Chapter 1

The Nature and Importance

of Entrepreneurship

McGraw-Hill/Irwin
Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. 1-2
 Development of Entrepreneurship (1 of 2)
 Earliest Period
 Entrepreneurs would sign contracts with a money person.
 Example: Marco Polo
 Middle Ages
 Entrepreneurs were actors and people who managed large
production projects.
 17th Century
 Entrepreneurs entered into contractual arrangements with the
government.
 Example: Mississippi Company

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 Development of Entrepreneurship (2 of 2)
 18th Century
 With global industrialization taking place, entrepreneurs were
distinguished from capital providers.
 Inventions developed during this time were reactions to
the changing world.
 Example: Edison & Whitney
 19th and 20th Centuries
 Entrepreneurs were not distinguished from managers.
 They were viewed mostly from an economic perspective.
 Concept of innovation and newness was an integral part.
 Example: Andrew Carnegie

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 Definition of Entrepreneurs Today
 Entrepreneurship is the process of creating something new
and assuming the risks and rewards.

 Four aspects of being an entrepreneur today:

 Involves creation process.
 Requires devotion of time and effort.
 Involves rewards of being an entrepreneur.
 Requires assumption of necessary risks.

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 Entrepreneurs Versus Inventors
 Inventor: Creates something for the first time; highly
driven and motivated by his or her own work and
personal ideas.
 Differentiating characteristics of an inventor:
 Education.
 Level of experience.
 Problem-solving skills.
 Level of self-confidence.
 Willingness to take risks.
 Ability to tolerate ambiguity and uncertainty.
 View of monetary benefits in measuring success.

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 The Entrepreneurial Process
 Four distinct phases:
 Identify and evaluate the opportunity.
 Window of opportunity.
 Develop a business plan.
 Determine the resource requirement.
 Manage the resulting enterprise.

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Aspects of the Entrepreneurial Process

<<Insert Table 1.1>>

Table 1.1

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 Types of Start-Ups
 Lifestyle firm
 Privately held; usually achieves only modest growth.
 Foundation company
 Created from research and development.
 Lays the foundation for a new business area.
 High-potential venture
 Receives the greatest investment interest and publicity.
 Starts out like a foundation company, but attains rapid growth.
 Also called gazelles, is integral to the economic development
of an area.

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 Role of Entrepreneurship in
Economic Development
 Innovation is depicted as a key to economic
development.
 Product-evolution process: Process through which
innovation is developed and commercialized.
 Iterative synthesis: Critical point in the product-evolution
process.

 Three types of innovation:

 Ordinary
 Technological
 Breakthrough

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 Product Evolution

Need Recognition Industrial

Initiate Innovation Development

Press to Invent

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 Government as an Innovator
 One channel for commercializing the results of the
synthesis of social need and technology.
 Frequently called technology transfer.

 Relatively few innovations reach commercial markets.

 Lacks business skills necessary for successful
commercialization.
 Government bureaucracy and red tape act as inhibitors.

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 Corporate Entrepreneurship
 Strengths of an existing business:
 Financial resources.
 Business skills.
 Marketing and distribution systems.
 Factors that inhibit successful commercialization:
 Bureaucratic structure.
 Emphasis on short-term profits.
 A highly structured organization.

 In the current era of hypercompetition, strategic

business units (SBUs) are emerging.
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 Independent Entrepreneurship
 Factors that inhibit commercialization:

 Managerial skills.
 Marketing capabilities.
 Financial resources.
 Unrealistic inventions.
 Lack of awareness on interfacing with necessary entities
(banks, suppliers, customers, venture capitalists,
distributors, and advertising agencies).

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 Ethics and Social Responsibility
 Entrepreneurs usually develop an internal ethical code.

 Personal value systems tend to be influenced by:
 Peer pressure.
 General social norms in the community.
 Pressures from their competitors.

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 Future
 Entrepreneurship has gained mileage through a number of
ways:

 Entrepreneurial education.
 Increase in academic research.
 Societal support (media coverage).
 Corporate entrepreneurship.

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 Entrepreneurial Universities
 Activities  Structures
 Seminars  Business Assistance Centers
 Consulting  Incubators
 Research  Innovation Centers
 Industrial Parks
 Case Development
 Enterprise Development
 Technology Development &
Centers
Transfer  Venture Capital Exchanges
 Joint Ventures & Strategic
 Inputs
Alliances
 Guest Lectures
 Board of Advisors/Trustees
 Internships
 Student Projects
 Source of Funds
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