Managing Entrepreneurially

What is entrepreneurship?
 Entrepreneurship—the process of starting new organizations, generally in response to
opportunities
 Traditionally for profit—business venture
 Increasingly for needs of the community—Social ventures/enterprises
 Entrepreneur—individual, who changes, revolutionizes, transforms or introduces new
products or services.
 Entrepreneurial—individual who exhibits (Jeffrey Timmons):
 Commitment and determination
 Leadership
 Opportunity obsession
 Tolerance of risk and uncertainty
 Creativity
 Self-reliance
 Ability to adapt
 Motivation to excel

How do entrepreneurial ventures (EVs) add value to the economy?

Two ways EVs add value to an economy
 Creative destruction (Joseph Schumpeter): A radical innovation, in which the way things
were done before is ‘destroyed’
 E.g., Blackberry, Uber
 Entrepreneurial alertness (Israel Kirzner): The ability to perceive opportunities by being
sensitive to signals in the marketplace
 Constantly look for imbalances in what people need and what is available and then take
advantage of them
 E.g., buy from garage sale and post on eBay
 Both explain how entrepreneurs create value

The nature of opportunities and the role of entrepreneurial managers

How to find an opportunity depends on the types of opportunity:
 Opportunities can be:
 Recognized (being alert) when supply and demand are known
 Discovered (search) when only supply or demand known
Have to discover whether the demand or the supply exists
 Enacted (create) when neither supply nor demand known
The entrepreneur takes the idea to the market
Entrepreneurial venture and small business are not the same
 Entrepreneurial venture:
 Pursue opportunities and create social ventures where the objective is to maximize
social return on investment (SROI) rather than traditional return on investment (ROI)
 Characterized by innovative practices
  Main goal: growth and financial viability (profitability)
 Small business:
 Independently owned, operated, and financed
 Has fewer than 100 employees
 Doesn’t necessarily engage in any new or innovative practices
 Has relatively little impact on its industry

Why is entrepreneurship important?

Innovation and entrepreneurship in national economy
 The two cornerstones of a competitive national economy are:
 Entrepreneurship
 Innovation
 The entrepreneurial process introduces innovative products, processes, and organizational
structure across an economy
 Its importance can be shown in three areas:
 Innovation (changing, transforming, experimenting, revolutionizing, creative
destruction)
 Number of new start-ups (measure of how important entrepreneurship is)
 Job creation (8.2 million, 70% of Canadian private sector workforce; important to the
overall long-term economic health of communities, regions, and nations)

What do entrepreneurs do?

Functional model
 In a general, entrepreneurs create something new, something different.
 They search for change, respond to it, and exploit it
 Access potential for entrepreneurial venture; assess feasibility (gather information,
potential opportunities, competitive advantages, look at competitors, financial options)
 Plan the venture (organizational mission, culture, well thought-out business plan)
 Organize the venture (choosing a legal form of business organization, patent, copyright
searches, appropriate organization structure design)
 Launch (set goals and strategies, establish technology operations methods, marketing
plans, information systems, financial accounting systems, cash-flow-management
systems)
 Manage (making decision, analyzing external and internal environments, managing
people, measuring and evaluating performance, managing conflict, growth, making
needed changes, exiting)
Timmons Model
 What are the elements needed for entrepreneurial success?
 Ability of entrepreneur to balance three factors:
 Opportunity, (idea vs. opportunity—anchored on value to customers, sound business
opportunity attracts financing)
 Team, (conjure up a great team, a good team is indispensable for success)
 Resources, (encourages bootstrapping—starting with the bare minimal, high potential
opportunities and a good management team attract money)
Social responsibility and ethics
 Entrepreneurs are faced with issues of social responsibility and ethics
 International organization for standardization (ISO) has developed standards for
sustainability and for social responsibility
 Social responsibility: entrepreneurs actions must benefit the whole of society
 Sustainability: avoidance of the depletion of natural resources in order to maintain an
ecological balance
 Ethics: moral principles that govern a person’s behavior or the conducting of an activity
 Social entrepreneurs: society’s change agents; creators of innovations that disrupt the
status quo and transform our world for the better

