Entrepreneurship PDF

What is Entrepreneurship? Who are the Entrepreneurs? Academic Definition (Stevenson & Jarillo) Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. Venture Capitalist (Fred Wilson) Entreprene...

What is Entrepreneurship? Who are the Entrepreneurs? Academic Definition (Stevenson & Jarillo) Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. Venture Capitalist (Fred Wilson) Entrepreneurship is the art of turning an idea into a business. Entrepreneurs: People who take risk and put useful ideas into practice. Copyright © 2016 Pearson Education Ltd. 1-1  Characteristics of an Entrepreneur The main characteristics of the entrepreneur are due to their sociological and psychological factors. Some of those characteristics are mentioned below: Entrepreneurs are vision-oriented people Entrepreneurs have a high need in achievement Entrepreneurs do not rely on fate or luck, however they try to control their own lives Entrepreneurs undertake moderate risks, which is why they look for high earning on their investments Entrepreneurs have the abilities to deal with several ambiguous situations in their ventures. They face these ambiguous situations and circumstances regularly because they do certain jobs and tasks which are entirely new by nature. Entrepreneurs have the tendency to be productive and efficient with in a given period of time. However, at times, they might be seen as inflexible individuals in team-work. 2  Traits of an Entrepreneur Some of the common traits of entrepreneurs are : Risk takers Flexible Knowledgeable Independent Energetic Creative Dynamic leader Responsive to suggestions or criticisms Resourceful Initiators Persistent 3  Entrepreneurship challenges Although entrepreneurship activities are beneficial, however they come with certain challenges. Some of those challenges are mentioned herewith: Knowledge gap between the developed, emerging, frontier and under developed markets for conducting business Difference in accounting systems in several countries Variable rates of return Non-convertibility of the currencies Communication gaps Language barriers Source: Adapted from Ramachandran & Gokila (2012). 4  Entrepreneurship challenges In addition, to the previously mentioned challenges, there are also some other challenges commonly found in entrepreneurship Political unrest and legal concerns Cultural differences Discrepancies in the use of technology Complexity in the markets Supply chain concerns Lack of specific infrastructure in some countries or regions Financial markets and their volatility Source: Adapted from Ramachandran & Gokila (2012). 5  The difference between a Businessman and an Entrepreneur Businessman Entrepreneur 1. a person who starts a 1. A person who brings business on an old his unique idea to run concept or idea. a startup company is known as an 2. makes his place in entrepreneur the market with his 2. creates the market efforts and dedication for his own business. Copyright © 2016 Pearson Education Ltd. 1-6  The difference between a Businessman and an Entrepreneur Businessman Entrepreneur 3. businessman is a market 3. Entrepreneur is a market player. leader because he is the first to start such a kind of enterprise. 4. An entrepreneur is a 4. A businessman is people focused in oriented towards profit, essence, he gives more importance to its employees, customers Copyright © 2016 Pearson Education Ltd. 1-7  The difference between a Businessman Businessman and an Entrepreneur Entrepreneur 5. The risk factor is low 5. Takes risks and they but faces a huge may competitors later competition from the but they will remain rivals due to similarity untouched. of products or services. Copyright © 2016 Pearson Education Ltd. 1-8 Corporate Entrepreneurship 2 of 2 Entrepreneurial Firms Conservative Firms Proactive, Initiative Take a more “wait and see” position Innovative Less innovative Risk taking Risk averse Copyright © 2016 Pearson Education Ltd. 1-9 Why Become an Entrepreneur? The three primary reasons that people become entrepreneurs and start their own firms Desire to be their own boss Desire to pursue their own ideas Financial rewards Copyright © 2016 Pearson Education Ltd. 1-10 Characteristics of Successful Entrepreneurs 1 of 3 Four Primary Characteristics Copyright © 2016 Pearson Education Ltd. 1-11  Characteristics of Successful Entrepreneurs 2 of 3 Passion for the Business This passion typically stems from the entrepreneur’s belief that the business will positively influence people’s lives. 1- Ex. John Wood, Leaving Microsoft to change the world. Room to Read educational company. Room to Read had built over1,440 schools and distributed over 9.4 million books in developing parts of the world. Now in 2019, they provide education for 16.8 million children worldwide. 