Entrepreneurship 1 PDF

Entrepreneurship – Lecture 1 Entrepreneurial ideas and ecosystems Slides What do scholars and experts say? ■ Schumpeter (1934)- creative destruction ■ Kirzner (1973)- opportunity identification ■ Sarasvathy (2001)- effectuation theories ■ Gartner (1990)- What are we talking about when we talk about...

Entrepreneurship – Lecture 1 Entrepreneurial ideas and ecosystems Slides What do scholars and experts say? ■ Schumpeter (1934)- creative destruction ■ Kirzner (1973)- opportunity identification ■ Sarasvathy (2001)- effectuation theories ■ Gartner (1990)- What are we talking about when we talk about entrepreneurship? ScienceDirect ■ More recent debates look at “corporate entrepreneurs” and “everyday entrepreneurs” The notion of entrepreneurial mindset: A way of thinking where an individual creates value by recognizing and acting on opportunities, making decisions with limited information, and remaining adaptable and resilient in conditions that are often uncertain and complex. Is an entrepreneur “born” or “made”?A bit of both. But more “made” Common myths around entrepreneurship (a bit outdated) ■ ■ ■ ■ ■ Only extroverts Only born and cannot be learned Risk takers Ambitious Wealthy Which country do you choose to start a business? India - Growing population=growing market - Cheap labour Some global indicators (with a pinch of sailt Ease of doing businessdiscontinued, to be replaced by B-ready project Global regulatory behaviour Digital competitiveness Dubai - Tax advantage GEM – Global Entrepreneurship Monitor Entrepreneurship ecosystem    Some scholars focus on the embedded nature of the business- how the business interacts with the environment (suppliers, customers, financiers) Hence the ecosystem metaphor.. “a set of interconnected entrepreneurial actors, institutions, organizations and processes which formally and informally come together and connect, mediate and govern the performance of businesses” (Mason, 2004) Business idea development techniques  Problem solution fit perspectives (the big problems but also the smaller customer painpoints)- often Pareto analyses where large problems are split into smaller ones (mindmaps of causal nature)  Borrowing ideas from other locations in the world/industry applications  Improving current existing business ideas  Thinking about technological opportunities out there  Creative and divergent thinking (structured brainstorming) BOOK Chapter 1 Global Entrepreneurship Monitor (GEM) - a joint research effort among several international universities and the Interna- tional Council for Small Business, tracks entrepreneurship in 115 countries. The GEM study also identifies whether its respondents are starting a new business to take advantage of an attractive opportunity or because of necessity to earn an income. Total early stage entrepreneurial activity (TEA) - consists of businesses that are just being started and businesses that have been in existence for less than three and a half years. Primary motivations for entrepreneurial activity: 1. 2. 3. 4. Making a difference in the world. To earn a living because jobs are scarce. To build great wealth or earn a very high income. To continue a family tradition. Criticism - The majority of new businesses fail. – However, the often used statistic that 9 out of 10 businesses fail in their first few years is an exaggeration. Nearly 89 percent of startups survive their first year, although fewer than half the businesses started remain in existence five years later.  Therefore, the percentage of firms that do fail shows that a motivation to start and run a business isn’t enough; indeed, motivation must be coupled with a solid business idea, good financial manage- ment, and effective execution to maximize chances of success. Entrepreneurship - The process by which individuals pursue opportunities without regard to resources theycurrently control for the purpose of exploiting future goods and services. - The art of turning an idea into a business. The word entrepreneur derives from the French words entre, meaning “between,” and prendre, meaning “to take.” The word was originally used to describe people who “take on the risk” between buyers and sellers or who “undertake” a task such as starting a new venture. The tasks called for by this behavior can be accomplished by either an individual or a group and typically require creativity, drive, and a willingness to take risks. - Typically, established firms with an entre- preneurial emphasis are proactive, innovative, and risk-taking. - Ability to persuade and motivate others’ imagi- nations, Existing firms too can act entrepreneurially. In this sense, established firms with an orientation toward acting entrepreneurially practice corporate entrepreneurship. All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial. The position of a firm on this continuum is referred to as its entrepreneurial intensity. - Firms with higher entrepreneurial intensity regularly look for ways to cut bureaucracy. - Entrepreneurial firms are typically proactive innovators and are not averse to taking calculated risks. - In contrast, conservative firms take more of a “wait and see” posture, are less innovative, and are risk averse. One of the