The Evolution of Entrepreneurship

Chapter 1
The Evolution of Entrepreneurship

Chapter Objectives
Studying this chapter should provide you with the
entrepreneurial knowledge needed:
1. To explain the importance of entrepreneurs for economic
growth
2. To introduce the concept of an entrepreneurial
perspective within individuals
3. To examine the entrepreneurial revolution taking place
today
4. To illustrate the entrepreneurial environment
5. To highlight some of the latest trends in entrepreneurial
research
6. To examine the emerging trends of e-commerce and the
Internet in relation to entrepreneurship
© 2007 Thomson/South-Western. All rights reserved. 1–2

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
Module Code and Module Title Title of Slides 1–3

© 2007 Thomson/South-Western. All rights reserved.
Entrepreneurs versus
Small Business Owners: A Distinction
• Small Businesses Owners
– Manage their businesses by expecting stable
sales, profits, and growth
• Entrepreneurs
– Focus their efforts on innovation, profitability
and sustainable growth

Entrepreneurship: A Perspective
• Entrepreneurship is more than the mere creation

of business.
– The characteristics of seeking opportunities, taking
risks beyond security, and having the tenacity to push
an idea through to reality combine into a special
perspective that permeates entrepreneurs.
• Entrepreneurship is an integrated concept that

permeates an individual’s business in an
innovative manner.

Our Entrepreneurial Economy—
The Environment for Entrepreneurship
• Entrepreneurship is the symbol of business

tenacity and achievement.
• Entrepreneurs are the pioneers of today’s
business successes.
• Two perspectives on entrepreneurship:
– Statistical: numbers that emphasize the importance of
entrepreneurs to the economy.
– Academic: trends in entrepreneurial research and
education.
Module Code and Module Title Title of Slides

1–6
Predominance of New Ventures
in the US Economy
• New business incorporations average 600,000
per year
– There are 25 million businesses; the number
continues to grow 2% annually.
– U.S. firms have over $20 trillion in annual revenues.
• Small businesses
– More 50% of all businesses employ fewer than 5
people.
– Almost 90% of firms employ fewer than 20 people.

Effects of Entrepreneurship
• The Global Entrepreneurship Monitor (GEM)

– Provides an annual assessment of the entrepreneurial
environment of 40 countries.
– Latest GEM study: the U.S. outranks the rest of the
world in important entrepreneurial support.
• Entrepreneurs lead to growth by:
– Entering and expanding existing markets.
– Creating entirely new markets by offering innovative
products.
– Increasing diversity and fostering minority participation
in the economy.

Entrepreneurs in the United States
• Reasons for the exceptional entrepreneurial activity

in the United States 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 great percentage of individuals with professional,
technological or business degrees which register as the
highest entrepreneurial activity rate.

Entrepreneurial Firms’ Impact
• Entrepreneurial firms make two indispensable
contributions to the U.S. 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 American
society.
Visit the National Federation of Independent Business (NFIB) website

for more information about entrepreneurs.
Table 1.1 Small Business Job Generation
Source: NFIB Small Business Policy Guide (Washington, D.C., November 2000), 31.

Research and Education
• The entrepreneurial and managerial domains are not
mutually exclusive.
• Venture financing (venture capital and angel capital
financing) and other innovative financing techniques
strengthened in the 1990s.
• Intrapreneurship (entrepreneurship within large
organizations) and the need for entrepreneurial cultures
has increased.
• Entrepreneurial entry strategies have been shown to
share common denominators, issues, and trade-offs.

Research and Education
• Entrepreneurs have been the subject of keen

research interest.
• Women and minority entrepreneurs have emerged
in unprecedented numbers.
• The entrepreneurial spirit is universal.
• Entrepreneurs’ economic and social contributions of
are significant for job creation, innovation, and
economic renewal.
• Entrepreneurial education is one of the hottest
topics at U.S. business and engineering schools.
The Age of Gazelles
• A “Gazelle”
– A business establishment with at least 20% sales growth
in each year for five years, starting with a base of at least
$100,000 in annual sales.
• Gazelles as leaders in innovation:
– Produce twice as many product innovations per
employee as do larger firms.
– Have been responsible for 55% of the innovations in 362
different industries and 95% of all radical innovations.
– Obtain more patents per sales dollar than do larger firms.

