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Entrepreneurship Final Study Guide Historical perspectives: Richard Cantillon The historical perspectives on entrepreneurship discussed in the document cover various economic theories and definitions of entrepreneurship. It traces the evolution of entrepreneurship from the 18th century to modern...

Entrepreneurship Final Study Guide Historical perspectives: Richard Cantillon The historical perspectives on entrepreneurship discussed in the document cover various economic theories and definitions of entrepreneurship. It traces the evolution of entrepreneurship from the 18th century to modern times, highlighting the contributions of key figures such as Richard Cantillon, Jeremy Bentham, Von Thunen, Carl Menger, and Alfred Marshall. The document also explores modern definitions of entrepreneurship by scholars such as William Gartner, Bateman and Snell, Hisrich and Peters, V.R. Gaikwad, Scott Shane, Howard Stevenson, Frank H. Knight, and Peter Drucker. Additionally, it raises thought-provoking questions about the entrepreneurial nature of individuals such as Sanjit "Bunker" Roy and Patrick Naughton, providing a comprehensive overview of the historical evolution and diverse interpretations of entrepreneurship. 4 characteristics: passion for the business, focus on customer/product, tenacity despite failure, execution intelligence . These characteristics include execution intelligence, tenacity despite failure, passion for the business, and a product/customer focus. Successful entrepreneurs are noted for their ability to fashion a solid business idea into a viable business model, as well as their perseverance through setbacks and failures. Additionally, the document emphasizes that successful entrepreneurs come from diverse backgrounds and cannot be predicted based on specific personal characteristics. It also addresses the common myth that entrepreneurs should be young and energetic, highlighting the importance of experience, maturity, reputation, and a track record of success in the eyes of investors. Overall, the document provides insights into the multifaceted nature of successful entrepreneurs and the diverse qualities that contribute to their achievements. Many varieties of entrepreneurship: The document provides insights into various varieties of entrepreneurship, including home-based businesses, types of startups, founders and other entrepreneurs, unicorns, small businesses, growth, and profits. It also delves into specific examples of home-based businesses such as child care services, medical transcription, legal transcription, photography, debt collection agency, repossession services, virtual assistant, bakery, tutoring, consulting, business coaching, and senior care services. Additionally, it discusses the rise and decline of unicorns, small businesses, and the cultural diversity of entrepreneurship, encompassing senior entrepreneurs, minority entrepreneurs, women entrepreneurs, young entrepreneurs, immigrant entrepreneurs, and emigrant entrepreneurs. The document also touches on the characteristics of successful entrepreneurs, including tenacity despite failure, and artisan and opportunistic entrepreneurs. Furthermore, it explores the concept of unicorns, referring to startup companies with a value of over $1 billion, and provides examples of such companies, their valuation, date joined, country, industry, and main investors. Overall, the document offers a comprehensive overview of the diverse and multifaceted nature of entrepreneurship, encompassing a wide range of business types and entrepreneurial endeavors. Salary substitute firms Lifestyle firms Entrepreneurial firms High potneitial venture Attractive Small Firm Microbusiness Why become an entrepreneur The primary reasons people decide to become entrepreneurs, as outlined in the document, include the desire to pursue their own ideas, the aspiration to be their own boss, and the potential for financial rewards. These motivations are supported by examples of successful entrepreneurs such as Michael Dell, Mark Zuckerberg, Larry Page, and Sergey Brin, who have achieved significant success by founding and leading their own businesses. Additionally, the document highlights the concept of the "reluctant entrepreneur," who becomes an entrepreneur as a result of severe hardship or to escape an undesirable situation. These reasons collectively reflect the diverse motivations and aspirations that drive individuals to pursue entrepreneurship FInacial rewards Desire to pursue their own ideas Be there own boss TEA Index: total entrepreneurial activity index The Total Entrepreneurial Activity (TEA) Index is a measure of new entrepreneurship by country, calculated as the percentage of people who undertake entrepreneurial activities in comparison to the labor force (population aged 18-64 years). It is derived from the sum of the number of persons starting a business (starting entrepreneurs) and the number of owners of businesses that were established less than 3.5 years before the reference date (young entrepreneurs). The TEA index provides insights into the level of entrepreneurial activity within a given population and is used to assess the degree of new entrepreneurship in different countries. However, it has been criticized for its one-dimensional measure, as it mainly focuses on quantity rather than quality, and for its lack of consideration for environmental and institutional factors. Additionally, there is a negative correlation between economic development and the measure of entrepreneurship, which contradicts mainstream dominant theories. GEI index: Global entrepreneurship index The Global Entrepreneurship