CHAPTER I allocating the necessary skills and

resources.
Entrepreneurs
 Recognize opportunities where other see
chaos or confusion
 Are aggressive catalysts for change within
the marketplace
 Challenge the unknown and continuously
create the future
Entrepreneurs vs. Small Business Owners
Small Business Owners
 Manage their business by expecting stable
sales, profits and growth
Entrepreneurs
 Focus their efforts on innovation,
profitability and sustainable growth
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 an 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
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 effectice
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.
Macro View: External Locus of Control
The Environmental School of Thought
 Considers the external factors that affect a
potential entrepreneur’s lifestyle.
The Financial/Capital School of Thought
 Based on the capital-seeking process – the
search for seed and growth capital.
The Displacement School of Thought
 Alienation drives entrepreneurial pursuits.
 Political displacement (laws,
policies, and regulations)
 Cultural displacement (preclusion of
social groups)
 Economic Displacement (economic
variations)
Micro View: Internal Locus of Control
The Entrepreneurial Trait School of Thought
 Focuses in identifying traits common to
successful entrepreneurs.
 Achievement, creativity,
determination, and technical
knowledge.
The Venture Opportunity School of Thought
 Focuses on the opportunity aspect of
venture development – the search for idea
sources, the development of concepts, and
the implementation of venture
opportunities.
  Corridor Principle: new pathways or
opportunities will arise that lead
entrepreneurs in different
directions.
The Strategic Formulation School of Thought
 Emphasizes the planning process in
successful venture development.
Ronstadt’s View
 Strategic formulation is a leveraging if
unique elements:
 Unique Markets – mountain gap
strategies
 Unique People – great chef
strategies
 Unique Products – better widgets
strategies
 Unique Resources – water well
strategies
Process Approaches to Entrepreneurship
Integrative Approach
 Built around the concepts of inputs to the
entrepreneurial process and outcomes from
the entrepreneurial process.
 Focuses on the entrepreneurial process
itself and identifies five key elements that
contribute to the process.
 Provides a comprehensive picture regarding
the nature of entrepreneurship that can be
applied at different levels.
Entrepreneurial Assessment Approach
 Stresses making assessments qualitatively,
quantitatively, strategically, and ethically I
regard to the entrepreneur, the venture,
and the environment.
Multidimensional Approach
 Views entrepreneurship as a complex,
multidimensional framework that
emphasizes the individual, the
environment, the organization, and the
venture process.
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 emphasizes the
importance of entrepreneurs to the
economy.
 Academic: trends in entrepreneurial
research and education.
Predominance of New Ventures in the Economy
Entrepreneurial Activity: Growth in Small Businesses
 New business incorporations average
600,000 per year over the past decade.
 There are over 25 million small businesses;
the number continues to grow 2% annually.
 One of every 150 adults participates in the
founding of a new firm each year.
 Approximately 600,000 to 800,000 are
added each year.
Effects of Entrepreneurship
The Global Entrepreneurship Monitor (GEM)
 Provides an annual assessment of the
entrepreneurial environment of 42
countries.
 Latest GEM study: the US 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 US include:
 A national culture that supports risk taking
and seeking opportunities.
 Americans’ alertness to unexpected
economic opportunity and a low fear of
failure.
 US leadership in entrepreneurship
education at both the undergraduate and
graduate level.
 A high percentage of individuals with
professional, business degrees who are
likely to become entrepreneurs.
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 employees as do larger firms.
  Have been responsible for 55% of the
innovation in 362 different industries and
95% of all radical innovations.
 Obtain more patents per sales dollar than
do larger firm.
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
actually, about half of all start-ups last
between 5 and 7 years.
Entrepreneurial Firm’s Impact
Entrepreneurial components of the US Economy:
1. Large firms have increased profitability by
returning to their core competencies through
restricting 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 make two indispensable
contributions to an economy:
1. They are 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.
21st Century Trends in Entrepreneurship Research
Major Research Themes:
 Venture Financing: venture capital and
angel capital financing and other financing
techniques strengthened in the 1990s.
 Corporate Entrepreneurship and the need
for entrepreneurial cultures had drawn
increased attention.
 Social Entrepreneurship has unprecedented
strength within the new generation of
entrepreneurs.
 Entrepreneurial Cognition is providing new
insights into the psychological aspects of
the entrepreneurial process.
 Women and Minority Entrepreneurs appear
to face obstacles and difficulties from those
that other entrepreneurs face.
 The Global Entrepreneurial Movement is
increasing.
 Family Businesses have become a stronger
focus of research.
 Entrepreneurial Education has become one
of the hottest topics in business and
engineering schools throughout the world.
KEY CONCEPTS
Entrepreneurship
 A process of innovation and new-venture
creation through four major dimensions –
individual, organizational, environmental,
process – that is aided by collaborative
networks in government, education, and
institutions.
Entrepreneur
 A catalyst for economic change who uses
purposeful searching, careful planning, and
sound judgment when carrying out the
entrepreneurial process.
Entrepreneurial Management
 The discipline of entrepreneurial
management:
 Entrepreneurship is based upon the
same principles.
 It matters not who or what the
entrepreneur is – an existing large
institution or an individual, for-
profit business or a public-service
organization, a governmental or
non-governmental institution.
 The rules are much the same: things
that work and those that don’t are
much the same, and so are
innovations and where to look for
them.
