New Venture Creation and

Control Mechanism
Professor Alexander Settles
asettles@hse.ru
 Introduction to the Course
• New Venture Creation
– Entrepreneurship / Research on
Entrepreneurship
– Innovation
– Business Planning
– Finance
• Organization Theory and Entrepreneurship
and Innovation
 Course Design
• Requirements
– Attendance, Participation and Readings
– Personality Assessment
– Innovation Journal
– Assessment of New Venture or
Entrepreneurial Policy/Action (in Groups)
– Exam
Entrepreneurship
 Entrepreneurs
Challenging the Unknown
• Entrepreneurs
– Recognize opportunities where others see
chaos or confusion
– Are aggressive catalysts for change within
the marketplace
– Challenge the unknown and continuously
create the future
 Entrepreneurship: A Mindset
• Entrepreneurship is more than the mere
creation of business:
– Seeking opportunities
– Taking risks beyond security
– Having the tenacity to push an idea through to
reality

• Entrepreneurship is an integrated concept

that permeates an individual’s business in
an innovative manner.
 The Evolution of
Entrepreneurship
• Entrepreneur is derived from the French
entreprendre, meaning “to undertake.”
– The entrepreneur is one who undertakes to
organize, manage, and assume the risks of a
business.
– Although no single definition of entrepreneur
exists and no one profile can represent
today’s entrepreneur, research is providing an
increasingly sharper focus on the subject.
 A Summary Description
of Entrepreneurship
• Entrepreneurship (Robert C. Ronstadt)
– The dynamic process of creating incremental wealth.
– This wealth is created by individuals who assume
major risks in terms of equity, time, and/or career
commitment of providing value for a product or
service.
– The product or service itself may or may not be new or
unique but the entrepreneur must somehow infuse
value by securing and allocating the necessary skills
and resources.
 An Integrated Definition
• Entrepreneurship
– A dynamic process of vision, change, and creation.
• Requires an application of energy and passion towards the
creation and implementation of new ideas and creative
solutions.
– Essential ingredients include:
• The willingness to take calculated risks—in terms of time,
equity, or career.
• The ability to formulate an effective venture team; the creative
skill to marshal needed resources.
• The fundamental skills of building a solid business plan.
• The vision to recognize opportunity where others see chaos,
contradiction, and confusion.
 An Integrative Model of Entrepreneurial Inputs
and Outcomes

Source: Michael H. Morris, P. Lewis, and Donald L. Sexton, “Reconceptualizing Entrepreneurship:

An Input-Output Perspective,” SAM Advanced Management Journal 59, no.1 (Winter 1994): 21–31.
 Entrepreneurs in the United
States
• Reasons for the exceptional entrepreneurial
activity in the U.S. include:
– A national culture that supports risk taking and
seeking opportunities.
– Americans’ alertness to unexploited economic
opportunity and a low fear of failure.
– U.S. leadership in entrepreneurship education at both
the undergraduate and graduate level.
– A high percentage of individuals with professional,
technological or business degrees who are likely to
become entrepreneurs.
 Entrepreneurial Firms’ Impact
• Entrepreneurial components of the U.S.
Economy:
1. Large firms have increased profitability by returning to
their “core competencies through restructuring and
downsizing.
2. New entrepreneurial companies have been
blossoming in new technologies and new markets.
3. Thousands of smaller firms established by women,
minorities, and immigrants have strengthened the
economy.
 Entrepreneurial Firms’ Impact
• Entrepreneurial firms make two
indispensable contributions to an economy:
1. They are an integral part of the renewal
process that pervades and defines market
economies.
2. They are the essential mechanism by which
millions enter the economic and social
mainstream of society.
 Aspects of Entrepreneurship
Venture
Financing

Corporate Social
Entrepreneurship Entrepreneurship

Trends in Women
Entrepreneurial
Entrepreneurship and Minority
Cognition
Research Entrepreneurs

Global
Entrepreneurial
Entrepreneurial
Education
Movement
Family
Businesses
 Common Characteristics of
Entrepreneurs
• Commitment, • Calculated risk taking
determination, and • Tolerance for failure
perseverance
• High energy level
• Drive to achieve
• Creativity and
• Opportunity orientation Innovativeness
• Initiative and • Vision
responsibility
• Self-confidence and
• Persistent problem optimism
solving
• Independence
• Seeking feedback
• Team building
• Internal locus of control
• Tolerance for ambiguity
Outline of the Entrepreneurial
Organization
Imagination

Acceptance
Flexibility
of Risks
 Entrepreneurship Theory
• Entrepreneurs cause entrepreneurship.
– Entrepreneurship is a function of the
entrepreneur:

E  f (e )
– Entrepreneurship is the interaction of skills
related to inner control, planning and goal
setting, risk taking, innovation, reality
perception, use of feedback, decision making,
human relations, and independence.
 Typology of Entrepreneurial Styles

Source: Thomas Monroy and Robert Folger, “A Typology of Entrepreneurial Styles:

Beyond Economic Rationality,” Journal of Private Enterprise IX(2) (1993): 71.
 The Dark Side of
Entrepreneurship
• The Entrepreneur’s Confrontation with
Risk
– Financial risk versus profit (return) motive
varies in entrepreneurs’ desire for wealth.
– Career risk—loss of employment security
– Family and social risk—competing
commitments of work and family
– Psychic risk—psychological impact of failure
on the well-being of entrepreneurs
 A Model of Entrepreneurial
Motivation