Table 1.2 Mythology Associated with Gazelles
Gazelles are the goal of all entrepreneurs.

Gazelles receive venture capital.
Gazelles were never mice.
Gazelles are high-tech.
Gazelles are global.
Source: NFIB Small Business Policy Guide (Washington, D.C., November 2000), 31.

Survival of Gazelles
• How many gazelles survive?

– The simple answer is “none.” Sooner or later, all
companies wither and die.
• The Common Myth of Failure:
– 85% of all firms fail in the first year—in actuality,
about half of all start-ups last between 5 and 7
years.
– Nearly 82% of firms that are more than 20 years in
age survive

Table 1.3 Survival Rate Of Firms By Age Of Firm And Region,
1994–1998
Source: David Birch, Jan Gundersen, Anne Haggerty, and William Parsons, Corporate Demographics (Cambridge, MA: Cognetics, Inc., 1999), 8.

Emerging Trends:
The Internet and E-Commerce
• U.S. businesses spent $120 billion to build their
Internet capabilities in 2000.
• Smaller ventures use the Internet for a variety of
operations:
– Customer-based identification
– Advertising, consumer sales
– Business-to-business transactions
– E-mail and private internal networks for employees

Figure 1.1 The Internet Explosion

Table 1.4 Web Facts about Small Businesses
 57% use the Internet for business-related activities.

 61% of small firms on the Internet (35% of all small employers) report
they have a business Web site.
 Small-business Websites most often generate income indirectly.
 The majority of sales made over the Internet by small businesses are
made to consumers and non-business entities.
 The cost of creating and operating a Website, both in direct outlays
and employee hours, appears modest.
 The most noted benefit of a Website is additional customers.
 The most cited reason for not having a Web site (by those on the
Internet, but not having one) is that their products or services don’t
lend themselves to sale on the Internet.
 One-third of those not now using the Internet for business-related
activities expect to be on the Internet within the next 12 months.
Source: Adapted from William J. Dennis, Jr., “The Use and Value of Websites,” NFIB National Small Business Poll 1(2) (2001): 2.

E-Commerce
• The Electronic Commerce (E-Commerce) Challenge

– Marketing, promoting, buying, and selling of goods and
services electronically, particularly via the Internet is the
new wave in transacting business.
• E-Commerce Modes of Internet Use:
– E-tailing (virtual store fronts)
– Electronic data interchange (EDI)
– E-mail and computer faxing
– Business-to-business (B2B) buying and selling
– Ensuring the security of data transactions

Table 1.5 Advantages And Challenges Of E-Commerce
For Entrepreneurial Firms
ADVANTAGES
1. Ability of small firms to compete with other companies both locally and nationally (promotional
tools)
2. Creation of the possibility and opportunity for more diverse people to start a business
3. Convenient and easy way of doing business transactions (not restricted to certain hours of
operation, open 24 hours a day, seven days a week)
4. An inexpensive way (compared to the cost of paper, printing, and postage prior to the Internet)
for small business to compete with larger companies and for U.S. firms to make American
products available in other countries
5. Higher revenues for small businesses that utilize the Internet, averaging $3.79 million
compared to $2.72 million overall (IDC research)
CHALLENGES
1. Managing upgrades (anticipating business needs/application)
2. Assuring security for a Web site and the back-in integration with existing company systems
3. Avoiding being a victim of fraudulent activities online
4. Handling the costs required to maintain the site
5. Finding and retaining qualified employees
Source: E-Commerce: Small Business Ventures Online (Washington, D.C.: U.S. Small Business Administration, Office of Advocacy, July 1999).

