Effective Entrepreneurial Management PDF

Springer Texts in Business and Economics Robert D. Hisrich Veland Ramadani Effective Entrepreneurial Management Strategy, Planning, Risk Management, and Organization Springer Texts in Business and Economics More information about this series at http://www.springer.com/series/10099 Robert D. Hisrich Veland Ramadani Effective Entrepreneurial Management Strategy, Planning, Risk Management, and Organization Robert D. Hisrich Veland Ramadani College of Business Administration Faculty of Business and Economics Kent State University South-East European University Kent, Ohio Tetovo, Macedonia USA ISSN 2192-4333 ISSN 2192-4341 (electronic) Springer Texts in Business and Economics ISBN 978-3-319-50465-0 ISBN 978-3-319-50467-4 (eBook) DOI 10.1007/978-3-319-50467-4 Library of Congress Control Number: 2016962717 # Springer International Publishing AG 2017 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland To my spouse Tina, children Kary, Katy, and Kelly, my sons-in-law Rich and Kevin, and grandchildren Andrew, Rachel, and Sarah. Robert D. Hisrich To my spouse Lindita and my sons Rron and Rrezon Veland Ramadani Preface Starting and managing a new business involves considerable risk and effort to overcome the problems in creating and growing a new venture. These problems are so great that in the USA, about 80–85% of all new ventures are bought or folded into another company or fail (file for bankruptcy) within the first 5 years of their existence. For entrepreneurs to flourish and for new organizations to be created, four elements are required: an infrastructure that is supportive, an idea with unique value propositions, capital to get started and grow, and an entrepreneur to work toward making the venture a reality. For an enterprise to thrive in the long run, the entrepreneur needs to overcome several challenges and be prepared at every stage as in the start. This book introduces and discusses these elements to help you as an entrepreneur or small business manager avoid any negative outcomes and success- fully manage and grow a business. The interest of consumers, businesspeople, and government officials from every part of the world in entrepreneurship is evident from the increasing research on the subject, the large number of courses and seminars on the topic, the more than two million new enterprises started each year (despite a 70% failure rate), the significant coverage and focus by the media, and the realization that this is an important aspect of the economics of the developed, developing, and even controlled economies. To provide an understanding of the entrepreneurial manager and the process of creating and growing a new venture, this book—Effective Entrepreneurial Man- agement—is divided into 11 chapters. Chapter 1—Foundation of entrepreneurial management—introduces the entrepreneurial management and the entrepreneurial process from both the histori- cal and research perspectives. The private, public, corporate, and social entrepreneurs are compared to provide an understanding of different mind-sets required for different sectors entrepreneurship. This chapter also discusses on managerial versus entrepreneurial decision-making process and examines the steps in the entrepreneurial process for an effective entrepreneurial management. Chapter 2—Entrepreneurial business planning—presents an overview of the importance of a business plan as well as its scope and value. This chapter discusses the information needs for developing a good business plan, the use and implemen- tation of the business plan, and the reason for failure. The chapter continues with a vii viii Preface detailed explanation of each element of business plan and provides directions to aspiring entrepreneurs about the outline and content. Chapter 3—Creativity, innovation and entrepreneurial manager—examines the ways organizations can prosper through creativity and innovation. Creativity and innovation are discussed by providing an understanding of the aspects of creativity and its contribution to innovation. The creative process is discussed along with some creative problem-solving techniques. This chapter concludes with a discus- sion on the link between creativity and innovation and a discussion of various aspects and forms of innovation. Chapter 4—Entrepreneurial risk management—focuses on risks and risk man- agement. As the risk is defined, the chapter continues with discussion of types of risk. Characteristics of risk management are then discussed along with five major risk management phases—context definition, risk identification, risk analysis, risk treatment, and risk monitoring and reviewing. The chapter ends with risk evaluation strategies—risk avoidance, risk reduction, risk anticipation, risk transfer, and risk acceptance. Chapter 5—Entrepreneurial marketing mix—discusses about entrepreneurial marketing activities as essential for every new or established business. This chapter focuses on the marketing tools, such as product, price, place (distribution), and promotion. Then, the differences and similarities of traditional and entrepreneurial marketing elements and contents are discussed. The chapter concludes with a discussion of basic forms of entrepreneurial marketing such as guerrilla, ambush, buzz, and viral marketing. Chapter 6—Organizing an entrepreneurial venture—focuses on the legal form of the organization and the organizational structure of the new venture. The chapter begins with a discussion of the reasons for selecting one legal form over alternative forms. Then, the chapter focuses on the legal forms of business available in the USA. The chapter concludes with a discussion of Board of Advisors or a Board of Directors. Chapter 7—Raising capital for the entrepreneurial path—deals with capitaliza- tion of the business introducing the various methods of raising funds for the money like seed fund, crowdfunding, trade credit, business angels, venture capital, banks loans, share offerings, and government. Each of these sources of capitals is exam- ined to provide entrepreneurs the advantages and disadvantages of each. The venture capital process is discussed in detail and the idea about locating venture capitalist is also presented. The chapter concludes by discussing the choice of sources as per the type of enterprise and the goals of the entrepreneur. Chapter 8—Entrepreneurial business growth—focuses on the most important aspect of growing the entrepreneurial businesses by first looking at identifying the main factors that influence the growth followed by the discussion of the main perspectives of growth. Characteristics of fast-growing companies and manage- ment actions enabling growth are then discussed along with four major growth strategies—market penetration, market development, product development, and diversification. The chapter concludes with a presentation of some exit options from a company. Preface ix Chapter 9—E-commerce challenges and entrepreneurial manager—is about e-commerce. The chapter begins with the explanation of the nature of e-commerce, where some definitions of e-commerce, differences between e-commerce and traditional commerce, and differences between pure and partially e-commerce are represented. In other sections, the basic types of e-commerce, benefits from e-commerce, and barriers of e-commerce implementation are discussed. Chapter 10—Business ethics, social responsibility and entrepreneurial man- ager—focuses on ethical values, standards, and beliefs and their implementation in business. This chapter discusses the situations with an ethical dilemma and how to deal with them. In addition, the factors that affect an ethical behavior and the features of moral, amoral, and immoral managers are explained. The chapter ends with the discussion of the essence of social responsibility, the pyramid of social responsibility, and benefits from action as a socially responsible business. Chapter 11—Entrepreneurial family business and succession management— presents a review of some important issues related to family businesses, such as family business categories, members of family businesses, succession process, family business cultures, conflicts in family businesses, etc. To make Effective Entrepreneurial Management, as meaningful as possible to students, each chapter begins with chapter learning objectives and a profile of an entrepreneur whose career is especially relevant to the chapter material. Numerous business examples occur throughout each chapter. Each chapter concludes with short case studies, class discussion questions, and selected websites for further readings. Many people—students, business executives, entrepreneurs, professors, and publishing staff—have made this book possible. Our utmost appreciation goes to our assistants and students, Laxman Panthi, Donika Zendeli, Faton Ahmeti, Artiana Ajdini, Diin Grainca, Nermine Shabani, and Mejreme Sinani for providing research material and editorial assistance and without whom this book would have never been prepared in a timely manner. We are deeply indebted to our spouses, Tina and Lindita, whose support and understanding helped bring this effort to fruition. It is to future entrepreneurs—our children Kary, Katy, Kelly, Rron, and Rrezon and grandchildren Rachel, Andrew, Sarah, and Jack—and the new generation they represent—that this book is particu- larly dedicated. May you always beg for forgiveness rather than ask permission. Kent, OH Robert D. Hisrich Tetova, Macedonia Veland Ramadani Endorsements A brilliant and inspiring masterpiece—long-awaited contribution to the literature Léo-Paul Dana Professor, Montpellier Business School, France Marie Curie Fellow, Princeton University, USA Editor of Int. J. Entrepreneurship and Small Business Hisrich and Ramadani have put together the guide that students need to understand entrepreneurship. They recognize that starting and growing a venture includes both strategy and action. The authors lay out the steps that can lead to success. Many books are on the market telling students that they need to be creative and innovative in getting a new business up and running. In Effective Entrepreneurial Management, Hisrich and Ramadani explain what those terms mean and how to carry