The business model and steps

Canadian Government Start-up Programs offer young entrepreneurs the expertise, financing,
mentoring and resources. What is a start-up?
 Start-up
A temporary organization designed to search for a Repeatable and Scalable Business Model (BM).
(Steve Blank and Jerry Engle)
A new venture and a new division
 Repeatable: the ability to do the same thing more than once and achieve the same result
 Scalable: the ability to generate revenues faster than the rate you are incurring costs and
grow
 Business model: how a company creates value for itself while delivering products or services
to customers
Elements of a business model
1. Value propositions
2. Customer segments
3. Channels
4. Customer relationships
5. Revenue streams
6. Key resources
7. Key partners
8. Key activities
9. Cost structure
 Business model unknown—you are a start-up searching for are repeatable business model
 Business model known—you are executing it
 Search versus execution differentiates a new venture from an existing business unit

The primary objective of a start-up

 SEARCH to validate its business model hypotheses until it finds a model that is repeatable
and scalable
 Continuous to iterate and picot (look for a different business model) until it does
 Then it moves into EXECUTION mode
 At this point the business needs:
 Operating plan
  Financial forecasts
 Other management tools
Business model for Company Building
The steps:
SEARCH
 Customer discovery
 Test hypothesis—are there customers?
 Founder’s vision turns into business model hypothesis. Develops a plan to test
customer reactions to the hypotheses
 Customer validation
 Is model repeatable?
 Tests whether the resulting business model is repeatable and scalable. If not, you
return to customer discovery
EXECUTION
 Customer creation
 Builds demand & channels it to sales
 It builds end-user demand and drives it into the sales channel to scale the business
 Company building
 Transitions the company from start-up to one operating based on a validated model
Search versus execution is what differentiates a new venture from an existing business unit

Embracing failure as learning and learning-and-discovery culture

 Failure is natural
 Start-ups need customer development teams that have a ‘learning-and-discovery’ culture
for search
 A learning-and-discovery culture enables the adaptive capacity of an organization

Researching a venture’s feasibility

Venture Feasibility (possible to do easily or conveniently)
 It is important for entrepreneurs to research a venture’s feasibility
 Feasibility study: an analysis of the various aspects of a proposed entrepreneurial venture
that is designed to determine the feasibility of the venture
Feasibility Study: Generating/Evaluating Ideas & Researching Competitors & Researching
Financing
 Generating and Evaluating ideas
It is important for entrepreneurs to research a venture’s feasibility by generating and evaluating
business ideas.
 Generating ideas: look for limitations of what is currently available, new and different
approaches, unfilled niches, trends and changes
 Evaluating ideas: evaluating entrepreneurial ideas involves personal (characteristics)
and marketplace considerations
 Researching competitors
 Part of researching a venture’s feasibility is looking at the competitors
 The biggest competitors (Status quo (customers do not need your product) +
 Substitutes)
 Therefore articulate your Value proposition
 Value proposition: an analysis of the benefits, costs and value that an organization can
deliver to customers and other groups within and outside of the organization
 Researching financing
In Canada start-ups find money in different ways depending on the stage of the venture
Early in the venture:
Small amounts of money can be found from peers, often referred to casually as ‘friends, fools,
and family’ (FFF)
Mature venture:
a) Angel investors—an affluent individual who provides capital for a business start-up, usually
an exchange for convertible debt or ownership equity
b) Professional venture capital firms
c) Accelerator programs—structured programs designed to support entrepreneurs through
education and access to resources

Planning a venture: developing a business plan

After feasibility the entrepreneur develops a business plan
Business plan: a written document that summarizes a business opportunity and defines and
articulates how the identified opportunity is to be seized and exploited
A business plan
 All the elements of the entrepreneur’s vision in a single coherent document
 A blueprint and road map for operating the business
 A document that guides organizational decisions and actions throughout the life of the
business, not just in the start-up stage

