The

The Foundations
Foundations of
of
Entrepreneurship
Entrepreneurship
Problem Identification
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 Learning objective
• After studying this chapter the students will be
able to
– Explain entrepreneurship
– Myths of entrepreneurship
– Identify characteristics of successful entrepreneurs
– Discuss the reasons people decide to become
entrepreneur.
– Discuss the different types of entrepreneur.
– Identify the common mistakes that the entrepreneurs
make and the ways to avoid the pitfalls
– Explain the entrepreneurial process.
Introduction to Entrepreneurship

There is tremendous A recent study ranked 121

countries on the quality of
interest in
entrepreneurial
entrepreneurship environment using the
around the world Global Entrepreneurship
and Development Index
(GEDI) where Bangladesh
ranked 118 scoring 13.8
out of 100.

1-4
What is an Entrepreneur?
An entrepreneur is one who
• creates a new business in the
face of risk and uncertainty
• for the purpose of achieving
profit and growth
• by identifying opportunities &
• assembling the necessary
resources to capitalize on
them. An Entrepreneur
An entrepreneur is a
– Risk bearer
– Organizer
– innovator
Entrepreneurship
• Entrepreneurship is the
attempt Difference between
Entrepreneur and Entrepreneurship
– to create value through
Person Process
recognition of business
opportunity, Organizer Organization
– the management of risk-
taking appropriate to the Innovator Innovation
opportunity, and Risk-bearer Risk-bearing
– through the
communicative and Motivator Motivation
management skills to
mobilize human, financial Creator Creation
and material resources Visualiser Vision
necessary to bring a
project to completion Leader Leadership
Table 1.1 - Aspects of the
Entrepreneurial Process (Hisrich)
 COMMON MYTHS ABOUT
ENTREPRENEURS (Barringer)

Myth 1: Entrepreneurs Are Born Not Made

• This myth is based on the mistaken belief that some
people are genetically predisposed to be
entrepreneurs.
• The consensus of many studies is that no one is
“born” to be an entrepreneur; everyone has the
potential to become one.
• Whether someone does or doesn’t become an
entrepreneur, is a function of the environment, life
experiences, and personal choices.
 COMMON MYTHS ABOUT
ENTREPRENEURS (Barringer)

Myth 2: Entrepreneurs Are Gamblers

• Most entrepreneurs are moderate risk takers.
• The idea that entrepreneurs are gamblers originates
from two sources:
• Entrepreneurs typically have jobs that are less
structured, and so they face a more uncertain set of
possibilities than people in traditional jobs.
• Many entrepreneurs have a strong need to achieve
and set challenging goals, a behavior that is often
equated with risk taking.
 COMMON MYTHS ABOUT
ENTREPRENEURS (Barringer)

• Myth 3: Entrepreneurs Are Motivated Primarily by

Money.
•While it is naïve to think that entrepreneurs don’t
seek financial rewards, money is rarely the reason
entrepreneurs start new firms.
• In fact, some entrepreneurs warn that the pursuit of
money can be distracting.
 COMMON MYTHS ABOUT
ENTREPRENEURS (Barringer)

• Myth 4: Entrepreneurs Should Be Young and

Energetic.
• The most active age for business ownership is 35 to
45 years old.
• While it is important to be energetic, investors often
cite the strength of the entrepreneur as their most
important criteria in making investment decisions.
• What makes an entrepreneur “strong” in the eyes of
an investor is experience, maturity, a solid reputation,
and a track record of success.
• These criteria favor older rather than younger
entrepreneurs.
Famous Entrepreneurs of the World

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v=k0h2e9XPYnM&list=PLFDEF090198C8832
F&index=17

