chapter 1:the foundations of entrepreneurship -...

Chapter 1: Entrepreneurship 1Copyright 2002 Prentice Hall Publishing Company

The Foundations of Entrepreneurship

The Foundations of Entrepreneurship


The World of the EntrepreneurThe World of the Entrepreneur

■ A new business is born every 11 seconds in A new business is born every 11 seconds in the United Statesthe United States

■ Study of influential Americans – Study of influential Americans – the the defining issue of the 21defining issue of the 21stst Century: Century: Entrepreneurship!Entrepreneurship!

■ One of 12 Americans is actively involved in One of 12 Americans is actively involved in trying to start a new business. trying to start a new business.

Entrepreneurial Activity Across the GlobeEntrepreneurial Activity Across the Globe

1.4%

1.6%

1.8%

2.0%

2.2%

3.3%

3.4%

5.4%

6.8%

8.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Percent

Finland

J apan

France

Denmark

Germany

Great Britain

Italy

Israel

Canada

United States

Co

un

try

Percentage of Adult Population Working to Start a New Business


What is an Entrepreneur?What is an Entrepreneur?

One who creates a new business in the face One who creates a new business in the face of risk and uncertainty for the purpose of of risk and uncertainty for the purpose of achieving profit and growth by achieving profit and growth by identifying opportunities and assembling identifying opportunities and assembling the necessary resources to capitalize on the necessary resources to capitalize on them. them.


Characteristics of EntrepreneursCharacteristics of Entrepreneurs

■ Desire for responsibilityDesire for responsibility■ Preference for moderate riskPreference for moderate risk■ Confidence in their ability to succeedConfidence in their ability to succeed■ Desire for immediate feedbackDesire for immediate feedback■ High level of energyHigh level of energy■ Future orientationFuture orientation■ Skilled at organizingSkilled at organizing■ Value achievement over moneyValue achievement over money


The “Type E” PersonalityThe “Type E” Personality

Common Traits of Entrepreneurs:Common Traits of Entrepreneurs:

❐ Aggressively pursues goals; pushes self and othersAggressively pursues goals; pushes self and others

❐ Seeks autonomy, independence and freedom from boundariesSeeks autonomy, independence and freedom from boundaries

❐ Sends consistent messages; very focusedSends consistent messages; very focused

❐ Acts quickly, often without deliberatingActs quickly, often without deliberating

❐ Keeps distance and maintains objectivityKeeps distance and maintains objectivity

❐ Pursues simple, practical solutionsPursues simple, practical solutions

❐ Willing to take risks; comfortable with uncertaintyWilling to take risks; comfortable with uncertainty

❐ Exhibits clear opinions and values; has high expectationsExhibits clear opinions and values; has high expectations

❐ Impatient; “just do it” mentalityImpatient; “just do it” mentality

❐ Positive, upbeat, optimistic; communicates confidencePositive, upbeat, optimistic; communicates confidence


Common Themes in Definitions Common Themes in Definitions of Entrepreneurshipof Entrepreneurship

DefiningEntrepreneurship

TheEntrepreneur

Innovation

Organization Creation

CreatingValue

Profit orNonprofit

Growth

Uniqueness

Process


The Development of The Development of Entrepreneurship TheoryEntrepreneurship Theory

18th Century

Richard Cantillon: Coins term

entrepreneur

(“go-between” or “between taker”)

Entrepreneur bears risks and plans,

supervises, organizes, and owns factors of

production



19th Century

Jean Baptiste Say:

Proposed that profits from entrepreneurship

were separate from profits of capital

ownership

Distinction made between those who supplied funds and earned interest and

those who profited from managerial abilities



20th Century

Joseph Schumpeter:

Described the entrepreneur as

someone who is an innovator and someone

who “creatively destructs”

Peter Drucker:

Described the entrepreneur as someone who

maximizes opportunity


Myths About Myths About EntrepreneurshipEntrepreneurship

1. Successful entrepreneurship takes only a great idea.1. Successful entrepreneurship takes only a great idea.

2. Entrepreneurship is easy.2. Entrepreneurship is easy.

3. Entrepreneurship is a risky gamble.3. Entrepreneurship is a risky gamble.

4. Entrepreneurship is found only in small businesses.4. Entrepreneurship is found only in small businesses.

5. 5. Entrepreneurial ventures and small businesses are identical.Entrepreneurial ventures and small businesses are identical.


The Entrepreneurial The Entrepreneurial ProcessProcess

Exploring the Entrepreneurial

Context

IdentifyingOpportunities/PossibleCompetitive Advantage

Starting the Venture:Starting the Venture:

❐ Researching FeasibilityResearching Feasibility

❐ Planning the VenturePlanning the Venture

❐ Organizing the VentureOrganizing the Venture

❐ Launching the VentureLaunching the Venture

Managing the Venture:Managing the Venture:

❐ Managing ProcessesManaging Processes

❐ Managing PeopleManaging People

❐ Managing GrowthManaging Growth

❐ Special IssuesSpecial Issues


Rewards of Being an Rewards of Being an EntrepreneurEntrepreneur

❏ High degree of independence— freedom from constraints

❏ Get to use a variety of skills and talents

❏ Freedom to make decisions

❏ Accountable to only yourself

❏ Opportunity to tackle challenges

❏ Feeling of achievement and pride

❏ Potential for greater financial rewards


Feeding the Feeding the Entrepreneurial FireEntrepreneurial Fire

■ Entrepreneurs as heroesEntrepreneurs as heroes■ Entrepreneurial educationEntrepreneurial education■ Demographic and economic factorsDemographic and economic factors■ Shift to a service economyShift to a service economy■ Technological advancementsTechnological advancements■ Independent lifestylesIndependent lifestyles■ E-Commerce and the World Wide WebE-Commerce and the World Wide Web■ International opportunitiesInternational opportunities