CHAPTER II
Entrepreneurial Mind Set
 Describes the most common characteristics
associated with successful entrepreneurs as
well as the elements associated with the
“dark-side” of entrepreneurship.
Who are Entrepreneurs?
 Independent individuals, intensely
committed and determined to persevere,
who work very hard.
 They are confident optimists who strive or
integrity.
 They born with the competitive desire to
excel and use failure as a learning tool.
Entrepreneurial Cognition
Cognition
 The mental functions processes (thoughts)
and states of intelligent, human attention,
remembering, producing and understanding
language, solving problems, and making
decisions.
Social Cognition Theory
 Posits that knowledge structures (mental
models of cognitions) can be ordered to
optimize personal effectiveness within
given situations.
Entrepreneurial Cognition
 The knowledge structures that people use
to make assessments, judgments or
decisions involving opportunity evaluation
venture creation, and growth.
Metacognitive Perspective
Cognitive Perspective
 The ability to be dynamic, flexible and self-
regulating in once cognitions given dynamic
and uncertain task environments.
Metacognitive Model
 Describes the higher-order cognitive
process that results in the entrepreneur
framing a task effectively, and thus why and
how a particular strategy was included in a
set of alternative responses to the decision
task (metacognition).
Sources of Research on Entrepreneurs
1. Research and Popular Publications
2. Direct Observation
3. Speeches, seminars and presentations
Characteristics of the Entrepreneurial Mindset
 Determination and perseverance
 Drive to achieve
 Opportunity orientation
 Initiative and responsibility
 Persistent problem solving
 Seeking feedback
 Internal locus of control
 Tolerance for ambiguity
 Calculated risk-taking
 High energy level
 Creativity and innovativeness
 Vision
 Passion
 Independence
 Team building
Entrepreneurship Theory
Entrepreneurs cause entrepreneurship.
 Entrepreneurship is a function of the
entrepreneur. E= f(e)
 Entrepreneurship is characterized as 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.
Dealing with Failure: The Grief Recovery Process
Loss Orientation
 It involves focusing in the particular loss to
construct an account that explains why the
loss occurred.
Restoration Orientation
 It involves both distracting oneself from
thinking about the failure event and being
proactive towards secondary causes of
stress.
The Entrepreneurial Experience
Entrepreneurs
 Create ventures much as an artist creates a
painting.
 Are formed by the lived experience of
venture creation.
Experiental Nature of Creating a Sustainable Enterprise
 Emergence of the opportunity
 Emergence of the venture
 And emergence of the entrepreneur
The Dark Side of Entrepreneurship
The Entrepreneur’s Confrontation with Risk
 Financial risk versus profit motive varies in
entrepreneur’s 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 entrepreneur.
Entrepreneurs: Type A Personalities
 Chronic and severe sense of time urgency
 Constant involvement in multiple projects
subject to deadlines.
 Neglect of all aspects of life except work
 A trending to take on excessive
responsibility, combined with the feeling
that “Only I am capable of taking care of
this matter”.
  Explosiveness of speech and a tendency to
speak faster than most people.
Stress and the Entrepreneur
Entrepreneurial Stress
 The extent to which entrepreneurs’ works
demands and expectations exceed their
abilities to perform as venture initiations,
they are likely to experience stress.
Sources of Entrepreneurial Stress
 Loneliness
 Immersion in business
 People problems
 Need to achieve
Dealing with Stress
 Networking
 Getting away from it all
 Communicating with employees
 Finding satisfaction outside the company
 Delegating
 Exercising rigorously
The Entrepreneurial Ego
Self-Destructive Characteristics
 Overbearing need for control
 Sense of distrust
 Overriding desire for success
 Unrealistic externalized optimism
Entrepreneurial Ethics
Ethics
 Provides the basic rules or parameter for
conducting any activity in an acceptable
manner.
 Represents a set of principles prescribing a
behavioral code of what is good and right or
wrong.
 Defines situational moral duty and
obligations
Sources of Ethical Dilemmas
 Pressure from inside and outside interests
 Changes in societal values, mores and
norms
Ethical rationalizations used to justify questionable
conduct involve believing that the activity:
 Is not really illegal or immoral
 Is in the individuals or the firm’s best
interest.
 Will never be found out.
 Helps the firm so the firm will condone it.
Reasons for Unethical Behavior to Occur
 Greed
 Distinctions between activities at work and
activities at home
 Lack of foundation in ethics
 Survival (bottom-line thinking)
 A reliance on other social institutions to
convey and reinforce ethics.
Entrepreneurial Ethics
Complexity of Unethical Decisions
 Extended consequences
 Multiple alternative
 Mixed outcomes
 Uncertain ethical consequences
 Personal implications
Online Ethical Dilemma in E-Commerce
 Continuing to obtain consumer trust
 Protecting their business’s online
reputation
 Avoiding tactics that betray trust
 Continuing to exhibit strong ethical
responsibility.
 Establishing on ethical strategy.
Establishing a strategy for an Ethical Venture
Ethical code of conduct
 Is a statement of ethical practices or
guidelines to which an enterprise adheres.
 Are becoming more prevalent in industry
 Are proving to be more meaningful in forms
of external legal and social development.
 Are more comprehensive in terms of their
average
 Are easier to implement in terms of the
administrative procedures used to enforce
them.
