ENTREPRENEURSHIP I

Babs Bailey Carryer

Fall 2002

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Goals of course

• To distinguish between an idea and a business opportunity– Inventor vs. entrepreneur

• To understand the value of and know how to conduct market research to help identify a market opportunity– Marketplace advantage(s)

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Entrepreneurship

• Why do we care?– Creation of jobs

»5% of young and fast growing companies create 77% of new jobs

»15% of them account for 94% of all these new jobs

»Fortune 500 employed 1 in 5 in 1980; now 1 in 14

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Entrepreneurship continued

• 70% of companies that are hiring ≤ 4 years old

• 70-80% of jobs are with companies ≤ 20 people

• > 95% of the wealth in America has been created by entrepreneurs since 1980

• Millionaires are self-made : > 80% accumulated their wealth in 1 generation

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PA entrepreneurship

• PA: > 200K businesses– 98% = small (< 500)

• + Almost 400K self employed• Women owned businesses

increasing at 65%– 78% nationwide

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Large companies

Small businesses

1920 2000

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New venture creation

0

200

400

600

800

1,000

1,200

1950s 1970s 1990s

Growth of New Ventures Per Year (in 000s)

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Small businesses• Only 3% of US businesses > $10 million• Responsible for half of all innovation in

the U.S.• Small businesses create 75%of all net

new jobs• Very small (< 20) = 50% of this growth• Represent over 99% employers; 52% of

workers

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Small businesses continued

• Provide 52% of private sector output

• Represent 96% of all exporters of goods

• Receive 28% of all federal contract $

• 53% are home based • 3% are franchises

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Business dissolution rates

Time Period All Firms Firms creating 1-4 jobs

After 2 years 44% 8%

After 4 years 50% 20%

After 6 years 60% 24%

After 8 years 71% 47%

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Survival rates

Firmsclosingin each

year

92 93 94 95 Firmssurviving

until96

All firms 7.3 6.7 5.8 4.7 75.5

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Entrepreneurship

• What is it?

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Entrepreneurship =

• Way of thinking• Spotting opportunity• Taking initiative• Implementation driven• Resource utilization• Acceptance of risk/failure

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Entrepreneur

One who brings resources, labor, material and other assets into combinations that make their value greater than before.

An entrepreneur is also one who introduces changes, innovations and a

new order.

Thinkers who do.

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Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks in terms of equity, time and /or career commitment providing value for a product or service. The product or service may or may not be new or unique but value must somehow be infused by the entrepreneur.

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Examples

• Nolan Bushnell - in 1972 founded Atari (electronic games) on $500. In 1976 he sold it to Warner Communications for $28 m

• Ross Perot started EDS with $1K• Michael Dell started selling computer

parts by mail order while a Freshman at the University of Texas

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The right time to start a business

Time

Market Size

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Characteristics• Focus• Drive • Energy• Self confidence• Don’t start by wanting to get rich but

to do something extremely well• Not seeking the trappings of success,

but success itself

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Characteristics continued

• Most have history of entrepreneurship• Sports • Expulsion or fired• 2/3 are 1st children• 40% were raised by self-employed

parents (vs. 18% of general population)

• Entrepreneurial test

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Entrepreneurs do

• Seldom invent and market unique products but build ventures around incremental innovations and modifications

• Enter industries in their growth phase, not infancy

• Find fulfillment in their work• Start more than one company

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Entrepreneurial know-how• Resource utilization - entrepreneurs

know how to do more with less• Selling ability• Recognize business opportunities:

– Markets in flux– Industries with low capital requirements– Customers will pay for customization– Unit sale can support direct sales effort

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Risk tolerance

• Entrepreneurs pick a relatively low level of risk and then come up with suggestions as to how to increase returns at the given level of risk

• Bankers pick a return that they aspire to and then come up with ideas to reduce the risk involved at that level

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Innovation• Entrepreneurs don’t have common

personalities but a commitment to innovation

• Entrepreneurship refers not to an enterprise’s size or age, but to a certain kind of activity

• Innovation is the effort to create purposeful, focused change in an enterprise’s economic or social potential

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How innovation occurs

• 1. Unexpected occurrences– IBM– Ford and Edsel

• 2. Incongruities– Alcon– Steel– Shipping

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Innovation continued

• 3. Process needs– Media - Linotype and modern advertising

• 4. Industry and market changes– Galt

• 5. Demographic changes– Woolworths vs Walmart

• 6. Changes in perception– Obsession with health in spite of

improvements

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7. New knowledge• Computer

– Binary arithmetic– Calculating machine in early 19th C– Punch card for the U.S. census of 1890– Audion tube, invented in 1906– Symbolic logic, created between 1910 -

1913– Programming/feedback concepts from

WWI efforts to develop anti-aircraft guns– The knowledge was available by 1918,

but the 1st computer appeared in 1946

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Effective innovations start small. They are not grandiose. They try to do one specific thing. It may be the elementary idea of putting the same number of matches in a matchbox. This simple notion gave the Swedes a world monopoly on matches for half a century.

Peter Drucker

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We succeeded (in the Normandy Invasion) because we didn’t know it was impossible.

Winston Churchill