Challenges of Challenges of Being an EntrepreneurBeing an Entrepreneur

❏ Must be comfortable with change and uncertainty

❏ Must make a bewildering number of decisions

❏ May face tough economic choices

❏ Must be comfortable with taking risks

❏ Need many different skills and talents

❏ Must be comfortable with the potential for failure


The Cultural Diversity of The Cultural Diversity of EntrepreneurshipEntrepreneurship

■ Young entrepreneursYoung entrepreneurs■ WomenWomen■ Minority-owned enterprisesMinority-owned enterprises■ Immigrant entrepreneursImmigrant entrepreneurs■ Part-time entrepreneursPart-time entrepreneurs■ Home-based businessesHome-based businesses■ Family businessesFamily businesses■ CopreneursCopreneurs■ Corporate castoffsCorporate castoffs■ Corporate dropoutsCorporate dropouts


Nine Deadly Mistakes of Nine Deadly Mistakes of EntrepreneurshipEntrepreneurship

1.1. Management incompetenceManagement incompetence

2.2. Lack of experienceLack of experience

3.3. Poor financial controlPoor financial control

4.4. Failure to develop a strategic planFailure to develop a strategic plan

5.5. Uncontrolled growthUncontrolled growth


Nine Deadly Mistakes of Nine Deadly Mistakes of EntrepreneurshipEntrepreneurship

(continued)(continued)

6.6. Poor locationPoor location

7.7. Improper inventory controlImproper inventory control

8.8. Incorrect pricingIncorrect pricing

9.9. Inability to make the “entrepreneurial Inability to make the “entrepreneurial transition”transition”


Differences Between Small Businesses Differences Between Small Businesses and Entrepreneurial Venturesand Entrepreneurial Ventures

❏ Independently owned, operated, and financed

❏ Less than 100 employees

❏ Doesn’t emphasize new or innovative practices

❏ Little impact on industry

❏ Innovative practices

❏ Goals are profitability and growth

❏ Seeks out new opportunities

❏ Willingness to take risks


Benefits of Small Business Benefits of Small Business OwnershipOwnership

The opportunity to:The opportunity to:■ create your own destinycreate your own destiny■ make a differencemake a difference■ reach your full potentialreach your full potential■ reap unlimited profitsreap unlimited profits■ contribute to society and be recognized for your contribute to society and be recognized for your

effortsefforts■ do what you enjoy and have fun at it do what you enjoy and have fun at it


Drawbacks of Small Business Drawbacks of Small Business OwnershipOwnership

■ Uncertainty of incomeUncertainty of income■ Risk of losing your entire investmentRisk of losing your entire investment■ Long hours and hard workLong hours and hard work■ Lower quality of life until the business gets Lower quality of life until the business gets

establishedestablished■ High levels of stressHigh levels of stress■ Complete responsibilityComplete responsibility■ DiscouragementDiscouragement


Small BusinessesSmall Businesses

■ Make up 99% of all businesses in the Make up 99% of all businesses in the United States.United States.

■ Employ 53% of the nation's private Employ 53% of the nation's private sector workforce.sector workforce.

■ Create more jobs than big businesses.Create more jobs than big businesses.■ Are leaders in offering training and Are leaders in offering training and

advancement opportunities to advancement opportunities to workers.workers.


■ Produce 51% of the nation's private Produce 51% of the nation's private GDP.GDP.

■ Account for 47% of business sales.Account for 47% of business sales.■ Create 4X more innovations per R & D Create 4X more innovations per R & D

dollar spent than medium-size firms dollar spent than medium-size firms and 24X as many as large companies.and 24X as many as large companies.

Small BusinessesSmall Businesses(continued)(continued)

Small Business by Industry

Services39.2%

Retail20.5%

Wholesale7.4%

Manufacturing5.8%

Construction11.8%

Financial8.0%

Other7.3%


The Small Business The Small Business Failure RecordFailure Record

■ 24% of new businesses fail after two 24% of new businesses fail after two years.years.

■ 51% fail within four years.51% fail within four years.■ 63% fail within six years.63% fail within six years.

0%

20%

40%

60%

80%

100%

% o

f S

mal

l Fir

ms

Su

rviv

ing

New 2 4 6 8 10

# of Years in Business

Small Business Survival Rate


Avoiding the Pitfalls of Avoiding the Pitfalls of Small Business FailureSmall Business Failure

■ Know your business in depthKnow your business in depth■ Develop a solid business planDevelop a solid business plan■ Manage financial resourcesManage financial resources■ Understand financial statementsUnderstand financial statements■ Learn to manage people effectivelyLearn to manage people effectively■ Keep in tune with yourselfKeep in tune with yourself


10 Tips of Utah’s Fastest Growing 10 Tips of Utah’s Fastest Growing CompaniesCompanies

1.1. Stop paying lip service to customer Stop paying lip service to customer serviceservice

2.2. Be willing to share the pie with your Be willing to share the pie with your employeesemployees

3.3. Make your own luckMake your own luck

4.4. Be prepared to make sacrificesBe prepared to make sacrifices

5.5. Spread yourself out, not thinSpread yourself out, not thin


10 Tips of Utah’s Fastest Growing 10 Tips of Utah’s Fastest Growing Companies (continued)Companies (continued)

6.6. Break down the wallsBreak down the walls

7.7. Stay one step aheadStay one step ahead

8.8. Invest in yourselfInvest in yourself

9.9. Be differentBe different

10.10. Look where you’re goingLook where you’re going


Motto for EntrepreneursMotto for Entrepreneurs

■ Conceive itConceive it■ Believe itBelieve it■ Achieve it!Achieve it!

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