Index (GEI) is a comprehensive measure of entrepreneurship that encompasses various building blocks, including entrepreneurial attitudes, entrepreneurial activity, and entrepreneurial aspiration. It evaluates a population's general attitudes about entrepreneurship, the quality of startup activities, and the early-stage entrepreneurial activity within a country. The GEI provides insights into the overall entrepreneurial environment and the potential for new business creation within a given population. It is a valuable tool for assessing and comparing the level of entrepreneurship across different countries. Additionally, the GEI is used to gauge the potential for innovation, economic growth, and job creation within a specific entrepreneurial ecosystem. However, it's important to note that the GEI is a complex measure that considers multiple dimensions of entrepreneurship, and its interpretation requires a nuanced understanding of the various factors that contribute to entrepreneurial activity What is an opportunity: An opportunity, as defined in the context of entrepreneurship, refers to a favorable set of circumstances that allows for the creation or development of new goods, services, markets, processes, or materials. It involves the identification and evaluation of potential avenues for innovation and value creation. According to Scott Shane, an opportunity in entrepreneurship involves the discovery, evaluation, and exploitation of such circumstances to introduce new goods and services, ways of organizing, markets, processes, and materials through organizing efforts that previously did not exist. Howard Stevenson also defines opportunity as the pursuit of potential avenues for innovation and value creation without regard to the resources currently controlled. In essence, an opportunity in entrepreneurship represents a chance for individuals to create value, address unmet needs, and bring about positive change through their entrepreneurial endeavors. Attractive Achievable Durable Anchored in a product, service, or business that creates or adds value for its buyer or end user Windows of opportunity Windows of opportunity in the context of entrepreneurship refer to favorable circumstances or periods during which entrepreneurs can identify and exploit new business prospects. These opportunities may arise from various factors such as technological advancements, changes in consumer behavior, market gaps, regulatory shifts, or economic trends. Entrepreneurs must be vigilant in recognizing these windows of opportunity and be prepared to act swiftly to capitalize on them. The concept of windows of opportunity underscores the importance of timing and proactive decision-making in entrepreneurship, as seizing the right opportunity can significantly impact the success and growth of a business. It's crucial for entrepreneurs to stay informed about industry developments and market dynamics to identify and leverage these windows of opportunity effectively. Personal of characteristics of entrepreneur: that that tend to make some people better at recognising opportunity better than others Identifying an opportunity in the context of entrepreneurship involves recognizing favorable circumstances or gaps in the market that can be leveraged to introduce new goods, services, processes, or materials. This process often entails the discovery, evaluation, and exploitation of potential avenues for innovation and value creation. Entrepreneurs must be vigilant in identifying these opportunities, which may arise from technological advancements, changes in consumer behavior, regulatory shifts, or economic trends. It's crucial for entrepreneurs to stay informed about industry developments and market dynamics to effectively recognize and capitalize on these windows of opportunity. Additionally, the pursuit of opportunity without regard to currently controlled resources is a key aspect of entrepreneurial activity, as highlighted by Howard Stevenson's definition of entrepreneurship. Prior experience Cognitive Factors Social networks Creativity Source of innovation opportunity: These sources serve as the foundation for identifying favorable circumstances for new products, services, or business ideas. Additionally, the document emphasizes the importance of recognizing trends versus fads, as trends have a lasting impact on society and offer more long-term success for entrepreneurs. It also highlights the significance of technological advances, social forces, and political action as sources of innovation. Furthermore, the document discusses the three primary approaches to identifying opportunities: observing trends, solving a problem, and finding gaps in the marketplace. These approaches provide entrepreneurs with a framework for recognizing and capitalizing on innovative opportunities. observing trends, solving a problem, and finding gaps in the marketplace. Observing trends involves recognizing societal, economic, technological, and regulatory changes that can create opportunities for new ventures. Solving a problem entails identifying a specific issue or need and developing a solution for it. Finding gaps in the marketplace involves identifying unmet needs or underserved market segments. These approaches provide entrepreneurs with a framework for recognizing and capitalizing on innovative opportunities. The unexpected Incongruity Process need Industry/market structure Demographics Perception new knowledge Two approach to opportunity: The two approaches to view opportunities are causal and effectual logics. Causal reasoning involves conducting comprehensive market studies to identify opportunities, while effectual reasoning, as proposed