“Always do the right thing”
Reasons for management to adhere to a high moral
code:
 It is good business because unethical
practices have a corrosive effect not only on
the firm itself but on free markets and free
trade which are fundamental to the survival
of the free enterprise system.
 Improving the moral climate of the firm will
eventually win back the public’s confidence
in the firm.
Ethical Considerations of Corporate Entrepreneurs
Organizational barriers that invite unethical behaviors
 Systems
  Structures
 Policies and procedures
 Culture
 Strategic direction
 People
Promote ethical employee behaviors by:
 Providing flexibility, innovation, and support
of initiative and risk taking
 Removing barriers for entrepreneurial
middle managers
 Including an ethical component to
corporate training.
CHAPTER III
Ethical Leadership by Entrepreneurs
The value system of an owner/entrepreneur is the key
to establishing an ethical organization.
 A code of ethics provides a clear
understanding of the need for:
 Ethical administrative decision-
making
 Ethical behavior or employees
 Explicit rewards and punishments
based on ethical behavior
Entrepreneurial Motivation
Entrepreneurial motivation
 The quest for new-venture creation as well
as the willingness to sustain that venture
 Personal characteristics, personal
environment, business
environment, personal goal set and
the existence of a viable business
idea.
Entrepreneurial persistence
 An entrepreneur’s choice to continue with
an entrepreneurial opportunity regardless
of counterinfluences or other enticing
alternatives.
The Entrepreneurial Mindset in Organizations
Factors in the emergence of the entrepreneurial
economy:
 The rapid evolution of knowledge and
technology promoted high-tech
entrepreneurial star-ups.
 Demographic trends adding fuel to the
proliferation of newly developing ventures.
 The venture capital market became an
effective funding mechanism
 American industry began to learn how to
manage entrepreneurship.
Corporate Innovation Philosophy
Important practices for establishing an innovation-
driven organization:
1. Set explicit goals
2. Create a system of feedback and positive
reinforcement
3. Emphasize individuals responsibility
4. Provide rewards based on results
5. Do not punish failures.
Encouraging an Intrapreneurial Environment
Steps to help restructure corporate thinking and
encourage an intrapreneurial environment
1. Early identification of potential innovators
2. Top management sponsorship of innovative
projects
3. Creation of innovation goals in strategic
activities
4. Promotion of entrepreneurial thinking through
experimentation
5. Development of collaboration between
innovators and the organization at large
Benefits of an Entrepreneurial Philosophy
 Leads to the development of new products
and services and helps the organization
expand and grow.
 Creates a work force that can help the
enterprise maintain its competitive posture.
 Promotes a climate conducive to high
achievers and helps the enterprise motivate
and keep its best people
Defining the Concept of Corporate Entrepreneurship
and Innovation
Corporate Entrepreneurship
 A process whereby an individual or a group
of individuals, in association with an existing
organization, creates a new organization or
instigates renewal or innovation within the
organization.
Corporate Entrepreneurship Strategy
 A vision-directed, organization-wide
reliance on entrepreneurial behavior that
purposefully and continuously rejuvenates
the organization and shape the scope of its
operations through the recognition and
exploitation of entrepreneurial opportunity.
The Need for Corporate Entrepreneuring
 Rapid growth in the number of new and
sophisticated competitos
 Sense of distrust in the traditional methods
of corporate management
 An exodus of some of the best and brightest
people from corporations to become small
business entrepreneurs
 International competition
 Downsizing of major corporations
 An overall desire to improve efficiency and
productivity
Successful Innovative Companies
Factors in large corporation that are successful
innovators:
 Atmosphere and vision
 Orientation to the market
 Small, flat organizations
 Multiple approaches
 Interactive learning
 Skunk works
Conceptualizing Corporate Entrepreneurship Strategy
Corporate Entrepreneurship Strategy
 A vision-directed, organization-wide
reliance on entrepreneurial behavior that
purposefully and continuously rejuvenates
the organization and shape the scope of its
operations through the recognition and
exploitation of entrepreneurial opportunity.
 It requires the creation of congruence
between the entrepreneurial vision of the
organization’s leaders and the
entrepreneurial actions of those throughout
the organization.
Modeling the Corporate Entrepreneurship Strategy
Process
Corporate entrepreneurship strategy is manifested
through the presence of three elements
 An entrepreneurship strategic vision
 A pro-entrepreneurship organization
architecture
 Entrepreneurial processes and behavior as
exhibited throughout the organization
Critical steps of a corporate entrepreneurial strategy:
 Developing the vision
 Encouraging innovation
 Structuring for an intrapreneurial climate
 Developing individual managers for
corporate entrepreneurship
 Developing venture teams.
Types of Innovation
Radical Innovation
 The launching of inaugural breakthroughs
 These innovations take experimental and
determined vision, which are not
necessarily managed but must be
recognizes and nurtured
Incremental Innovation
 The systematic evolution of a product or
service into newer or larger markets.
 Many times the incremental innovation will
take over after radical innovation
introduces a breakthrough
3M’s Innovation Rules
 Don’t kill a project
 Tolerate failure
 Keep divisions small
 Motivate the champions
 Stay close to the customer
 Share the wealth
Structuring for a Corporate Entrepreneurial
Environment
Reestablishing the drive to innovate:
 Invest heavily in entrepreneurial activities
that allow new ideas to flourish in an
innovative environment
 Provide nurturing and information-sharing
activities.
