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Chapter 07 - Entrepreneurship
chapter
Entrepreneurship
1 Describe why people become entrepreneurs and what it takes,
personally.
2 Summarize how to assess opportunities to start new businesses.
3 Identify common causes of success and failure.
4 Discuss common manaement challenes.
! "#plain how to increase your chances of successes, includin
ood business plannin.
$ Describe how manaers of lare companies can foster
entrepreneurship.
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Chapter 07 - Entrepreneurship
1. Introduction
A. Definitions
1. Entrepreneurship - The pursuit of lucrative opportunities by enterprising
individuals.
2. Small Business - A business having feer than 100 e!ployees" independently
oned and operated" not do!inant in its field" and not characteri#ed by !any
innovative practices.
$. Entrepreneurial Venture - A ne business having groth and high profitability as
pri!ary ob%ectives.
&. 'o!e !yths about entrepreneurs (Table 7.1)
2. "(.'"0'"("1'S2I0
1. E*traordinary entrepreneurs (Table 7.2)
A. Why Become an Entrepreneur+
1. Entrepreneurs start their on fir!s because of the challenge" the profit potential"
and the enor!ous satisfaction they hope lies ahead.
2. ,e i!!igrants !ay find e*isting paths to econo!ic success closed to the!.
$. The e*cite!ent of entrepreneurship - entrepreneurs report the highest levels of
pride" satisfaction" and inco!e.
&. What Does It Take to Succeed+ (-igure 7.1)
1. .aries by creativity and innovation/general !anage!ent s0ills
a. inventor
b. entrepreneur
c. pro!oter
d. !anager" ad!inistrator
C. What Business Should You Start?
1. The idea 1 a great product" an untapped !ar0et" and good ti!ing are essential
ingredients in any recipe for success.
2. The opportunity 1 entrepreneurs spot" create" and e*ploit opportunities in a variety
of ays.
$. Franchising - hen evaluating a franchise" consider !ar0et presence" !ar0et
share" and profit !argins
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Chapter 07 - Entrepreneurship
2. The ne*t frontiers 1 here do they lie+ &iotech" Eastern Europe" nanotechnology"
oceanography" etc.
a. 3ne fascinating opportunity for entrepreneurs is outer space.
b. 3ther ne ventures in space include satellites for auto!obile navigation"
trac0ing truc0ing fleets" !onitoring flo rates" and lea0s in pipelines.
c. Testing designer drugs in the near-#ero-gravity environ!ent.
d. 4sing re!ote sensing to !onitor global ar!ing" spot fish concentrations" and
detect crop stress for precision far!ing.
5. The 6nternet
a. -ive successful business !odels7
i. Transaction fee model
ii. Advertising support model
iii. Intermediary model
iv. Affiliate model
v. Subscription model
D. What Does It Take, Personally?
1. Co!!it!ent and deter!ination 1 successful entrepreneurs are decisive" tenacious"
disciplined" illing to sacrifice" and able to i!!erse the!selves totally in their
enterprises.
2. 8eadership 1 self-starters" tea! builders" superior learners" and teachers.
$. 3pportunity obsession 1 inti!ate 0noledge of custo!ers9 needs" !ar0et driven"
and obsessed ith value creation and enhance!ent.
2. Tolerance of ris0" a!biguity" and uncertainty 1 calculated ris0 ta0ers" ris0
!ini!i#ers" tolerant of stress" able to resolve proble!s.
5. Creativity" self-reliance" and ability to adapt 1 open-!inded" restless ith the status
:uo" able to learn :uic0ly" highly adaptable" creative" s0illed at conceptuali#ing" and
attentive to details.
;. <otivation to e*cel 1 clear results orientation" set high but realistic goals" strong
drive to achieve" 0no your on ea0nesses and strengths" and focus on hat can
be done rather than on the reasons things can9t be done.
7. akin! !ood choices
a. Entrepreneurial strategy !atri* (-igure 7.2)
i. 6nnovation
ii. =is0
E. Success and "ailure
1. =is0
a. &e realistic" and anticipate ris0s ahead
2. The role of the econo!ic environ!ent
a. Business incubators are protected environ!ents for ne" s!all businesses.
b. The !ost a!a#ing region for start-ups is 'ilicon .alley" in California" hoever
other regions include &oston" ,orth Carolina" Austin" and 'eattle.