by Saras Sarasvathy, suggests that opportunities are not only found but also made through entrepreneurial actions. This approach starts with the means available to the entrepreneur, such as their skills, knowledge, and network, and then imagines possibilities that originate from these means. These two approaches provide different perspectives on how entrepreneurs recognize and capitalize on opportunities. Casual Logics Effectual logics Value proposition: the collection of reasons why a person or company benefits from buying something A value proposition is a promise of the benefits that a company delivers to its customers. It answers the fundamental question of "What do I gain from buying that?" It describes the bundle of products and services that create value for a specific customer segment. In essence, the value proposition articulates the unique value that a company offers to its customers and how it differentiates itself from competitors. It is a critical component of a business model as it directly influences customer decision-making and the overall success of the business. Blue ocean strategy: avoidance of costly competition through innovation with the aim to create a market where no firms currently operate, leaving the company to expand without competition Eliminate, raise, reduce, create The Blue Ocean Strategy is a business theory introduced by W. Chan Kim and Renée Mauborgne in their book "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant." The strategy focuses on creating new market spaces, or "blue oceans," rather than competing in existing, highly competitive markets, known as "red oceans." This approach involves identifying and capitalizing on untapped market opportunities by offering innovative products or services that cater to previously unaddressed customer needs. The Blue Ocean Strategy aims to shift the focus from competition to innovation, encouraging companies to differentiate themselves by creating unique value for customers. This can involve redefining industry boundaries, exploring new customer segments, and developing innovative business models. By doing so, companies can potentially achieve sustainable growth and profitability by operating in uncontested market spaces. In summary, the Blue Ocean Strategy advocates for businesses to seek new market opportunities by creating innovative value propositions that set them apart from traditional competition, ultimately leading to the creation of uncontested market space Revenue model: subset component of a business model. The RM Types of models The revenue model refers to the strategy and approach a company uses to generate income from its operations. It outlines how a company earns money from its customer segments, and it is a crucial component of the business model. The revenue model is essential for understanding how a company monetizes its value proposition and delivers products or services to its customers. It encompasses various sources of revenue, such as sales of goods or services, usage fees, advertising, subscription fees, licensing, and other income-generating activities. Understanding the revenue model is vital for businesses as it directly impacts their financial sustainability and long-term profitability. he purpose of a business plan is to provide a comprehensive roadmap for a new venture, detailing all the relevant external and internal elements involved in starting the business. It serves as a selling document that conveys the excitement and promise of the business to potential backers or stakeholders. Additionally, a business plan helps in obtaining financing from a bank, raising funds, developing an activity, diversifying, implementing an alliance, merging, and communicating or creating dreams. It also provides a clear picture of the proposed venture, its projected trajectory, and how the entrepreneur plans to achieve success. Ultimately, the business plan acts as a guide for the entrepreneur and the firm's employees, as well as a persuasive tool for external stakeholders such as investors and lenders. Why write a business plan? Writing a business plan is crucial for several reasons. It serves as a roadmap for the company's future, outlining its objectives, strategies, and action plans. A well-crafted business plan helps in proving the seriousness of the business, establishing milestones, understanding competition, and attracting investors and employees. It also aids in reducing risks by identifying potential challenges and developing strategies to mitigate them. Ultimately, a business plan is a crucial tool for guiding the company's growth and ensuring its long-term success. Three ways to identify an opportunity: observing trends, solving a problem, finding gaps in the market place Business model Canvas: -9 sections - The document provides insights into the importance of business models, with a focus on the Business Model Canvas and various case studies. It emphasizes the significance of understanding and communicating the key elements of a business model, such as customer segments, value propositions, key activities, key partnerships, and revenue streams. The examples of Air France vs. RyanAir and Zara's fast-fashion model are used to illustrate the impact of innovative business models in disrupting established markets. Additionally, the document highlights the historical significance of business models, such as the Xerox 914 copier and the business model innovation of JCDecaux. Commmon myths belief that entrepreneurs are born, not made, the misconception that incredible companies start in a garage, the notion that entrepreneurs are primarily motivated by money, the myth that entrepreneurs are gamblers, the