The Entrepreneurial

PerspectiveChapter #1

Introduction

• In the year 2000, people who took collegiate entrepreneurship courses were:

• 34% more likely to start their own businesses than people who did not

• 798% more likely to be successful in their business than those graduates who did not take entrepreneurship course(s)

Age of entrepreneurial economy (?), in 1998 (Wells Fargo/NFIB)

• 5,744,000 start-ups, about 40% are subsidiaries of existing businesses, this means about 1% of the U.S. population applied for a business license– 1,799,000 businesses purchased – 1,333,000 businesses closed for various reasons– Highest incidence of start-ups is in the southeast– About 50% of start-ups were in the service industries

• About 60% profitable within the first year• However, the number of self-employed persons fell

about 10% between 1994 and 1999 while their income increased 35%

What does Entrepreneur mean?

• Entrepreneur - French, literally “between

taker” or “go-between”• Entrepreneur defined - a person who takes

responsibility for a business project, organizes the resources it requires, and assumes the risk it entails.

Entrepreneurial business vs. Small business

• Small Business defined - any business that is independently owned and operated and is not dominant in its field (Small Business Act of 1953)

• Committee for Economic Development– Independent ownership– Owner supplied capital–Mainly local operation– Relatively small size in the industry

Entrepreneurship vs. Intrapreneurship

• Intrapreneurship – is the act of behaving like an entrepreneur except within larger organization.

• Entrepreneurship – is the process of creating something new, with value, by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.

Four basic aspects of entrepreneurship

1. Creating something new of value

2. Organization (devotion of time and effort)

3. Assuming the risks

4. Rewards (growth)

Venture Capitalist

• Venture Capitalist - a professional money manager who makes risk investments from a pool of equity capital to obtain a high rate of return on the investments.

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

BIG THREE

1. Idea & an opportunity– 90% of opportunities arise from your employment– 8-10 years of experience typical

2. Champion – you, and often a team

3. Resources– Build an organization– You do need money, but not necessarily a lot of

money, to get started

Factors effecting the entrepreneurial decision

No Go Go

Financial obligations Financial resources

Need for security Self-actualization

Family obligations Family support

Inexperience Relevant experience

What do entrepreneurs “look” like

1. Calculated risk-takers

2. Need for achievement

3. Sense of independence

4. Internal focus of control

5. Tolerance for ambiguity

6. Most love what they do

7. 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

Why “people” go into business

• Positives– Want own show,

independence (part illusion - employees, suppliers, govt. & customers)

– Financial security/success, need income

– Need to do it better - job satisfaction

– Being in control/want something to do

• Negatives– Long hour, 12+– Uncertain income & loss

of capital– Family comes second– Quality of life suffers,

no benefits

Business types from an owner’s perspective

1. Job substitutes - a living, hard to realize a capital gain

2. 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

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

The Entrepreneurial Mind-Set

Chapter #2

How entrepreneurs think

Entrepreneurs think differently than nonentrepreneurs. Given the nature of an entrepreneur's decision-making environment, she or he must sometimes..– Effectuate – Be cognitively adaptable– Learn from failure

Effectuation

• Causation- causal process

A process that starts with a desired outcome and focuses on the means to generate that outcome

• Effectuation process

A process that starts with what one has (who they are, what they know, and whom they know) and selects among possible outcomes

Philip Kotler-marketing management

1. Analyze long-run opportunities in the market

2. Research and select target market

3. Identify segmentation variables and segment the market

4. Develop profiles of resulting segment

5. Evaluate the attractiveness of each segment

6. Select the target segment

7. Identify possible positioning concepts for each target segment

8. Select, develop, and communicate the chosen positioning concept

9. Design marketing strategies

10. Plan marketing programs

11. Organize, implement, and control marketing effort

Sarasvathy clearly describes the implications of effectuation for the entrepreneur in terms of five basic principles

1. The patchwork quilt principle

2. The affordable loss principle

3. Bird-in-hand principle

4. Lemonade principle

5. Pilot-in-the-plane principle

Entrepreneurial mind-set

• Involves the ability to rapidly sense, act, and mobilize, even under uncertain condition

• In developing an entrepreneurial mind-set, individuals must attempt to make sense of opportunities in the context of a changing environment, and revising ‘’deceptively simple questions’’ about what we think to be true about markets and firms.

