Chapter

The Nature and Importance of Entrepreneurs

Development of Entrepreneurship
Earliest Period- Marco Polo Middle Ages- Theater, Architectural Works 17th Century- Mississippi Company 18th Century- Edison & Whitney 19th & 20th Centuries
Organize/Operate Innovation

What is Entrepreneurship?
Common Themes in Definitions of Entrepreneurship
The role of the entrepreneur Innovation Organization creation Creating value Profit or Not-for-Profit Growth Uniqueness Process

What is Entrepreneurship?
Entrepreneurship include: 1. Initiative taking. 2. The organizing and reorganizing or social/economic mechanisms to turn resources and situations to practical account. 3. The acceptance of risk or failure. Entrepreneurship is the dynamic process of creating wealth.
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 Our definition of entrepreneurship involves four aspects: 1. Entrepreneurship involves the creation process creating something new of value to the entrepreneur and to the audience. 2. It requires the devotion of the necessary time and effort. 3. It involves assuming the necessary risks. 4. The rewards of being an entrepreneur are independence, personal satisfaction, and monetary reward.

Misconceptions About Entrepreneurship

Five Misconceptions
1. Successful entrepreneurship needs only a great idea 2. Entrepreneurship is easy 3. Entrepreneurship is a risky gamble 4. Entrepreneurship is found only in small businesses 5. Entrepreneurial ventures and small businesses are the same thing
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Small Business and Entrepreneurial Ventures The Differences

Small Business
Independently owned, operated, and financed has fewer than 100 employees doesnt engage in new or innovative practices Has relatively little impact on its industry

Entrepreneurial Ventures
An organization pursuing opportunities Characterized by innovative practices Main goals are profitability and growth

Current Importance of Entrepreneurship

Three areas of importance

1. Innovation
Process of creating, changing, experimenting, transforming, and revolutionizing

2. Number of New Start-ups

Important because new firms contribute to economic development through benefits such as product-process innovation

3. Job Creation
Vital to the overall long-term economic health of communities, regions, and nations
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Environmental Factors Affecting Organizations

Hypercompetition Changing Technology Short Product Life Cycles New Markets Changing Employee Drives/Motives Focus on Sales/Profits Available Capital

Economies
Market-Oriented
UNITED STATES

Controlled
CUBA

Market Conditions

Innovation Orientation

Investment Community

Entrepreneurship Culture

Market Conditions
Large Market Easy To Form Company Positive Tax Structure Positive Media Coverage Code of Business/Contract Law Strong Govt Agencies- No Corruption Standard-Setting Associations Individual Investment Mentality

Principles for Successful New Venture

1) 2) 3) Define Market Durable Products- 18 Month Customer Payback Market Growth = 3050% in 5 Years Patent Protection No Product Substitutions Available Products Variants No Strong Competition Present 8) Quick Market Dominance 9) Gross Margin 30-50% 10)Staged Financing 11)ROI = 10X in 5 Years (25-30%/Year) 12)Positive Cash Flow in 18 Months 13)Strong Management in Industry

4) 5)
6) 7)

Infrastructure Needed for Innovation

Long-Term Thinking Investment Community
Banks Venture Capitalists Informal/Informed Private Investors (Angels)

Entrepreneurship Culture
More New Ventures Than Anywhere In The World Concentrated Areas

Types of Entrepreneurs
Novice Entrepreneur
Has no prior business ownership experiences as a business founder, inheritor, or purchaser

Habitual Entrepreneur
Has prior business ownership experience

Nascent Entrepreneur
In the process of starting a new business Can be either a novice or a habitual entrepreneur

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Types of Entrepreneurs (contd)

Serial Entrepreneur
Has sold or closed an original business and establishes another new business Continues the cycle of selling/closing and establishing

Portfolio Entrepreneur
Retains an original business and builds a portfolio of additional businesses
Through inheriting, establishing, and purchasing the businesses

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Successful Entrepreneur
Initiates Creation Process Devotes Time/Effort Assumes Risk Receives Rewards
Independence Satisfaction Money

Entrepreneurial Decision
Present Lifestyle

Catalyst
New Enterprise
Desirable Possible

Drivers of New Venture Formation

Desirability Influences
Culture/Subculture Family/Peers Teachers

Possibility Factors
Government Background Marketing Role Models Finances

Types of Startups
Lifestyle firm- A small venture that supports the owners and usually does not grow. Foundation company- A type of company formed from research and development that usually does not go public. High Potential venture- A venture that has high growth potential and therefore receives great investor interest. Gazelles- Very high growth ventures.