misconception that entrepreneurs should be young and energetic, and the fallacy that entrepreneurs love the spotlight. It also addresses the age distribution of business owners and the indications of increased interest in entrepreneurship in the United States and globally. These myths are debunked through evidence-based insights, such as the potential for anyone to become an entrepreneur, the diverse motivations driving entrepreneurship, the risk-taking behavior of entrepreneurs, and the changing demographics of business owners. Revenue versus BM The document discusses the Entrepreneur's Business Model - Revenue Model, focusing on its components, definition, and importance. It highlights the distinction between the revenue model and the business model, showcasing examples from successful companies such as Skype, Google, Amazon, and Uber. The importance of diversified revenue models for different types of businesses, including gourmet restaurants, is also emphasized. The document explores various revenue models, including product sales, services, and rights, with detailed examples and statistics from companies like IBM and Walt Disney. It delves into subscription, razor and blades, brick and mortar, premium, freemium, and other revenue models, providing in-depth insights into their applications and success factors. The revenue streams are categorized into single, multiple, interdependent, and loss leader streams, each contributing to a company's overall profitability. The document further explores additional revenue models such as leasing, data resale, and fractional ownership, providing real-world examples and success stories from companies like Xerox and Aravind Eye Hospital. Furthermore, it discusses the role of insurance and franchising as revenue models, with a spotlight on World of Warcraft's multiple revenue sources. The importance of combining multiple revenue models to diversify and increase revenue is highlighted, showcasing the success of businesses like Uber and Airbnb. Additionally, it touches on the significance of insurance in revenue generation, especially in pooling risk and redistributing it across a larger portfolio. Overall, the document provides a comprehensive overview of various revenue models, their applications, and their impact on the success of different businesses, showcasing real-world examples and statistics to support the discussion. The distinction between a business model and a revenue model lies in their focus and scope. A business model outlines how a company creates and delivers value to its customers, while also detailing its overall strategy for sustainable operations and growth. On the other hand, a revenue model specifically focuses on how the business generates income from the value it provides. In essence, the business model is about creating value, while the revenue model is about capturing that value in the form of monetary returns. This distinction is crucial as it helps entrepreneurs and businesses understand the different aspects of their operations and how they contribute to overall success. Value chain and strategic resources The value chain refers to the series of activities that a company performs in order to deliver a valuable product or service to the market. It encompasses all the processes involved in creating, producing, and delivering a product, as well as the supporting activities such as marketing, sales, and customer service. The value chain concept was introduced by Michael Porter in 1985 and is a fundamental framework for analyzing a company's competitive advantage and identifying areas for improvement. By understanding the value chain, a company can identify opportunities to create a superior value proposition by optimizing its internal processes and delivering unique benefits to customers. This can be achieved by reducing costs, enhancing product features, improving customer service, or differentiating the product in a way that sets it apart from competitors. Ultimately, a well-managed value chain can contribute to the creation of a strong and compelling value proposition that resonates with customers and gives the company a competitive edge in the market. Porter’s value chain The Porter Value Chain is a framework developed by Michael Porter that outlines the primary activities and support activities involved in creating and delivering a product or service. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service, while support activities encompass infrastructure, human resource management, technology development, and procurement. The value chain concept is essential for analyzing a company's competitive advantage and identifying areas for improvement. By understanding the value chain, a company can optimize its internal processes and create a superior value proposition by delivering unique benefits to customers. This can be achieved by reducing costs, enhancing product features, improving customer service, or differentiating the product in a way that sets it apart from competitors. Ultimately, a well-managed value chain can contribute to the creation of a strong and compelling value proposition that resonates with customers and gives the company a competitive edge in the market. The primary activities in Porter's Value Chain include inbound logistics, outbound logistics, operations, marketing and sales, and service. These activities are directly involved in the physical creation, sale, and servicing of the product. The support activities in Porter's Value Chain include procurement, technology development, human resource management, and firm infrastructure (general administration). These activities support the entire value chain and not