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Chapter 07 - Entrepreneurship
-. #ommon ana!ement #hallen!es
1. >ou !ight not en%oy it
a. 6f you don9t ant to sell" you don9t ant to be an entrepreneur
2. 'urvival is difficult
a. '!all businesses feel !ista0es !ore strongly
$. ?roth creates ne challenges
a. 'tart-up !entality is often @high perfor!ance" cheap laborA
b. ?roth re:uires hiring people at higher ages that are less dedicated than the
founders
2. 6t9s hard to delegate
a. 8eadership deteriorates into !icro!anage!ent
5. <isuse of funds
a. -ailure to use !oney that is available properly
;. Boor controls
a. Aversion to record 0eeping
b. Beople li0e to spend !oney" don9t focus on funda!entals li0e custo!ers and
creating value
7. <ortality
a. Co!panies outlive entrepreneurs hen7
i. the co!pany has gone public
ii. the entrepreneur has planned an orderly succession" usually to a fa!ily
!e!ber.
C. ?oing public
a. Initial stock offerings I!"s# - selling to the public" for the first ti!e" federally
registered and underritten shares of stoc0 in the co!pany.
D. ?lobal start-ups
a. 6t is a ne venture that is international fro! the very beginning.
b. 'everal :uestions !ust be ansered to deter!ine hether you should begin
ith a do!estic or global outloo0.
i. Ehere are the best people+
ii. Ehere is the financing easiest and !ost suitable+
iii. Ehere are the targeted custo!ers+
iv. Ehen global operators learn about your venture" ill they go head-to-head
ith yours+
?. Increasin! Your #hances o$ Success
%. Plannin!
a. The first step is to do an opportunity analysis" hich includes a description of
the product or service" an assess!ent of the opportunity" an assess!ent of the
entrepreneur" specification of activities and resources needed to translate your
idea into a viable business" and your source(s) of capital. (Table 7.$)
b. A business plan is a for!al planning step in starting a ne business that
focuses on the entire venture and describes all the ele!ents involved in starting
it. (Table 7.2)
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Chapter 07 - Entrepreneurship
2. Fey planning ele!ents
a. Beople should be energetic and have s0ills and e*pertise directly relevant to the
venture.
b. 3pportunity should allo a co!petitive advantage that can be defended.
c. 6dentify current co!petitors and their strengths and ea0nesses" predict ho
they ill respond to the ne venture" indicate ho the ne venture ill respond
to the co!petitors9 responses" identify future potential co!petitors" and
consider ho to collaborate ith actual or potential co!petitors.
d. Conte*t should be favorable" regulatory and contain econo!ic perspectives.
e. =is0 !ust be understood and addressed as fully as possible.
$. 'elling the plan
a. The goal is to get investors to agree on and bac0 up the ritten plan.
b. The plan should be !ar0eted in order to obtain the necessary funding for the
business.
2. ,onfinancial =esources
a. $egitimacy
b. ,etor0s
c. Top !anage!ent tea!s
d. Advisory boards
e. Bartners
3. -*'0*'&." "(.'"0'"("1'S2I0
A. Deciding if a ne idea is orth pursuing (Table 7.5)
1. -it ith your s0ills and e*pertise
2. -it ith the !ar0et
$. -it ith the co!pany
2. Ehat to do hen your idea is re%ected
&. Buildin! support $or your idea 1 capitali#e on a !ar0et opportunity.
1. The first step involves clearing the invest!ent ith your i!!ediate boss or bosses.
>ou e*plain the idea and see0 approval to loo0 for ider support.
2. <a0ing cheerleaders 1 people ho ill support the !anager before for!al
approval fro! higher levels.
$. Gorse-trading begins 1 you offer pro!ises of payoffs fro! the pro%ect in return for
support" ti!e" !oney" and other resources that peers and others contribute.
2. -inally" getting the blessing of relevant higher-level officials.
C. Buildin! intrapreneurship
1. Skunk%orks are pro%ect tea!s designated to produce a ne product.
2. Bootlegging refers to infor!al efforts by !anagers and e!ployees to create ne
products and ne processes.