them out. This book takes readers through the start-up process as well as what happens next. Business formation is risky and many new ventures fail. Does that really have to happen? Despite what people think, a lot has been learned about what makes a business successful. You don’t have to make every mistake other entrepreneurs have made. This book helps you to avoid the mistakes others have made and introduces you to the steps that are more likely to help you achieve your goals. Hisrich and Ramadani have some advice for you. You don’t have to make the mistakes that have led to failure. Read this book and learn the actions that can help you overcome obstacles and build a successful venture. Frank Hoy Professor, Director of the Collaborative for Entrepreneurship and Innovation at Worcester Polytechnic Institute, USA This book is a long-awaited addition to the entrepreneurship field as it provides a succinct understanding about effective entrepreneurial management. The book covers business planning and the challenges that managers face: how creativity and risk management is conducted? It then explores finance and growth to xi xii Endorsements e-commerce and ethics implications. The last chapter about family business and succession management highlights how important entrepreneurial thinking is for managers in their businesses. I highly recommend this book for entrepreneurs and managers who want a good understanding about the issues they face in their firms. Vanessa Ratten Assoc. Professor, Management and Marketing Department, La Trobe University, Australia Contents 1 Foundation of Entrepreneurial Management................. 1 1.1 Introduction...................................... 2 1.2 Overview of Entrepreneurship......................... 3 1.2.1 Entrepreneur and Entrepreneurship............... 3 1.3 Corporate Entrepreneurship........................... 5 1.4 Public Sector Entrepreneurship........................ 5 1.4.1 Differences Between Public and Private Sector Entrepreneurship............................ 6 1.5 Social Entrepreneurship............................. 9 1.6 Entrepreneur Versus Manager......................... 11 1.7 Entrepreneurial Process.............................. 12 1.8 Effective Entrepreneurial Management.................. 12 1.9 Summary........................................ 13 References............................................ 15 2 Entrepreneurial Business Planning......................... 17 2.1 Introduction...................................... 18 2.2 Writing the Business Plan............................ 19 2.3 Purpose of the Plan................................. 19 2.4 Benefits of a Business Plan........................... 21 2.5 Elements of a Business Plan.......................... 21 2.5.1 Section 1.................................. 21 2.5.2 Section 2.................................. 25 2.5.3 Section 3.................................. 30 2.6 Summary........................................ 30 References............................................ 32 3 Creativity, Innovation and Entrepreneurial Manager........... 33 3.1 Introduction...................................... 34 3.2 Creativity........................................ 35 3.3 Creative Process................................... 37 3.4 Trends.......................................... 38 3.5 Methods of Generating Ideas.......................... 40 3.5.1 Focus Groups.............................. 40 xiii xiv Contents 3.5.2 Brainstorming.............................. 40 3.5.3 Brainwriting............................... 41 3.5.4 Problem Inventory Analysis.................... 41 3.5.5 Reverse Brainstorming........................ 42 3.5.6 Gordon Method............................. 42 3.5.7 Checklist Method............................ 42 3.5.8 Free Association............................ 43 3.5.9 Forced Relationships......................... 43 3.5.10 Collective Notebook Method................... 44 3.5.11 Attribute Listing............................ 44 3.5.12 Big-Dream Approach......................... 44 3.5.13 Parameter Analysis.......................... 45 3.6 Innovation....................................... 45 3.6.1 Types of Innovation.......................... 45 3.7 Design Thinking................................... 47 3.7.1 Aspects of Design Thinking.................... 47 3.7.2 Organizational Barriers....................... 48 3.7.3 Overall Culture............................. 49 3.8 Summary........................................ 50 References............................................ 53 4 Entrepreneurial Risk Management......................... 55 4.1 Introduction...................................... 58 4.2 Defining Risk..................................... 58 4.3 Types of Risks.................................... 59 4.4 Risk Management.................................. 61 4.4.1 Context Definition........................... 63 4.4.2 Risk Identification........................... 64 4.4.3 Risk Analysis and Evaluation................... 65 4.4.4 Risk Treatment Options....................... 67 4.4.5 Monitoring and Reviewing..................... 68 References............................................ 73 5 Entrepreneurial Marketing Mix........................... 75 5.1 Introduction...................................... 77 5.2 Nature of Marketing................................ 77 5.3 Marketing’s Tools/Instruments........................ 79 5.3.1 Product................................... 79 5.3.2 Price..................................... 81 5.3.3 Distribution................................ 85 5.3.4 Promotion................................. 87 5.4 Entrepreneurial Marketing............................ 89 5.5 Entrepreneurial Marketing Types....................... 92 5.5.1 Guerrilla Marketing.......................... 92 Contents xv 5.5.2 Ambush Marketing.......................... 93 5.5.3 Buzz Marketing............................. 94 5.5.4 Viral Marketing............................. 95 5.6 Summary........................................ 95 References............................................ 98 6 Organizing an Entrepreneurial Venture..................... 101 6.1 Introduction...................................... 103 6.2 Reasons for Forming a Specific Legal Form of Business...... 103 6.3 Types of Legal Forms Available in the U.S................ 104 6.4 Board of Directors/Board of Advisors................... 110 6.4.1 Board of Advisors........................... 111 6.4.2 Board Meeting.............................. 111 6.4.3 Board of Directors........................... 111 6.5 Summary........................................ 112 References............................................ 114 7 Raising Capital for the Entrepreneurial Path................. 115 7.1 Introduction...................................... 116 7.2 Types of Capital................................... 117 7.3 Sources of Capital................................. 118 7.3.1 Self...................................... 120 7.3.2 Family and Friends.......................... 120 7.3.3 Crowdfunding.............................. 121 7.3.4 Supplier and Trade Credit...................... 122 7.3.5 Angels (Private Investors)..................... 122 7.3.6 Venture Capital............................. 124 7.3.7 Private Equity Placements and Share Offerings...... 130 7.3.8 Government Grant Programs................... 130 7.4 Summary........................................ 130 References............................................ 134 8 Entrepreneurial Businesses Growth........................ 135 8.1 Introduction...................................... 136 8.2 Growth Perpsectives and Growth Cycle.................. 136 8.3 Characteristics of Fast-Growing Companies............... 140 8.4 Growth Strategies.................................. 141 8.5 Management Actions Enabling Growth.................. 143 8.6 Methods for Growing A Business...................... 144 8.6.1 Going Global............................... 144 8.6.2 Strategic Alliances or Acquisitions............... 145 8.6.3 Franchising or Licensing...................... 146 8.6.4 Attracting and Retaining Employees.............. 147 8.7 Exit and Harvesting Strategies......................... 148 8.8 Summary........................................ 151 References............................................ 157 xvi Contents 9 E-commerce Challenges and Entrepreneurial Manager......... 159 9.1 Introduction...................................... 161 9.2 Nature of E-commerce.............................. 161 9.3 Basic Forms of Electronic Commerce................... 166 9.4 Electronic Commerce and Electronic Business............. 166 9.5 Types of Electronic Commerce........................ 166 9.6 Impact of Electronic Commerce in Business.............. 170 9.7 Benifits from Electronic Commerce..................... 172 9.8 Barriers to Implementing Electronic Commerce............ 174 9.9 Summary........................................ 175 References............................................ 177 10 Business Ethics, Social Responsibility and Entrepreneurial Managers............................................ 179 10.1 Introduction...................................... 181 10.2 Ethics and Entrepreneurial Managers.................... 181 10.2.1 Ethical Dilemmas........................... 183 10.2.2 Model of Ethical Behavior..................... 185 10.2.3 Development of Ethical Values.................. 186 10.3 Ethical Behavior Approaches......................... 187 10.4 Business Ethics and Entrepreneurial Management.......... 189 10.4.1 Immoral Entrepreneurial Managers............... 189 10.4.2 Amoral Entrepreneurial Managers................ 190 10.4.3 Moral Entrepreneurial Managers................. 191 10.5 Nature of Social Responsibility........................ 194 10.6 Pyramid of Social Responsibility....................... 195 10.7 Benefits from Social Responsibility..................... 198 10.8 Summary........................................ 199 References............................................ 201 11 Entrepreneurial Family Businesses and Succession Management... 203 11.1 Introduction...................................... 206 11.2 Defining Family Businesses........................... 206 11.3 Participants in the Family Business..................... 