 Employee perception of an innovative
environment is critical
Corporate Venturing
 Institutionalizing the process of embracing
the goal of growth through development of
innovative products, processes, and
technologies with an emphasis on long-
term prosperity.
Preparing for Failure
“Learning from failure”
 Recognizing the importance of managing
the grief process that occurs from project
failure
 Understanding how organizational routines
and rituals are likely to influence the grief
recovery
 Ensuring that the organization’s social
support system can encourage greater
learning, foster motivational outcomes and
increase coping self-efficacy in affected
individuals

Corporate Entrepreneurship Assessment Instrument
(CEAI)
Key Internal Climate Factors in Determining an
Organization’s Readiness for Entrepreneurial Activity”
 Top management support
 Autonomy/work discretion
 Rewards/reinforcement
 Time availability
 Internal organizational boundaries
Facilitating Corporate Entrepreneurial Behavior
Organizations foster entrepreneurial behavior by
 Encouraging – not mandating- innovative
activity
 Human resource policies for “selected
rotation”
 Committing to projects long enough for
momentum to occur
 Bet on people, not on analysis
Rewarding Entrepreneuring:
 Allow inventor to take charge of the new
venture
 Grant discretionary time to work on future
projects
 Make intracapital available for future
research ideas
Developing Innovative (I) Teams
Innovative (I) Team
 A semi-autonomous self-directing, self-
managing, high-performing group of two or
more people who formally create an share
the ownership of a new organization
 The leader is called a “product champion”
or a corporate entrepreneur”
Collective Entrepreneurship
 Individual skill are integrated into a group:
this collective capacity to innovate becomes
something greater than the sum of its parts
Sustaining a Corporate Entrepreneurship Strategy
Sustained Corporate Entrepreneurship Model
 Based on theoretical foundations from
previous strategy and entrepreneurship
research
 Considers the comparisons made at the
individual and organizational level on
organizational outcomes, both perceived
and real, that influence the continuation of
the entrepreneurial activity.
 Transformational trigger
 Something external or internal to
the company that invites the need
for strategic adaptation or change.
CHAPTER IV
The Social Entrepreneurship Movement
Social Entrepreneurship
 Entrepreneurship applied to social problem
solving whereas traditional, private-sector
entrepreneurship focuses on innovation,
risk-taking, and large scales transformation
The Social Entrepreneurship Process
 Recognition of perceived social opportunity
 Translation of social opportunity into an
enterprise concept
 Identification and acquisition of resources
required to execute the enterprise’s goals
Defining the Social Entrepreneur
Social Entrepreneur
 Are a person or a small group of individuals
who founds and/or leads an organization or
initiative engaged in social
entrepreneurship
 Also referred to as “public entrepreneurs”,
“civic entrepreneurs”, or “social innovators”
 Are creative thinkers continuously striving
for innovation in technologies, supply
sources, distribution outlets, or methods of
production
 Are change agents who create large-scale
change using pattern-breaking ideas to
address the root causes of social problems.
Characteristics of Social Entrepreneurs as Change
Agents
 Adoption of a mission to create and sustain
social value
 Recognition and relentless pursuit of
opportunities for social value
 Engagement in continuous innovation and
learning
 Action beyond the limited resources at
hand
 Heightened sense of accountability
Social Enterprise and Sustainability
Sustainable Entrepreneurship
 The preservation of nature, life support,
and community in the pursuit of perceived
opportunities to bring into existence future
products, processes, and services for gain,
 where gain is broadly construed to include
economic and noneconomic gains to
individuals, the economy, and society
Environmental Awareness
Ecovision
 A leadership style that encourages open
and flexible structure that encompass the
employees, the organization, and the
environment, with attention to evolving
social demands.
Key Steps in an Environmental Strategy
1. Eliminate the concept of waste
2. Restore the accountability
3. Make prices reflect costs
4. Promote diversity
5. Make conservation profitable
6. Insist on accountability of nations
Shared Value and the Triple Bottom Line
Shared Value
 An approach to creating economic value
that also creates value for society by
addressing the needs and challenges –
company success begets social progress
when overcoming societal problem reduces
costs for firms, increases productivity, and
opens new markets.
Triple Bottom Line
 An accounting framework that combines
consideration or traditional economic
measures with environmental and social
dimensions to measure the firm’s
performance in achieving the sustainability
goals.
Promoting Sustainable Enterprises
Benefit Corporation
1. Purpose: to create a material positive impact on
society and the environment
2. Accountability: to have a fiduciary duty to
consider the interests of workers, the
community, and the environment
3. Transparency: to report annually to the public
on overall social and environmental
performance with a credible and transparent
third-party standard.
The Global Marketplace
Global Entrepreneurs
 Are opportunity-minded and open-minded
global thinkers able to see different points
of view and weld them into a unified focus.
 Rise above nationalistic differences to see
the big picture of global competition
without abdicating their own nationalities.
 Have a core language plus working
knowledge of others.
 Confront the learning difficulties of
language barriers head-on, recognizing the
barriers such ignorance can generate.
Diaspora Networks
 Are global networks or relationships among
ethnic groups that share cultural and social
norms
Advantages of Diaspora Networks
 They speed the flow of information across
borders
 They create a bond of trust
 Third, they create connections that help
entrepreneurs collaborate within a country
and across ethnicities.