Source: Douglas W. Naffziger, Jeffrey S. Hornsby, and Donald F. Kuratko, “A Proposed

Research Model of Entrepreneurial Motivation,”2–20
Entrepreneurship Theory and Practice
(spring 1994): 33.
 Opportunity Identification:
The Search for New Ideas

• Opportunity identification is central to

entrepreneurship and involves:
– The creative pursuit of ideas
– The innovation process
• The first step for any entrepreneur is the
identification of a “good idea.”
– The search for good ideas is never easy.
– Opportunity recognition can lead to both
personal and societal wealth.
 Entrepreneurial Imagination
and Creativity
• How entrepreneurs do what they do:
– Creative thinking + systematic analysis =
success
– Seek out unique opportunities to fill needs
and wants
– Turn problems into opportunities
– Recognize that problems are to solutions
what demand is to supply
 The Role of Creative Thinking
• Creativity
– The generation of ideas that result in the
improved efficiency or effectiveness of a
system.
• Two important aspects of creativity exist:
– Process
• The process is goal oriented; it is designed to
attain a solution to a problem.
– People
• The resources that determine the solution.
The Critical Thinking Process
 The Creative Climate
• Characteristics of a creative climate:
– A trustful management that does not overcontrol the personnel
– Open channels of communication among all business members
– Considerable contact and communication with outsiders
– A large variety of personality types
– A willingness to accept change
– An enjoyment in experimenting with new ideas
– Little fear of negative consequences for making a mistake
– The selection and promotion of employees on the basis of merit
– The use of techniques that encourage ideas, including
suggestion systems and brainstorming
– Sufficient financial, managerial, human, and time resources for
accomplishing goals
 Country Level Competitiveness
The Global Competitiveness Index 2009–2010 rankings and 2008–2009 comparisons
© 2009 World Economic Forum
GCI 2009–2010 GCI 2008–2009
Country/Economy Rank Score Rank*
Switzerland 1 5.60 2
United States 2 5.59 1
Singapore 3 5.55 5
Sweden 4 5.51 4
Denmark 5 5.46 3
Finland 6 5.43 6
Germany 7 5.37 7
Japan 8 5.37 9
Canada 9 5.33 10
Netherlands 10 5.32 8
China 29 4.74 30
India 49 4.30 50
Brazil 56 4.23 64
Russian Federation 63 4.15 51
 Economy Ease of Doing Business Rank

Singapore 1
New Zealand 2
Hong Kong, China 3
United States 4
United Kingdom 5
Denmark 6
Ireland 7
Canada 8
Australia 9
Norway 10
Georgia 11
China 89
Bangladesh 119
Russian Federation 120
Costa Rica 121
Brazil 129
India 133
Innovation Rankings INSEAD 2009

1. United States 6. South Korea

2. Germany 7. Switzerland
3. Sweden 8. Denmark
4. United Kingdom 9. Japan
5. Singapore 10. Netherlands
 Russia’s Innovation Capacity
64. Vietnam 29. Estonia
42. Lithuania
65. Trinidad and 57. Azerbaijan
Tobago 59. Uzbekistan
66.Mauritius 60. Latvia
67. Panama 72. Kazakhstan
79. Ukraine
68. Russia 98. Georgia
69. Romania 104. Armenia
70. Nigeria 112. Tajikistan
116. Moldova
122. Kyrgyzstan
 Russia Components
• Legacy of innovation - 49
• Culture to innovate - 46
• Quality of the educational system - 41
• Quality of management schools – 66
• Intellectual property protection – 93
• Technological awareness - 91
• Firm level technology absorption - 90
 United States
• Human Capacity – 1
• Culture to innovate - 2
• Quality of the educational system – 3
• Quality of management schools - 10
Innovation and the Entrepreneur
• Innovation:
– Is the process by which entrepreneurs convert
opportunities into marketable ideas.
– Is a combination of the vision to create a good idea
and the perseverance and dedication to remain with
the concept through implementation.
– Is a key function in the entrepreneurial process.
– Is the specific function of entrepreneurship.
 The Innovation Process
• Types of • Sources of Innovation
Innovation – Unexpected
occurrences
– Invention
– Incongruities
– Extension – Process needs
– Duplication – Industry and market
– Synthesis changes
– Demographic changes
– Perceptual changes
– Knowledge-based
concepts
Type Description Examples
Invention Totally new product, service, Wright brothers—airplane
or process Thomas Edison—light bulb
Alexander Graham Bell—telephone

Extension New use or different Ray Kroc—McDonald’s

application of an already Mark Zuckerberg—Facebook
existing product, service, Barry Sternlicht—Starwood Hotels &
or process Resorts

Duplication Creative replication of an Wal-Mart—department stores

existing concept Gateway—personal computers
Pizza Hut—pizza parlor

Synthesis Combination of existing Fred Smith—Fed Ex

concepts and factors into a Howard Schultz—Starbucks
new formulation or use
 Major Innovation Myths
• Myth 1: Innovation is planned and predictable
• Myth 2: Technical specifications should be
thoroughly prepared
• Myth 3: Creativity relies on dreams and blue-
sky ideas
• Myth 4: Big projects will develop better
innovations than smaller ones
• Myth 5: Technology is the driving force of
innovation success