210 11.4 Family and Business Overlapping...................... 214 11.5 Conflicts in the Family Business....................... 216 11.6 Family Business Culture............................. 219 11.7 Succession Management Issues........................ 220 11.8 Advantages and Disadvantages of Family Business......... 224 11.9 Summary........................................ 225 References............................................ 228 About the Authors Robert D. Hisrich is the Bridgestone Chair of International Marketing and Associate Dean of Graduate and International Programs at the Col- lege of Business Administration at Kent State Uni- versity. He holds a B.A. from DePauw University and an M.B.A. and a doctorate from the University of Cincinnati. Professor Hisrich’s research pursuits are focused on entrepreneurship and venture creation: entrepreneurial ethics, corporate entre- preneurship, women and minority entrepreneurs, venture financing, and global venture creation. He teaches courses and seminars in these areas, as well as in marketing management and product planning and development. His interest in global manage- ment and entrepreneurship resulted in two Fulbright Fellowships in Budapest, Hungary, honorary degrees from Chuvash State University (Russia) and the Uni- versity of Miskolc (Hungary), and being a visiting faculty member in universities in Austria, Australia, Ireland, and Slovenia. Professor Hisrich serves on the editorial boards of several prominent journals in entrepreneurial scholarship, is on several boards of directors, and is author or coauthor of over 300 research articles appearing in journals such as Journal of Marketing, Journal of Marketing Research, Journal of Business Venturing, Journal of Developmental Entrepreneurship, and Entre- preneurship Theory and Practice. Professor Hisrich has authored or coauthored 41 books or their editions, including Marketing: A Practical Management Approach, How to Fix and Prevent the 13 Biggest Problems That Derail Business, Interna- tional Entrepreneurship: Starting, Developing and Managing a Global Venture (3rd edition), and Technology Entrepreneurship: Value Creation, Protection, and Capture (2nd edition). xvii xviii About the Authors Veland Ramadani is an Associate Professor at South-East European University, Republic of Macedonia, where he teaches both undergraduate and postgraduate courses in entrepreneurship and small business management. His research interests include entrepreneurship, small business manage- ment, family businesses, and venture capital investments. He has authored or coauthored around eighty research articles and fifteen books, includ- ing Entrepreneurship and Management in an Islamic Context, Female Entrepreneurship in Transition Economies: Trends and Challenges, Family Businesses in Transition Economies: Man- agement, Succession and Internationalization, Entrepreneurship in the Balkans: Diversity, Support and Prospects, Direct Mar- keting and Small Business, Business Angels (in Albanian language), Entrepreneur- ship and Small Business Management (in Albanian language), and Venture Capital and Small Business (in Macedonian language). Besides serving as an Associate Editor of International Journal of Entrepreneurship and Small Business (IJESB) and International Journal of Technology Transfer and Commercialisation (IJTTC), Dr. Ramadani serves on the editorial and review boards of several journals from the field of entrepreneurship and management. Dr. Ramadani received the Award for Excellence 2016—Outstanding Paper by Emerald Group Publishing (Journal of Enterprising Communities: People and Places in the Global Economy). Foundation of Entrepreneurial Management 1 Learning Objectives After reading this chapter, you should be able to: Understand entrepreneurship and the entrepreneur. Understand the different types of entrepreneurship (public sector, private sector, corporate, social). Know the principle of entrepreneurial management. Know the differences between entrepreneurial and traditional managers. Understand the characteristics of an entrepreneurial mindset. Profile: Gordon Butch Stewart Gordon Butch Stewart, born in Kingston, Jamaica, on July 6, 1941, has been hailed by many as the “King of All-Inclusive Resorts,” the “Cupid of the Caribbean,” and the “Master of Marketing”. While all descriptions are appro- priate, none of them quite capture the full measure of Gordon “Butch” Stewart, founder and chairman of Sandals and Beaches Resorts. How could a simple phrase define a man who today controls what analyst’s estimate to be a billion dollar, privately-owned Jamaican-based empire that includes 18 Caribbean resorts, the Appliance Traders Ltd., and The Jamaica Observer newspaper. All told, Butch Stewart spearheads two-dozen diverse companies that are collectively Jamaica’s largest private sector group, the country’s biggest foreign exchange earner, and its largest non-government employer. Mr. Stewart began his career at the Dutch-owned Curacao Trading Company, (continued) # Springer International Publishing AG 2017 1 R.D. Hisrich, V. Ramadani, Effective Entrepreneurial Management, Springer Texts in Business and Economics, DOI 10.1007/978-3-319-50467-4_1 2 1 Foundation of Entrepreneurial Management where he earned enough in five years as a sales manager to open his own air-conditioner service and distribution business in 1968. With £5000 he established Appliance Traders Limited (ATL) in a building leased from Pat and Peter Rousseau’s Key Homes at Caledonia Avenue, Cross Roads, refurbished it and set a blistering path, with Fedders air-conditioning units as its trump card. That company, Appliance Traders Ltd., expanded rapidly and now sells a wide assortment of household and commercial appliances and supplies. But Stewart was just getting started. In 1981, he bought the Montego Bay property that launched his wildly successful couples-only Sandals Resorts chain. And today, he oversees a billion-dollar, 9000-employee empire that includes 12 Sandals Resorts, six other high-end Caribbean vacation properties, Appliance Traders and a leading Jamaican daily newspaper. Altogether, he owns and operates two dozen companies that collectively constitute his country’s largest private-sector group, biggest foreign- exchange earner and largest non-government employer. Mr. Stewart was a recipient of Caribbean World Magazine’s Lifetime Achievement Award for his work in Jamaica, and has been called one of Jamaica’s most-admired businessmen. Source: This profile is written by the authors based on the information in: http://enterprisestlucia.org/inspiration/entrepreneur-profiles/gordon-butch- stewart/; http://www.reallife.ky/editorial/mr-jamaica-gordon-butch-stewart. 1.1 Introduction As organizations, industries, and consumers become more dynamic, effective entrepreneurial management becomes more important. While entrepreneurship has traditionally been viewed as a private sector phenomenon, corporate, govern- ment and social entrepreneurship have developed in a number of different domains such as not-for-profits, for-profits, and public sector organizations. Entrepreneur- ship is a universal concept and can be applied in small and medium-sized enterprises (SMEs), large national and multinational organizations, as well as in social ventures, enterprises, communities, and governments. Entrepreneurship is not limited to a select group of people; any per-son with the right mindset, drive, and motivation can develop an entrepreneurial perspective. This perspective identifies a need and transforms this need it from a creative and innovative idea into reality. In most industries, nations, and markets, effective entrepreneurial management challenges existing assumptions and look to generate value in more innovative and creative ways. Effective entrepreneurial management changes the way business is conducted by identifying opportunities and successfully filling them. Since organizations need to renew themselves in order to sustain competitiveness, this 1.2 Overview of Entrepreneurship 3 can take such forms as championing innovative ideas, providing necessary resources or expertise, or institutionalizing the entrepreneurial activity within the organization’s systems and processes. This chapter develops an understanding of effective entrepreneurial manage- ment and the historical perspectives on entrepreneurship by analyzing the concept of private entrepreneurship, government entrepreneurship (governpreneurship) cor- porate entrepreneurship, and social entrepreneurship. The nature of the entrepre- neurial process is then explored along with how it applies within established organizations. Entrepreneurship is a unifying framework for successful effective entrepreneurial management that can be achieved by combining the key activities of managers and entrepreneurs. 1.2 Overview of Entrepreneurship The term entrepreneurship means different things to different individuals. Even though entrepreneurship has become its own area of study, there remains several questions: Who is an entrepreneur? What is entrepreneurship? What is corporate entrepreneurship? What is social entrepreneurship? What is the entrepreneurial process? These frequently asked questions reflect the increased national and inter- national interest in entrepreneurs and entrepreneurship by individuals, groups, academics, students, and government officials. The development of the theory of entrepreneurship parallels to a great extent the development of the term itself. The word entrepreneur is French and, literally translated, means “between-taker” or “go-between.” 