5allen-01.ppt

Chapter 1

Understanding Entrepreneurship

Copyright © Houghton Mifflin Company. All rights reserved. 1 | 2

Learning Objectives

• Define entrepreneurship• Explain the role of entrepreneurship in

economic growth • Distinguish entrepreneurial ventures from small

businesses in terms of their purpose and goals.• Describe the evolution of entrepreneurship as a

field of study since the 1960s • Identify today’s broad trends in the field of

entrepreneurship.


Definition of Entrepreneurship

• Entrepreneurship is a mindset that is:– opportunity-focused– innovative– growth-oriented


The Promise of Entrepreneurship

• An integrated input/output model • The career assessment approach • The new venture creation process


Figure 1.1: The Entrepreneurship Process


Figure 1.2: Entrepreneurship and Technological Change


Outcomes of Entrepreneurship

• Economic growth• New industry formation• Job creation


New Industry Formation

• New industries are born when technological change produces a new opportunity that an enterprising entrepreneur seizes.

• Disruptive or metamorphic technologies that destroy previous technologies and create new industries display a different pattern of behavior.

• The pattern of growth, shakeout, stabilization, and decline of industry can be interrupted at any time by the entry of another disruptive technology.


Figure 1.3: Industry Life Cycles

Source: Adapted from M. R. Darby and L. G. Zucker, “Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up,” Economic Inquiry, January 2003, pp. 1-19 (January 2003).


Job Creation

• The most recent data from 2003 indicate that small businesses created 1,990,326 net new jobs as compared to 994,667 for large firms.*

*U.S. Bureau of the Census; Administrative Office of the U.S. Courts; Endogenous Growth and Entrepreneurial Activities.


The Nature of Entrepreneurial Start-ups

• An entrepreneurial venture brings something new to the marketplace.

• Three primary characteristics:1. Innovative2. Value-creating3. Growth-oriented


New Business Formation

• Entrepreneurs use identifiable milestones to measure their progress:– Deciding to start a business– Researching the concept– Preparing for launch– Securing the first customer– Obtaining the business license– Other activities which signal the business is

in operation


Figure 1.4: Social, Political, and Economic Context of the Entrepreneurial Process

Source: Paul D. Reynolds. (2000) National Panel of U.S. Business Start-ups: Background and Methodology. Databases for the Study of Entrepreneurship, Amsterdam: JAI/Elsevier Inc. Vol. 4, pp. 153-227.


New Business Failure

• Not all entrepreneurs succeed in growing their start-up into an established business.

• Survival has been attributed to sufficient capital, having employees, and the entrepreneur’s intention in starting the business.


Table 1.1: Starts and Closures of Employer Firms, 2001-2005

Sources: U.S. Bureau of the Census; Administrative Office of the U.S. Courts; and U.S. Department of Labor, Employment and Training Administration.


Socially Responsible Entrepreneurship

• Today more than 85 percent of the company’s employees are involved in philanthropy.

• One company uses the following mission: The mission is to “use Salesforce.com’s people, technology and relationships to improve our communities, inspire youth to be more successful, support the world during times of extreme need, and promote compassionate capitalism.”


The Entrepreneurial Revolution

• Free enterprise as foundation of entrepreneurial motivation – Marc Andressen, Netscape Communications– Howard Schultz, Starbucks


Figure 1.5: The Entrepreneurial Evolution


Entrepreneurial Trends

• Women and minority-owned businesses • Social responsibility • The Internet• Globalization


Looking Ahead

• Part One: The Opportunity– Chapter 1: Introduction to Entrepreneurship– Chapter 2: The Entrepreneur’s Perspective– Chapter 3: Opportunity Recognition– Chapter 4: The Business Concept and

Model• Part Two: Feasibility Analysis (Ch 5-8)• Part Three: The Business Plan (Ch 9-16)• Part Four: Growth and Change (Ch 17-19)

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