E-Names: The Web Address
• Choosing an Internet Name

– Choosing an Internet brand (domain) name isn’t
easy
• Should be short ,snappy, and memorable.
– Registering the Domain Name
• Internet Corporation for Assigned Names and Numbers
(ICANN) is responsible for coordinating the domain name
system.
– Problems
• Availability of domains
• Cybersquatters

Table 1.6 Five of the Most Expensive Domain Names Sold
DOMAIN PRICE
Bingo.com (Bingo-based e-mail community) $ 1.1 million
WallStreet.com (online “wagering” on stocks) $ 1 million
Drugs.com (pharmaceutical and drug portal) $ 823,456
University.com (a training and education “super-portal”) $530,000
Blackjack.com (online gambling) $460,000
Source: The Wall Street Journal (E-Commerce Special, November 22, 1999).

Developing a Web Site
• Attractive and Useful

– Too much flash slows page load times
– Too little substance (e.g., no ordering system) drives
customers away
• Sticking to Your Web Site
– Stickiness
• The host of potential value—ads, features, functions, and
“gimmies”—all of which serve to make people want to stay at your
site longer.
– Chat
• An excellent way to increase stickiness, because customers can
speak their minds and swap ideas with fellow buyers.

Table 1.7 Use of Internet Sites
Company information 93%

Corporate image building 89
Product information 80
Advertising 78
Marketing 77
Customer communications 76
Recruiting 75
Customer service 72
Product sales 61
Business-to-business transactions 55
Business-to-employee communications 43
Source: Ernst & Young’s 18th Annual Survey of Retail Information Technology, 1999.

Figure 1.2 The Most Important Factors for Customers To Do
Business Online
Source: The Wall Street Journal (E-Commerce special, November 22, 1999).

Emerging E-Commerce Strategies
• 3-P Growth Model (Ernst & Young)

– Presence: the ramp-up stage
– Penetration: the “hypergrowth” stage
– Profitability: the managed growth stage
• Competitive Advantage through Navigation
– Reach relates to access and connection.
– Richness focuses on the depth and detail of
information.
– Affiliation is the specific interests that the business
represents.

Entrepreneurial Opportunities
• Free Enterprise
– The economic basis for all entrepreneurial activity. It
means that any individual is free to transform an idea
into a business.
• Opportunities
– Opportunities for potential entrepreneurs are
unlimited.
– Opportunities during this century will be immense.
– Entrepreneurial opportunities will continue to arise for
individuals willing to take the risk.

Figure 1.3 Self-Employment, 1966-2006
Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Bureau of Labor Statistics.

Figure 1.4 New Employer Firms, 1980-2010
*Estimate. Note: Data estimated from 1982–1988 Department of Labor data and 1989–1996 Bureau of the Census data. The rate of increase in new
employer firms from 1982 to 1998 was used to both forecast subsequent years and impute data for prior years.
Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the Department of
Labor, Employment and Training Administration, and the Bureau of the Census, Statistics of U.S. Business.

Key Terms and Concepts
• affiliation • National Federation of

• domain name Independent Business
• e-commerce (NFIB)
• • reach
Entrepreneurial
Revolution • richness
• entrepreneurship • stickiness
• gazelle • 3-P Growth Model
• Internet • web site


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Chapter 1

The Evolution of Entrepreneurship

© 2007 Thomson/South-Western. All rights reserved. 1–2

Module Code and Module Title Title of Slides 1–3

Module Code and Module Title Title of Slides 1–4

• Entrepreneurship is more than the mere creation

• Entrepreneurship is an integrated concept that

Module Code and Module Title Title of Slides 1–5

• Entrepreneurship is the symbol of business

Module Code and Module Title Title of Slides

Module Code and Module Title Title of Slides 1–7

• The Global Entrepreneurship Monitor (GEM)

Module Code and Module Title Title of Slides 1–8

• Reasons for the exceptional entrepreneurial activity

Module Code and Module Title Title of Slides 1–9

Visit the National Federation of Independent Business (NFIB) website

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• Entrepreneurs have been the subject of keen

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Gazelles are the goal of all entrepreneurs.

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• How many gazelles survive?

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 57% use the Internet for business-related activities.

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• The Electronic Commerce (E-Commerce) Challenge

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• Choosing an Internet Name

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• Attractive and Useful

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Company information 93%

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• 3-P Growth Model (Ernst & Young)

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• affiliation • National Federation of

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