D. ana!ement #hallen!es
1. The !ost dangerous ris0 is the ris0 of over-reliance on a single pro%ect.
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Chapter 07 - Entrepreneurship
2. 3rgani#ations also court failure hen they spread their intrapreneurial efforts over
too !any pro%ects.
E. Entrepreneurial orientation
1. Entrepreneurial orientation is the tendency of an organi#ation to engage in
activities designed to identify and capitali#e successfully on opportunities to launch
ne ventures by entering ne or established !ar0ets ith ne or e*isting goods or
services.
2. Entrepreneurial orientation is deter!ined by five tendencies7
a. allo independent action
b. innovate
c. ta0e ris0s
d. be proactive
e. be co!petitively aggressive.
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Chapter 07 - Entrepreneurship
Advertising support model Charging fees to advertise on a site
Affiliate model Charging fees to direct site visitors to other co!panies9 sites
Bootlegging 6nfor!al or0 on pro%ects other than those officially assigned" of e!ployee9s on choosing
and initiative
Business incubators Brotected environ!ents for ne" s!all businesses
Business plan A for!al planning step that focuses on the entire venture and describes all the ele!ents
involved in starting it
Entrepreneur 6ndividuals ho establish a ne organi#ation ithout the benefit of corporate sponsorship
Entrepreneurial orientation The tendency of an organi#ation to identify and capitali#e successfully on
opportunities to launch ne ventures by entering ne or established !ar0ets ith ne or e*isting
goods or services
Entrepreneurial venture A ne business having groth and high profitability as pri!ary ob%ectives" an
assess!ent of the opportunity" an assess!ent of the entrepreneur" specification of activities and
resources needed to translate your idea into a viable business" and your source(s) of capital
Entrepreneurship The pursuit of lucrative opportunities by enterprising individuals
Franchising An entrepreneurial alliance beteen a franchisor (an innovator ho has created at least one
successful store and ants to gro) and an franchisee (a partner ho !anages a ne store of the
sa!e type in a ne location)
Initial public offering I!"# 'ale to the public" for the first ti!e" of federally registered and underritten
shares of stoc0 in the co!pany
Intermediary model Charging fees to bring buyers and sellers together
Intrapreneur ,e-venture creators or0ing inside big co!panies
$egitimacy Beople9s %udg!ent of a co!pany9s acceptance" appropriateness" and desirability" generally
ste!!ing fro! co!pany goals and !ethods that are consistent ith societal values
"pportunity analysis A description of the good or service
Skunk%orks A pro%ect tea! designated to produce a ne" innovative product
Small business A business having feer than 100 e!ployees" independently oned" and operated" not
do!inant in its field" and not characteri#ed by !any innovative practices
Social capital A co!petitive advantage in the for! of relationships ith other people and the i!age
other people have of you
Subscription model Charging fees for site visits
Transaction fee model Charging fees for good and services
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Chapter 07 - Entrepreneurship
.he "ntrepreneur
E&T'EP'E&E('S)IP DE"I&ED
1. The concept of corporate entrepreneurship is one of the hottest topics in today9s !anage!ent
literature. &ecause the tas0 of entrepreneurship is so co!ple*" a si!ple definition of it is difficult
to articulate.
2. 3riginally" entrepreneurship as defined in such econo!ic ter!s as the buying" selling" and
bringing together of the factors of production.
$. 3ne does not have to sell or buy or bring together the factors of production to be an entrepreneur.
<ore recently" entrepreneurship has been associated ith the creation of ne business
enterprises.
2. The !odern definition holds entrepreneurship to be a !ental propensity to identify opportunities
and threats that lie in the future and to ta0e action no to e*ploit those opportunities and defend
against the threats.
5. The entrepreneur is innovatively future-oriented toard !ar0et opportunities and illing to ta0e
chances to e*ploit those !ar0et opportunities.
;. Thus" the !odern !anager perceives entrepreneurship to be both a property and a process
associated ith innovative enterprises.
E&T'EP'E&E('S)IP *S * P'+PE'TY
1. Entrepreneurship can be vieed" as a property possessed by the entrepreneur.
2. 'o!e of the psychological properties that tend to be shared by entrepreneurs are as follos7
Entrepreneurs have a future-oriented attitude" a ay of e*a!ining events and cause-and-effect
relationships in the business environ!ent in order to identify opportunities that can be
e*ploited.