Venturing Abroad
Gradual Internalization
 Is a step-by-step progress toward
internalization as risk and commitment
increase and entrepreneurs acquire more
knowledge through experience
Learning Curve Concept
 Increased sales from exports will lead to
greater efficiencies along the firm’s cost
curve, which in turn will lead to increased
overall profits as the firm expands into
overseas markets.
Methods of Going International
Importing
 Buying and shipping foreign-produced
goods for domestic consumption.
Exporting
 The shipping of a domestically produced
good to a foreign destination for
consumption
International Alliances
 Agreements between companies from two
or more countries and they are not legally
binding.
Joint Ventures
Advantages
 Immediate intimate knowledge of the local
conditions and government
 Use of the resources of the other firms
involved in the venture
  Initial capital outlay and overall risk are
lower
Disadvantages
 Fragmented management control of the
venture’s operations
 Difference of opinion that reflect different
nationalities
 Unanticipated withdrawal of a participating
firm.

Direct Foreign Investment

Direct Foreign Investment
 Is a domestically controlled foreign
production facility that results from a
foreign firm:
 Acquiring an interest in an ongoing
foreign operation
 Obtaining a majority interest in a
foreign company
 Purchasing part of the assets of a
foreign concern in order to
establish a direct investment
 Building a facility in a foreign
country

Licensing
Licensing
 A business arrangement in which a
manufacturer of a product (or a firm with a
proprietary rights over certain technology
or trademarks) grants permission to some
other group or individual to manufacture
that product in return for specified royalties
or other payments.
Types of Licensing
 Patents
 Trademarks
 Technical Know-How
CHAPTER XII
The Importance of Planning
Planning is essential to the success of any undertaking.
Critical factors that must be addressed when planning
are:
 Realistic goals – these must be specific,
measurable, and set within time parameters
 Commitment – the venture must be
supported by all involved – family, partners,
employees, team members
 Milestones – subgoals must be set for
continual and timely evaluation of progress
 Flexibility – obstacles must be anticipated,
and alternative strategies must be
formulated
What is a Business Plan?
A written document that details the proposed venture:
 Describes the current status, expected
needs, and projected results of the new
business
 Covers the project, marketing, research and
development, manufacturing, management,
critical risks, financing and milestones or a
timetable.
 Demonstrates a clear picture of what
venture is, where it is projected to go, and
how the entrepreneur proposes it will get
there- a road map for a successful
enterprise.
Pitfalls to Avoid in Planning
 Pitfall 1 : No Realistic Goals
 Pitfall 2 : Failure to Anticipate Roadblocks
 Pitfall 3 : No Commitment or Dedication
 Pitfall 4 : Lack of Demonstrated Experience
(Business or Technical)
 Pitfall 5 : No Market Niche (Segment)
What is a Business Model?
A business model articulates the logic, the data and
other evidence that support a value proposition of
revenues and costs for the enterprise that delivering
that value.
“A business model describes the rationale of how an
organization creates, delivers, and captures value.”
The Nine Building Block
1. Customer Segments (CS) – an organization
serves one or several customer segment
2. Value Proposition (VP) – it seeks to solve
customer problem and satisfy the needs with
value proposition
3. Channels (CH) – value proposition are delivered
to customers through communication,
distribution, and sales channels
4. Customer Relationships (CR) – are establish and
maintained with each customer segment
5. Revenue Streams (RS) – result from value
proposition successfully offered to customer
6. Key Resources (KR) – are the assets required to
offer and deliver the previously described
elements
7. Key Activity (KA) – by performing a number of
key activities
8. Key Partnership (KP) – some activities are
outsourced and some resources are acquired
outside the enterprise
9. Cost Structure (CS) – the business model
element result in the cost structure
Benefits of a Business Plan
For the Entrepreneur
 The time, effort, research, and discipline
required to create a formal business plan
forces the entrepreneur to view operating
strategies and expected results critically and
objectively.
For the Outside Evaluators
 The business plan provides a tool for use in
communications with outside financial
sources.
Specifically for the Financial Sources
 Details the market potential and plans for
securing a share of the market.
 Shows how the venture’s intends to service
debt or provide an adequate return of
equity
 Identifies critical risks and crucial events
with a discussion of contingency plans
 Contains the necessary information for a
thorough business and financial evaluation
Putting the Package Together
 Appearance
 Length
 The cover and title page
 The executive summary
 The table of contents
Guidelines to Remember
 Keep the plan respectably short
  Organize and package the plan
appropriately
 Orient the plan toward the future
 Avoid exaggeration
 Highlight critical risks
 Give evidence of an effective
entrepreneurial team
 Do not over-diversify
 Identify the target market
 Keep the plan written in the third person
 Capture the reader’s interest
CHAPTER V
Opportunity Identification: The Search for New Ideas
 Opportunity identification is central to the
domain of entrepreneurship and revolves
around the answers to the following
 Why?
 When?
 How?
 The study of the creative pursuit of new
ideas and the innovation process
 Sources of Innovative Ideas
 External and internal environments
alert entrepreneurs to
opportunities
 Trends signal shifts in current
paradigm of major population
 Valuable insights constitute source
of potential entrepreneurial ideas
 Entrepreneurs use their existing knowledge
base acquired through work, experience,
and education, to hone ideas into actual
opportunities.
