Asst. Prof.

Syed M Fahim Akhter

The Practice of Entrepreneurship

Entrepreneurial Management

The principles of Entrepreneurial Management is based on the same principles whether the
entrepreneur is an existing large institution or an individual starting a new venture single handedly. It
also does not make any significant different whether it is a business or a nonbusiness public-service
organization or a government or nongovernment organization.

For each of these three, a specific guide to the practice of Entrepreneurship must be developed.

1. The existing business

2. The Public-Service Institution

3. The New Venture

1. The Existing Business

The world is undergoing rapid change and innovation, the large business simply will not survive unless
they acquire entrepreneurial competence. Today it is not only in the self-interest of the many existing
big businesses to learn to manage themselves for entrepreneurship; they have a social responsibility to
do so. According to Joseph Schumpeter famous phrase ‘Creative Destruction’ to the situation a century
ago explains the rapid destruction of the existing business – especially the big ones – by innovation.
Existing business will need to change and change greatly in any event.

We know that the medium-sized business is particularly well positioned to be a successful entrepreneur
and innovator. It organize itself for entrepreneurial management. A fair sized business has the best
capability for entrepreneurial leadership.

It has the necessary resources and has already acquired managerial competence and built a
management team. It has both the opportunity and the responsibility for effective entrepreneurial
management.

2. The Public-Service Institution

Public service institutions such as government agencies, mosques, universities, schools, charitable
organizations, hospitals need to be entrepreneurial as much as any other business does. The rapid
changes in today’s society and technology are greater threat to them and opportunity at the same time.

Most innovations in public-service institutions are imposed on them either by outsiders or by disaster.
The modern university was created by a total outsider, the Prussian diplomat Wilhelm von Humboldt.
He founded the University of Berlin in 1809 when the traditional university of 17th & 18th century had
been completely destroyed by the French Revolution and Napoleon wars.
Asst. Prof. Syed M Fahim Akhter

Three main reasons why the existing public service institutions presents obstacle to innovation.

First

These institutions are based on ‘budget’ rather than their yearly income. ‘Success’ in the public-service
institutions is defined by getting a larger budget rather than obtaining results. It is paid for its efforts and
out of funds somebody else has earned, whether the taxpayer, the donors of welfare organizations. The
more effort the public service institution engages in, the greater its budget will be.

Second

The institution is dependent on numerous constituents. It certainly has to satisfy everyone and cannot
afford to alienate anyone. In a typical business, one constituent, the consumer, eventually overrides all
the others, if not satisfied with the product; for example A successful business only need a small market
share, then it can satisfy the consumers. But public service institutions have no ‘results’ out of which
they are being paid and eventually has in effect a veto power.

Third

The public service institutions exist to ‘do good’. The mission is seen as a moral absolute rather than as
economic and subject to a profit and loss calculations. In these institutions, there is no such things as a
‘higher yield’. If one is doing good then there is no ‘better’. Failure to attain objectives in the search for a
‘good’ only means that efforts need to be redoubled.

3. The New Venture

A Main vehicle for ‘Innovation’, the new venture has an idea for a product, service or even sales. It has
cost, revenues and profits. It does not have a ‘business’ and a reasonable organized present with a plan.
People do not have directions where they are actually going. New Ventures must make sure that it is
‘managed’ properly, otherwise it will not survive no matter how brilliant the idea or the product or
services were. Thomas Edison the inventor of light bulb was a failure as entrepreneur because he
refused to build a management team as he thought that management meant being a ‘boss’. Edison was
replaced by professional management team to run his companies.

Entrepreneurial management in the New Venture has 4 requirements:

1. The Need for Market Focus

2. Financial Foresight: planning for capital and cash flows

3. Building a Top Management Team

4. Finding Entrepreneur's Role and Contribution

The Need for Market Focus

Successful ventures focus on nontraditional markets i.e. market other than the one it was originally
intended to serve, with its products & services not quite those with which it had set out, bought in large
part by customers it did not even think of when it started, and used for a host of purposes besides the
Asst. Prof. Syed M Fahim Akhter

ones for which the products were first designed. Exceptions are: a product designed for one specific use,
especially if scientific or technical, often stays with the market and the end use for which it was
designed. But not always.

Anything NEW genuinely creates market. No one knew about office copier before that first Xerox
machine was introduced in 1960. Similarly, 3M company known for adhesive tapes for industries – one
of the product accidently became Scotch Tape. Although they never took consumer market seriously.
IBM made the first computer Univac in 1960 for scientific purposes. After some time it was realized that
it can serve other businesses as well.

One cannot do ‘Market Research’ for something genuinely new. The new venture therefore needs to
start out with the assumption that its product or services may find customer in markets no one thought
of. Above all, the people who are running a new venture need to spend time outside; in the
marketplace, with customers and with their own salesman, looking and listening. The new venture
needs to build in systematic practices to remind itself that a product or a service is defined by the
customer, not by the producer.

Financial Foresight: Planning for Capital and Cash Flows

The more successful the new venture is, the more dangerous the financial foresight. The causes are
always the same:

 Lack of cash

 Inability to raise capital needed for expansion

 Loss of control with expense, inventories and receivables in disarray

New ventures are more likely to fail and exposed to the above issues because they tend to be greedy
and focus on profits. It comes last rather than first.

Cash flow, capital and controls come much earlier. Without them one can make profit for 1 to 2 years,
after which the profit disappears. Growth needs more cash and more capital. In financial terms this
means that growth in a new venture demands adding financial resources. The new ventures need cash
flow analysis, cash flow forecast and cash management.

A rule of thumb according to which, in forecasting cash income and cash outlays one assumes that bills
will have to be paid 60 days earlier than expected and receivables will come in 60 days later.

A growing new venture should know twelve months ahead of time how much cash it will need, when
and for what purposes.

Lost Control: Receivables, inventory, manufacturing cost, administrative costs, services, distribution.
Once one area gets out of control, all of them do. It is hard to recapture but can be prevented. Think
through the critical areas:

1. Product and/or Service quality

2. Receivables and Inventory
3. Manufacturing costs
4. Managerial and administrative overhead.
Asst. Prof. Syed M Fahim Akhter

Building a Top Management Team

Teams are based on mutual trust and mutual understanding and this takes years, nearly three years is
about the minimum. Small and growing new venture cannot afford a top management. Owners and
founders want to do everything themselves but this cannot be run by one or two people in the long run.
If the business is expected to be double within three or five years, it is the duty of the founder to build a
management team.

Identify the key activities of the business.

A. What are the specific areas upon which the survival and success of this particular business
depends?
For some it is product and for others it is services. Two key activities are always present in any
organization:
 The management of people
 The management of money

B. What are the activities that I and my key associates are doing well?

C. Which of the key activities should each of us, therefore, take on as his or her first and major
responsibility because they fit the individual's strength? Which individual fits which key activities?

D. What can this enterprise expect of you?

E. What should we hold you accountable for?

F. What are you trying to accomplish and by what time?

Where Can I Contribute

A. What will the venture need objectively by way of management from here on out?

B. What am I good at?

C. What do I really want to do, and believe in doing?

D. What am I willing to spend years on, if not the rest of my life?

E. Is this something the venture really needs?

F. Is it a major, essential, indispensable contribution?