most persuasive indications of entrepreneurship’s importance to an individual or a firm is the degree of effort undertaken to behave entrepreneurially. Characteristics of successful entrepreneurs - Passion for the business The passion for an idea that gets a business going and keeps it going when times are tough. This sentiment was expressed by Patrick Whaley. Passion is particularly important for both forprofit and not-for-profit entre- preneurial organizations because although rewarding, the process of starting a firm or building either a profit-making corporation or a social enterprise is demanding. Five Primary Reasons Passion Is Important for the Launch of a Successful Entrepreneurial Organization : Reason Passion is important Explanation 1. The ability to learn and iterate Founders don’t have all the answers. It takes passion and drive to solicit feedback, make necessary changes, and move forward. Needed changes won’t always be obvious. Passion makes the search for the right answers invigorating and fun. 2. A willingness to work hard for an extended period of time Commonly, entrepreneurs work longer hours than people with traditional jobs. You can only do that on a sustained basis if you’re passionate about what you’re doing. 3. Ability to overcome setbacks and “no’s” It’s rare that an entrepreneur doesn’t experience setbacks and hear many “no’s” from potential customers, investors, and others while building an entrepreneurial business or a social enterprise. The energy to continue comes from passion for an idea. 4. The ability to listen to feedback on the limitations of your organization and yourself You’ll meet plenty of people along the way—some with good intentions and some without—who will tell you how to improve your organization and how to improve yourself. You have to be willing to listen to the people with good intentions and make changes if it helps. But you also have to be able to brush aside feedback from people with bad intentions without letting them get you down. 5. Perseverance and persistence when the going gets tough Perseverance and persistence come from passion. As an entrepreneur, you’ll have down days. Building an entrepreneurial organization is fraught with challenges. Passion is what provides an entrepreneur the motivation to get through tough times. It would be a mistake to believe that all one needs is passion and anything is possible. It is also important to understand its potential flaws and risks. - Product/Customer Focus o o o This sentiment underscores an understanding of the two most important elements in any business—products and customers. ‘Everything we build has to provide real value to both our users and customers. ‘ by Alex Algard. A product/customer focus also involves the diligence to spot product opportunities and to see them through to completion. - Tenacity Despite Failure o Entrepreneurs face the likelihood of failure due to the experimental nature of creating new businesses. Similar to scientists in a laboratory, entrepreneurs engage in trial and error to discover optimal strategies. o Perseverance through setbacks is crucial. Yelp's founders, Jerry Stoppelman and Russel Simmons, exemplify this tenacity. Their initial business plan failed, but by adapting and focusing on user-generated reviews, Yelp became a popular online review site. o Personal resilience is also vital, as demonstrated by Rick and Melissa Hinnant, founders of Grace & Lace. Overcoming personal tragedy, they transformed a vision into a successful women's apparel company. Their tenacity impressed investors on Shark Tank, emphasizing the importance of resilience in entrepreneurial success. - Execution Intelligence o o o Critical trait for successful entrepreneurs. Involves translating a solid idea into a viable business. Often determines the success or failure of a startup by developing a business model, forming a venture team, fundraising, establishing partnerships, and managing finances. Requires translating creativity and imagination into measurable results. o E.g., Jeff Bezos' Perspective: Emphasizes that the challenge lies in execution rather than generating ideas. Importance of Effective Execution: o Early-stage companies enhance execution intelligence through participation in startup incubator and accelerator programs. o Emphasis on the importance of effective execution in entrepreneurial success. Common myths about entrepreneurs Myth 1: Entrepreneurs Are Born, Not Made - Reality: Entrepreneurs are not genetically predisposed; anyone has the potential to become one. - Traits associated with entrepreneurs develop over time and are influenced by the social context. Myth 2: Entrepreneurs Are Gamblers - Reality: Entrepreneurs are usually moderate risk-takers, not gamblers. - Perception of risk arises from the less-structured nature of entrepreneurial jobs. Myth 3: Entrepreneurs Are Motivated Primarily by Money - Reality: While entrepreneurs seek financial rewards, money is rarely the primary motivator. - Many entrepreneurs emphasize the importance of having a broader purpose, such as changing the world. Myth 4: Entrepreneurs Should Be Young and Energetic - Reality: Entrepreneurial activity spans various age ranges; no specific age is a prerequisite. - Investors prioritize a strong entrepreneur with experience, skills, reputation, and passion over age. Myth 5: Entrepreneurs Love the Spotlight - Reality: While some entrepreneurs are flamboyant, many avoid public attention. - Notable entrepreneurs often in the spotlight are the exception; many successful ones operate behind the scenes. Types of Start-Up Firms: 1. Salary-Substitute Firms: - Purpose: Provide income similar to that of traditional employment. - Examples: Dry cleaners, convenience stores, restaurants, accounting firms. - Characteristics: Offer common, easily available products or services; not highly innovative. 