Cognitive adaptability

• Describes the extent to which entrepreneurs are dynamic, flexible, self-regulating, and engaged in the process of generating multiple decision frameworks focused on sensing and processing changes in their environments and then acting on them.

Achieve success by asking ourselves a series of questions

• Comprehension questions - questions designed to increase entrepreneurs’ understanding of the nature of the environment

• Connection tasks- tasks designed to stimulate entrepreneurs to think about the current situation in terms of similarities and differences with situations previously faced and solved.

• Strategic tasks- tasks designed to stimulate entrepreneurs to think about which strategies are appropriate for solving the problem or pursuing the opportunity.

• Reflection tasks – tasks designed to stimulate entrepreneurs to think about their understanding and feelings as they progress through the entrepreneurial process

Small business failure

• Approx. 18% of all small businesses fail within 8 years (Fortune, Sept. 6, 1993)

• About 37 % survive more than 6 years• 54% survive more than 8 years• Think big, the larger the start-up the lower the failure

rate• Far fewer planned small businesses fail (many reasons

for failure are eliminated before hand)• Substantial $ losses are rare, approx. 1%• Bankruptcy less than 00.5%

Learning from business failure

• Business failure occurs when a fall in revenue and/or a rise in expense is of such magnitude that firm becomes insolvent and is unable to attract new debt or equity funding; consequently, it cannot continue to operate under the current ownership and management.

• Failure is particularly common among entrepreneurial firms because the newness that is the source of opportunity is also a source of uncertainty and changing conditions.

Grief

• A negative emotional response a person feels from the loss of something important.

• Grief Recovery Process

An individual has recovered from grief when thoughts about the events surrounding, and leading up to, the loss of the business no longer generate a negative emotional response

• Loss-orientation – An approach to grief recovery that involves

working through, and processing, some aspect of the loss experience and, as a result of this process, breaking emotional bonds to the object lost.

• Restoration-orientation – An approach to grief recovery based on both

avoidance and proactiveness toward secondary sources of stress arising from a major loss.

A dual Process for Grief

• Involves oscillation between the two grief recovery approaches (loss-orientation and restoration-orientation)

Managerial versus entrepreneurial decision making

Entrepreneurial management is distinct from traditional management in terms of eight dimensions;

1. Strategic orientation

2. Commitment to opportunity

3. Commitment of resources

4. Control of resources

5. Management structure

6. Reward philosophy

7. Growth orientation

8. Entrepreneurial culture

What successful entrepreneurs know/do

1. Competitive threats

2. Identify the opportunities

3. 'See' the customer’s needs (interaction)

4. Shoot at a moving target

5. Leadership

6. Business economics

7. Technologically literate

8. Ethics

9. Business philosophy or students of business

Entrepreneurial attributes

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

2. Drive to achieve & grow

3. Opportunity and goal oriented (focus is on opportunity, not resources or strategy)

4. Taking initiative & responsibility

5. Persistent problem solving

6. Veridical awareness & sense of humor (strengths & weaknesses, realistic, optimistic realism)

7. Seeking & using feedback

Entrepreneurial attributes (cont)

8. Internal locus of control - belief in self

9. Tolerance of ambiguity, stress & uncertainty

10. Calculated risk taking and risk sharing

11. Low need for status and power – exert influence without formal power, adept at conflict resolution

12. Integrity & reliability

13. Decisiveness, urgency & patience

14. Dealing with failure

15. Team builder & hero maker

Questions

• What is the main point of the entrepreneurship?