individual activities, contributing to the overall effectiveness and efficiency of the primary activities. Executive summary An executive summary is a concise overview of the entire business plan, providing a busy reader with all the essential information about the new venture's distinctive nature. It is not an introduction, preface, or a loose summary of certain strong points, but rather the business plan in miniature. The executive summary typically includes key insights, such as why the business, why now, and why the team, and it shouldn't exceed two single-spaced pages. It is arguably the most important section of a business plan, as it serves as a critical selling document that conveys the excitement and promise of the business to potential backers or stakeholders. Additionally, it is the section that investors often look at first, and if sufficiently convincing, they may request a copy of the entire plan. It is recommended to complete the executive summary after finishing the entire business plan. Information needs Lean startups A lean startup is a methodology for developing businesses and products that aims to shorten product development cycles and rapidly discover if a proposed business model is viable. It emphasizes the importance of customer feedback, iterative design, and the use of minimum viable products (MVPs) to test assumptions and gather data. The lean startup approach advocates for creating a sustainable business with minimal resources, focusing on delivering value to customers while minimizing waste. This methodology was popularized by Eric Ries in his book "The Lean Startup" and has been widely adopted by entrepreneurs and businesses seeking to innovate and adapt in rapidly changing markets. the concept of minimum viable product (MVP) MVP stands for Minimum Viable Product. It is a concept commonly used in the development of new products or services, particularly in the startup and entrepreneurial context. An MVP is the most basic version of a product that allows a team to collect the maximum amount of validated learning about customers with the least effort. It is developed with the minimum features required to satisfy early customers and provide feedback for future product development. The MVP approach allows entrepreneurs to test their ideas and hypotheses with minimal resources, reducing the risk of investing significant time and money into a product that may not meet the needs of the market. A feasibility study A feasibility study is an assessment of the practicality and potential success of a proposed project or venture. It involves evaluating various aspects such as technical, economic, legal, and scheduling factors to determine whether the project is viable and worth pursuing. The study typically includes an analysis of the project's goals, potential obstacles, resource requirements, and potential risks. It aims to provide decision-makers with the necessary information to determine whether to proceed with the project or to identify necessary adjustments to ensure its success. Feasibility studies are commonly conducted before significant investments are made in a project to ensure that resources are allocated effectively and that the project aligns with the organization's objectives. Capital structure capital structure indirectly through discussions on debt financing, venture capital, and other funding sources. Debt financing is explained in detail, including the types of conventional bank loans and asset-based loans, as well as the expectations of commercial lenders when considering business loan applicants. Venture capital is also discussed, outlining the expected returns on investment sought by venture capitalists and the role of venture capitalists as private equity investors in companies with high growth potential. Additionally, the document touches on the concept of crowdfunding as a funding source for projects or ventures. Overall, the document provides a comprehensive overview of the different funding sources and financing options available to new ventures, indirectly addressing the concept of capital structure through its discussions on various sources of capital. What bankers expect Commercial lenders like banks rely on the "five Cs" to determine the acceptability of a business loan applicant. These include: Character: This refers to the borrower's reputation, integrity, and credit history. Capacity: The borrower's ability to repay the loan based on their income and financial stability. Collateral: The assets that the borrower pledges as security for the loan. Conditions: The purpose of the loan and the economic conditions that may affect the borrower's ability to repay. Capital: The borrower's investment in the business, which indicates their commitment to the venture. Banks also provide various types of loans, such as conventional bank loans (cash flow financing), long-term loans, character loans, installment loans, and straight commercial loans. Additionally, asset-based loans are available for startups that don't qualify for conventional bank loans, with lenders looking at a business' balance sheet and assets, including accounts receivable, inventory, equipment, and real estate. In summary, bankers expect borrowers to demonstrate good character, the capacity to repay the loan, collateral to secure the loan, favorable economic conditions, and a significant capital investment in the business. Seed stage financing Seed stage financing refers to the initial stage of funding for a new venture. At this stage, the business is typically in its infancy, with the entrepreneur having an idea and possibly a business plan. Seed financing is used to develop the concept further, create