Introduction to EntrepreneurshipIntroduction to EntrepreneurshipLecture 1

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1© Aleksei Efimov 13.12.2012

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• The entrepreneur is a factor in microeconomics, and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early 18th centuries, but was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics in the last 40 years.

History 2

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• What is Entrepreneurship?1. The act of being an entrepreneur or "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods“ (Shane, Scott, 2003)

h i f i i h d 2. The pursuit of opportunity without regard to resources currently controlled.(Stevenson, 1983)

3.It’s neither a science nor a an art. It is a practice. (Peter Drucker 1985)(Peter Drucker, 1985)

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• What is Entrepreneurship?

A i d d t ti it f d t ' 4. An independent activity, performed at one's own risk, aimed at systematically deriving a

fit f th f th t th l f profit from the use of the property, the sale of commodities, the performance of work or the

d i f i b th i t d rendering of services by the persons, registered in this capacity in conformity with the law-

t bli h d d established procedure (The Civil Code Of The Russian

Federation).

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Attitude towards entrepreneurship in Russia, 2011, % 5

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Assessments of conditions for opening a business, 2011, % 6

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Dynamics of entrepreneurial intensions in Russia, % 7

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Dynamics of entrepreneurial activity in Russia, % 8

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• What is Entrepreneurship?

What’s the difference between doing Business and Entrepreneurship?Entrepreneurship?

What’s the difference bet een Businessman and What’s the difference between Businessman and Entrepreneur?

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Y b i ill l hi i i l h • Your business will only achieve its true potential when you begin to "think business."

• By adopting the right entrepreneurial mindset, you can improve your chances for success and avoid suffering a improve your chances for success and avoid suffering a similar fate as that of most of new small firms.

What is Entrepreneurial Mindset? 10

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1. Check Your Ego at the Door• Have you ever heard yourself say, "This is my business;

I'll d h t I t ith it!”I'll do whatever I want with it!”• You may be brilliant, but you need to realize that you do

not know everything; in fact no one does Hence you not know everything; in fact, no one does. Hence, you may need collaboration and inputs from other people, which you can only maximize if you set your ego aside.y y y y g

• In entrepreneurial mode, you also have to stop thinking in black or white. You need to learn how to explore every

b l d bloption in between, including every imaginable exception.

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2. Create Curiosity• Curiosity is the driving force behind business thinking.

C i it id th ti ti t k t Curiosity provides you the motivation to seek out new options, opens your minds and creates an atmosphere of asking "what if" questions that get to the heart of the asking what if questions that get to the heart of the matter.

• What you currently know sometimes gets in the way of y y g ywhat you need to know, but don't know.

• For your creativity to produce outstanding results, you d f l h bl dneed to first learn as much as possible outside your own

knowledge and expertise. Be a sponge for information and use it to refresh your experience and knowledge and use it to refresh your experience and knowledge rather than allowing yourself to feel as if new information puts you at risk.

The Entrepreneurial Mindset: some rules

p y

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3. Move Off the Solution

D ' l f h l i i lf d fi d Don't prematurely focus on the solution itself and find "quick fixes" to your problems.

A solution is worthless unless and until it creates value, prevents a problem or invents a new result the business prevents a problem or invents a new result the business needs.

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4. Get Evidence

T l if h bl d k h f ll i • To clarify the problem, you need to ask the following questions: What proves you have a problem? What? How? When? Where? Who? Then start searching How? When? Where? Who? Then start searching, digging and looking for evidence.

• Some of the best businesspeople ask the obvious questions, the answers to, which are almost never obvious. In fact, it's the obvious questions or the politically sensitive questions that many are afraid to ask Collect soft evidence and then turn it into hard ask. Collect soft evidence and then turn it into hard evidence that the business can measure.

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5. Calculate the Impact

Y d bid b i i h i • You need to abide by is to weigh every investment against its return. What is the impact, financially or strategically of this decision on your business?strategically, of this decision on your business?

• You must never let cash out the door that doesn't strictly ultimately bring more cash back. Any expense - whether y g y ptechnology, training, equipment, advertising - should be eliminated if it will not contribute either to increasing

drevenue or decreasing costs. • You also need to identify benchmarks to help you

determine and measure your successdetermine and measure your success.

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6. Explore the Ripple Effect

M h l l i h fi i l i f b i More than calculating the financial impact of a business decision, you must always ask yourself, "Who else will be affected by my decision?" affected by my decision?

