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5-1McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning ObjectivesL01: Describe why people become entrepreneurs.L02: Summarize how to assess opportunities to start new

companies.L03: Identify common causes of success and failure.L04: Discuss common management challenges.L05: Explain how to increase your chances of success,

including good business planning.L06: Describe how managers of large companies can

foster intrapreneurship and entrepreneurial orientation.

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What is an Entrepreneur?Entrepreneur

an individual who establishes a new organization without the benefit of corporate sponsorship.

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Small Business vs. Entrepreneurial VentureSmall business

fewer than 100 employees, independently owned and operated, not dominant in its field, and not characterized by many innovative practices.

Entrepreneurial venturenew business having growth and high profitability

as primary objectives

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New Venture CreationEntrepreneurs

Individuals who establish a new organization without the benefit of corporate support.

IntrapreneursNew-venture creators working inside big

companies; corporate entrepreneurs.

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Why become an entrepreneur?ChallengeProfit potentialEnormous satisfactionBetter quality of lifeDesire for independenceSatisfaction of building something from nothingWatching the market embrace your ideas

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What does it take to succeed?Innovation and creativity skillsGeneral management skillsBusiness know-howSocial networks

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Ingredients for starting a businessA great ideaSpot, create and exploit opportunities

Technological discoveriesDemographic changesLifestyle and taste changesEconomic dislocationsCalamitiesGovernment initiatives and rule changes

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FranchisesAn entrepreneurial alliance between a

franchisor and a franchisee. Franchisor – an innovator who has created at least

one successful store and seeks partners to operate the same concept in other local markets.

Franchisee – the operator of one or more stores according to the terms of the alliance.

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Characteristics of an Entrepreneur Commitment and determination Leadership Opportunity obsession Tolerance of risk, ambiguity, and uncertainty Creativity, self-reliance, and ability to adapt Motivation to excel

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Improving the odds of success Anticipate risk and cushion business

help it weather setback. Foresight and talent

to survive in an hostile environment. Business incubators

protected environments for new, small businesses.

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Common Management Challenges

You might not enjoy it Survival is difficult Growth creates new challenges It’s hard to delegate Misuse of funds Poor controls Mortality Going public

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Initial Public Offering

Sale to the public, for the first time, offederally registered and underwritten shares

of stock in the company.

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Planning for SuccessBusiness Plan helps determine viability of your enterprise, guides

you as you plan and organize, and helps you obtain funding.

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Opportunity AnalysisA description of good or serviceAssessment of opportunityAssessment of entrepreneurSpecification of activities and resources needed to

translate your idea into a viable businessSource of capital

What market need does my idea fill?What personal observations have I experienced or recorded

with regard to that market need?What social condition underlies this market need?

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Key Planning Elements The People The Opportunity The Competition The Context Risk and Reward

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Nonfinancial ResourcesLegitimacy

people’s judgment of company’s acceptance, appropriateness, and desirability, generally stemming from company goals and methods that are consistent with societal values.

Social capitalcompetitive advantage from relationships with

other people and the image other people have of you.

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Nonfinancial ResourcesTop-management teamAdvisory boardsPartners

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Build support for intrapreneurship ideasGet others in organization to buy in or sign on.Clearing investment with immediate boss.Make cheerleaders – people who will support

manager before formal approval from higher levels.

Horse trading – offer promises of payoffs from project in return for support, time, money, and other resources that peers and others contribute.

Get blessing of relevant higher-level officials.

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Building in IntrapreneurshipSkunkworks

project team designated to produce a new, innovative product.

Bootlegginginformal work on projects, other than those

officially assigned, of employees’ own choosing and initiative.

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Entrepreneurial OrientationThe tendency of an organization to identify and

capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods or services.

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Five Components of Entrepreneurial Orientation Independent action Innovativeness Risk taking Proactiveness Competitive agressiveness

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The remaining slides are for review only.

