ENTREPRENEURSHIP SE V E N T H EDITION ROBERT D. HISRICH, PH.D. Garvin Professor of Global Entrepreneurship Director, Centerfor Global Entrepreneurship Thunderbird MICHAEL P. PETERS, PH.D Professor Emeritus Carroll School of Management Boston College DEAN A. SHEPHERD, PH.D Research Fellow and Associate Professor Kelley School of Business Indiana University McGraw-HHI Irwin Boston BurrRidge, IL Dubuque, IA Madison, Wl New York San Francisco St. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
Transcript
ENTREPRENEURSHIPSE V E N T H E D I T I O N
ROBERT D. HISRICH, PH.D.Garvin Professor of Global EntrepreneurshipDirector, Center for Global Entrepreneurship
Thunderbird
MICHAEL P. PETERS, PH.DProfessor Emeritus
Carroll School of ManagementBoston College
DEAN A. SHEPHERD, PH.DResearch Fellow and Associate Professor
Kelley School of BusinessIndiana University
McGraw-HHIIrwin
Boston BurrRidge, IL Dubuque, IA Madison, Wl New York San Francisco St. LouisBangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico CityMilan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
C O N T E N T S IN B R I E F
PART 1 THE ENTREPRENEURIAL PERSPECTIVE
1 The Nature and Importance of Entrepreneurship '.2 The Entrepreneurial Mind-Set 263 Entrepreneurial Intentions and Corporate
Entrepreneurship 544 International Entrepreneurship Opportunities 84
PART 2
789
10
CREATING AND STARTINGTHE VENTURE 135
Creativity, the Business Idea, andOpportunity Analysis 136Intellectual Property and Other Legal Issues for theEntrepreneur 168The Business Plan: Creating and Starting the Venture 196The Marketing Plan 232The Organizational Plan 262The Financial Plan 288
PART 3 FINANCING THE NEW VENTURE
11 Sources of Capital 34212 Informal Risk Capital, Venture Capital, and
Going Public 370
341
PART 4 MANAGING, GROWING, ANDENDING THE NEW VENTURE
13 Entrepreneurial Strategy: Generating and•w Exploiting New Entries 460
14 Strategies for Growth and Managing theImplications of Growth 488
15 Going Global 52016 Accessing Resources for Growth from
External Sources 54017 Ending the Venture 568
459
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CONTENTS
PREFACE vi
PART 1 THE ENTREPRENEURIAL PERSPECTIVE
THE NATURE AND IMPORTANCE OFENTREPRENEURSHIP
Opening Profile: Oprah Winfrey 3Nature and Development of Enlrepreneurship 5
Earliest Period 6Middle Ages 617th Century 618th Century 619th and 20th Centimes 7
Definition of Entrepreneur Today 8Entrepreneurs versus Inventors 9The Entrepreneurial Process 9
Idcntify and Evaluate the Opportunity 9Develop a Business Plan 13Determine the Resources Required 13Manage the Enterprise 13
Types of Start-Ups 13Role of Entrepreneurship in Economic Development 14
Government as an Innovator 16Corporate Entrepreneurship 16Independent Entrepreneurship 16
Ethics and Social Responsibility of Entrepreneurs 17The Future of Entrepreneurship 19
THE ENTREPRENEURIAL MIND-SET 26
Opening Profile: Ewing Marion Kauffman 27How Entrepreneurs Think 30
»Effectuation 30Cognitive Adaptability 34Learning from Business Failure 38
Managerial versus Entrepreneurial Decision Making 41Strategie Onentation and Commitment to Opportunity 42Commitment of Resources and Control of Resources 44Management Strueture and Reward Philosophy 45Growth Orientation and Entrepreneurial Culture 45
Opening Profile: Robert Mondavi 55The Intention to Act Entrepreneurially 58Entrepreneur Background and Characteristics 58
Education 58Personal Values 59Age 59Work History 60
Role Models and Support Systems 61Moral-Support Network 61Professional-Support Network 62
Male versus Female Entrepreneurs 64Minority Entrepreneurship 67Entrepreneurial Intentions within Existing Organizattons 68
Causes for Interest in Corporate Entrepreneurship 68Traditional Corporate Culture versus Entrepreneurial Culturc 70Climate for Corporate Entrepreneurship 71Leadership Characteristics of Corporate Entrepreneurs 73