1-12  Characteristics of Successful Entrepreneurs 2 of 3 Product/Customer Focus An entrepreneur’s strong focus on products and customers typically come from the fact that most entrepreneurs are, at heart of people. “The computer is the most remarkable tool we’ve ever built... but the most important thing is to get them in the hands of as many people as possible.” Steve Jobs Steve jobs journey to Xerox in 1980s. They decided to create a more user-friendly computers called “Macintosh”. 1-13 Characteristics of Successful Entrepreneurs 3 of 3 Tenacity Despite Failure Because entrepreneurs are typically trying something new, the failure rate is naturally high. Entrepreneurship is a marathon A defining characteristic for successful entrepreneurs is their ability to continue through problems and failures. Ex. “Roomba Vacuuming by IRobot "tenacity for success. Execution Intelligence The ability to shape a solid business idea into a viable business is a key characteristic of successful entrepreneurs. “ Ideas are easy, its execution is that’s hard” Jeff Bezos amazon founder. 1-14 Common Myths About Entrepreneurs 1 of 7 Myth 1: Entrepreneurs Are Born, Not Made This myth is based on the mistaken belief that some people are born to be entrepreneurs. No one is “born” to be an entrepreneur; but, everyone has the potential to become one. Whether someone does or doesn’t become an entrepreneur is a function of their environment, life experiences, and personal choices. 1-15 Common Myths About Entrepreneurs 4 of 7 Myth 2: Entrepreneurs Are Motivated Primarily by Money While it is unacceptable to think that entrepreneurs don’t seek financial rewards, but money is rarely the reason entrepreneurs start new firms. In fact, some entrepreneurs warn that the pursuit of money can be distracting. “If you think money is a real big deal, you’ll be too scared of losing it to get it” Ted Turner, Founder of CNN. Copyright © 2016 Pearson Education Ltd. 1-16 Common Myths About Entrepreneurs 5 of 7 Myth 3: Entrepreneurs Should Be Young and Energetic The most active age range for entrepreneurship is between (35-46). What makes an entrepreneur “strong” in the eyes of an investor is experience, maturity, reputation. These criteria favor older rather than younger entrepreneurs. Copyright © 2016 Pearson Education Ltd. 1-17 Common Myths About Entrepreneurs 6 of 7 Copyright © 2016 Pearson Education Ltd. 1-18 Common Myths About Entrepreneurs 7 of 7 Myth 4: Entrepreneurs Love the Spotlight While some entrepreneurs are showy, the vast majority of them do not attract public attention. As evidence of this, consider the following question: “How many entrepreneurs could you name?” Most of us could come up with Jeff Bezos of Amazon.com, Mark Zuckerberg of Facebook, Steve Jobs of Apple, and maybe Larry Page and Sergey Brin of Google. But few could name the founders of Twitter, YouTube, Netflix, or DIRECTV, even though we frequently use those firms’ services. Copyright © 2016 Pearson Education Ltd. 1-19 Types of Start-Up Firms Copyright © 2016 Pearson Education Ltd. 1-20 Economic Impact of Entrepreneurial Firms Innovation Is the process of creating something new, which is central to the entrepreneurial process. There will be new products produced or served by firms. Job Creation When new firms are created, they will also create new job opportunities for the unemployed people. In return, this will reduce the unemployment rate. Copyright © 2016 Pearson Education Ltd. 1-21 Entrepreneurial Firms’ Impact on Society and Larger Firms Impact on Society Think of all the new products and services that make our lives easier, enhance our productivity at work, improve our health, and entertain us in new ways, Healthcare, Mobile phones, PCs, E-Shopping, and microwave oven. Impact on Larger Firms Many entrepreneurial firms have built their entire business models around producing products and services that help larger firms become more efficient and effective. Ex. In Pharmaceutical firms, discovering and marketing drugs. Copyright © 2016 Pearson Education Ltd. 1-22 Entrepreneurs V. Intrapreneurs Entrepreneurs are people that notice opportunities and take the initiative to mobilize resources to make new goods and services. Intrapreneurs also notice opportunities and take initiative to mobilize resources, however they work in large companies and contribute to the innovation of the firm. Intrapreneurs often become entrepreneurs. Intrapreneurship Learning organizations encourage intrapreneurship. Organizations want to form: Product Champions: people who take ownership of a product from concept to market. Skunkworks: a group of intrapreneurs kept separate from the rest of the organization. New Venture Division: allows a division to act as its own smaller company. Rewards for Innovation: link innovation by workers to valued rewards. Small Business Owners Small business owners are people who own a major equity stake in a company with fewer than 500 employees. Advantages of a Small Business Greater Opportunity to get rich through stock options Feel more important Feel more secure Comfort Level Disadvantages of a Small Business Lower guaranteed pay Fewer benefits Expected to have many skills Too much