 Entrepreneurs must be able to learn from
their experience as well
Entrepreneurial Imagination and Creativity
 Creative thinking is blended with
imagination in a logical process
 Develop an ability to see, recognize, and
create opportunity where others find only
problems
The Nature of the Creative Process
Creativity is a process that can be developed and
improved. Some individuals have a greater aptitude for
creativity than others.
Typical Creative Process:
 Phase 1 : Background or knowledge
accumulation
 Phase 2 : The incubation process
 Phase 3 : The idea experience
 Phase 4 : Evaluation and implementation
Developing Your Creativity
Recognizing Relationships
 Looking for different or unorthodox
relationships among the elements and
people around you
Developing a Functional Perspective
 Viewing things and people in terms of how
they can satisfy his or her needs and help
complete a project
Using Your Brains
 The right brain helps us understand
analogies, imagine things, and synthesize
information
 The left brain helps us analyze, verbalize,
and use rational approaches to problem
solving
Impediments to Creativity
Eliminating Muddling Mind-Sets
 Either/or thinking (concern for certainty)
 Security hunting (concern for risk)
 Stereotyping (abstracting reality)
 Probability thinking (seeking predictable
results)
The Creative Climate
Characteristics of a Creative Climate
 A trustful management that does not
overcontrol employees
 Open channels of communication among all
business members
 Considerable contact and communication
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
fine resources for accomplishing goals
Innovation and Entrepreneur
Innovation
  Is the process by which entrepreneurs
convert opportunities (ideas) into
marketable solutions
 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
 Most innovation results from a conscious,
purposeful search for new opportunities
 Uses both the right and left sides of the
brain
 Entrepreneurs look at figures and people
 Successful innovations are simple and
focused toward a clear and carefully
designed application
 During the process, they create a new
customers and markets
The Major Misconceptions of Innovation
 Innovation is planned and predictable
 Technical specifications must be thoroughly
prepared
 Innovation relies on dreams and blue-sky
ideas
 Big projects will develop better innovations
than smaller ones
 Technology is the driving force of
innovation success
Principles of Innovation
 Be action prepared
 Make the product, process, or service
simple and understandable
 Make the product, or service customer-
based
 Start small
 Aim high
 Try/test/revise
 Learn from failures
 Follow a milestone schedule
 Reward heroic activity
 Work, work, work
CHAPTER VI
Components of New-Venture Motivation
1. The need for approval
2. The need for independence
3. The need for personal development
4. Welfare considerations
5. Perception of wealth
6. Tax reduction and indirect benefits
7. Following role models
Pitfalls in Selecting New Ventures
 Lack of objective evaluation
 No real insight into the market
 Inadequate understanding of technical
requirements
 Poor financial understanding
 Lack of venture uniqueness
 Ignorance of legal issues
Phases in New-Venture Start-ups
Prestart-up Phase
 Begins with an idea for the venture and
ends when the doors are opened for
business
Start-up Phase
 Commences with the initiation of sales
activity and the delivery of the products and
services, and ends when the business is
firmly established and beyond short-term
threats to survival
Poststart-up Phase
 Lasts until the venture is terminated or the
surviving organizational entity is no longer
controlled by an entrepreneur.
Critical Factors for New-venture Development
1. Uniqueness
 Range can be considerable, extending from
fairly routine to highly nonroutine
2. Investment
 Capital investment to start a new venture
can vary from some industries less than
$100,000 to other industries requiring
millions of dollars
3. Growth of Sales
 Lifestyle ventures
 Small profitable ventures
 High-growth ventures
4. Product Availability
 Availability of salable good or service at the
time the venture opens its doors
 Sometimes there is a problem because the
product or service is still in development
and needs further modification or testing
5. Customer Availability
  A critical consideration is how long it will
take to determine who the customers are,
as well as their buying habits
Why New Ventures Fails
Product/Market Problems
 Poor timing
 Product design problems
 Inappropriate distribution strategy
 Unclear business definition
 Overreliance on one customer
Financial Difficulties
 Initial undercapitalization
 Assuming debt too early
 Venture capital relationship problems
Managerial Problems
 Concept of a team approach
 Human resource problems
New Venture Failure Prediction Model
1. Role of profitability and cash flows
2. Role of debt
3. Combination of both
4. Role of initial size
5. Role of velocity of capital
6. Role of control
The Traditional Venture Evaluation Process
Profile Analysis Approach
 Identifying and investigating the financial,
marketing, organizational, and human
resource variables prior to start-up
The Feasibility Criteria Approach
 The use of criteria selection list to gain
insights
Comprehensive Feasibility Approach
 Incorporates external factors in addition to
those included in the criteria questions
Marketability
General Economic Trends
 Various economic indicators such as new
orders, housing starts, inventories, and
consumer spending
Market Data
 Customers, customers demand patterns in
seasonal variations in demand and
governmental regulations affecting demand
Pricing Data
 Range of price for the same,
complementary and substitute products,
base prices and discount structures
The Contemporary Methodologies for Venture
Evaluation
Design Methodology
 Universities are now building programs that
take a general approach to design rather
than concentrating it in just technical
schools like architecture and engineering
 Takes an initial concept idea and develops a
proof of concept that elicits feedback from
relevant stakeholders
Design-Centered Entrepreneurship
 Entrepreneurs apply design methods in four
action stages of developing an opportunity
The Lean Start-Up Methodology
 Provides a scientific approach to creating
early venture concepts and delivers a
desired product to customer’s hand faster.