Entrepreneur & Economic Development

Product-Evolution Process - Process for developing and commercializing an innovation. Iterative Synthesis - The intersection of knowledge and social need that starts the product development process. Innovation Technological- New products with significant technological advancement

Breakthrough- New products with some technological change.

3 mechanisms for innovation to commercialization :

1. Government
Technology Transfer commercializing the technology in the laboratories into new products.

2. Intrapreneurship vs. Entrepreneurship

Intrapreneurship entrepreneurship within an exiting organisation

3. Entrepreneurship

Product Evolution
Need Recognition
Industrial

Initiate Innovation

Development

Press To Invent

Skills Required of Entrepreneur

Technical
Writing Oral Communication Monitoring The Environment Use Technology

Business Management
Planning Decision Making Human Relations Marketing (Selling)

Personal
Inner Control Risk Taking Innovative ChangeOriented Visionary

Ethics & Social Responsibility

Ethics- Behavior/Morals in Business Value System
Peer Pressure Social Norms Competitors Individual vs. Community

Entrepreneurial Competencies

Entrepreneurial Competencies
What do we mean by COMPETENCE ?

Competence is a combination of knowledge, skills and appropriate motives or traits that an individual must possess to perform a given task.

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Entrepreneurial Competencies
Knowledge The collection of information and retained facts that an individual possesses Skill The ability to demonstrate a system and sequence of behavior that are functionally related to attaining a performance goal Expertise Motives and traits Motives-Recurrent concern for a goal which drives, directs and selects the behavior of a person Emotion/ Desire Trait-A characteristic way in which a person responds to an equivalent set of stimuli - Attribute
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Entrepreneurial Competencies
Competencies are of two kinds:
Hard-Skill competencies Soft-skill Competencies

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Entrepreneurial Competencies
Soft-Skill Competencies INITIATIVE
Takes action that goes beyond job requirements or the of the situation. Does things before being asked or forced to by events. Acts to extend the business into new areas, products, or service.

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Entrepreneurial Competencies
SEES AND ACTS ON OPPORTINITIES
Looks for and action on opportunities. Sees and acts on opportunities (business, educational or personal growth). Seizes unusual opportunities to obtain financing equipment, land, work space Or assistance.

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Entrepreneurial Competencies
PERSISTENCE
Takes repeated action to overcome obstacles that get in the way of reaching goals. Takes repeated or different action to overcome obstacle. Takes action in the face of a significant obstacle.

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Entrepreneurial Competencies
INFORMATION SEEKING
Takes action on own to get information to help reach objectives or clarify problems. Does personal research on how to provide a product or service. Consults experts for business or technical advice.

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Entrepreneurial Competencies
CONCERN FOR QUALITY OF WORKS
acts to do things that meet or beat existing standards of excellence. States a desire to produce work of high quality. Compares own work or own companys work favorably to that of others.

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Entrepreneurial Competencies
COMMITMENT TO WORK CONTRACT
acts to do things that place the highest priority on getting a job completed. Accepts full responsibility for problems in completing a job for others. Pitches in with workers or works in their place to get the job done. Expresses a concern for satisfying the customer.

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Entrepreneurial Competencies
EFFICIENCY ORIENTATION
Finds ways to do things faster or with fewer resources or at a lower cost. Looks for or finds ways to do things faster or at less cost. Uses information or business tools to improve efficiency. Expresses concern about costs vs. .benefits of some improvements, change, or course of action.
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Entrepreneurial Competencies
SYSTEMATIC PLANNING
develops and uses logical ,step-by-step plans to reach goals. Plans by breaking a large task down into sub-tasks. Develops plans that anticipate obstacles. Evaluates alternatives. Takes a logical and systematic approach to activities.

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Entrepreneurial Competencies
PROBLEM SOLVING
identifies new and potentially ideas to reach goals. Switches to an alternative strategy to reach a goal. Generates new ideas or innovative solutions.

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Entrepreneurial Competencies
SELF-CONFIDENCE
Has a strong belief in self and own abilities . Expresses confidence is own ability to complete a task or meet a challenge. Sticks to own judgment in the face of opposition or rarely lack of success. Does something that he says is risky

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Entrepreneurial Competencies
ASSERTIVENESS
confronts problems and issues with others directly. Tells others what they have to do . Reprimands or disciplines those failing to perform as expected.