2. Lifestyle Firms: - Purpose: Enable owners to pursue a specific lifestyle while earning a living. - Examples: Personal trainers, bed & breakfast owners, tour guides. - Characteristics: Not highly innovative; often revolve around a particular sport, hobby, or pastime. 3. Entrepreneurial Firms: - Purpose: Bring new and innovative products/services to market. - Examples: Dropbox, Facebook, Uber. - Characteristics: Focus on creating and disseminating value to customers; seize opportunities for innovation. - Partnership Strategy: Collaborate with other firms and organizations to enhance success and realize full potential. Changing Demographics of Entrepreneurs: Age Trends: - In the UK, 38% of SME owners are under 35. - Millennials start businesses at 22 on average, compared to Generation X starting at 35. - Factors influencing start-up age vary globally. Women Entrepreneurs: - Globally, 4,399 female-founded startups in 2019. - Positive trends in women’s business ownership, influenced by supportive environments. - Women constitute 34.4% of the EU's self-employed population. - Factors like wealth and economy don't always correlate with women's entrepreneurial activity. Minority Entrepreneurs: - In the U.S., over 4 million minority-owned businesses contribute nearly $700 billion annually. - In the UK, ethnic minority businesses contribute nearly $33 billion. - Strategies recommended for supporting women and minority-owned businesses. Senior Entrepreneurs: - Substantial increase in seniors starting businesses. - Factors include corporate downsizing, desire for personal fulfillment, and financial needs. - Seniors seen as a source of guidance, knowledge, and skills for younger entrepreneurs. Millennial Entrepreneurs: - 62% of millennials globally intend to start a business before 2026. - The emergence of "Millennipreneurs" who start businesses at a younger age and launch more companies. - An increasing desire among Gen Z (41%) to become entrepreneurs. Asia Pacific Trends: - Younger business owners in the Asia Pacific have a higher likelihood of growth. - More innovation, job opportunities, export activities, and use of social media by young entrepreneurs. - Educational programs and government initiatives encouraging entrepreneurship. Positive Effects of Entrepreneurship and Entrepreneurial Firms: - Joseph Schumpeter's concept of creative destruction emphasizes that entrepreneurs make existing products and technologies obsolete, stimulating economic activity. - Start-up ventures are key innovators and agents of change, contributing to creative destruction. Entrepreneurship's importance lies in developing new products, technologies, pricing strategies, distribution channels, and retail formats. Small firms are crucial in practicing creative destruction, driving economic growth and increasing societal productivity. Economic Impact of Entrepreneurial Firms: 1. Innovation: - Innovation, a core aspect of entrepreneurship, is crucial for economic strength. - Small innovative firms are 16 times more productive in terms of patents per employee. - Small firms lead in patent activity, contributing significantly to industries like smart grids, solar energy, batteries, and fuel cells. 2. Job Creation: - SMEs account for 99% of businesses in the European Union, creating 85% of new jobs since 2015. - Kauffman Foundation study emphasizes that new and young companies, not just size, contribute significantly to job creation. - Economic dynamism and innovation are driven by injecting competition and spurring innovation. Entrepreneurial Firms’ Impact on Society: - Innovations from entrepreneurial firms enhance productivity, health, entertainment, and make lives easier. - Examples include biotechnology pioneer Amgen improving healthcare and transformative technologies like smartphones, digital photography, and internet shopping. - Innovations raise moral and ethical concerns, such as privacy issues with tracking customer behavior and health implications of bioengineered foods. Entrepreneurial Firms’ Impact on Larger Firms: - Entrepreneurial firms positively impact larger firms by producing crucial parts and contributing to research and development efforts. - Many exciting products, like smartphones and digital cameras, result from collaborative efforts between entrepreneurial and larger firms. - Entrepreneurial firms build business models around enhancing the efficiency and effectiveness of larger firms. - Examples include SpeakLike, providing cost-effective real-time translation services, and Box, enabling data storage in the cloud for Fortune 500 companies. The