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250-387 Entrepreneurship

Lecture 1 [Chap. 1 & 2] 09/04/01

IntroductionThe Entrepreneurial Perspective

In the year 2000, people who took collegiate

entrepreneurship courses were: 34% more likely to start their ownbusinesses than people who did not 798% more likely to be successful in theirbusiness than those graduates who did not takeentrepreneurship course(s)

Age of entrepreneurial economy (?), in 1998

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(Wells Fargo/NFIB) 5,744,000 start-ups, about 40% aresubsidiaries of existing businesses, this meansabout 1% of the U.S. population applied for abusiness license

1,799,000 businesses purchased 1,333,000 businesses closed for variousreasons

Highest incidence of start-ups is in thesoutheast About 50% of start-ups were in the serviceindustries About 60% profitable within the firstyear However, the number of self-employedpersons fell about 10% between 1994 and1999 while their income increased 35%

Entrepreneurial business vs. Small business

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Small Business defined - any business that isindependently owned and operated and is notdominant in its field(Small Business Act of 1953)

Committee for Economic Development1. Independent ownership

2. Owner supplied capital3. Mainly local operation4. Relatively small size in the industry

Entrepreneurship vs. Intrapreneurship

Entrepreneurship is a way of thinking,reasoning, and acting that is opportunityobsessed, holistic in approach, and leadershipbalanced (Timmons)

or

Entrepreneurship is the process of creatingsomething new, with value, by devoting the

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necessary time and effort, assuming theaccompanying financial, psychic, and socialrisks, and receiving the resulting rewards ofmonetary and personal satisfaction andindependence.

Four basic aspects of entrepreneurship1. Creating something new of value

2. Organization (devotion of time and effort)3. Assuming the risks4. Rewards (growth)

Entrepreneur- French, literally betweentaker or go-between

Entrepreneur defined - a person who takesresponsibility for a business project, organizesthe resources it requires, and assumes the risk itentails.

Venture Capitalist - a professional moneymanager who makes risk investments from apool of equity capital to obtain a high rate ofreturn on the investments.

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New Venture Creation orGreenfield Startup

Creative acts a new product or service new methods or technology new markets

new sources of raw materials and resources new forms of industrial organization

BUSINESSES SELDOM START BIG

Entrepreneurial process - no magic formula

BIG THREE1. Idea & an opportunity

90% of opportunities arise from youremployment

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8-10 years of experience typical2. Champion you, and often a team3. Resources

Build an organization You do need money, but not necessarilya lot of money, to get started

Factors effecting the entrepreneurial decision

No Go GoFinancial obligations Financial resourcesNeed for security Self-actualizationFamily obligations Family supportInexperience Relevant experience

What do entrepreneurs look like1. Calculated risk-takers2. Need for achievement3. Sense of independence4. Internal locus of control5. Tolerance for ambiguity

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6. Most love what they do7. Community leaders

Demographic of entrepreneurs in 1998 70% of businesses are started by one person 36% of businesses are started by women 70% attended college or technical school 63% were married

Median household income was $40,000$60,000 77% were employed at time of start-up/purchase

Reason given for starting a business, 1998 26% grow business 37% decent living 29% supplemental income 4% until something better come along

vs.

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Why people go into business1. Positives Want own show, independence (part illusion -

employees, suppliers, govt. & customers) Financial security/success, need incomeNeed to do it better - job satisfaction Being in control/want something to do

2. Negatives Long hour, 12+ Uncertain income & loss of capital Family comes second Quality of life suffers, no benefits

Business types from an owners perspective1. Job substitutes - a living, hard to realize a

capital gain2. Lifestyle firm - more than a living,

but basically a family business

3. Foundation company new business area,rarely goes public (Gore)

4. High potential venture - new Netscape

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Most important contribution of entrepreneursand small business - offers the opportunities forsuccess and independence to anyone andeveryone (Horatio Alger, our national heritage) >50% of new businesses are started by women increasing minority startups result of downsizing spinoffs

Strong economies need entrepreneurs &

entrepreneurs need a strong economy 52% of GNP 54% of all private jobs >50% of all new high paying jobs 65% of all initial jobs are in small business >50% of all major inventions in past 30 years

International Entrepreneurship

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Small business failure Approx. 18% of allsmall businesses fail within 8 years (Fortune,

Sept. 6, 1993) About 37 % survive more than 6 years

(SBA, 1992)OR

54% survive more than 8 years(Fortune, Sept. 6, 1993)

YOUR CHOICE, I favor Fortunes figures Think big, the larger the start-up the lower the

failure rate

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Far fewer planned small businesses fail (manyreasons for failure are eliminated before hand)

Substantial $ losses are rare, approx. 1%(Fortune, Sept. 6, 1993)

Bankruptcy less than 00.5%(Fortune, Sept. 6, 1993)

What successful entrepreneurs know/do1. Competitive threats

2. Identify the opportunities3. 'See' the customers needs (interaction)4. Shoot at a moving target5. Leadership6. Business economics7. Technologically literate

8. Ethics9. Business philosophy or students of business

Learned entrepreneurial attributes

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1. Total commitment, determination &perseverance (will to make it happen)

2. Drive to achieve & grow3. Opportunity and goal oriented (focus is on

opportunity, not resources or strategy)4. Taking initiative & responsibility5. Persistent problem solving6. Veridical awareness & sense of humor

(strengths & weaknesses, realistic, optimisticrealism)7. Seeking & using feedback8. Internal locus of control - belief in self9. Tolerance of ambiguity, stress & uncertainty10. Calculated risk taking and risk sharing

11. Low need for status and power - exertinfluence without formal power, adept atconflict resolution

12. Integrity & reliability13. Decisiveness, urgency & patience14. Dealing with failure

15. Team builder & hero maker

Not-so-learnable entrepreneurial attributes1. High energy, health and emotional stability

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2. Creativity and innovativeness3. High intelligence & conceptual ability4. Vision & capacity to inspire - leadership

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