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Entrepreneurial Competencies
USE OF INFLUENCE STRATEGIES
Uses a variety of strategies to influence others. Acts to develop business contacts. Uses influential people as agents to accomplish own objectives. Selectively limits the information given to others.

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Entrepreneurial Competencies
PERSUASION
Successfully persuade others. An entrepreneur is said to be persuasive when he/she can convince someone to buy a product or service, provide financing or do something that he/she would like that person to do. Persuasive entrepreneurs assert their own and their companys competence and qualities.

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The Entrepreneurial and Intrapreneurial Mind

Entrepreneurial Process
1) Identify/Evaluate Opportunity 2) Develop Business Plan 3) Determine Resources Required 4) Manage The Enterprise

Phase 1: Identify and Evaluate the Opportunity.

1.Opportunity identification:
Most good business opportunities result from an entrepreneur being alert to possibilities. a. Fruitful sources include consumers and business associates. b. Channel members in the distribution system retailers, wholesalers, or manufacturers repsare also helpful. c. Technically-oriented individuals often identify business opportunities when working on other projects.

2. Each opportunity must be carefully screened and evaluatedthis is the most critical element of the entrepreneurial process. 3. The evaluation process involves looking at: a. The length of the opportunity. b. Its real and perceived value. c. Its risks and returns. d. Its fit with the skills and goals of the entrepreneur. e. Its uniqueness or differential advantage in its competitive environment.

4. The market size and the length of the window of opportunity are the primarily bases for determining risks and rewards. a. The risks reflect the market, competition, technology, and amount of capital involved. b. The amount of capital forms the basis for the return and rewards. c. The return and reward of the present opportunity needs to be viewed in light of any possible subsequent opportunities as well.

5. The opportunity must fit the personal skills and goals of the entrepreneur. a. The entrepreneur must be able to put forth the necessary time and effort required for the venture to succeed. b. He or she must believe in the opportunity enough to make the necessary sacrifices.

6. Opportunity assessment should focus on the opportunity and provide the basis to make the decision, including: a. A description of the product or service. b. An assessment of the opportunity. c. Assessment of the entrepreneur and the team. d. Specifications of all the activities and resources needed. e. The source of capital to finance the initial venture.

Opportunity Analysis
Market Need?

Personal Observation
Underlying Social Conditions

Market Research Data

Assess Competition- Patents? Where Money To Be Made

Phase 2: Develop a Business Plan

 A good business plan must be developed in order to exploit the opportunity defined. This plan is essential to developing the opportunity and in determining the resources required, obtaining those resources, and successfully managing the venture.

Phase 3: Determine the Resources Required

1. Assessing the resources needed starts with an appraisal of the entrepreneurs present resources. 2. Any resources that are critical need to be differentiated from those that are just helpful. 3. Care must be taken not to underestimate the amount and variety of resources needed. 4. Acquiring needed resources, while giving up as little control as possible, is difficult. a) The entrepreneur should try to maintain as large an ownership position as possible, particularly in the start-up stage. b) As the business develops, more funds will probably be needed, requiring more ownership be relinquished. c) Alternative resource suppliers should be identified, along with their needs and desires, in order to structure a deal with the lowest cost and loss of control.

Phase 4: Manage the Enterprise

 The entrepreneur must use them to implement the business plan. This involves implementing a management structure, as well as identifying a control system

Decision Making Manager vs. Entrepreneur

Domain- Administrative vs. Entrepreneurial 1. Strategic Orientation 2. Commitment to Opportunity 3. Commitment of Resources 4. Control of Resources 5. Management Structure

Strategic Orientation 1. The entrepreneurs strategic orientation depends on his or her perception of the opportunity. 2. When the use of planning systems is the strategic orientation, the administrative domain is operant.

Commitment to Opportunity. 1. The entrepreneurial domain is pressured by the need for action and has a short time span in terms of opportunity commitment. 2. The administrative domain is not only slow to act on an opportunity, but the commitment is usually for a longer time span.

Commitment of Resources. 1. An entrepreneur is used to having resources committed at periodic intervals, often based on certain tasks or objectives being reached. 2. In acquiring these resources the entrepreneur is forced to maximize resource use. 3. In the administrative domain, the commitment of resources is for the total amount needed. 4. Administrative-oriented individuals receive personal rewards by effectively administering the resources under their control.