1.2.1 Entrepreneur and Entrepreneurship An early definition and example of an entrepreneur as a go-between is Marco Polo, who attempted to establish trade routes to the Far East. In the Middle Ages, the term entrepreneur was used to describe both an actor and a person who managed large production projects. For example, a person in charge of architectural works, such as castles, public buildings, and cathedrals, was considered the entrepreneur. In such large production projects, this individual did not take any risks but rather managed the project using the resources provided by the government of the country. In the seventeenth century, an entrepreneur was a person who entered into a contractual arrangement with the government to perform a service or to supply stipulated products. For example, John Law, a Frenchman, was allowed to establish a royal bank. Richard Cantillon, in the 1700s, developed one of the early theories of the entrepreneur describing the entrepreneur as a risk taker and a rational decision maker who assumed the risk and provided management for the firm. In the eighteenth century, the entrepreneur was distinguished from the capital provider. Many of the inventions developed during this time were reactions to the needs of the changing world, as was the case with the inventions of Eli Whitney (cotton gin) and Thomas Edison (light bulb). 4 1 Foundation of Entrepreneurial Management In the late nineteenth and early twentieth centuries, entrepreneurs were fre- quently not distinguished from managers and were viewed mostly from an eco- nomic perspective. Some believed that the key factor in distinguishing a manager from an entrepreneur was the bearing of risk. An example of this type of entrepre- neur is Andrew Carnegie, who in-vented nothing but rather adapted and developed new technology in the creation of products to achieve economic vitality in the steel industry. In the middle of the twentieth century, the notion of an entrepreneur as an innovator was established along with a more refined definition. The concept of innovation and newness became an integral part of entrepreneur- ship in the mid-twentieth century. Innovation, the act of introducing something new and relevant, is one of the most difficult tasks for the entrepreneur. It takes not only the ability to create and conceptualize, but also the ability to understand all the forces at work in the environment. John Pierpont Morgan, who developed his large banking house by reorganizing and financing industries, is an example of this type of entrepreneur. The term entrepreneurship has historically referred to the efforts of an individual who takes on the odds in translating a vision into a successful business enterprise. While some definitions focus on the creation of new organizations, others focus on wealth creation and ownership. The concept of an entrepreneur is further refined through the principles and terms from a business, managerial, and personal per- spective. The concept of entrepreneurship from a personal perspective is reflected in three behavioral attributes of an entrepreneur: (1) initiative taking, (2) organizing and reorganizing of social and economic mechanisms to turn resources and situations to practical account, and (3) acceptance of risk or failure. To an economist, an entrepreneur is one who brings resources, labor, vision, materials, and other assets into combinations that increase product or service value and introduce and implement change, innovation, and a new order. To a psycholo- gist, such a person is typically driven by certain forces—the need to attain some- thing, to experiment, to accomplish, or perhaps to escape authority. To one businessperson, an entrepreneur may appear as a threat, an aggressive competitor, whereas to another businessperson the same entrepreneur may be an ally, a supplier, a customer, or a creator of wealth. The entrepreneurial manager finds better ways to utilize resources, reduce waste, and produce jobs for willing candidates. Entrepreneurship is the dynamic process of creating incremental wealth and stimulating the surrounding environment. The wealth is created by individuals who assume the major risks in terms of equity, time, and career commitment by providing value for a product or service. The product or service can have varying degrees of newness but needs to be infused by the entrepreneur regardless of its degree. While the descriptions have slightly different views of the entrepreneur, they also contain similar notions, such as newness, organizing, creating wealth, and risk taking. Yet these definitions are somewhat restrictive, since entrepreneurs are found in all professions—education, medicine, research, law, architecture, engineering, social work, distribution, and government. To include all types of entrepreneurial behavior, there is a need for an all-inclusive definition: Entrepreneurship is the process of creating something new with value by devoting the necessary time and 1.4 Public Sector Entrepreneurship 5 effort assuming the accompanying financial, psychic, and social risks and uncertainties; and receiving the resulting rewards of monetary and personal satisfaction. 1.3 Corporate Entrepreneurship Corporate entrepreneurship, which is sometimes referred to as intrapreneurship or corporate venturing, is the process by which individuals inside organizations pursue opportunities independent of the resources they currently control; this involves doing new things and pursuing new opportunities. The spirit of entrepreneurship within an existing organization results in the creation of a new organization or in the development of renewal and innovation within that organization. Corporate entre- preneurship requires engendering entrepreneurial behaviors within an established organization. It can be viewed as a system that enables individuals to use creative processes for applying and inventing. Corporate entrepreneurship involves extending the organization’s degree of competence and corresponding opportunity through internally generated new resource combinations. Organizations can foster innovations by encouraging employees to think like entrepreneurs and then giving them the freedom and flexibility to pursue projects without being inhibited by bureaucratic barriers. Internal generation of innovation influenced by organizational and environmental characteristics requires motivated individuals and groups and an open, conducive environment. Companies such as IBM, Hewlett-Packard (HP), 3M, Apple, Facebook, Microsoft, and Xerox have also experienced significant success in corporate entrepreneurship. A broad definition of corporate entrepreneurship emphasizes that corporate entrepreneurship encompasses two major phenomena: new venture creation within existing organizations and the transformation of organizations through strategic renewal (Guth & Ginsberg, 1990). This renewal usually involves formal or informal activities aimed at creating new businesses or processes in established organizations at the corporate, division, functional, or project levels. The ultimate aim of the renewal is to improve a company’s competi- tive position and financial performance. Renewal is achieved through the redefini- tion of an organization’s mission through the creative redeployment of resources, leading to new combinations of products and technologies. Corporate entrepreneur- ship in terms of renewal emphasizes strategy reformulation, reorganization, and organizational change. 1.4 Public Sector Entrepreneurship Public sector organizations are often large, hierarchical entities facing captive demand, enjoying somewhat guaranteed sources and levels of financing, and having some distance from the influences of voters, stake-holders and political institutions. The more the government organization is bureaucratic and conservative, the less 6 1 Foundation of Entrepreneurial Management entrepreneurial government employees are apt to be. As a result of the global economy, governments are increasingly looking to foster entrepreneurial thinking and activity. Some governments are now attempting to realign their public sectors with the changing global environment. They are emphasizing new “public managerialism” and discontinuous reforms that challenge traditional mindsets and include the need for innovation and entrepreneurship. Lee Kuan Yew, the first Prime Minister of Singapore following Singapore’s declaration of independence in 1959, faced the task of transforming the small island nation into an independent and self-sustaining economy. The Prime Minister innovatively pursued a series of economic policies that did not follow the tradition of forging trade relations with neighboring countries. Instead, he pursued an aggressive campaign to attract new resources into the nation through foreign direct investment. The legacy of Lee’s entrepreneurial approach to economic develop- ment continues to attract vast amounts of economic wealth into Singapore. Private sector organizations are affected by their external environment. One aspect of this that has been the rapidly changing is the nature of the relationships between public officials and their constituencies. Entrepreneurial behavior is now viewed as one way to develop innovative solutions to satisfy the needs and expectations of their constituencies. Public sector entrepreneurship is similar to some extent to entrepreneurship in large corporations—corporate entrepreneurship. The public sector and large corporations often have formalized hierarchies, established stakeholder groups with competing demands, deeply entrenched cultures, detailed rules and procedures, and a fairly rigid system of financial controls, budgeting and employee rewards. Managers in the public sector and large corporations focus more on internal developments and on the actual process than the outcome, which can inhibit entrepreneurship and innovation. The entrepreneur is creative, proactive and innovative. This provides innovation through identifying and developing opportunities. Successful entrepreneur and entrepreneurial activities are unique in public sector organizations with larger, hierarchical and more rigid organizations. A good definition of this individual in the public sector is: Public sector entrepreneurship is an individual or group of individuals undertaking activities to initiate change by adapting, innovating and assuming risk, and recognizing that personal goals and objectives are less important than generating results for the organization. 