https://www.youtube.com/watch?v=O0e-
etOgFcM&list=PLFDEF090198C8832F&index=6
Characteristics of Entrepreneurs
• Desire for responsibility-
– prefer to be in control of their resources and use
the resources to achieve self determined goal.
• Preference for moderate risk
– They are calculated risk taker, rarely gamble
• Self reliance
– Must fill multiple roles as resources are limited.
• Confidence in their ability to succeed
– They are optimistic. This high level of optimism
may explain why some of the most successful
entrepreneur have failed in business before finally
succeeding.
• Determination
Characteristics of Entrepreneurs
• Desire for immediate feedback
• High level of energy
• Future orientation
– Have a well-defined sense of searching
opportunities. Entrepreneurs are less
concerned about yesterday they are more
focused on future.
• Skilled at organizing
– Effectively combining people and jobs.
• Value achievement over money
– Achievement seems to be the primary
motivating source; money is symbol of
achievement
• High degree of commitment
– Launching a company successfully needs
total commitment from an entrepreneur
Characteristics of Entrepreneurs
• Tolerance for ambiguity
– The ability to handle uncertainty is critical because these
business builders constantly make decision using new,
sometimes conflicting information gained from variety of
unfamiliar sources.
• Creativity
• Flexibility
– The ability to adopt to the changing demand of their customer
and their business.
• Resourceful
• Willingness to work hard
• Persistence
– Obstacle cannot stop pursuing their vision they simply keep
trying.
Anyone – regardless of age, race, gender, color, national origin, or any
other characteristic – can become an entrepreneur (although not everyone
should).
 Assignment on
• Collegiate Entrepreneur (Page 40-41)
– Question
• In addition to the normal obstacles of staring a
business, what other barriers do collegiate
entrepreneurs face?
• What advantage do collegiate entrepreneurs have
when launching a business?
• What advice would you offer a fellow college student
about to start a business?
• Work with a team of your classmates to develop
ideas about what your college or university could do
to create a culture of entrepreneurship on your
campus or in your community
– Font size 12, Time New Roman
– Spacing 1.5
Benefits of Entrepreneurship
• Create own destiny
– Provides independence and opportunity to achieve what is important
to them.
• Make a difference
– Entrepreneurs are finding ways to combine their concerns for social
issues and their desire to earn a good living.
• Reach full potential
– Most people find their work is boring, unchallenging and unexciting,
but not for the entrepreneurs. It gives them a sense of
empowerment.
• Reap impressive profits
• Contribute to society and to be recognized for the efforts
• Do what you enjoy and to have fun at it
– “Find a job doing what you love, and you will never have to work a
day in your life” – Harvey McKays. Entrepreneurs make their
vocation (work) their hobbies and are glad they did.
Drawbacks of Entrepreneurship
Individual who prefer the security of a steady
income, a benefit package, a two week paid
vacation, should not go into business for
themselves.
• Uncertainty of income
• Risk of losing your entire investment
– Failure rate is relatively high
• Long hours and hard work
• Lower quality of life until the business gets
established
– Half of all entrepreneurs launch their business
between age 25 and 39 just when they start their
family. So family life suffers.
Drawbacks of Entrepreneurship
• High level of stress
– Sometimes they unnecessarily bear the burden of
managing alone, because they can not bring
themselves to delegate authority and responsibility
to other in the company, even though their
employees are capable
• Complete responsibility
– It is great to be boss. But many entrepreneur find
that they must make decisions on issues about
which they are not really knowledgeable. The
realization that the decision they make are the
cause of success or failure has a devastating effect
on some people.
• Discouragement
What forces are driving this entrepreneurial
trend in our economy?

