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Chapter 1


Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

The concept of entrepreneur
Types of entrepreneur
Characteristics/Qualities of an entrepreneur
Entrepreneur vs. Manager
Entrepreneur vs. Intrapreneur


Entrepreneur defined

• Organizer of musical or other
• Involvement in military missions
• Engaged in civil engineering activities
• Connected with economic aspects
o Risk bearer
o Organizer
o Innovator

Entrepreneur defined • Risk-bearer o Risk vs. Uncertainty • Organizer o Land-labor-capital-information • Innovator o New product o New production technology o New market o New source of supply o New form of organization 1-4 .

and •realize financial rewards.Why Become an Entrepreneur? The three primary reasons that people become entrepreneurs and start their own firms are to •be their own boss. 1-5 . •pursue their own ideas.

Characteristics of a Successful Entrepreneur Four Primary Characteristics of Successful Entrepreneurs •Passion for the business •Product/Customer Focus •Persistence Despite Failure •Execution Intelligence 1-6 .

Characteristics of a Successful Entrepreneur Other Qualities oHard working oDesire for high achievement oIndependence oForesight oGood organizer oInnovative 1-7 .

Types of Entrepreneurs Clarence Danhof classified entrepreneurs in to 4 types • Innovating • Imitative • Fabian • Drone Other behavioral scientists provide following types • Solo operators • Active partners • Challengers • Buyers • Lifetimers 1-8 .

employed in a large organization. • Intrapreneur by his/her own choice develop new product/services. 1-9 . who is encouraged to be innovative and creative.Intrapreneur • Any individual.

Intrapreneur • • • • • Dependency Fund raising Risk Operation Qualification 1-10 .Entrepreneur vs.

Manager • • • • • • • Motive Status Decision making Risk bearing Reward Innovation Qualifications 1-11 .Entrepreneur vs.

Nature and Development of Entrepreneurship • Entrepreneur – An individual who takes initiative to bundle resources in innovative ways and is willing to bear the risk and/or uncertainty to act. o Requires assumption of necessary risks. o Involves rewards of being an entrepreneur. 1-12 . o Requires devotion of time and effort. • Being an entrepreneur today: o Involves creation process.

) • Entrepreneurial action .Nature and Development of Entrepreneurship (cont.Behavior in response to a judgmental decision under uncertainty about a possible opportunity for profit. 1-13 .

Aspects of the Entrepreneurial Process 1-14 .1 .Table 1.

1-15 .The description of the future direction of the business. • Window of opportunity . • Business plan .The Entrepreneurial Process • Opportunity identification .The process by which an entrepreneur comes up with the opportunity for a new venture.The time period available for creating the new venture. • Market size and the length of the window of opportunity are the primary bases for determining risks and rewards.

How Entrepreneurs Think • Entrepreneurs in particular situations may think differently when faced with a different task or decision environment. • Given the nature of their decision-making environment. o Learn from failure. o Be cognitively adaptable. 1-16 . entrepreneurs need to sometimes: o Effectuate.

) • Causal process o Starts with a desired outcome. act. and mobilize. • Effectuation process o Starts with what one has (who they are. o Focuses on the means to generate that outcome. 1-17 . • Entrepreneurial mind-set involves the ability to rapidly sense. o Selects among possible outcomes.How Entrepreneurs Think (cont. even under uncertain conditions. what they know. and whom they know).

self-regulating and engaged in the process of generating multiple decision frameworks focused on sensing and processing changes in their environments and then acting on them.How Entrepreneurs Think (cont. 1-18 . flexible.) • Cognitive adaptability describes the extent to which entrepreneurs are: o Dynamic. • It reflects in an entrepreneur’s metacognitive awareness.

• Connection tasks – Stimulates thinking about the current situation in terms of similarities and differences with situations previously faced and solved. • Reflection tasks – Stimulates thinking about their understanding and feelings as they progress through the entrepreneurial process.How Entrepreneurs Think (cont. 1-19 .) o Achieving cognitive adaptability • Comprehension questions – Aids understanding of the nature of the environment before addressing an entrepreneurial challenge. • Strategic tasks – Stimulates thoughts about which strategies are appropriate for solving the problem (and why) or pursuing the opportunity (and how).

How Entrepreneurs Think (cont. • Be creative.) o Entrepreneurs who are able to increase cognitive adaptability have an improved ability to: • Adapt to new situations. 1-20 . • Communicate one’s reasoning behind a particular response.

) • Learning from Business Failure o Uncertainty. • The need to prove oneself. changing conditions.How Entrepreneurs Think (cont. 1-21 . and insufficient experience can contribute to failure among entrepreneurial firms. o An entrepreneur’s motivation is not simply from personal profit but from: • Loyalty to a product. • Loyalty to a market and customers. • Personal growth.

1-22 .How Entrepreneurs Think (cont. • Motivation to try again.) o Loss of a business can result in a negative emotional response from the entrepreneur. o It can interfere with: • Entrepreneur’s ability to learn from the failure.

no longer generate a negative emotional response. 1-23 . and leading up to the loss of the business. o Primary descriptions of the process of recovering are: • Loss-orientation. • Restoration-orientation.How Entrepreneurs Think (cont.) • Recovery and Learning Process o Emotional recovery from failure happens when thoughts about the events surrounding.

as a result of this process. • This process gradually provides the loss with meaning and eventually produces a changed viewpoint.) o Loss-Orientation • Involves working through. some aspect of the loss experience and. which is physically and mentally exhausting. breaking emotional bonds to the object lost. • Involves confrontation. • Characterized by feelings of relief and pain that wax and wane over time. and processing.How Entrepreneurs Think (cont. 1-24 .

• May reduce emotional significance of the loss. • Provides an opportunity to address secondary causes of stress.) o Restoration-Orientation • Based on both avoidance and a proactiveness toward secondary sources of stress arising from a major loss. • Involves suppression.How Entrepreneurs Think (cont. which requires mental effort and presents potentially adverse consequences for health. 1-25 .

o This dual process speeds the recovery process. • Minimize the costs of maintaining one for too long. 1-26 .) • A Dual Process for Learning from Failure o The dual process of oscillating between the loss-orientation and restorationorientation enables a person to: • Obtain the benefits of each.How Entrepreneurs Think (cont.

How Entrepreneurs Think (cont. • Recovery from loss offers an opportunity to increase one’s knowledge of entrepreneurship. • There is a process of recovery to learn from failure. which offers some comfort that current feelings of loss will eventually diminish. • Recovery and learning process can be enhanced by some degree of oscillation. 1-27 .) o Practical implications of the dual process: • Knowledge that feelings and reactions being experienced are normal. • Realizing that psychological and physiological outcomes caused by the feelings of loss are “symptoms” can reduce secondary sources of stress.

Responsibility of Entrepreneurs • Entrepreneurs usually develop an internal ethical code. o General social norms in the community. • Business ethics . 1-28 . • Personal value systems tend to be influenced by: o Peer pressure.The study of behavior and morals in a business situation. o Pressures from their competitors.

1-29 . o Iterative synthesis . o Product-evolution process .The intersection of knowledge and social need that starts the product development process.Process through which innovation is developed and Economic Development • Innovation is depicted as a key to economic development.

o Technological – New products with significant technological advancement.) • Three types of innovation: o Ordinary . 1-30 . o Breakthrough – New products with some technological change.New products with little technological Economic Development (cont.

Figure 1.Product Evolution 1-31 .1 .