1.4.1 Differences Between Public and Private Sector Entrepreneurship A comparison of the three types entrepreneurs in the private sector, corporate, and public sector is indicated in Table 1.1. Public sector entrepreneurs need to 1.4 Public Sector Entrepreneurship 7 Table 1.1 Comparison of private, corporate, and public entrepreneurs Private (independent) Public sector entrepreneurs Corporate entrepreneurs entrepreneur Objectives Freedom to discover Requires freedom and An individual who is and exploit profitable flexibility to pursue motivated by power and opportunities; projects without being achievement; independent and goal bogged down in undertakes purposeful oriented; high need for bureaucracy; goal activity to initiate, achievement oriented; independently maintain or aggrandize, motivated but is one or more public influenced by the sector organizations; corporate characteristics not constrained by profit Focus Strong focus on the Focus on innovative Aims to create value for external environment; activities and citizens by bringing competitive orientations such as together unique environment and development of new combinations of public technological products, services, and/or private resources advancement technologies, to exploit social administrative opportunities; learns to techniques, strategies, use external forces to and competitive initiate and achieve postures; primary focus internal change. is economic returns generated through innovation Innovation Create value through A system that enables Creates practical, innovation and seizing and encourages innovative, and that opportunity without individuals to use sustainable approaches regard to resources creative processes that to social problems for (human and capital); enable them to apply the benefit of society in produces resources or and invent technologies general; mobilizes ideas endows existing that can be planned, and resources required resources with enhanced deliberate, and for social potential for creating purposeful in terms of transformation wealth the level of innovative activity desired; instigation of renewal and innovation within that organization Opportunity Pursues an opportunity, Pursues opportunities Shows a capacity to regardless of the independent of the recognize and take resources it controls; resources it currently advantage of relatively unconstrained controls; doing new opportunities to create by situational forces things and departing social value by from the customary to stimulating social pursue opportunities change; develops a social value proposition to challenge equilibrium Risk taking Risk taking is a primary Calculated risk taker; Recognizes the social factor in the recognizes that risks are value of creating entrepreneurial career related and opportunities and key character and function; decision making (continued) 8 1 Foundation of Entrepreneurial Management Table 1.1 (continued) Private (independent) Public sector entrepreneurs Corporate entrepreneurs entrepreneur assumes significant absorbed by characteristics of personal and financial organization as a whole innovation, proactivity, risk but attempts to and risk taking; accepts minimize it an above average degree of risk Character Self-confident; strong Self-confident; strong Self-confident; high and skills business knowledge; self-belief in ability to tolerance for ambiguity; independent manipulate the system; strong political skills strong technical or product knowledge; good managerial skills Source: Authors’ own table based on Kearney, Hisrich, and Roche (2008) understand this political authority when designing and implementing policies. Public sector entrepreneurs need to be civic-minded and have the public interest in mind. In the case of Singapore, this is exemplified by a ‘top-down’ approach to entrepreneurship, a strategic approach that includes: governmental policies to reduce barriers to foreign direct investment, subsidies for firms or researchers in targeted industries, emphasis on creative thinking and ‘think tanks’ at public universities, and the recruitment of foreign professionals into the state to mentor the next generation and fuel entrepreneurial growth in the business sector. Some of the differences between the public and private sectors are that the public sector: has greater diversity and conflicting, multiple objectives; has lower scores on organizational commitment and job satisfaction; can be lower in prestige and social status; has less decision-making autonomy and flexibility, and more constraints; has a higher concentration of authority with established centralized procedures; has lower incentives; has salaried managers who do not share in the organization’s profits; is not constrained by the profit motive of the private sector; can more easily obtain large amounts of funding; and is free of any private enterprise restrictions. These differences in public sector entrepreneurs reflect the following differences between public and private sector organizations: have no profit motive but instead social and political objectives; receive funds indirectly from an involuntary taxpayer; have problems in identifying the organization’s stakeholders and constituencies; and 1.5 Social Entrepreneurship 9 are subject to public scrutiny. Entrepreneurship in the public sector, unlike the private sector, relies less on particular individual attributes and more on a group desire. Personal qualities and motivations become less important than being able to operate at the institutional level. There are key differences with respect to the level of diversity in objectives, diversity in decision making, authority, risk/rewards, motivation, availability of funding, different restrictions in growth and levels of independence (Kearney et al., 2008). 1.5 Social Entrepreneurship Definitions of social entrepreneurship are much more limited and diverse than those for corporate entrepreneurship. While the term entrepreneurship is mostly associated with private sector activity, in the last 20 years, the value creation aspect of entrepreneur-ship has been extended to social organizations. Social entre- preneurship has made significant contributions to communities and society in general by adopting business models to offer innovative and creative solutions to complex social issues. Despite increased interest in social entrepreneurship and the credence of the growing impact of social entrepreneurship as evidenced in Fast Company Magazine’s Social Capitalist Awards and the Skoll Foundation’s Awards for Social Entrepreneurship, there has been limited re-search in the area. One challenge is that the definition of social entrepreneurship has been developed in a number of different domains such as not-for-profits, for-profits, public sector organizations, and a combination of the three. Social entrepreneurship can be broadly defined as innovative activity with a social objective in the for-profit sector, such as social commercial ventures; nonprofit sector; public sec-tor; or even across sectors in terms of hybrid organizations that combine for-profit and nonprofit approaches. Social entrepreneurship can be more narrowly defined as the application of business expertise and market skills in the for-profit, nonprofit, or public sector when these organizations develop more innovative approaches in business activities. Common across all definitions of social entrepreneurship is that its core objective is to create social value rather than personal and stakeholder wealth. Even though all of the above definitions of entrepreneurship, public sector entrepreneurship, corporate entrepreneurship, and social entrepreneurship have slightly different perspectives, they contain similar concepts since entrepreneurship involves creative activity. The core components of entrepreneurship involve the discovery and exploitation of opportunities. In fact, an entrepreneurial event cannot occur without identifying and addressing an opportunity. Table 1.2 depicts a typology that identifies the similarities and differences between the three types of entrepreneurship and entrepreneurs: private sector, corporate, and social. This table indicates that entrepreneurship and entrepreneurs are characterized as having a preference for creating activity, manifested by some 10 1 Foundation of Entrepreneurial Management Table 1.2 Similarities and differences among private, corporate, and social entrepreneurs and entrepreneurship Corporate Private entrepreneurs/ entrepreneurs/ Social entrepreneurs/ entrepreneurship entrepreneurship entrepreneurship Objectives Freedom to discover Freedom and flexibility Freedom and resources and exploit profitable to pursue projects to serve constituencies; opportunities; without being bogged add value to existing independent and goal down in bureaucracy; services; address social orientated; high need goal orientated; problems and enrich for achievement independently communities and motivated but also societies; driven by the influenced by the desire for social justice corporate characteristics Opportunity Pursues an opportunity, Pursues opportunities Shows a capacity to regardless of the independent of the recognize and take resources it controls; resources it currently advantage of relatively unconstrained controls; doing new opportunities to create by situational forces things and departing social value by from the customary to stimulating social pursue opportunities change; develops a social value proposition to challenge equilibrium Focus Strong focus on the Focus on innovative Aims to create value for external environment; activities and citizens by focusing on competitive orientations such as serving long-standing environment and development of new needs more effectively technological products, services, through innovation and advancement; primary technologies, creativity; aims to focus is on financial administrative exploit social returns, profit techniques, strategies, opportunities and maximization, and and competitive enhance social returns, independence postures; primary focus social wealth, social is economic returns justice generated through innovation Innovation Create value through A system that enables Creates practical, innovation and seizing and encourages innovative, and that opportunity without individuals to use sustainable approaches regard to resources creative processes that to social problems for (human and capital); enable them to apply the benefit of society in produces resources or and invent technologies general; mobilizes ideas endows existing that can be planned, and resources required resources with deliberate, and for social enhanced potential for purposeful in terms of transformation creating wealth the level of innovative activity desired; instigation of renewal and innovation within that organization (continued) 1.6 Entrepreneur Versus Manager 11 Table 1.2 (continued) Corporate Private entrepreneurs/ entrepreneurs/ Social entrepreneurs/ entrepreneurship entrepreneurship entrepreneurship Risk taking Risk taking is a primary Calculated risk taker; Recognizes the social factor in the recognizes that risks are value of creating entrepreneurial career related and opportunities and key character and function; absorbed by decision making assumes significant organization as a whole characteristics of personal and financial innovation, proactivity, risk but attempts to and risk taking; accepts minimize it an above average degree of risk Character Self-confident; strong Self-confident; strong Self-confident; high and skills business knowledge; self-belief in ability to tolerance for ambiguity; independent manipulate the system; strong political skills strong technical or product knowledge; good managerial skills Source: Authors’ own table based on Hisrich and Kralik (2016) degree of proactiveness and innovativeness. The core components of entrepreneur- ship include the discovery and exploitation of opportunities. These issues broadly are discussed in Hisrich and Kralik (2016). 