• Entrepreneurs as heroes.
– Business founders such as Bill Gates
(Microsoft Corporation), Steve Jobs (Apple), and Mark
Zuckerberg (Facebook) are to
entrepreneurship.
• Entrepreneurial education.
– Disillusioned with corporate downsized job offerings
and less promising career paths, a rapidly growing
number of students sees owning a business as their
best career option. Today, more than two-thirds of the
colleges and universities in the United States (more
than 2,300) offer more than 5,000 courses in
entrepreneurship or small business. More than 400,000
students are enrolled in entrepreneurship courses
taught by nearly 9,000 faculty members,
 What forces are driving this entrepreneurial
trend in our economy?
• Demographic and economic factors.
– More than 75 percent of entrepreneurs start their
businesses between the ages of 20 and 44
• Shift to a service economy.
– Because of their relatively low
start-up costs, service businesses have become very popular
among entrepreneurs.
• Technology advancements.
– powerful computers, smart phones, and communication
equipment are priced within the budgets of even the smallest
businesses and have drastically reduced the cost of
launching a business.
• Independent lifestyle.
– People want the freedom and many place top priority on
lifestyle issues, such as more time with family and friends,
more leisure time, and more control over work-related stress.
What forces are driving this entrepreneurial
trend in our economy?
• The Internet, cloud computing, and mobile
marketing.
– Cloud computing, Internet-based subscription or pay-per-use
software services that allow business owners to use a variety of
business applications, from database management and
inventory control to customer relationship management and
accounting, has reduced business start-up and operating costs.
Fast-growing small companies can substitute cloud computing
applications for networks of computers and large office spaces,
which allows entrepreneurs to build their companies without
incurring high overhead costs. Online retail sales, which
currently account for 10 percent of total retail sales, are
forecasted to continue to grow rapidly (see Figure 1.5), creating
many opportunities for Websavvy entrepreneurs.
• International opportunities.
– The shift to a global economy has opened the door to
tremendous business opportunities for entrepreneurs willing to
reach across the globe.
The Cultural Diversity of Entrepreneurship
• Minority-owned enterprises
– Hispanics, Asians, African Americans
• Immigrant entrepreneurs
– Arrives with more education and experience but
few assets. Their dedication and desire to
success enable them to achieve their
entrepreneurial dream.
• Part-time entrepreneurs
– Advantage of going into business part time is
the lower risk in case the venture flops
• Family Business
• Young entrepreneur
• Women entrepreneur
The Cultural Diversity of Entrepreneurship
• Home-based businesses
– Operating costs are minimum
– Flexible lifestyle and work style
• Copreneurs
– Couples who work together as co-owner of their business
• Corporate castoffs
– Downsizing made the corporate executives entrepreneurs
• Corporate dropouts
– Downsizing also created trust gap among the employees
those who where left.
• Social entrepreneur
– Uses their skills not only to create profitable business but
also to achieve social and environmental goals for the
common good.
Entrepreneur VS. Intrapreneur:
• A new brand of Corporate entrepreneurs called “
Intrapreneur ”. In Big Organization, the top
executives with Entrepreneurial talents are
encouraged to generate new ideas and then
convert them into products through research and
development carried out within the organization.
This concept of Intrapreneurship has gained
popularity in Developed countries like America. If
the managements are not receptive to their ideas
then, they tend to leave their parent organization
and start Ventures of their own.
Ten Deadly Mistakes of Entrepreneurship
1. Management mistakes
Poor management is the primary cause
of failure. Lacks leadership ability,
sound judgment
2. Lack of experience
Need to have experience in the field
they want to enter
3. Poor financial control
Tend to have overly optimistic and often
misjudged the financial requirements.
They start undercapitalized.
Cash not the profit what matters most in
a new venture
Ten Deadly Mistakes of Entrepreneurship
4. Weak marketing efforts
– Believe that if they build it, customer automatically come
5. Failure to develop a strategic plan
– Without a clearly defined strategy business has no
sustainable basis for creating and maintaining a competitive
edge in the market
6. Uncontrolled growth
– Expansion can be done when sales increases 40 to 50 percent
– Expansion should be financed by the profit they generate
(retained earning) or by capital contribution of owner.
– Most business wind up borrowing a portion of the capital
investment
– Expansion increase problems and entrepreneurs must learn to
deal with the problems.
Ten Deadly Mistakes of Entrepreneurship
7. Poor location
Location are selected without proper study, investigation and planning
8. Improper inventory control
Insufficient inventory levels results in shortages and stock outs causing
customers to become disappointed and leave.
9. Incorrect pricing
Charge at competitors price or selling the best product at a lowest price
– both are dangerous
10. Inability to make the “entrepreneurial transition”
Growth requires entrepreneurs to delegate authority
Putting Failure Into Perspective