Control of Resources. 1. The administrator is rewarded by effective resource administration and has a drive to own or accumulate as many resources as possible. 2. The entrepreneur, under pressure of limited resources, strives to rent resources on an as-needed basis. Managerial Structure. 1. In the administrative domain, the organizational structure is formalized and hierarchical in nature. 2. The entrepreneur employs a flat organizational structure with informal networks.

Intrapreneurship
Instilling Entrepreneurial Spirit Within An Existing Organization To Innovate And Grow.

Organizational Culture
Corporate
Climate/Reward System Favors Conservatism Follow Instructions, No Initiative Hierarchy Of Authority

Intrapreneurial
Develop Vision, Goals, & Plans Suggest, Try, Experiment Flat Organizational Structure- Networking & Teamwork

Cultural Norms/Values
Corporate
Fragmented Instruction Controlled Outer-Directed Alienation lose support/isolation Chores Farm Duties Defined Limits Interference Distrust Expendable - replaceable Limiting People

Intrapreneurial
Whole Vision In Control Inner-Directed Responsibility
Enthusiasm/Motivation Space/Freedom Trust Belief In People Expandable -flexible Growing People

Interest In Intrapreneurship
Rising Interest in Doing Your Own Thing Corporation
Support To Retain Creative Employees Fund Startups

Hypercompetition Corporate vs. Intrapreneurial Culture

Intrapreneurial Activities
New Business Venturing Innovation

Self-Renewal
Proactive

Climate for Intrapreneurship

Technology New Ideas Encouraged Trial/Error Encouraged Failure Allowed No Opportunity Parameters Resources Available & Accessible Multidiscipline Teams Long Time Horizon Volunteer Program Appropriate Reward System

Sponsors/Champions
Available Support of Top Management

Intrapreneurial Leaders
Understand Environment Have Vision/Flexibility

Create Management Options

Encourage Teamwork

Encourage Open Discussion

Build Coalitions Persist

Establishing Intrapreneurship
Commitment of Top Management Identify Ideas/Areas Interested In Supporting Use Technology For Flexibility Managers Share/Train Employees Get Closer to Customers Be More Productive With Less

Evaluating Intrapreneurship Proposals

Corporate Fit Initial Investment Experienced Venture Champion Experience With Product/Service Competitive Threat Proprietary Technology Gross Margin Rate Of Return

Barriers To Intrapreneurship
Inherent Nature of Large Organizations No Long-Term Commitment Lack Of Autonomy For Decision Making Lack of Intrapreneurial Talent Inappropriate Compensation Methods Constrained Environment

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Chapter

International Entrepreneurship Opportunities

Questions About International Business

Different From Domestic Business? Strategic Issues?

Options Available?
Decision To Enter?

Strategic Issues
Speed Of Entry Joint Venture
Competitive Advantage Reduce Expropriation Chances

Responsibility Allocation Standardization Possibilities Systems To Be Used Organizational Structure

International vs. Domestic

Economics Stage of Development

Balance of Payments
Type of System- Barter? Political/Legal Environment Culture Technology

STRATEGIC ISSUES
Four strategic issues are important to the international entrepreneur: a. The allocation of responsibility between the U.S. and foreign operations. b. The nature of the planning, reporting, and control systems to be used. c. The appropriate organizational structure for conducting international operations. d. The degree of standardization possible.

Strategic Issues
Stage Decision Making

1
2 3

Highly Centralized
Complexity Forces Decentralization Conflict Forces Recentralization

To understand what is required for effective planning, reporting, and control, the entrepreneur should consider: 1. Environmental analysis. 2. Strategic planning. 3. Structure. 4. Operational planning. 5. Controlling the marketing program.

Environmental Analysis of National Market

Characteristics
Unique Common

Clustering
Dimensions Operating/Planning

Strategic Planning
Marketing Products
Decisions Target Markets
Needs Benefits Use Ability To Buy CompetitionStrengths & Weaknesses

Program Modification Balance Of Payments & Currency Political Climate Opportunity. Risk, Capability

Structure
Achieve Objectives Skills & Resources Responsibility

Operational Marketing
Implement Effective Plan Plan
Product Price Channels Communication Target Market Control- Measure/Monitor

Country Data Analysis

Market Characteristics Marketing Institutions

Industry Conditions
Legal Environment Resource Availability Political Environment

Country Data Analysis

Market Characteristics:
Size of market ; rate of growth Stage of development Stage of product life cycle; saturation levels Buyer behavior characteristics Social / cultural factors Physical environment