1.6 Entrepreneur Versus Manager There is some confusion about the nature of an entrepreneur versus a manager. Although the entrepreneur is different from the traditional manager, entrepreneur- ship represents a mode of management. Management involves achieving the objectives of an organization while reducing variability to increase stable pro- cesses. It involves accomplishing work through people. To manage effectively means to forecast, plan, organize, coordinate, communicate, lead, facilitate, moti- vate, and control. Management is the transformation of inputs into outputs through conceptual, human, and technical skills. Managers are required to efficiently and effectively utilize resources to achieve optimum results in line with organizational goals and objectives. An entrepreneur is future orientated, seeking opportunities and identifying innovations to fill these opportunities. An entrepreneur has a preference for creative activity, manifested by some innovative combination of resources, for achieving financial, economic, or social wealth. Entrepreneurs are creative in obtaining resources, overcoming obstacles, and implementing ideas. While there is consider- able overlap between managers and entrepreneurs, the concepts are not the same; entrepreneurs can be managers and managers can be entrepreneurs by consciously 12 1 Foundation of Entrepreneurial Management Table 1.3 The role of The Manager the entrepreneurial The Entrepreneur manager ✓ Discover ✓ Forecaster ✓ Visionary ✓ Planner ✓ Innovative ✓ Organizer ✓ Creative The ✓ Coordinator ✓ Calculated risk Entrepreneurial ✓ Communicator taker Manager ✓ Opportunity seeker ✓ Facilitator ✓ Resource leverage ✓ Motivator ✓ Self-confident ✓ Leader ✓ Drive and intrinsic ✓ Controller motivation combining the various functions of the key roles at the appropriate times as indicated in Table 1.3. 1.7 Entrepreneurial Process The entrepreneurial process, however, involves more than just problem solving. All entrepreneurs—private, corporate, and social—must find, evaluate, and develop an opportunity by overcoming the forces that resist the creation of something new Understanding how entrepreneurship works requires recognition of the process involved and how to effectively manage that process. It is a process that can occur in different settings but changes due to the diversity that exists among private, corporate, and social contexts. The entrepreneurial process has four distinct phases: (1) identification and evaluation of the opportunity, (2) development of the business plan, (3) determina- tion and evaluation of resource requirements, and (4) implementation and manage- ment of the resulting enterprise. Although these phases proceed progressively, no one stage is dealt with in isolation or is totally completed before work begins on other phases. For example, to successfully identify and evaluate an opportunity (phase 1), an entrepreneur must already have in mind the type of desired business (phase 4). The main aspects of the entrepreneurial process are presented in Table 1.4 (see Hisrich, 2014). 1.8 Effective Entrepreneurial Management Effective entrepreneurial management in private sector entrepreneurship, public sector entrepreneurship, corporate entrepreneurship, and social entrepreneurship requires a different mindset and actions than generally occurs. These individuals tend to have the following characteristics: a strong drive and energy; a motivation to change; a desire to achieve; challenge the past way of doing things; focuses on the 1.9 Summary 13 Table 1.4 Aspects of the entrepreneurial process Identify and evaluate Develop the business Resources Launch and manage the opportunity plan required the enterprise Opportunity Section 1 Determine Develop launch plan assessment Title Page resources Establish culture Creation and length Table of Contents needed Understand key of opportunity Executive Summary Determine variables for success Real and perceived Section 2 existing Identify problems value of opportunity Description of resources and potential Risk and returns of Business Identify problems Implement opportunity Description of resource gaps control systems Opportunity versus Industry and available Develop personal skills and Technology Plan suppliers management style goals Competitive Marketing Plan Develop Develop growth environment Financial Plan access to strategy Creating opportunity Production Plan needed assessment plan Organizational Plan resource Operational Plan suppliers Summary Section 3 Appendixes (Exhibits) Creating a business plan Source: Authors’ own table based on Hisrich (2014) future and new opportunities; takes risks; is very proactive; and develops a strong team and coalition. 1.9 Summary This chapter is focused on the foundations of effective entrepreneurial manage- ment, the focus of this book. First the aspects and differences of entrepreneurship in the private sector, corporate entrepreneurship, public sector entrepreneurship, and social entrepreneurship are discussed. This is followed by a discussion of the similarities and differences between an entrepreneur and manager. Following a presentation of the entrepreneurial process, the chapter concludes with a discussion of effective entrepreneurial management. Case Study: Jaconet Brunette Opened a Beauty Salon Jaconet Brunette opened a beauty salon in Menlyn shopping center in Pretoria. She grew up in an entrepreneurial home and except for a short period in training, had always had her own business. After 3 years of establishing the salon, she had four employees and her turnover had trebled. (continued) 14 1 Foundation of Entrepreneurial Management She opened a second salon after 1 year in Hatfield in Pretoria some 5 km away from the old salon. She appointed her best employee to run the business, hoping to convert it into a franchise eventually. She went to a major exhibi- tion in London and managed to identify a range of products to import exclusively for the franchise system. A few containers were imported and most of the products were sold. It did, however, require additional financing from the bank and time to arrange for clearing of the goods at Customs and Excise in Kempton Park. The Hatfield branch never seemed to take off and only managed to break even. Jaconet spent a lot of time at the Hatfield branch trying to develop a client base and to control activities. The good employee turned out not to be such a good manager and eventually resigned. Jaconet decided to sell the Hatfield branch after 3 years of establishment as it did not seem to grow at all. She believed that the attention Hatfield required was impacting negatively on her Menlyn salon which, after a few years, had shown a decline in turnover. She downsized this salon from five to four employees and the business is back on track again. When asked about further explanation her comment was: “I don’t want the hassle of another branch. I’m quite happy with the pre-sent business. I did not make any more money having two outlets.” Assignment 1. Discuss whether this is a small business or an entrepreneurial venture! 2. Does the desire to grow make a venture more entrepreneurial? Discuss! 3. Discuss the pressure on resources in this case. Sources: This case is written and adapted by the authors based on the information in Nieman, Nieuwenhuizen, & Hough, 2003. Questions for Discussion Discuss the entrepreneurial activities in several sectors—private, public, gov- ernment and corporate—by comparing and contrasting the features of each. Examine entrepreneur vs manager characteristics relating to a business near you, discuss their responsibilities and daily activities. Click on Web https://bitwizards.com/Thought-Leadership/Blog/2011/December-2011/20- Questions-for-an-Entrepreneur https://www.entrepreneur.com/article/225519 http://www.forbes.com/sites/skollworldforum/2013/05/02/the-rise-of-social- entrepreneurship-suggests-a-possible-future-for-global-capitalism/ #62f273cee13b References 15 References Guth, W. D., & Ginsberg, A. (1990). Guest Editors’ Introduction: Corporate entrepreneurship. Strategic Management Journal, 11(4), 5–15. Hisrich, D. R. (2014). Advanced introduction to entrepreneurship. Cheltenham: Edward Elgar. Hisrich, D. R., & Kralik, W. D. (2016). Advanced introduction to corporate venturing. Cheltenham: Edward Elgar. Kearney, C., Hisrich, R., & Roche, F. (2008). A conceptual model of public sector corporate entrepreneurship. International Entrepreneurship and Management Journal, 3, 295. Nieman, G., Nieuwenhuizen, C., & Hough, J. (Eds.). (2003). Entrepreneurship: A South African perspective (1st ed.). Pretoria, South Africa: Van Schaik Publishers. Entrepreneurial Business Planning 2 Learning Objectives After reading this chapter, you should be able to: Understand the importance of planning in effective management. Know the importance and uses of the