 Reduces waste by maximizing the time and
effort that goes into an incorrect hypothesis
by putting a lean-focused process on the
development of your product or service.
 Entrepreneurs must work to gather and
incorporate customer feedback early and
often
The Design Methodology
A process that shapes and converts ideas into from,
whether that is a plan of action, an experience, or a
physical thing
An initial concept taken and develop into a proof of
concept that elicits
 Proof of Concept Feasibility
 Proof of Concept Desirability
 Proof of Concept Visibility
The Design-Centered Entrepreneurship
 Taking action and learning that culminates
in a venture concept to further
development
 Applying a prototyping stage that addresses
the technical issues of the concept, and
ensure that a feasible product or service
can be made and delivered
 Incorporating microiterations (within each
action stage to improve the outcome) and
macroiterations (moving from one
particular action stage back to a previous
stage for further development)
Key Lean Star-Up Terminology
Minimum Viable Product (MVP):
 Three A’s of Metrics
 Actionable
  Accessible
 Auditable
 Pivot
 Build-Measure-Learn Feedback Loop
 Validated Learning
CHAPTER VII
The Pathways to New Ventures for Entrepreneurs
 Creating the New Venture
 Acquiring an Existing Venture
 Obtaining a Franchise
Creating New Ventures
Approaches to Creating a New Venture
 New-New Approach
 New-Old Approach
Examining the Financial Picture When Creating New
Ventures
Upside gain and downside loss expectation
 The profits the business can make and the
losses it can suffer
 How much money will the
enterprise take in if all goes well?
 How much will it gross if operations
run as expected?
 How much will it lose if operations
do not work out well?
Risk vs. reward analysis
 Points out the importance of getting an
adequate return on the amount of money
risked.
Acquisition of an Established Business Venture
Acquiring an Established Entrepreneurial Venture
 Personal Preferences
 Evaluation of the Venture
 Examination of Opportunities
 Asking Key Questions
Advantages of Acquiring an Ongoing Venture
Buying an Ongoing Venture
 Less fear about successful future operation
 Reduced time and effort
 Purchasing at a good price
Evaluation of the Selected Venture
Factors Affecting Sale of the Venture
 The business environment
 Profits, sales, and operating ratios
 Assets of the venture
Key Questions to Ask
 Why is this business being sold?
 What is the current physical condition of
the business?
 What is the condition of the inventory?
 What is the state of the company’s other
assets?
 How many employees will remain?
 What type of competition does the business
face?
 What does financial picture of the business
look like?
Negotiating the Deal
Factors Affecting Negotiations
 Information
 Time
 Pressure
 Alternatives
Consideration When Buying a Business
 Request that the seller retain a minority
interest in the business or establish the final
purchase price dependent on the
performance of the business over a three-
to-five-year span.
 Be wary of any promises made without
written corroboration.
 Spend time reconstructing financial
statements to determine how much cash is
actually available.
 Interview the owner, vendors, competitors,
customers, and employees.
Franchising: The Hybrid
Franchising
 Any arrangement in which the owner of a
trademark, trade name, or copyright has
licensed others to use it in selling goods or
services.
Franchisee
 A purchaser of a franchise
Franchisor
 The seller of the franchise.
How Franchising Works?
Franchisee Obligations
1. Make a financial investment in the operation.
2. Obtain and maintain a standardized inventory
and/or equipment package usually purchased
from the franchisor.
3. Maintain a specified quality of performance.
 4. Follow a franchise fee as well as a percentage of
the gross revenues.
5. Engage in a continuing business relationship.
Franchisor Provides:
1. The company name.
2. Identifying symbols, logos, designs and facilities.
3. Professional management training for each
independents unit’s staff.
4. Sale of merchandise necessary for the unit’s
operation, equipment to run the operation, and
the food or materials needed for the final
product.
5. Financial assistance, if needed.
6. Continuing aid and guidance to ensure that
everything is done in accordance with the
contract.
Franchising
Advantages
 Training and guidance
 Brand-name appeal
 A proven track record
 Financial assistance
Disadvantages
 Franchise fees
 Franchisor control
 Unfulfilled promises of franchisor
Franchise Law
Franchise Disclosure Document (FDD)
 Divided into 23 categories that provide
different segments of information for
prospective franchisees.
 Developed to provide guidance in
complying with the Franchise Disclosure
Rule that requires franchisors to make full
presale disclosure about their franchises.
Evaluating Franchising Opportunities
The Franchise Opportunity Decision
 Learning of Franchising Opportunities
 Investigating the Franchisor
 Seeking Professional Help
CHAPTER VIII
Sources of Capital for Entrepreneurs
The Search for Capital
 Every entrepreneur planning a venture
confronts the same dilemma: where to find
start-up capital. But every entrepreneur
may not be aware that numerous
possibilities for funding exist nor that
combination of financial packages, rather
than a single source, maybe appropriate.
Debt Versus Equity
Debt Financing
 Secured financing of a new venture that
involves a payback of the funds plus a fee
(interest for the use of the money)
Equity Financing
 Involves the sale (exchange) of some of the
ownership interest in the venture in return
for an unsecured investment in the firm
Debt Financing
Commercial Banks
 Make 1-5 year intermediate-term loans
secured by collateral (receivables,
inventories, or other assets)
 Questions in securing a loan:
1. What do you plan to do with money?
2. How much do you need?
3. When do you need it?
4. How long will you need it?
5. How will you repay the loan?
Commercial Banks
Advantages
 No relinquishment of ownership is required.