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YOU should be able toL01: Describe why people become entrepreneurs and

what it takes, personally.L02: Summarize how to assess opportunities to start new

companies.L03: Identify common causes of success and failure.

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YOU should be able toL04: Discuss common management challenges.L05: Explain how to increase your chances of success,

including good business planning.L06: Describe how managers of large companies can

foster intrapreneurship and entrepreneurial orientation.

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Coulee Region Bio-Fuels Runs on Veggie Power Read the story on page 104Taavi McMahon had an idea for a business. Do

you think it is a good idea? Why or why not? How is that idea reflected in his vision for CRBF?

Do you think CRBF, PrarieFire, and INOV8 have a better chance of success with producing, distributing, and marketing their products than three giant corporations that are trying to do the same thing? What are the advantages and disadvantages of a small operation?

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Test Your Knowledge

Which of the following characteristic(s) does NOT contribute to entrepreneurs’ success? A) commitment and determination. B) tolerance of risk, ambiguity, and uncertainty. C) motivation to excel. D) opportunity obsession.E) need for affiliation.

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Test Your Knowledge

Entrepreneurial ventures must be prepared to face all but one of the following hazards. Which one? A) mortality of the entrepreneur B) misuse of funds C) poor planning and controls D) inability to delegate E) decreased mortality.

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Test Your Knowledge

A description of the product or service, an assessment of the opportunity, an assessment of the entrepreneur, specification of activities and resources needed to translate the idea into a viable business, and the source(s) of capital is a(n): A) opportunity analysis. B) business incubator. C) business audit. D) accounting analysis. E) business plan.

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Test Your Knowledge

Justine decides to offer incentives from a potential project to her subordinates. She is: A) making cheerleaders. B) horse trading. C) clearing the investment. D) getting the blessing. E) bootlegging.

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Test Your Knowledge

The tendency of an organization to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods or services is a(n): A) entrepreneurial orientation. B) opportunity cost. C) multinational corporation. D) global business. E) skunkworks.

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Which one are you?

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Side Street EffectsWhen entrepreneurs start their enterprises and then

let the market decide whether it likes their ideas.

Unexpected opportunities may appear, so you must be prepared to act quickly and effectively on any opportunity that presents itself.

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Entrepreneurial Strategy Matrix

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Can organizations outlive the entrepreneur?

Yes, if… Company has gone public Entrepreneur has planned an orderly

succession, usually to a family member

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Myths about EntrepreneurshipMyth #1: Anyone can start a business.Myth #2: Entrepreneurs are gamblers.Myth #3: Entrepreneurs want the whole show to themselves.Myth #4: Entrepreneurs are their own bosses and completely

independent.Myth #5: Entrepreneurs work longer and harder than

managers in big companies.Myth #6: Entrepreneurs experience a great deal of stress and

pay a high price.Myth #7: Entrepreneurs are motivated solely by the quest for

the almighty dollar.

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Myths about EntrepreneurshipMyth #8: Entrepreneurs seek power and control over others.Myth #9: If an entrepreneur is talented, success will happen in

a year or two.Myth #10: Any entrepreneur with a good idea can raise

venture capital.Myth #11: If an entrepreneur has enough start-up capital, he

or she can’t miss.Myth #12: Entrepreneurs are lone wolves and cannot work

with others.Myth #13: Unless you attained 600 on your SATS or GMATs,

you’ll never be a successful entrepreneur.

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E-commerce Business Models Transaction fee model

companies charge a fee for goods or services. Advertising support model

advertisers pay site operator to gain access to demographic group that visits the operator’s site.

Intermediary model web site brings buyers and sellers together and

charges a commission for each sale.

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More E-commerce Business Models Affiliate model

sites pay commissions to other sites to drive business to their own sites.

Subscription model website charges a monthly or annual fee for site

visits or access to site content.

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Pointers for Family Businesses Family members working in business must be

at least as capable and hard-working as other employees.

At least one key position should be filled by nonfamily member.

Someone outside family and business should help plan succession.