business plan. Understand the contexts of a business plan. Be able to prepare a business plan. Profile: Sophia Amoruso—Nasty Gal Sophia Amoruso is a perfect example of this generation’s entrepreneurial moxie. Fittingly so, the word “moxie” is a dead-on description of Amoruso. Growing up as a rebellious youth, Amoruso spent most of her late teenage years and early 205 darting up and down the west coast, finding work in record stores and fancying such notions as anarchy and revolution. After dropping out of photography school in 2006, Amoruso, confident in her own edgy and vintage fashion tastes, began selling cheaply purchased thrift store finds on her eBay store, Nasty Gal. Her edgy, vintage tastes in clothes soon gained the attention of other young women willing to pay more for ethereal pieces too unique to be found in retail stores. Amoruso’s business smarts did not end with her keen eye for clothes. While other eBay sellers commonly posted pictures of their pieces draped over dull, headless mannequins, Amoruso paid local California girls in either cash or hamburgers to model her pieces in front of different backdrops. Her fresh, personally styled eBay photos alone brought in even more visitors. Amoruso soon realized the amount her customers were willing to pay for her items and began marking (continued) # Springer International Publishing AG 2017 17 R.D. Hisrich, V. Ramadani, Effective Entrepreneurial Management, Springer Texts in Business and Economics, DOI 10.1007/978-3-319-50467-4_2 18 2 Entrepreneurial Business Planning up the prices of her finds, gaining margins to the tune of hundreds of dollars per piece. This barely slowed the growing mania of her followers for more, and Nasty Gal soon found itself the leader of a trend-hungry fashion cult. Leveraging the unique value her own tastes have brought to her business, Amoruso has continued catering to her quickly expanding customer base. Her product lines, no longer dug up from thrift store bins, are now from specially picked, partnering designers. She has since bought the NastyGal.com domain from its previous owner, leased a 500,000 square foot fulfillment center in Kentucky and finally decided to partner with a venture capital firm famous for its investments in now popular fashion sites such as Net-A-Porter and ASOS. The $50 million investment is now helping with expansions such as Nasty Gal’s new and extremely successful in-house clothing line. From its start-up in 2006 to the end of 2012, Nasty Gal has exponentially increased in size—its 2012 sales alone came close to $100 million. Most of its marketing and advertising is done through social media such as Facebook, Twitter, Pinterest and Instagram. Many of Nasty Gal’s customers, rather than seeing a commercial on TV, are led to the company’s website through word of mouth. And while the company can now afford to move into retail shops and larger advertising ploys, Amoruso has yet to budge in that direction. Her resistance to abandon the original personality of her business has been shown in the company’s selective choices for expansion. Until her recent venture capital partnership, Amoruso had yet to take on any type of debt, reinvesting all of her profits back into the company. There was no need to invest in expensive advertising as Amoruso knew her target customers were already propelling the company’s fame through social media outlets. Seven years after the start of Nasty Gal, Amoruso remains particular in what she chooses to sell, not letting any article of clothing deviate from her company’s edgy charm. There seems to be no need to include other fashion styles—most of Nasty Gal’s product lines sell out, sometimes within minutes. Amoruso is staying true to her herself and loyal to her fan base. And while naysayers and competitors may shrug Nasty Gal off as a fashion movement destined to become the inevitable old hat, its continued sales growth and army of trend-setting devotees say otherwise. For now, Nasty Gal is not going anywhere. Sources: This profile is written by the authors based on the information in: Nastygal Website (2016) and Steinbeiser, F. (2012) 2.1 Introduction Effective entrepreneurial management requires each entrepreneur to take the time to plan the future activities of their business. There can be many forms of planning in both the short and long term and provides a road map for implementing the 2.3 Purpose of the Plan 19 strategy for the success of the venture. Strategy involves developing a plan for creating and operating a new and/or growing enterprise profitably through the obtainment and development of external and internal resources being able to align with the environment. A key aspect of developing a strategy at each level (the enterprise level, the corporate level, the business level, the functional level, and the sub-functional level) is establishing goals and objectives. Goals need to be challenging and yet obtainable with effort. They need to be measurable so that the results can be evaluated and performance appraised. In order to accomplish the goals established and implement the strategy, a business plan is often created as it is an effective tool for providing the direction to the entrepreneur. 2.2 Writing the Business Plan Creating and building a successful enterprise requires effective planning (Trusts & Estates, 2013). Although indeed the process of developing the necessary strategies is important, the process and the discipline required in putting this in writing makes the thinking process more effective giving the venture a better opportunity for success. Often something conceptualized in the mind of an entrepreneur does not make sense once it is com-mitted to writing. A frequently asked question is how long a business plan should be (How many pages should it have?). Although there is no strict answer to this question, some- times it is too long. The main body of the business plan, which is discussed later in this chapter, usually is about 30–40 pages. This does not include exhibits or appendices which contain additional market statistics, the actual patents, the resumes of the management team and scientists, and other material that can add another 20–100 pages of material. And, a two-page executive summary is needed to use as a door opener if capital needs to be raised (Kwicien, 2012). One factor that impacts the length of the plan is its purpose, which is discussed in the next section. Even though the entrepreneur needs to write the plan itself, he/she should get help with editing and laying out the plan in the most favorable way. No matter how good the content, the way the business plan looks and is presented affects its evaluation. Any spelling errors, mathematical errors, numbers not making sense, or poor graphics impact the evaluation of the plan to some extent. And, a knowl- edgeable investor will easily discern whether the plan was written, at least initially, by the entrepreneur or prepared externally by someone else. 2.3 Purpose of the Plan In providing a road map to achieve the goals of the enterprise, there are five general purpose of uniting a business plan indicated in Table 2.1. By far the most frequent reason for writing a business plan is to obtain financing (Boni, 2012). Most entrepreneurs do not have all the resources (particularly: financial) needed to launch 20 2 Entrepreneurial Business Planning Table 2.1 Purpose of a Obtain Finances business plan Determine Resources Needed – Determine Existing Resources – Identify Resource Needs – Determine Suppliers of Needed Resources – Develop Approach to Suppliers of Needed Resources Establish Direction for Firm Evaluate Results of Firms – Management by Deviation – Reporting Results to Stakeholders Obtain a Joint Venture Partner and develop a venture. Usually some external financing is needed called enterprise capital as is discussed in the Chap. 7 of this book. Each of the sources of enterprise capital discussed in this chapter needs a business plan to make decision to invest. Since in many cases only one or two out of the 100 business plans evaluated will receive an investment. The business plan needs to be very carefully crafted partic- ularly the executive summary which is often the only part that is actually read. Another purpose of a business plan is to determine all the resources needed to launch and grow the business. A careful review of the current existing resources of the entrepreneur and the enterprise and the resources needed at various stages of development such as financial, human, technological, supply, or distribution helps make sure these resources are available when needed (Cordeiro, 2013). Potential suppliers of the resources should be identified along with a solid approach to each supplier. The third purpose of a business plan is to provide a direction for the new venture. In the development, launch, and growth of a venture there are many different directions and opportunities available (Enman, 2013). A good business plan allows these to be more easily evaluated and the best direction or opportunity selected. Being able to evaluate the results of the venture is the fourth purpose of a business plan (Rafael, Lorenzo, & Virginia, 2012). The results compared to the forecast in the business plan points out problems that need attention and focus. Pro forma income statements discussed later in this chapter, present forecasted numbers which eventually become actual numbers once the plan is implemented. There is always a positive or negative deviation between the numbers forecasted and the numbers achieved (Benson, Davidson, Wang, & Worrell, 2011). When this differ- ence is large and negatively affects the venture, corrective action is needed. Because an entrepreneur usually never has enough time or money, by focusing on these deviations attention can be paid to the most critical problems. This is called management by deviation. The final purpose of a business plan is to obtain a partner or outsourcer (Pollock & Sumner, 2012). A business plan lays out the plan for the business for perspective individual and companies and helps them decide whether to be involved. Whether obtaining a member for the board of advisors, a firm in the distribution channel, a supplier firm, or a firm that could be a joint