You may want to know how the current problem or the You may want to know how the current problem or the opportunity under consideration could affect your life, your family, or your employees.

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7. Slow Down For Yellow Lights

If h bl i i bi k h h If the problem or opportunity is so big, ask what has stopped you in the past from doing something about it, and what could stop you in the future and what could stop you in the future.

Watch out for possible obstacles. If you get a yellow light Watch out for possible obstacles. If you get a yellow light early, take your best shot at resolving it. Even if you fail and get to a red light, you'll have saved time and money at the very least.

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8. Find the Cause

Si l ki h ill i h l di f h Simply asking why will give you the tools to dig for the underlying reason for the problems, and to make sure you're treating the source rather than the effects you re treating the source, rather than the effects.

Having proof you need a solution (the effects), and knowing what solution you need are two different things. g y g

You need to understand the underlying truths. Ask yourself the questions: Why is this happening? Are these symptoms or causes?

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• Is this 8 rules about entrepreneurial mindset? behavior?

• Or just business thinking?

• What is inside a head of an entrepreneur?• Is this a way of your behavior or a part of your Is this a way of your behavior or a part of your

personality?

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1. They are comfortable “living in a fog.”

Living in 40/70 zone –making decisions with at least 40% but usually no g 4 y

more than 70% of the data normally required for action.

62% of entrepreneurs in the USA claim “innate 62% of entrepreneurs in the USA claim innate drive” as the number one motivator in starting their business.their business.

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2. They assemble a team of people to work with them.

If an entrepreneur’s vision cannot convince at pleast one other person to join him or her, then perhaps the vision is not so fantastic.p p

All ideas must be chiseled away at in order to All ideas must be chiseled away at in order to make them viable.

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3. They show persistence and determination.

Persistence should not, however, be confused with stubbornness.

Stubbornness is a failing.

Entrepreneurs are always listening for and using the data they receive to tweak their ideas until the data they receive to tweak their ideas until an idea morphs into something fundable, something that gains traction.something that gains traction.

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4. They have conviction.

True entrepreneurs are good at paying attention to trends and adjusting their thought processes j g g paccordingly.

An entrepreneur is a bit like a sculptor at work; they start with a slab of marble which, over they start with a slab of marble which, over time, with skill, passion and hard work is shaped into a beautiful thing.shaped into a beautiful thing.

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5. They have passion.

Entrepreneurs have a passion for an idea and are not put off by the prospect of hard work. p y p p

Without true passion, an entrepreneur would give Without true passion, an entrepreneur would give up at the first obstacle. Passion motivates the entrepreneur.entrepreneur.

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Internal Factors:• Desire to do something new.• Educational background.• Occupational background or experience.p g pExternal Factors:• Government assistance and supportGovernment assistance and support.• Availability of labour and raw material.• Encouragement from big business houses• Encouragement from big business houses.• Promising demand for the product.

Factors motivating people to be Entrepreneurs 25

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Factors Intrinsic to Entrepreneurs• Enterprising attitude.• Training /education in such type of production.• Previous experience in the same or related line.pFactors Extrinsic to Entrepreneur• Shortage of demand for productShortage of demand for product.• Govt. and institutional assistance.• Advice of business friends• Advice of business friends.• Profit earned by friends in same concern.

C t t ith th• Contact with others.• Unsound unit available at cheap price.

Intrinsic and Extrinsic factors 26

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• Devotion of organisational skills to areas other than business e.g. politicsC t d t diti f th l lit ith t i ti • Customs and traditions of the locality either restricting business or prohibiting it.

• Poor response to monetary incentives• Poor response to monetary incentives.• Low status given to businessmen in the society.• Lack of adequate infrastructure facilities.Lack of adequate infrastructure facilities.• High cost of production.• High risk involved in new enterprises.g p• Imperfect conditions prevailing in the market which

discourage prospective entrepreneurs to organise new business ventures.

• Frequent changes in govt. policies and laws being d i i t d it bit il

Barriers inhibiting entrepreneurship

administered quite arbitrarily.

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• It is a process through which a new venture is created by an entrepreneur.

• The entrepreneurial process consist of 4 Phases:p p 4

I. Identification and evaluation of opportunity.I. Identification and evaluation of opportunity.II. Develop business plan.III Resources requiredIII. Resources required.IV. Manage the enterprise.