Establishing Corporate Entrepreneurship in the Organization 75Problems and Successful Efforts 76
INTERNATIONAL ENTREPRENEURSHIP OPPORTUNITIES 84
Opening Profile: A. Malachi Mixon III 85Introduction 87The Nature of International Entrepreneurship 89The Importance of International Business to the Firm 89International versus Domestic Entrepreneurship 90
Economics 90Stage of Economic Development 91Balance of Payments 91Type of System 91Political-Legal Environment 91Cultural Environment 93Technological Environment 94
Culture 94Social Structure 96Religion 97Political Philosophy 97Economics and Economic Philosophy 97Education 97Manners and Customs 98
Economic System and Development 99Available Distribution Systems 100Barriers to International Trade 100
General Agreement on Tariffs and Trade (GATT) 100Tncreasing Protectionist Attitudes 101Trade Blocs and Free Trade Areas 101
CONTENTS
Entrepreneur's Strategy and Trade Barriers 101Implications for the Global Entrepreneur 102
CASES FOR PART 1 107
Case 1A "Airner Test Prep Co. 107Case 1B A. Monroe Lock and Security Systems 109Case 1C Beijing Sammies 112Case 1D "Mamma Mia!" The Little Show That Could! 126
PART 2 CREATING AND STARTINGTHE VENTURE 135
5 CREATIVITY, THE BUSINESS IDEA, ANDOPPORTUNITY ANALYSIS 136Opening Profile: Frederick W. Smith 137Sources of New Ideas 140
Consumers 140Existing Products and Services 140Di stribution Channels 140Federal Government 140Research and Development 141
Methods of Generating Ideas 142Focus Groups 142Brainstorming 142Problem InventoryAnalysis 143
,XJefining a New Innovation (Product or Service) 150Classification of New Products 150
Opportunity Recognition 152Opportunity Analysis Plan 152
The Tdea and Its Competition 153The Market and the Opportunity 153Entrepreneur and Team Assessment 154TheNextSteps 154
XÜ CONTENTS
Product Planning and Development Process 154Establishing Evaluation Criteria 154ldeaStage 156ConceptStage 158Product Development Stage 158Test Marketing Stage 159
E-Commerce and Business Start-Up 160Using E-Commerce Creatively 160WebSites 161Tracking Customer Information 162Doing E-Commerce as an Entrepreneurial Company 162
6 INTELLECTUAL PROPERTY AND OTHER LEGALISSUES FOR THE ENTREPRENEUR 168
Opening Profile: Steve Lipscomb 169What Is Intellectual Property? 171Need for a Lawyer 171How to Select a Lawyer 171Legal Issues in Setting Up the Organization 172Patents 172
Business Method Patents 176Start-Up without a Patent 177Trademarks 177
Registering the Trademark 178Copyrights 179Trade Secrets 181Licensing 183Product Safety and Liability 185Insurance 186Sarbanes-Oxley Act 188Contracts 189
7 THE BUSINESS PLAN: CREATING ANDSTARTING THE VENTURE 196
Opening Profile: Belinda Guadarrama 197Planning as Part of the Business Operation 199What Is the Business Plan? 199
_„ Who Should Write the Plan? 200Scope and Value of the Business Plan—Who Reads the Plan? 201How Do Potential Lenders and Investors Evaluate the Plan? 202Presenting the Plan 203Information Needs 204
Market Information 205Operations Information Needs 207
Financial Information Needs 208Using the Internet as a Resource Tool 208
CONTENTS xiii
Writing the Business Plan 209Introductory Page 209Executive Summary 211Environmental and Industry Analysis 212Description of Venture 213Production Plan 215
Operations Plan 216Marketing Plan 217Organizational Plan 218Assessment of Risk 218Financial Plan 219Appendix 219
Using and Implementing the Business Plan 219Measuring Plan Progress 220Updating the Plan 221
Why Some Business Plans Fail 221Appendix 7A: Sample Business Plan—Gopher It 225
Competitor Analysis 235Marketing Research for the New Venture 236