cohesion Hard to move to a big company Large fluctuations in income possible Who are entrepreneurs? Common traits Common traits Original thinkers Self employed parents Risk takers Firstborns Take responsibility Between 30-50 years old for own actions Well educated – 80% have college degree and Feel competent and 1/3 have a graduate level capable degree Set high goals and enjoy working toward them Successful and Unsuccessful Entrepreneurs Successful Unsuccessful Creative and Poor Managers Innovative Low work ethic Position themselves in shifting or new Inefficient markets Failure to plan and Create new products prepare Create new Poor money processes managers Create new delivery  Characteristics of Entrepreneurs Key Personal Attributes Strong Managerial Successful Competencies Entrepreneurs Good Technical Skills Key Personal Attributes Entrepreneurs are Made, Not Born! Many of these key attributes are developed early in life, with the family environment playing an important role Entrepreneurs tend to have had self employed parents who tend to support and encourage independence, achievement, and responsibility Firstborns tend to have more entrepreneurial attributes because they receive more attention, have to forge their own way, thus creating higher self-confidence Key Personal Attributes (cont.) Entrepreneurial Careers The idea that entrepreneurial success leads to more entrepreneurial activity may explain why many entrepreneurs start multiple companies over the course of their career Corridor Principle- Using one business to start or acquire others and then repeating the process Serial Entrepreneurs- A person who founds and operates multiple companies during one career Key Personal Attributes (cont.) Need for Achievement A person’s desire either for excellence or to succeed in competitive situations High achievers take responsibility for attaining their goals, set moderately difficult goals, and want immediate feedback on their performance Success is measured in terms of what those efforts have accomplished McClelland’s research Key Personal Attributes (cont.) Desire for Independence Entrepreneurs often seek independence from others As a result, they generally aren’t motivated to perform well in large, bureaucratic organizations Entrepreneurs have internal drive, are confident in their own abilities, and possess a great deal of self-respect Key Personal Attributes (cont.) Self-Confidence Because of the high risks involved in running an entrepreneurial organization, having an “upbeat” and self-confident attitude is essential A successful track record leads to improved self- confidence and self-esteem Self-confidence enables that person to be optimistic in representing the firm to employees and customers alike Key Personal Attributes (cont.) Self-Sacrifice Essential Nothing worth having is free Success has a high price, and entrepreneurs have to be willing to sacrifice certain things Technical Proficiency Many entrepreneurs demonstrate strong technical skills, typically bringing some related experience to their business ventures For example, successful car dealers usually have lots of technical knowledge about selling and servicing automobiles before opening their dealerships Especially important in the computer industry NOT ALWAYS NECESSARY Planning Business Plan – A step-by-step outline of how an entrepreneur or the owner of an enterprise expects to turn ideas into reality. Questions To Keep In Mind What are my motivations for owning a business? Should I start or buy a business? What and where is the market for what I want to sell? How much will all this cost me? Should my company be domestic or global? Motivations Deciding what your motivations are will direct you toward what type of business fits you best. Types: 1. Lifestyle Venture 2. Smaller Profit Venture 3. High Growth Venture 1. Lifestyle Venture Small company that provides its owner independence, autonomy, and control. Is often run out of household Provides flexibility (hours, meeting places, attire) Aligns your personal interests and hobbies with your desire to make a profit. 2. Smaller Profit Venture Small company not concentrated on pushing the envelope and growing inordinately large. Making millions of dollars not important. Content with making a decent living. Ex. Mom and Pop Stores 3. High Growth Ventures Goal is maximum profit and growth. Concentrated on pushing envelope and growing as large as possible. Focus on innovation Start or Buy? Start – cheapest, but very difficult -requires most planning/research Buy – expensive – may be out or reach -requires less planning and research Franchise (middle ground) – a business run by an individual (the franchisee) to whom a franchiser grants the right to market a certain good or service. The Market??? Planning & Research essential Extensive market surveys (family, friends, neighbors…) Magazines and Polls offer some information on the market -Businessweek, Harris Poll What about the cost? Plan realistically, not