Entrepreneurial Process Step 1 Decision to become an entrepreneur Step 2 Developing successful business ideas Step 3 Moving from an idea to an entrepreneurial firm Step 4 Managing and growing an entrepreneurial firm The double-headed arrow between the decision to become an entrepreneur and the development of successful business ideas indicates that sometimes the opportunity to develop an idea prompts a person to become an entrepreneur. Chapter 3 – Promoting creativity New and entrepreneurial companies are formed on the basis of someone having an innovative, novel or creative idea. ‘Creativity is defined as the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others. Three reasons why people are motivated to be creative are the: 1. Need for novel, varied, and complex stimulation 2. Need to communicate ideas and values 3. Need to solve problems Creativity requires the ability to: - Perceive things differently and from new perspectives. - Generate fresh possibilities and alternatives. - have fundamental thinking qualities. Fundamental thinking qualities include flexibility, tolerance of ambiguity, unpredictability, and an appreciation for the unknown. - Creativity involves the interplay of innovative thinking and intrinsic cognitive qualities. Creativity tests evaluate both the quantity and uniqueness of generated alternatives. The Psychological Origins of Creativity Gestalt Theory and Problem-Solving: Max Wertheimer, a proponent of Gestalt theory, emphasized the importance of perceiving the overall structure of a problem for successful problem-solving. Gestalt Principles in Problem Solving: - Proximity: Elements are grouped based on nearness. - Similarity: Similar items tend to be grouped together. - Closure: Items are grouped if they complete an entity. - Simplicity: Items are organized into simple figures based on symmetry, regularity, and smoothness. Creative Problem Solving Model (CPS): Based on Wertheimer's principles, CPS involves five major steps: - Fact-finding - Problem-finding - Idea-finding - Solution-finding - Acceptance-finding Relationship Between Creativity and Other Characteristics: Creativity is linked to cognitive skills like fluency, flexibility, visualization, imagination, expressiveness, and openness. Social processes also play a role in recognizing creativity. Edward De Bono's Lateral Thinking: - Lateral Thinking Steps: 1. Recognizing dominant ideas. 2. Searching for different perspectives. 3. Relaxing normal rigid thinking. 4. Encouraging the use of chance for new ideas. - Example: Solving seemingly intractable problems through unconventional thinking. Tools for Problem Analysis: - Pareto Analysis: Identifies vital causes of a problem. - Cause-and-Effect Diagrams: Refines the search for potential problems and solutions. - Mind-Mapping: Individual tool for uncovering hidden assumptions. Tools for Promoting Creativity: - Lateral Thinking: Breaks normal thinking patterns using deliberate provocations. - Evaluation Tools: Methods like SEARCH, ALUO, and 'Give Me 5' to critically assess innovative ideas for venture creation. SEARCH is an acronym for: S: Scan the environment. E: Expand on the idea. A: Adapt the idea to the circumstances. R: Revise components. C: Create the business opportunity. H: Harvest the revised idea and develop the vision. ALUO is an acronym for: A: Advanta ges: what are the advantages the proposed product or service offers to the customer, how does it build or extend something which may already be available? L: Limitations: what elements of the idea may not work as predicted, which flaws may exist, how far does it go? U: Uniqueness: what is unique about this idea, can it be substituted by something else already on the marketplace, can it easily be imitated? O: Opportunity: what opportunities emerge from the unique features you have identified? The ‘Give Me 5’ method is a slightly more quantitative approach, involving giving five responses to five questions: 1. Name five things you have observed as a consumer or employee in that branch of industry. 2. Name five things this branch of industry should be anticipating right now. 3. Name five things that others would tell you about this branch of industry. 4. Name five actions or types of business behaviour that participants in this industry should be considering. 5. Name five ideas that companies in this branch have not yet thought about or mastered. Creativity Focused on the Marketplace: - Creativity aims for differential advantage in the marketplace. - Evaluation tools like SEARCH, ALUO, and 'Give Me 5' help assess raw innovative ideas. Evaluating Ideas: - Perspectives include advantages, limitations, uniqueness, and opportunities associated with an idea. Market Analysis: - Various semi-structured tools exist for evaluating market potential, e.g., Porter's, SWOT, SLEPT. Formal Business Plan: - While some analyses are informal, more structured analyses (Porter's, SWOT, SLEPT) are used in the formal business plan. Remember, creativity is not just about generating ideas but also about critically evaluating and applying them effectively. How to start an entrepreneurial revolution - Isenberg D. (2010)- pp.40-50 The article discusses the importance of creating a conducive ecosystem for entrepreneurship and highlights the success stories of countries like Rwanda, Chile, Israel, and Iceland. Governments should focus on building holistic entrepreneurship ecosystems rather than replicating the Silicon Valley model. The following nine prescriptions are provided for creating an effective entrepreneurship ecosystem: 1. Stop Emulating Silicon Valley: Governments should avoid aiming to replicate Silicon Valley and instead focus on local conditions. 