too many

projects

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Entrepreneurial Orientation

Entrepreneurial orientation The tendency of an organization to identify and

capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods or services

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Characteristics of Entrepreneurial Orientation

Entrepreneurial orientation is determined by five tendencies Allow independent action Innovate Take Risks Be Proactive Be Competitively aggressive

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Video: New Grads

Why is there a growing interest in entrepreneurship among college students?

What are the rewards from creating your own business?

Can anyone become an entrepreneur?