optimistically Don’t overestimate your profits Don’t underestimate your costs Sources of Funds Banks Venture Capitalists – filthy rich, high risk investors looking for a many-times-over yield Angels – seem to have altruistic motives and less stringent demands than venture capitalists Domestic or Global? Drawbacks to Global – more research and less accessible connections in startup phase, more travel time required, more considerations. Advantages to Global – more human resources, more demand, more financing, easier to start global than go from domestic to global. Entrepreneurship: Growth Pressures Entrepreneurs often find that as their business grows, they feel more pressure to use formal methods to lead their organizations. Although this formalization process may compromise some entrepreneurs spirit, it often leads to more focus, organization, and greater financial returns. Basically, it’s a movement from a “seat-of-the-pants” operation to a more structured, legitimate and recognizable business. Entrepreneurship: Growth Pressures Entrepreneurial and Formal Organizations differ in six business dimensions:  Strategic orientation  Commitment to opportunity  Commitment to resources  Control of resources  Management structure  Compensation policy  Entrepreneurship: Growth Pressures Business Entrepreneurial Formal Dimension Organization Organization Strategic orientation Seeks opportunity Controls resources Commitment to Revolutionary Evolutionary opportunity Short duration Long duration Commitment to Lack of stable needs and Systematic planning resources resource bases systems (capital, people, and equipment) Control of resources Lack of commitment to Power, status, financial permanent ventures rewards for maintaining status quo Management Structure Flat Clearly defined authority Many informal networks and responsibility Compensation policy Unlimited; based on Short-term driven; team’s accomplishments limited by investors Entrepreneurship: Growth Pressures Going Global…. From domestic to worldwide expansion, globalization can be extremely rewarding for entrepreneurs. THINK: Money and Business Exposure However, it is a huge undertaking. Adapting your business to operate in the global market can lead to a decrease in ownership, and a forced focus on raising money to keep your business alive. THINK: Selling out, Private to Public (Initial Public Offering, IPO) Entrepreneurship: Managing a Family Business  Over 50% of the U.S. Gross Domestic Product (GDP) is generated from family business.  12% of CEOs on the Inc. 500 list describe their company as a family business. So, why not dream up a plan and go into business with your family or friends? Entrepreneurship: Managing a Family Business Two reasons not to go into business with your family or friends.… Families fight Friends fight. Often, it involves money. So a business environment could potentially breed arguments, disagreements, and feuds. Fighting can occur during early developmental stages when hours are long and pay is low. Or, after success has been achieved. Entrepreneurship: Managing a Family Business Six steps to help lead you to a successful Family Business:  Clear job responsibilities  Clear hiring criteria  Clear plan for management transition  Agreement on whether and when to sell business  Commitment to resolving conflicts quickly  Outside advisors are used to mediate conflicts. Clarity is key…. but NO GUARANTEE. Entrepreneurship: Managing a Family Business Operational vs. Survival Issues…. Operational = Decisions about the economics of the business and how to balance that with rational and family obligation criteria. THINK: Day-to-day grind. Survival = Develop out of a lack of attention on the operational issues within the business. THINK: Festering problems; ultimately compromise livelihood.  Entrepreneurship: Managing a Family Business FAMILY FEUD: Severed Divorce Poor business Low morale, relationships performance motivation Entrepreneurship: Corporate INTRA-preneurs Intrapreneur = someone in an existing organization who turns new ideas into profitable realities. Not every employee has the ability to become a successful intrapreneur. It takes well-developed strategic action, teamwork and communication abilities.  Entrepreneurship: Corporate INTRA-preneurs Organizations that redirect themselves through innovation have the following characteristics:  Commitment from senior management  Flexible organization design  Autonomy of the venture team  Competent/Talented people with entrepreneurial attitudes  Incentives and rewards for risk taking  Appropriately designed control system Entrepreneurship: Corporate INTRA-preneurs In order to for this type of forward thinking to reap long-term benefits, top management must allow it to flourish in the day- to-day operations of the business…. This is known as “skunkworks” Skunkworks = Islands of intrapreneurial activity within an organization. REMEMBER: On the island, formal rules and policies of the organization often DO NOT apply.