Organizing an EV
Choose appropriate organizational structures to support an entrepreneurial culture
 Once the start-up and planning has been addressed, the entrepreneur is ready to begin
organization
 There are four organizing issues:
 Organizational design and structure—new organization and existing organization
 Human resource management—employee recruitment and employee retention
 How to stimulate and make changes—entrepreneur change agent
 Continuing importance of innovation—curiosity driven research; applied research;
research & development
Organizational design and structure
At some point, can’t do everything along
 New venture
 In small firms, it evolves with very little deliberate planning:
 You hire people to perform some functions
 Functions grow and require managers
 Evolution to more deliberate structure requires entrepreneur to share decision making
—letting go may be challenging
 Existing organization (rigid existing hierarchy will stifle innovation)
 Within an existing organization, structure of the parent organization may impose
rigidity and stifle innovation
 A more creative structure may be needed in a new division to support a start-up culture
Human resource management
As employees are brought on board, human resource management (HRM) issues are faced
 Employee recruitment
 Look for individuals who:
 Buy into the venture’s entrepreneurial culture
 Have a passion for the business
 Employee retention
 Keep the people you have hired and trained
 You may offer from a wide array of desirable benefits
 Raises each year
 Profit sharing
 Daycare for children
How to stimulate and make changes
Entrepreneurs face dynamic change
They need to be alert to problems and opportunities that may create the need for change
Entrepreneur as Change Agent
 Changes can be difficult, disruptive and scary
 The entrepreneur recognizes the need for change and acts as the catalyst, coach, and chief
change consultant
 Supports employees, gets them excited about the change
 Communicates and guides the change process
The importance of continuing innovation
In today’s chaotic world of global competition, organizations must continually innovate
Innovation takes place in several different forms
 Curiosity driven research
Research directed toward acquiring new knowledge rather than toward some more practical
objective (also referred to as basic research)
 Applied research
Research that accesses, rather than generates, new knowledge and applies it to a practical
or commercial purpose
 Research and development (R&D)
Investigative activities that an organization conducts to lead to discoveries that will help
develop new products or procedure
Is there a systematic approach that an entrepreneurial venture can take to be more innovative?
 Innovation is not related to the amount of money spent on R&D
 Basadur’s Simplex Model asks participants to
1. Use divergent thinking and brainstorming to come up with as many alternatives as
possible
2. Defer judgment while brainstorming alternatives to allow the group to build on wild
and crazy ideas, as well as the more practical ones
 3. Use convergent and evaluative thinking to choose the alternative that fits best
4. There are three elements to his Basadur’s Simplex model: process, skills, and profiles
5. Min Basadur’s Simplex model has defined four problem-solving styles: generators,
conceptualizers, optimizers and implementers
 Innovative products and services depend on the talent, knowledge, team structures, tools,
and processes—i.e., the capabilities—that a company can put together

Leading an EV
The entrepreneur as leader
Make appropriate choices in leading an entrepreneurial venture
 As EV grows an entrepreneur takes on a new role—that of a leader
 A successful entrepreneur must be like the leader of a jazz ensemble known for its
improvisation, innovation, and creativity (Max DePree)
 Being able to draw the best out of other individuals
 One way an entrepreneur does this is through the vision he or she creates for the
organization
 The entrepreneur’s ability to articulate a coherent, inspiring, and attractive vision is a key
test of his/her leadership
 An individual who can articulate the future of the organization and inspire others to achieve
the dream is known as a visionary

Controlling an EV
Developing appropriate control structures to respond to the unique challenges faced by
entrepreneurial ventures
 Entrepreneurs must control the venture’s operations in order to survive and prosper
 The unique control issues facing entrepreneurs include:
 Managing growth
 Managing downturns
 Exiting the venture
Managing growth
 Entrepreneurial ventures pursue growth
 Growth requires an entrepreneur to manage all the challenges associated with growing
 Ideally, the decision to grow is part of a venture’s overall business plan
 Entrepreneurs shouldn’t be overly rigid in their planning but rapid growth without planning
can be disastrous
 The key challenges for an entrepreneur in organizing for growth include:
 Finding capital
 Finding people
 Strengthening the organizational culture
Managing decline
 There may come a time of organizational decline
 The entrepreneur should think before it happens by designing a control system to signal this
early in the game
 It is important to have an up-to-date contingency plan (a plan for dealing with a worst-case
 situation or crisis (often referred to as a Plan B)
 Providing specific details for
 Cash flow
 Accounts receivable
 Costs, and debt
 Other actions would involve:
 Identifying specific strategies for cutting costs
 Restructuring the venture
Exiting the venture
 Why exit? The decision to exit may be to:
 Capitalize financially—harvesting (exiting a venture when an entrepreneur hopes to
capitalize financially on the investment in the venture)
 Mitigate serious performance problems
 Focus on other pursuits (personal or business)
 When is the best time to plan your exit from the business?
At the time you enter
 The issues involved with exiting the venture include:
 Choosing a proper business valuation method
 Knowing what is involved in the process of selling a business
 other factors:
 deciding who will sell the business
 considering the tax implications
 screening potential buyers
 deciding whether to tell employees before or after the sale