a prototype or demo of the product or service (Minimum Viable Product), and conduct market research. The funding may also be utilized for investigating potential patents and attracting key personnel to join the venture. This stage is crucial for laying the groundwork for the business and proving the concept's viability. Seed financing is often sourced from personal funds, family and friends, and sometimes through bootstrapping, where the entrepreneur uses their own resources to fund the venture. As the business progresses through the growth stages, the funding needs and sources evolve accordingly. Why most ventures need funding Most ventures require funding to support their growth and development. This is essential for various reasons, including the need to finance research and development, create prototypes or demos of products or services, conduct market research, and secure patents. Additionally, funding is crucial for hiring key management personnel, transitioning from initial administrative and operational stages to full-scale operations, and investing in marketing and product development. Furthermore, financing is necessary to accommodate rapid growth, expand production facilities, and compete effectively in the market. Overall, the need for funding arises from the various stages of growth and the evolving requirements of new ventures as they strive to establish themselves and achieve sustainable growth Types of intellectual property protection The major forms of intellectual property include patents, trademarks, copyrights, trade secrets, and domain names. Patents provide exclusive rights to inventors for their inventions, trademarks protect brand names and logos, copyrights safeguard original works of authorship, trade secrets protect confidential business information, and domain names serve as unique identifiers for websites. These forms of intellectual property play a crucial role in protecting the innovations and creations of entrepreneurs and businesses. Company for opportunity How long do protection property last The duration of protection for different forms of intellectual property varies. Patents typically provide exclusive rights for up to 20 years from the filing date. Trademarks can be renewed indefinitely as long as they are being used and their registration is maintained. Copyright protection generally lasts for the life of the author plus an additional 70 years. Trade secrets have no set duration and can potentially last indefinitely as long as the information remains confidential and meets the criteria for trade secret protection. It's important to note that the specific duration of protection may vary by jurisdiction and type of intellectual property. When do you use certain property patents are used to protect inventions, trademarks are used to protect brand names and logos, copyrights are used to protect original works of authorship, and trade secrets are used to protect confidential business information. Each form of intellectual property serves a distinct purpose in safeguarding different types of creations and innovations. What is a approriability and complementary asset Appropriability refers to the ability of a firm to capture the economic benefits from its innovation. It is a crucial aspect of patents, as they provide a legal monopoly that allows the patent holder to exclusively exploit their invention for a certain period. Complementary assets, on the other hand, are resources or capabilities that enhance the value of a firm's core innovation. These assets can include manufacturing capabilities, distribution networks, or marketing expertise that complement and enhance the value of the patented innovation. In the context of intellectual property, understanding appropriability and complementary assets is essential for entrepreneurs to effectively leverage their innovations and gain a competitive advantage in the market. Trade secrets versus patents Trade secrets and patents serve as distinct forms of intellectual property protection. Trade secrets involve keeping confidential information, such as formulas, processes, or customer lists, within a company and not disclosing it to the public. This protection is possible without the need for registration, but it requires maintaining the secrecy of the information. On the other hand, patents provide exclusive rights to inventors for their inventions, granting them the ability to prevent others from making, using, or selling the patented product without authorization for a limited time, typically up to 20 years. Additionally, patents require the disclosure of the invention to the public in exchange for protection. The decision to use trade secrets or patents depends on the nature of the innovation, the desire for long-term protection, and the willingness to disclose the invention to the public in exchange for exclusive rights. The Teece model The Teece Model, developed by David Teece in 1986, explains why entrepreneurs often fail to capture the value of their innovations and why followers often do. It identifies two important factors for profit: complementary assets and appropriability regime. Complementary assets are upstream or downstream assets used to develop, produce, or distribute an innovative product or service. The appropriability regime refers to the environment's ease of protecting an asset, which affects the likelihood of preventing imitation. Lead time, the latency between the initiation and execution of a process, is also crucial for maintaining a competitive advantage. The model provides strategies for profiting from innovation and includes case studies such as Red Bull and Softsoap to illustrate its principles.