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1.Identify and evaluate the opportunity

• Assessment of opportunity.• Creation and length of opportunity.g pp y• Real and perceived value of opportunity.• Risk and returns of opportunityRisk and returns of opportunity.• Opportunity vs. personal skills and goals.• Competitive environment• Competitive environment.

Entrepreneurial process 29

2 Develop business plan

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2.Develop business plan• Title page• Table of content• Table of content.• Executive summary.• Major sections: Major sections: ▫ description of business, industry▫ technology plan gy p▫ marketing plan ▫ financial plan ▫ production plan ▫ organizational plan ▫ operational plan ▫ summary.E hibi

Entrepreneurial process• Exhibits.

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3.Resources required

• Determine resources needed.• Determine existing resources.g• Identify resources gap and available suppliers.• Develop access to needed resourcesDevelop access to needed resources.

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4.Manage the enterprises

• Develop management style.• Understand key variables for success.y• Identify problems and potential problems.• Implement control systemImplement control system.• Develop growth strategy.

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• Primary motive : Independence , opportunity to create and money.Ti i t ti S i l d hi i 10 • Time orientation : Survival and achieving 5-10 years growth of business.

• Activity :Direct involvement of the entrepreneur• Activity :Direct involvement of the entrepreneur.• Risk : they are moderate risk takers.• Status : They are not concerned about status symbols.Status : They are not concerned about status symbols.• Failure :They deals with mistakes and failures.• Decisions: Follow dreams with decisions.• Who serves: Self and customers.• Family history : Entrepreneurial small business ,

professional or farm background.• Relationship with others : Transactions and deal

ki b i l i hi

Entrepreneurial Culturemaking as basic relationship.

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• Why should an entrepreneur change something around us?

• And want is Innovation?

• Innovation is a specific tool of entrepreneurs, Innovation is a specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a opportunity for a different business or a different service. (Peter Drucker, 1985)

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• Everyone who can face up to decision making can learn to bean entrepreneur and to behave entrepreneurially.

• Entrepreneurship is behavior rather than personality trait.p y

Look around the room. Look around the room. What do you see?What will see an entrepreneur as an innovator?What will see an entrepreneur as an innovator?

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• What is the main difference between two businesses? Between two entrepreneurs?

• And what is very hard to copy?

• Finance?• Idea?Idea?• People?• Place?• Place?• Product?

Price?• Price?• Something else?

Improvisation, Intuition and Inspiration 36

Improvisation

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Improvisation• is a performer’s greatest creative act• something that is improvised in particular a piece• something that is improvised, in particular a piece

of music, drama, etc. created spontaneously orwithout preparationwithout preparation

IntuitionIntuition• the ability to understand something instinctively,

without the need for conscious reasoningwithout the need for conscious reasoning

InspirationInspiration• the process of being mentally stimulated to do or

feel something especially to do something creativefeel something, especially to do something creative

Improvisation, Intuition and Inspiration 37

Wh d I t t t t b i ? OR Wh I i

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1. Why do I want to start a business? OR Why am I in business?

2 Specifically what kind of business do I want to start (or am 2. Specifically, what kind of business do I want to start (or am I in)?

3. Why do I believe I can make this type of business work? 3. Why do I believe I can make this type of business work? 4. Why do I believe this type of business is sustainable? 5. What education, skill or experience do I have in this 5 , p

industry? 6. What is my true purpose and/or the goal I hope to

l h h h baccomplish with this business?7. What is the financial goal I am seeking to achieve?8 If I ill d fi i d I h th d dit 8. If I will need financing, do I have the resources and credit

worthiness necessary to be eligible? [High credit score plus assets collateral and good financial history ]

Are You Ready To Be In Business?

assets, collateral and good financial history.]

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Wh t t th ?

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9. What are my strengths? 10. What are my weaknesses? 11 What is my physical mental and emotional health and 11. What is my physical, mental and emotional health and

stamina? 12 What knowledge and skills do I have to start and control12. What knowledge and skills do I have to start and control

the day-to-day operations of a business? 13. Do I know and understand the technology necessary to be 3 gy y

competitive in this business?14. Do I have good judgment in people and ideas? 15. What sacrifices and Risks am I willing to take to be

successful? 6 Wh t ill it t k f t b l l lif d 16. What will it take for me to balance personal life and business demands?

Are You Ready To Be In Business? 39