Step One: Defming the Purpose or Objectives 237Step Two: Gathering Data from Secondary Sources 237Step Three: Gathering Information from Primary Sources 237Step Four: Analyzing and Interpreting the Results 240
Understanding the Marketing Plan 240Characteristics of a Marketing Plan 241The Marketing Mix 243Steps in Preparing the Marketing Plan 245
Defining the Business Situation 245Defining the Target Markel/Opportunities and Threats 245Considering Strengths and Weaknesses 248Establishing Goals and Objectives 248Defining Marketing Strategy and Action Programs 248Marketing Strategy: Consumer versus Business-to-
Business Markets 253Budgeting the Marketing Strategy 254Implementation of the Market Plan 254Monitoring the Progress of Marketing Actions 255
Appendix 8A: Marketing Plan Outlines 258
9 THE ORGANIZATIONAL PLAN 262
Opening Profile: Jim Sinegal, Costco 263Developing the Management Team 264Legal Forms of Business 265
Ownership 265Liability of Owners 267Costs of Starting a Business 268
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Continuity of Business 268Transferability of Interest 269Capital Requirements 269Management Control 270Distribution of Profits and Lösses 270Attractiveness forRaising Capital 271
Tax Attributes of Forms of Business 271Tax Issues for Proprietorship 271Tax Issues for Partnership 271Tax Issues for Corporation 273
The Limited Liability Company versus the S Corporation 273S Corporation 274
Advantages of an S Corporation 274Disadvantages of an S Corporation 275
The Limited Liability Company 275Advantages of an LLC 276
Designing the Organization 276Building the Management Team and a Successful
Organization Culture 278The Role of a Board of Directors 280The Board of Advisors 282The Organization and Use of Advisors 282
10 THE FINANCIAL PLAN 288
Opening Profile: Bill Porter—E*TRADE and ISE 289Operating and Capital Budgets 291Pro Forma Income Statements 293Pro Forma Cash Flow 297Pro Forma Balance Sheet 300Break-Even Analysis 302Pro-Forma Sources and Applications of Funds 304Software Packages 305
CASES FOR PART 2 311
Case 2A BizLand, Inc. 311Case2B The Beach Carrier 317Case2C Gourmet toGo 320Case 2D Intervela D.O.O. Köper—Victory Sailmakers 327Case 2E The Gril-Kleen Corporation 334
PART 3T FINANCING THE NEWVENTURE 341
11 SOURCES OF CAPITAL 342
Opening Profile: Scott Walker 343An Overview 346
Debt or Equity Financing 346
CONTENTS xv
Internal or External Funds 346Personal Funds 348Family and Friends 349Commercial Banks 350
Types of Bank Loans 350Cash Flow Financing 351Bank Lending Decisions 352
Role of SBA in Small Business Financing 353Research and Development Limited Partnerships 354
Major Elements 354Procedure 355Benefits and Costs 355Examples 356
Government Grants 356Procedure 357
Private Placement 358Types of Investors 358Private Offerings 358Regulation D 359
Bootstrap Financing 362
12 INFORMAL RISK CAPITAL, VENTURE CAPITAL,AND GOING PUBLIC 370
Opening Profile: Tom Kitchin 371Financing the Business 372Informal Risk-Capital Market 374Venture Capital 377
Nature of Venture Capital 377Overview of the Venture-Capital Industry 378Venture-Capital Process 382Locating Venture Capitalists 386Apprbaching a Venture Capitalist 387
Valuing Your Company 389Factors in Valuation 389Ratio Analysis 390Liquidity Ratios 391Activity Ratios 391Leverage Ratios 392Profitability Ratios 392General Valuation Approaches 393General Valuation Method 394
» Evaluation of an Internet Company 395Deal Structure 396Going Public 396
Advantages 397Disadvantages 397
Timing of Going Public and Underwriter Selection 401Timing 401Underwriter Selection 402
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Registration Statement and Timetable 403The Prospectus 404Part II 405Procedure 405
Legal Issues and Blue-Sky Qualifications 406Legal Issues 406Blue-Sky Qualifications 406