• Entrepreneurs are not paralyzed by the

prospect of failure.
• Failure – a natural part of the creative
process.
• Successful entrepreneurs has the ability
to fail intelligently, which means learning
why they failed.
Avoiding the Pitfalls of Small Business Failure
• Know your business in depth
– Get best education in your business area
– Personal contact with supplier, customer, trade association
• Develop a solid business plan
– Allows to replace faulty assumption with fact
• Manage financial resources
– To have adequate start up capital
– Earning a profit is essential to its long-term survival
– Business must have adequate supply of cash to pay its bill.
• Understand financial statements
– Helpful in signaling potential problem
• Learn to manage people effectively
• Keep in tune with yourself
Types of Entrepreneur (Bruce R. Barringer)
According to the type of business
• Business Entrepreneurs
– Conceive the idea of a new product or services and then translate
their ideas into reality.
– Entrepreneurs examine the various possibilities of sources of
finance, supply of labor, raw materials or finished products.
• Trading Entrepreneur
– Buying the finished products from the producer and selling off to
the customer directly or through a retailer.
– Has to be creative enough as he has to identify the market, create
demand through extensive advertising. So he has to find out the
desires tastes and choices of his customers in domestic and
international market
 Types of Entrepreneur
• Industrial Entrepreneurs
– Perceive the opportunity to set up his unit complied with
necessary formalities
– Has ability to convert economic resources and technology into
considerably profitable venture.
• Agricultural Entrepreneur
– The one who is engaged in the agricultural activities.
– He uses latest technology to increase the productivity of
agriculture and also adopts mechanization.
 Types of Entrepreneur
According to Motivation
• Pure entrepreneurs
– One who may or may not possess an ability for
entrepreneur.
– But is tempted by the monetary reward or profit
– They are status- conscious and want recognition.
• Induced entrepreneur
– Is attracted by the various incentives, subsidies and
facilities offered by the government.
– Every person can be trained to become a good
entrepreneur.
 Types of Entrepreneur
According to the Use of Technology
• Technical Entrepreneurs
– Strength is his skill in production techniques.
– Concentrate more on production then marketing.
– Applies the skill to develop and improve the technical aspects of
the product.
• Non-technical Entrepreneur
– Concentrate on marketing strategies and distribution to promote
his business.
– His target is not to change the production technique but how to
increase the demand of the product.
• Professional Entrepreneurs
– One who is interested in floating a business but does not want to
manage or operate it.
– Once the business is established he sells it out and catches on to
float a new business.
 Types of Entrepreneur
According to Stages of Development
• First Generation Entrepreneurs
– One who do not possess any entrepreneurial background.
– They start an industrial unit by means of their own
innovative skill.
• Second Generation Entrepreneur
– One who inherits the family business firms and pass it from
one generation to another.
• Classical Entrepreneur
– aim is to maximize his economic return at a level
consistent with the survival of the unit but with or without
an element of growth.
 Types of Entrepreneur
According to Capital Ownership
• Private Entrepreneurs
– When an individual or a group of individual set up an
enterprise.
• State Entrepreneur
– The trading or industrial venture undertaken by the
state or the government itself.
• Joint Entrepreneur
– Combination of private entrepreneur and state
entrepreneur who join hands.
 Types of Entrepreneur
Classification given by Danhof
• Innovating entrepreneurs
– One who introduces new goods, inaugurates new method of
production, discovers new market and re-organizes the
enterprise
– Innovative entrepreneurs do not exists in developing
economy where lack of capital, technological know- how
block the path of innovativeness.
• Imitative entrepreneurs
– Readiness to adopt successful innovations inaugurated by
successful innovating entrepreneur.
– They only imitate techniques and technologies innovated by
others. It is significant for underdeveloped economies
because they put it on high rate of economic development
 Types of Entrepreneur
• Fabian entrepreneurs
– Cautious and doubtful in experimenting change in their
enterprise.
– They imitate only when it becomes perfectly clear that failure to
do so would result in a loss of the relative position of the
enterprise.
• Drone entrepreneur
– Refusal to adopt opportunities to make changes in production
formula even at the cost of severely reduced returns. When
competition increases they are pushed out of the market.
 The Entrepreneurial Process
(Hisrich)
• Opportunity identification - The process by
which an entrepreneur comes up with the
opportunity for a new venture.
• Market size and the length of the window of
opportunity are the primary bases for
determining risks and rewards.
• Window of opportunity - The time period
available for creating the new venture.
• Business plan - The description of the future
direction of the business.
 How Entrepreneurs Think (Hisrich)
• Entrepreneurs in particular situations may think
differently when faced with a different task or
decision environment.
• Given the nature of their decision-making
environment, entrepreneurs need to
sometimes:
– Effectuate.
– Be cognitively adaptable.
– Learn from failure.
How Entrepreneurs Think (cont.)

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

• Cognitive adaptability describes the extent to

which entrepreneurs are:
– Dynamic, flexible, 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.
• It reflects in an entrepreneur’s metacognitive
awareness.
How Entrepreneurs Think (cont.)

– Achieving cognitive adaptability

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

– Entrepreneurs who are able to increase cognitive

adaptability have an improved ability to:
• Adapt to new situations.
• Be creative.
• Communicate one’s reasoning behind a particular
response.
How Entrepreneurs Think (cont.)

• Learning from Business Failure

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

– Loss of a business can result in a negative emotional

response from the entrepreneur.
– It can interfere with:
• Entrepreneur’s ability to learn from the failure.
• Motivation to try again.
How Entrepreneurs Think (cont.)

• Recovery and Learning Process

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

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

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

• A Dual Process for Learning from Failure

– The dual process of oscillating between the loss-
orientation and restoration-orientation enables a
person to:
• Obtain the benefits of each.
• Minimize the costs of maintaining one for too long.
– This dual process speeds the recovery process.
 How Entrepreneurs Think (cont.)
– 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.
• 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.
• Recovery from loss offers an opportunity to increase
one’s knowledge of entrepreneurship.