 Marketing Institutions
Distribution Systems Communication Media Marketing Services (advertising and research)

Industry Conditions
Competitive size and practices Technical Development

Legal environment
Laws, regulations, codes, tariffs and taxes

 Resources
Personal (availability, skill, potential and cost) Money (availability and cost)

Political environment
Current government policies and attitudes Long Range political environment

International Market Entry

Exporting
Indirect Direct

Direct Foreign Investment

Minority Interests Joint Ventures Majority Interest Mergers
Horizontal Vertical Product Extension Market Extension

Nonequity
Licensing Turn-Key

Management Contracts

Partnering

 Exporting
Indirect exporting It involves a foreign purchaser in the local market or using an export management firm.
For certain commodities, foreign buyers seek out sources of supply.
Export management firms, another indirect method, are located in most commercial centers.

 Direct exporting Direct exporting through independent distributors or through ones own overseas sales office is another way to enter international business.
An independent foreign distributor directly contacts foreign customers and takes care of all technicalities. Entrepreneurs can open their own overseas sales offices and hire their own salespeople.

Nonequity Arrangements
Nonequity arrangements allow the entrepreneur to enter a market without direct equity investment in the foreign market. 1.Licensing involves an entrepreneur who is a manufacturer giving a foreign manufacturer the right to use a patent, trademark, or technology in return for a royalty payment.

Licensing
This arrangement is most appropriate when the entrepreneur has no prospect of entering the market through exporting or direct investment. The process is usually low risk and an easy way to generate incremental income. Without careful analysis, licensing arrangements have several pitfalls.

Turn-key projects
Turn-key projects. Lesser developed countries are able to obtain manufacturing technology without surrendering economic control through turn-key projects. A foreign entrepreneur builds a facility, trains the workers, and trains the management to run the installation. Once the operation is on-line, it is turned over to local owners. Initial profits can lead to follow-up sales. Financing is provided by the local company or government.

Management contracts
Entrepreneurs can contract their management techniques and skills. The management contract allows the purchasing country to gain foreign expertise without turning ownership over to a foreigner.

Direct Foreign Investment

The wholly-owned foreign subsidiary has been a preferred mode of ownership for direct investment.

Minority Interests Joint Ventures Majority Interest Mergers

Horizontal Vertical Product Extension Market Extension

Minority interests.
The minority interest can provide the firm with either a source of raw materials or a captive market for products. Entrepreneurs have used minority positions to gain a foothold in the market before making a major investment. Having less than 50% ownership in business

Joint ventures
Two firms get together and form a third company in which they share the equity. Joint ventures have been used by entrepreneurs in two situations: (i) When the entrepreneur wants to purchase local knowledge and an established facility. (ii) When rapid entry into a market it needed. The keys to success of joint ventures have not been well understood. Reasons for forming a joint venture today are different than those in the past. Previously, joint ventures were viewed as partnerships and often involved firms whose stock was owned by several other firms. Joint ventures in the U.S. were first vertical joint ventures used by mining concerns and railroads.

 Reasons for the significant increase in the use of joint ventures: (i)To share the costs and risks of an uncertain project. (ii) To gain synergy between firms. (iii) To obtain a competitive advantage. (iv) To enter markets that pose entrance difficulties.

Majority interest
a. Another equity method is to purchase a majority interest in a foreign business. b. The majority interest allows the entrepreneur to obtain managerial control while maintaining the companys local identity. c. Having more than 50% ownership position

One hundred percent ownership assures control. One form of 100 percent ownership involved mergers and acquisitions. (i) The benefits and costs of a merger need to be considered. (ii) The entrepreneur must understand mergers as a strategic option and the complexity of integrating one company into another.

 A horizontal merger is the combination of two firms that produce closely related products in the same area. A vertical merger is the combination of firms in successive stages of production. A product extension merger occurs when acquiring and acquired companies have related production but do not have directly competing products. A market extension merger is when two firms produce the same products but sell them in different geographic markets. A diversified activity merger is a conglomerate merger involving the consolidation of two unrelated firms.

 Mergers are a sound strategic option for an entrepreneur when synergy is present. (i)Economies of scale are the most common reason for mergers. (ii) A second factor that causes synergy is taxation, or unused tax credits. (iii) The final factor is the benefits received in combining complementary resources.

Barriers To International Trade

General Agreement on Tariffs and Trade (GATT)1947 Increasing Protectionism Trade Blocs & Free Trade Areas Strategy & Barriers