After Going Public 406Aftermarket Support 406Relationship with Ihe Financial Community 407Reporting Requirements 407
CÄSESFORPART3 416
Case3A The Winslow Clock Company 416Case 3B NeoMed Technologies 425Case 3C Rüg Bug Corporation 440Case3D Nature Bros. Ltd. 450
PART 4 M A N A G I N G , G R O W I N G , A N D ENDINGTHE NEW VENTURE 459
13 ENTREPRENEURIAL STRATEGY: GENERATING ANDEXPLOITING NEW ENTRIES 460
Opening Profile: Justin Parer 461New Entry 462Generation of a New Entry Opportunity 463
Resources as a Source of Competitive Advantage 463Creating a Resource Bündle That Is Valuable, Rare, and Inimitable 464
Assessing the Attractiveness of a New Entry Opportunity 467Information on a New Entry 467Comfort with Making a Decision under Uncertainty 468Decision to Exploit or Not to Exploit the New Entry 468
Entry Strategy for New Entry Exploitation 469Environmental Instability and First-Mover (Di s)Advantages 471Customers' Uncertainty and First-Mover (Dis)Advanlages 474Lead Time and First-Mover (Dis)Advantages 475
Risk Reduction Strategies for New Entry Exploitation 477Market Scope Strategies 477
^, Imitation Strategies 479Managing Newness 480
14 STRATEGIES FOR GROWTH AND MANAGING THEIMPLICATI0NS 0F GROWTH 488
Opening Profile: Brian and Jennifer Maxwell 489Growth Strategies: Where to Look for Growth Opportunities 490
CONTENTS xvll
Penetration Strategies 491Market Development Strategies 492Product Development Strategies 492Diversification Strategies 493Example of Growth Strategies 494
Economic Implications of Growth 496Implications of Growth for the Firm 497
Pressures on Existing Financial Resources 498Pressures on Human Resources 498Pressures on the Management of Employees 498Pressures on the Entrepreneur's Time 498
Overcoming Pressures on Existing Financial Resources 498Financial Control 499
Overcoming Pressures on Existing Human Resources 507Overcoming Pressures on the Management of Employees 508Overcoming Pressures on Entrepreneurs' Time 510
Basic Principles of Time Management 511Implications of Firm Growth for the Entrepreneur 512
A Categorization of Entrepreneurs and Their Firms' Growth 513
15 GOING GLOBAL 520
Opening Profile: Sam Walton 521Tntroduction 523Motivations to Go Global 523Strategie Effects of Going Global 525Strategie Issues 525Tmportant Considerations 526Foreign Market Selection 528Entrepreneurial Entry Strategies 530
Entrepreneurial Partnering 535Appendix 15A: Example Outline of an International Business Plan 538
16 A0CESSING RESOURCES FOR GROWTH FROMEXTERNAL SOURCES
Opening Profile: Bill Gross 541Using External Parties to Help Grow a Business 542Franchising 543
Advantages of Franchising—to the Franchisee 543Advantages of Franchising—to the Franchisor 545
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Disadvantages of Franchising 546Types of Franchisen 546
Investing in a Franchise 547Joint Ventures 551
Types of Joint Ventures 551Factors in Joint Venture Success 552
Acquisitions 553Advantages of an Acquisition 55 3Disadvantages of an Acquisition 554Synergy 555Structuring the Deal 555Locating Acquisition Candidates 555
Mergers 556Leveraged Buyouts 557Overcoming Constraints by Negotiating for More Resources 558
Surviving Bankruptcy 575Chapter 13—Extended Time Payment Plans 575Chapter 7—Liquidation 576Strategy during Reorganization 576Keeping the Venture Going 577Warning Signs of Bankruptcy 579Starting Over 579TheRealityofFailure 580Business Turnarounds 581Exit Strategy 582Succession of Business 583
Transfer to Family Members 583Transfer to Nonfamily Members 584
Options for Seüing the Business 585Direct Säle 585Employee Stock Option Plan 586Management Buyout 587
CASES FOR PART 4 593
w Case 4A Oklahoma National Bank 593Case 4B Datavantage Corporation 602Case 4C Dual Pane Company 613Case 4D Top Human Technology Limited 614