 More borrowing allows for potentially
greater return on equity
 Low interest rates reduce the opportunity
cost of borrowing
Disadvantages
 Regular (monthly) interest payments are
required
 Cash-flow problems can intensify because
of payback
 Heavy use of debt can inhibit growth and
development
Peer-to-Peer Lending (P2P)
The practice of lending money to unrelated individuals,
or “peers”, without going through a bank or traditional
financial institution.
 Are often Internet-based sites that pool
money from investors willing to lend capital
at agreed-upon rates
 Fees are applied for brokering and servicing
loans
Possible dangers
 Low funding success rate.
 Business plan disclosure
 No ongoing counseling relationship
  Potential tax liability
 Uncertain regulatory environment
Other Debt Financing Sources
Trade Credit
 Credit given by suppliers who sell goods on
account
Account Receivable Financing
 Short-term financing that involves either
the pledge of receivables as collateral for a
loan or the sale receivables at a discounted
value (factoring)
Factoring
 The sale of accounts receivable at
discounted values.
Finance Companies
 Asset-based lenders that lend money
against assets such as receivables, inventory
and equipment.
Equity Financing
 Money invested in the venture with no legal
obligation for entrepreneurs to repay the
principal amount or pay interest on it
 Requires sharing the ownership and profits
with the funding source
 Much safer option than for new ventures
than debt financing
 Owner must be willing to give up part of the
ownership in return for funding
 Funding sources: public offering and private
placement
 Gives investors a share of the ownership:
 Loan with warrants provide the
investor with the right to buy stock
at a fixed price at some future date.
 Convertible debentures are
unsecured loans that can be
converted into stock
 Preferred stock is equity that gives
investors a preferred place among
the creditors in the event the
venture is dissolved
 Common stock is the most basic
form of ownership and is often are
sold through public or private
offerings.
Public Offering
 “Going public” refers to a corporation’s raising
capital through the sale of its securities on the
stock markets.
 Initial Public Offerings (IPOs): new issues of
common stock
 Advantages
 Size of capital amount
 Liquidity
 Value
 Image
 Disadvantages
 Costs
 Disclosure
 Requirements
 Shareholder pressure
Private Placements
Regulation D
 Securities and Exchange Commission (SEC)
regulations for reports and statements required
when selling stock to private parties- friends,
employees, customers, relatives, and
professionals
 Defines four separated exemptions, which are
based on the amount of money being raised
 Rule 504 placements up to $1M
 Rule 505 placements of up to $5M
 Rule 506 placements in excess of
$5M
“Sophisticated” Investors
 Wealthy individuals who invest regularly in new
and early and late-stage ventures
 Knowledgeable about the technical and
commercial opportunities and risks of the
business in which they invest
Crowdfunding
 Seeks funding for a venture by raising monetary
contributions from a large number of people
usually by the Internet
 Three principal parts:
 The entrepreneur who proposes
the idea and/or venture to be
funded
 The individual or groups who
support the idea
 A moderating organization (the
“platform) that brings the parties
together to launch the idea
 Two distinct forms:
 Rewards crowdfunding – the
entrepreneur seeks a target amount
of funding to launch a business
concept without incurring debt or
 sacrificing equity and in return for
the donation, the entrepreneur
provides some type of gift or
incentive
 Equity crowdfunding – the
entrepreneur shares equity in the
venture, usually in its early stages,
in exchange for the money pledged.
 Potential concerns:
 Reputation
 Intellectual Property (IP) protection
 Donor dilution
 Public fear
The Venture Capital Market
Venture Capitalists
 Valuable and powerful sources of equity
funding for new ventures
 Provide:
 Capital for start-ups and expansion
 Market research and strategy
 Management consulting, audits and
evaluation
 Contacts – customers, suppliers and
businesspeople
 Assistance in negotiating technical
agreements
 Help in establishing management
and accounting
 Help in employee recruitment and
employee agreements
 Help in risk management and with
insurance programs
 Counseling and guidance in
complying with government
regulations
 Myth 2 : venture capitalists are satisfied with a
reasonable return on investment
 Myth 3 : venture capitalist are quick to invest
 Myth 4 : venture capitalists are interested in
backing new ideas or high-technology
inventions – management is a secondary
consideration
 Myth 5 : venture capitalists need only basic
summary information before they make an
investment
Criteria for Evaluating New- Venture Proposals
Critical factors that are used in the evaluation of new
ventures:
 Timing of entry
 Key success factor stability
 Educational capability
 Lead time
 Competitive rivalry
 Entry wedge imitation
 Scope
 Industry-related competence
Major categories of venture capitalist screening criteria
 Entrepreneur’s personality
 Entrepreneur’s experience
 Product or service characteristics
 Market characteristics
 Financial considerations
 Nature of the venture team

Investment Agreement Provisions

Choice of securities
 Preferred stock, common stock, convertible
debt, and so forth
Control issues
 Who maintains voting power
Evaluation issues and financial covenants
 Ability to proceed with mergers and acquisitions
Remedies for breach of contract
 Rescission of the contract or monetary damages

Dispelling Venture Capital Myths

 Myth 1 : Venture capital firms want to own
control of your company and tell you how to
run the business