2. Shape the Ecosystem Around Local Conditions: Tailor the entrepreneurship ecosystem to fit the local dimensions, style, and climate, considering natural resources, geography, and culture. 3. Engage the Private Sector from the Start: Collaboration with the private sector is essential for developing self-sustaining, profit-driven markets. Private sector involvement should be sought early, and they should have a significant stake in the ecosystem's success. 4. Favor the High Potentials: Rather than spreading resources thinly among numerous ventures, prioritize ambitious, growth-oriented entrepreneurs with high potential to address large markets. 5. Get a Big Win on the Board:Even one successful entrepreneurial venture can have a significant impact on inspiring others and reducing perceived barriers and risks. Overcelebrate the Successes: Governments should actively celebrate and promote thriving entrepreneurial ventures through media events, awards, and public recognition. 6. Tackle Cultural Change Head-On: Address and transform deeply ingrained cultural norms about entrepreneurship, emphasizing the value of innovation and risk-taking. 7. Stress the Roots: Be cautious in providing financial support to new ventures, exposing them early to market challenges to develop toughness and resourcefulness. 8. Don't Overengineer Clusters; Help Them Grow Organically: Avoid excessive government intervention in creating clusters and instead observe and support the growth of clusters that form naturally around successful ventures. 9. Reform Legal, Bureaucratic, and Regulatory Frameworks: Implement legal and regulatory reforms that support entrepreneurship, such as decriminalizing bankruptcy, protecting shareholders, and creating simplified tax regimes. Need for a comprehensive and ongoing approach to building entrepreneurship ecosystems, involving collaboration between government, private sector, and other stakeholders. The emphasis is on adapting strategies to local contexts and continuously refining approaches through experimentation. Experiment Relentlessly Yet Holistically: Ecosystem Development: - Building an entire entrepreneurial ecosystem is challenging but essential. - Taiwan strengthened multiple ecosystem elements simultaneously, including research, training programs, engagement with expat executives, and venture capital laws. . Interconnected Nature: - Ignoring the interconnectedness of ecosystem elements can lead to adverse outcomes, such as brain drain. - For instance, encouraging entrepreneurial aspirations without addressing a hostile environment can backfire. Avoiding Perverse Outcomes: - Setting up venture capital funds without a deal flow and incentive structure can hinder the formation of a private equity sector. - Indiscriminate government funding can flood the market with overvalued, poor-quality deals. Incremental Change: - Realistic change requires a step-by-step approach. - Having a clear map of the entire ecosystem helps governments take the first steps without losing sight of the bigger picture. Endless Experimentation: - Fundamental change amid uncertainty demands continuous experimentation and learning. - Global collaboration among governments is crucial for shared learning and progress. Never-Ending Work: - Building entrepreneurial ecosystems is an ongoing process. - Examples from Massachusetts and Israel emphasize the perpetual need for experimentation to maintain a competitive edge. Action Principles: - Listed action principles include engaging the private sector, modifying cultural norms, removing regulatory barriers, celebrating successes, passing conducive legislation, and holistic approaches. Success Stories: - Examples from Rwanda, Taiwan, Medellín, and sub-Saharan Africa highlight successful transformations through determined efforts, strategic initiatives, and inclusive prosperity strategies. Brain Gain in Taiwan: - Taiwan's success in reversing brain drain involved initiatives like the Science and Technology Advisory Group, bringing expat engineers back and contributing to the IT components industry. Medellín's Turnaround: - Medellín's transformation from a crime-ridden city to an entrepreneurial hub involved cultural change, investments in education, and inclusive prosperity strategies. African Entrepreneurial Success: - Mo Ibrahim's Celtel in sub-Saharan Africa demonstrated entrepreneurial success amid challenges, leading to initiatives like the Ibrahim Index and Prize for democratic leadership. Conclusion: - Governments can create economic growth by stimulating self-sustaining venture creation through a holistic and persistent approach to building entrepreneurial ecosystems. Success stories underscore the transformative power of determined efforts and strategic initiatives.