Entrepreneurs have an others-oriented focus on the needs of others in order to identify need-
satisfying opportunities to be e*ploited.
Entrepreneurs have a change-oriented focus and understand that success lies in change.
Entrepreneurs have an action-oriented focus" reali#ing that recogni#ing opportunity is not
enoughH action !ust be ta0en no to e*ploit opportunities.
Entrepreneurs have a ris0-ta0ing propensity that allos the! to ta0e appropriate action to
e*ploit opportunities" even hen ris0 is involved. There is alays an ele!ent of ris0 in
business" and the greatest opportunities often de!and the greatest ris0 ta0ing.
Entrepreneurs have a high tolerance for a!biguity. Ta0ing innovative" ris0y action in the
!ar0etplace re:uires !a0ing decisions ith less-than-clear infor!ation. 6n order to !a0e
such ris0y decisionsH the entrepreneur needs to cultivate a high tolerance for a!biguity.
Entrepreneurs have a propensity toard Type A behavior 1 they !ust or0 fast" thin0 fast"
de!and high :uality or0" and e*pect the sa!e fro! others.
Entrepreneurs have an internal locus of control believing that it is their on behavior 1 and
not luc0 or fate 1 that controls their lives.
Entrepreneurs have high need-achieve!ent.
$. 'o!e of the surveyed characteristics of entrepreneurs are as follos7
Entrepreneurs tend to be !averic0s and drea!ers.
Entrepreneurs tend to be unco!pro!ising" insisting on doing things their ay.
Entrepreneurs are !ore apt to be e*pelled fro! college" to be fired often" and to %u!p fro!
%ob to %ob.
Entrepreneurs have or0ed and have been self-supporting since childhood and tend to or0
very long hours.
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Chapter 07 - Entrepreneurship
Entrepreneurs tend not to be %oiners or tea! players.
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Chapter 07 - Entrepreneurship
E&T'EP'E&E('S)IP *S * P'+#ESS
1. Entrepreneurship !ay be seen as a process of change in three basic stages.
=ecognition of so!e change in the !ar0etplace. The change !ay be in buyer behavior" buyer
need" buyer ability to pay" a technological brea0through" or so!e !a%or event" such as ar"
oil e!bargo" !aterial shortage" etc. -or this stage" the entrepreneur !ust be alert to a change
that he or she can convert into an opportunity.
Berception of the @ideaA of ho this change can be successfully e*ploited 1 by a product
change" a uni:ue service" a bitter pac0age" a bitter delivery" etc.
Action 1 the need to get out of the planning and =ID stages and into the !ar0etplace before
so!eone else beats you to it or before the opportunity goes aay.
Intrapreneurship in Small +usiness
#+&#EPT +" I&T'*P'E&E('S)IP
1. 6t is difficult to agree on a generally accepted definition of entrepreneurship.
2. ,e definitions of the concept have e!erged" introducing ne aspects such as ris0 ta0ing and the
creation of independent units.
$. Entrepreneurship necessarily ends hen the venture creation stage is co!plete.
2. Entrepreneurship as a source of innovation is not the e*clusive province of ne venture creation.
5. Ehat essentially distinguishes intrapreneurship fro! entrepreneurship in !ost or0s" if not all" is
first and fore!ost the conte*t in hich the entrepreneurial act ta0es place. Entrepreneurs innovate
for the!selves" hile intrapreneurs innovate on behalf of an e*isting organi#ation.
;. Despite the lac0 of a clearly accepted definition of the ter!" an analysis of the literature on
intrapreneurship reveals to !ain trends in the research.
7. The first of these trends is concerned principally ith the individuals ho i!ple!ent innovations
in the fir!s that e!ploy the!.
C. The second !ain trend identified in the intrapreneurship literature is concerned ith the
intrapreneurial process" the factors leading to its e!ergence" and the conditions re:uired.
+TI,*T+'S *&D "*#T+'S -+,E'&I&- EE'-E&#E
1. 'i!plicity of organi#ational structures.
2. Easy/difficult to identify intrapreneurs.
$. Ability of oner-!anager to trust e!ployees and delegate.
