New Venture Creation and Control Mechanism

Professor Alexander Settles asettles@hse.ru

Introduction to the Course

New Venture Creation
Entrepreneurship / Research on Entrepreneurship Innovation Business Planning Finance

Organization Theory and Entrepreneurship and Innovation

Course Design
Requirements
Attendance, Participation and Readings Personality Assessment Innovation Journal Assessment of New Venture or Entrepreneurial Policy/Action (in Groups) Exam

Entrepreneurship

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

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 individuals 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 and no one profile can represent todays 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 allocating the necessary skills and resources.

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 risksin terms of time, equity, or career. The ability to formulate an effective 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.

An Integrative Model of Entrepreneurial Inputs and Outcomes

Source: Michael H. Morris, P. Lewis, and Donald L. Sexton, Reconceptualizing Entrepreneurship: An Input-Output Perspective, SAM Advanced Management Journal 59, no.1 (Winter 1994): 2131.

Entrepreneurs in the United States

Reasons for the exceptional entrepreneurial activity in the U.S. 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 high percentage of individuals with professional, technological or business degrees who are likely to become entrepreneurs.

Entrepreneurial Firms Impact

Entrepreneurial components of the U.S. Economy:
1. Large firms have increased profitability by returning to their core competencies through restructuring 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 Impact

Entrepreneurial firms make two indispensable contributions to an 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 society.

Aspects of Entrepreneurship
Venture Financing Corporate Entrepreneurship Social Entrepreneurship

Entrepreneurial Cognition

Trends in Entrepreneurship Research

Women and Minority Entrepreneurs

Global Entrepreneurial Movement

Entrepreneurial Education Family Businesses

Common Characteristics of Entrepreneurs

Commitment, determination, and perseverance Drive to achieve Opportunity orientation Initiative and responsibility Persistent problem solving Seeking feedback Internal locus of control Calculated risk taking

Tolerance for failure

High energy level Creativity and Innovativeness Vision Self-confidence and optimism Independence Team building

Tolerance for ambiguity

Outline of the Entrepreneurial Organization

Imagination

Flexibility

Acceptance of Risks

Entrepreneurship Theory
Entrepreneurs cause entrepreneurship.
Entrepreneurship is a function of the entrepreneur:

E f (e)

Entrepreneurship is 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.

Typology of Entrepreneurial Styles

Source: Thomas Monroy and Robert Folger, A Typology of Entrepreneurial Styles: Beyond Economic Rationality, Journal of Private Enterprise IX(2) (1993): 71.

The Dark Side of Entrepreneurship

The Entrepreneurs Confrontation with Risk
Financial risk versus profit (return) motive varies in entrepreneurs desire for wealth. Career riskloss of employment security Family and social riskcompeting commitments of work and family Psychic riskpsychological impact of failure on the well-being of entrepreneurs

A Model of Entrepreneurial Motivation

Source: Douglas W. Naffziger, Jeffrey S. Hornsby, and Donald F. Kuratko, A Proposed Research Model of Entrepreneurial Motivation, Entrepreneurship Theory and Practice 2 20 (spring 1994): 33.

Opportunity Identification: The Search for New Ideas

Opportunity identification is central to entrepreneurship and involves:
The creative pursuit of ideas The innovation process

The first step for any entrepreneur is the identification of a good idea.
The search for good ideas is never easy. Opportunity recognition can lead to both personal and societal wealth.

Entrepreneurial Imagination and Creativity

How entrepreneurs do what they do:
Creative thinking + systematic analysis = success
Seek out unique opportunities to fill needs and wants Turn problems into opportunities

Recognize that problems are to solutions what demand is to supply

The Role of Creative Thinking

Creativity
The generation of ideas that result in the improved efficiency or effectiveness of a system.

Two important aspects of creativity exist:

Process
The process is goal oriented; it is designed to attain a solution to a problem.

People
The resources that determine the solution.

The Critical Thinking Process

The Creative Climate

Characteristics of a creative climate:
A trustful management that does not overcontrol the personnel
Open channels of communication among all business members Considerable contact and communication with 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 time resources for accomplishing goals

Country Level Competitiveness

The Global Competitiveness Index 20092010 rankings and 20082009 comparisons 2009 World Economic Forum GCI 20092010 GCI 20082009 Country/Economy Rank Score Rank* Switzerland 1 5.60 2 United States 2 5.59 1 Singapore 3 5.55 5 Sweden 4 5.51 4 Denmark 5 5.46 3 Finland 6 5.43 6 Germany 7 5.37 7 Japan 8 5.37 9 Canada 9 5.33 10 Netherlands 10 5.32 8 China 29 4.74 30 India 49 4.30 50 Brazil 56 4.23 64 Russian Federation 63 4.15 51

Economy Singapore New Zealand Hong Kong, China

Ease of Doing Business Rank 1 2 3

United States
United Kingdom Denmark

4
5 6

Ireland
Canada Australia Norway Georgia China Bangladesh Russian Federation Costa Rica Brazil

7
8 9 10 11 89 119 120 121 129

India

133

Innovation Rankings INSEAD 2009

1. United States 2. Germany 3. Sweden 4. United Kingdom 5. Singapore 6. South Korea 7. Switzerland 8. Denmark 9. Japan 10. Netherlands

Russias Innovation Capacity

64. Vietnam 65. Trinidad and Tobago 66.Mauritius 67. Panama 68. Russia 69. Romania 70. Nigeria
29. Estonia 42. Lithuania 57. Azerbaijan 59. Uzbekistan 60. Latvia 72. Kazakhstan 79. Ukraine 98. Georgia 104. Armenia 112. Tajikistan 116. Moldova 122. Kyrgyzstan

Russia Components
Legacy of innovation - 49 Culture to innovate - 46 Quality of the educational system - 41 Quality of management schools 66 Intellectual property protection 93 Technological awareness - 91 Firm level technology absorption - 90

United States
Human Capacity 1 Culture to innovate - 2 Quality of the educational system 3 Quality of management schools - 10

Innovation and the Entrepreneur

Innovation:
Is the process by which entrepreneurs convert opportunities into marketable ideas.
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

Types of Innovation
Invention Extension Duplication Synthesis Sources of Innovation
Unexpected occurrences
Incongruities

Process needs
Industry and market changes Demographic changes Perceptual changes Knowledge-based concepts

Type
Invention

Description

Examples

Totally new product, service, Wright brothersairplane or process Thomas Edisonlight bulb Alexander Graham Belltelephone

Extension

New use or different application of an already existing product, service, or process

Ray KrocMcDonalds Mark ZuckerbergFacebook Barry SternlichtStarwood Hotels & Resorts

Wal-Martdepartment stores Gatewaypersonal computers Pizza Hutpizza parlor Fred SmithFed Ex Howard SchultzStarbucks

Duplication Creative replication of an existing concept Synthesis Combination of existing concepts and factors into a new formulation or use

Major Innovation Myths

Myth 1: Innovation is planned and predictable Myth 2: Technical specifications should be thoroughly prepared Myth 3: Creativity relies on dreams and bluesky ideas Myth 4: Big projects will develop better innovations than smaller ones Myth 5: Technology is the driving force of innovation success