venture partner, the job is easier when a 2.5 Elements of a Business Plan 21 business plan has been prepared. Most seasoned entrepreneurs and individuals will not consent to be a member of any advisory board of a venture without having evaluated at least a preliminary business plan. 2.4 Benefits of a Business Plan Since a business plan details the entrepreneur’s vision and indicates the implemen- tation strategy and the costs involved, it has several benefits and helps avoid some of the problems identified by successful entrepreneurs. Determining the amount and timing of resources needed. The business plan indicates the existing resources of the firm, the resources needed and some potential suppliers of these resources. This allows the entrepreneur to determine how much money is needed at various times to obtain these resources and what approach to develop and use to obtain the money as well as any other resources. The money will be obtained from outside capital providers. Establishing the direction of the firm. Since the business plan is a comprehensive document, it fully treats all the major issues facing starting and growing the venture. This enables the entrepreneur to develop strategies and contingency plans to reduce the impact of any problems. Guiding and evaluating. By setting goals and milestones for the venture, the business plan lays out the intentions of the entrepreneur as well as his/her values. Accomplishments and results can be measured and any deviations to the plan corrected in a timely manner. These results can be reported to all interested stakeholders and to outside providers of financial resources at least four times a year if not more frequently such as every month in at least the first year. By being put together by the entrepreneur and the management team and being reviewed and revised frequently, the business plan can be used to guide decisions and help avoid conflicts. 2.5 Elements of a Business Plan Although there are some variations, most business plans have the same elements. These can be grouped into three main general sections (Table 2.2). 2.5.1 Section 1 Section 1 contains the title (cover) page, table of contents, and executive summary. The title (cover) page is an important part of every business plan because it has: The company name, address, telephone, fax, e-mail address, and website Name and position of each identified member of the management team 22 2 Entrepreneurial Business Planning Table 2.2 Aspects of a business plan Section 1: Title Page Table of Contents Executive Summary Section 2: 1.0 Description of Business 6.0 Production (Outsourcing) Plan Description of the Venture Manufacturing Process (Amount Product(s) and/or Service(s) Subcontracted) Type of Industry Physical Plant Mission Statement Machinery and Equipment Business Model Suppliers of Raw Materials 2.0 Description of Industry Outsourcing Aspects Future Outlook and Trends 7.0 Organizational Plan Analysis of Competitors Form of Ownership Industry and Market Forecasts Identification of Partners and/or Principal 3.0 Technology Plan Shareholders Description of Technology Management-Team Background Technology Comparison Roles and Responsibilities of Members of Commercialization Requirements Organization 4.0 Marketing Plan Organizational Structure Market Segment 8.0 Operational Plan Product or Service Description of Company’s Operation Pricing Flow of Orders and Goods Distribution Exit Strategy Promotion 9.0 Summary 5.0 Financial Plan Sources and Applications of Funds Statement Pro Forma Income Statement Pro Forma Cash Flow Statements Pro Forma Balance Sheet Break-even Analysis Section 3: Appendices (exhibits) Exhibit A—resumes of principals Exhibit B—market statistics Exhibit C—market research data Exhibit D—competitive brochure Exhibit E—competitive price lists Exhibit F—leases and contracts Exhibit G—supplier price lists The purpose of the plan, the amount of money needed, and funding increments At the bottom of the title page: “This is confidential business plan number _____.” A low number should be placed in the blank space; a tracking system should be established of when and who received this numbered plan for a 30-day, 60-day, and 90-day follow up. This statement of course does not legally bind the reader to confidentiality. The first page after the title (cover) page is the table of contents. This follows the usual format and lists at least the major subsections in each section and the corresponding page numbers, as well as each figure, table, and exhibit. Preferably 2.5 Elements of a Business Plan 23 each major subsection and smaller subsections can be labeled as 1.0, 1.1, 1.2, 2.0, 2.1, 2.3, and so on. The executive summary precedes the numbering and therefore either has no numbers, smaller letters, or Roman numerals. The tables and figures should have a separate list as should the exhibits (appendices). The last item in Section 1, following the table of contents, is the all-important two-page executive summary. This is by far the most important document in the business plan because it is the screening section. Many readers, especially potential providers of capital, never read beyond the executive summary. One head of a very successful venture fund, who is now managing his eighth fund, indicated that he receives about 1500 business plans a year, discards 1400 based on the cover page or executive summary, and, of the remaining 100, discards 80 based on an initial 1- to 2-h examination. Of the remaining 20, about 4–6 will receive a term sheet and probably an investment from his fund. The executive summary needs to be really well written to invite further reading of the business plan. Some capital providers only want to initially have a copy of the executive summary. If this passes the first evaluation, then the entire business plan is requested. The executive summary should have the name of the company and address at the top just as it appears on the title (cover) page. It should begin with defining the nature and size of the problem existing. The more significant the problem the better. Your proposed solution should follow this problem. Again, this is making available several individuals who have had a background check and are capable and willing to do the task on a fee basis. In this section, all competitive ways to solve the problem should be discussed, showing the uniqueness or the unique selling propositions of your solution. Following the solution is the size of the market, trends for at least 3–5 years, and future growth rate. The market needs to be large enough and accessible to deliver the sales needed for the profits and returns expected by investors. The entrepreneur and team who will deliver these sales and profits then need to be described. The education, accomplishments, and industry experience of each known member of the top management team needs to be described. The sales and profits, which should be summarized over a 5-year period in the following format: Year 1 Year 2 Year 3 Year 4 Year 5 Total revenue Cost of goods sold Gross margin Operating expenses Profit (loss) before taxes These numbers are taken directly from the pro forma income statement summary in the financial plan in Section 2. Note the exact calendar year is not used, but rather year 1, 2, 3, 4, and 5, with 1 indicating the first year of company operations after the investment is received. 24 2 Entrepreneurial Business Planning Table 2.3 Business plan (executive summary)—Himalayan Java Coffee Pvt. Ltd. BUSINESS DESCRIPTION: The target franchisee is incorporated as Namche Bazar Coffee Pvt Ltd and operates in the name of “Himalayan Java”. Himalayan Java Coffee is the first-of-a-kind specialty coffee shop in Nepal. The coffee chain was first started in 1999 and has only seen growth and progression for last 17 years seeing over $5.5 M in revenue for the fiscal year 2014/15 across 8 branches in Nepal. This coffee chain is the trendsetter in the Nepalese coffee shop market and has been very popular among the tourists who visit Nepal as the first store was opened in Thamel - tourist Mecca of Kathmandu. CURRENT PRODUCTS/SERVICES: HEAD OFFICE The following points discusses the various products and services of the coffee chain as a whole Tridevi marg, Thamel and the specific product of the target branch is also discussed. Kathmandu, Nepal The Coffee Shop caters the need of the growing coffee drinkers in Nepal. The coffee Phone: +977-1- 4422519 shop will have a variety of hot and cold coffee as well as tea of the highest quality http://www.himalayanjava.com/ available for the customers. The coffee beans are all produced organically in Nepal [email protected] and are ensured highest quality. The customer can buy Coffee Bags from the store. Again, the coffee is 100% organic and manufactured in Nepal. There are several packs and several roasts available. TARGET FRANCHISEE The shop also sells Souvenirs for the visitors in various forms like coffee mugs, photo Namche Bazar Coffee Pvt. Ltd. hangers, magnetic photo frames and as such. This is very popular among the tourists Namche Bazar – 1, and requires an increase in the portfolios of the items that the store currently sells. Solukhumbu, Nepal PROPOSED EXPANSION: The sales of souvenirs in this particular branch is significantly higher than other franchisees of this MANAGEMENT coffee chain. The plan is to get a souvenir manufacturer to produce souvenirs specially for this Laxman Panthi – Owner store and grow both the operation. Ganesh Bhandari – Operations Manager COMPETITION: Ashish Hamal – Store Manager The Namche Bazar store will compete with the local coffee shops and souvenir shops in the respective markets located in this small town. The brand name of Himalayan Java will be very efficient in selling our products as it’s a popular name among tourists coming to Nepal. There are ADVISORS no hybrid coffee shop and souvenir shops around the area and this store will be one of its kind. Dr. Robert Hisrich – Associate Dean, College of Business – Kent State PRIMARY TARGET MARKET: University The town of Namche Bazar is visited by tourists trekking in the Khumbu circuit and to the Everest Shaurabh Sharma – Consultant, base camp. It’s a popular de

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