2. The right of e!ployees to !a0e !ista0es
+TI,*T+'S IDE&TI"IED DI,IDED I&T+ "+(' *.+' #*TE-+'IES
1. <otivators related to the de!ands and constraints of the e*ternal environ!ent (especially the
co!petition).
2. <otivators related to the perception of an individual as an intrapreneur and that individual9s
availability.
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Chapter 07 - Entrepreneurship
$. <otivators related to the fir!9s groth ob%ectives.
2. <otivators related to the !anage!ent or production proble!s encountered in the internal
environ!ent.
SI/ P+ST(0*TES S(PP+'TI&- T)E &EED T+ 'E#+&#I0E T)E #+&#EPTS +"
I&T'*P'E&E('S)IP *&D S*00 B(SI&ESS
1. 6ntrapreneurial characteristics are not the e*clusive property of e!ployees of large fir!s.
2. 6ntrapreneurs can be first-class allies for oner-!anagers of groing s!all businesses.
$. The fact that intrapreneurs are absent fro! the s!all business literature does not !ean that they
have no fight to be there.
2. The loss of an intrapreneur ill have !ore serious conse:uences for s!all fir!s than for large
fir!s.
5. '!all fir!s are potential incubators for intrapreneurs.
;. '!all business provides a favorable environ!ent for innovation.
1. ost entrepreneurs learn the most important skills they need a$ter a!e 1%. )o2 does this a$$ect
your outlook and plans?
<ost entrepreneurs learn and develop their s0ills after age 21 in the area of ta0ing on additional
responsibility" sense of achieve!ent" ris0 ta0ing" and ant feedbac0. To be able to launch a s!all
business" one !ust understand the re:uire!ents of a business plan and the construction thereof. 3ne
!ust develop a relationship ith a ban0 and understand the essential co!ponents of a business plan.
This is developed by understanding !ar0eting" finance" and production. This re:uires e*perience"
and !ust be learned through s0ill enhance!ent of hat it ta0es to beco!e a successful entrepreneur.
This all co!es after the age of 21.
2. Identi$y and discuss ne2 3entures that $it each o$ the $our cells in the entrepreneurial strate!y
matri4.
Gigh innovation/8o ris0 1 ne products" ithout co!petition" that are bac0ed by large fir!s ith
an abundance of loss-absorbing capital or ne products that are relatively ine*pensive to !a0e" such
as 8ego bloc0s.
Gigh innovation/Gigh ris0 1 ne products produced at great e*pense" such as auto!obiles and drugs.
8o innovation/Gigh ris0 1 ventures in ell-established industries" such as restaurants" that re:uire a
large initial outlay.
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Chapter 07 - Entrepreneurship
5. Does $ranchisin! appeal to you? What $ranchises 2ould ha3e the most and least interest, and
2hy?
3ften" people ho are attracted to franchises are entrepreneurs ho are loer in innovation" but
higher in general !anage!ent and netor0ing s0ills. The degree of structure" the a!ount of
corporate support" and the cost of the franchise ill all play a role in the a!ount of interest students
feel in the process. -or e*a!ple" <cDonald9s re:uires that people ho are interested in opening a
franchise have a !ini!u! of J75"000 in non-borroed personal resources before they ill be
considered for franchise training.
6. The chapter speci$ied some o$ the chan!es in the e4ternal en3ironment that can pro3ide
7usiness opportunity 8technolo!ical disco3eries, li$estyle and taste chan!es, and so on.9 Identi$y
some important recent chan!es or current trends in the e4ternal en3ironment and the 7usiness
opportunities they mi!ht o$$er.
As the @baby boo!A population ages" caring for the elderly ill offer !ultiple business opportunities
- everything fro! providing health care to providing assistance ith the day-to-day tas0s of living.
3pportunities !ay also arise in assistive technology" hich co!pensates for the reduced hearing"
vision" and !obility that are often associated ith old age.
,atural disasters" such as hurricanes and forest fires" provide opportunities for entrepreneurs.
=oofing contractors" for e*a!ple" are boo0ed ahead by as !any as three years in -lorida" and an
entire city infrastructure in ,e 3rleans and other southern cities ill need to be rebuilt as a result of
Gurricane Fatrina. 6n 'outhern California" sales of fireproof roofing !aterials shot up in the a0e of
the <alibu and 8aguna &each fires.
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