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Entrepreneurship and New Venture Creation Rui Baptista

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1 Entrepreneurship and New Venture Creation Rui Baptista
Masters in Engineering and Management of Technology Masters in engineering Design Entrepreneurship and New Venture Creation Rui Baptista

2 Entrepreneurship – Rui Baptista
Preliminaries Introductions Course Objectives and Content Class Schedules and Readings Deliverables and Student Evaluation Student Projects Entrepreneurship – Rui Baptista

3 The Entrepreneurial Revolution and the Entrepreneurship Process

4 Entrepreneurship and Small Firms
Research findings by the U.S. Small Business Administration Small businesses represent 99 percent of all employers Small businesses provide about 75 percent of net new jobs Entrepreneurship – Rui Baptista

5 Small Business and its Disadvantages
Entrepreneurship – Rui Baptista

6 Innovation Since World War II
Small entrepreneurial firms Responsible for half of all innovation Credited with 95 percent of all radical innovation Entrepreneurship – Rui Baptista

7 Entrepreneurship – Rui Baptista
“What astonishes me in the US is not so much the marvelous grandeur of some undertakings as the innumerable multitude of small ones” Alexis de Toqueville, Democracy in America, 1835 Entrepreneurship – Rui Baptista

8 Mega-Entrepreneurs Who Started in Their 20s
Microsoft—Bill Gates and Paul Allen Apple Computers—Steve Jobs and Steve Wozniak Dell Computers—Michael Dell Federal Express—Fred Smith Oracle—Larry Ellison Amazon.com—Jeff Bezos eBay—Pierre Omydiar Nike—Phil Knight Yahoo! —David Filo and Jerry Yang Cisco—Len Bosack, Sandra Lerner and Kirk Lougheed Google.com—Larry Page and Sergey Brin Entrepreneurship – Rui Baptista

9 New Industries Launched by the E-Generation
Personal computers PC software Biotechnology Wireless communications/handheld devices Healthy living products Cellular phone services CD-ROM Internet publishing Internet shopping Virtual imaging Entrepreneurship – Rui Baptista

10 R&D Expenditure and Economic Growth
Entrepreneurship – Rui Baptista

11 Entrepreneurship and GDP Growth
Entrepreneurship – Rui Baptista

12 Self-employment Rates in the OECD 1972-2002
Entrepreneurship – Rui Baptista

13 Entrepreneurship – Rui Baptista
Global Entrepreneurship Monitor (GEM) 2004: Total Entrepreneurial Activity Entrepreneurship – Rui Baptista

14 GEM 2004: Opportunity Based Entrepreneurial Activity
Entrepreneurship – Rui Baptista

15 GEM 2004: Necessity Based Entrepreneurial Activity
Entrepreneurship – Rui Baptista

16 Entrepreneurship and Economic Growth
High level of entrepreneurial activity equals above average economic growth Portugal: above world average in self-employment rates; below world average in entrepreneurial activity Reduced entrepreneurial activity in high tech sectors Entrepreneurship – Rui Baptista

17 High Growth Technology Ventures Started in the Lisbon Region
Sector Firm Nº of employees Start-up year Location of headquarters Biotech Alfama 5 2002 TagusPark - Oeiras ECBio 1999 IBET/ICG - Oeiras Stab Vida 10 2000 Oeiras Biotecnol 20 1996 Media, Multimedia and ICT Novabase >1000 1989 Amoreiras Chipidea 30 1997 Ydreams 58 Madan Parque - Caparica Innovagency 90 Chiado Outsystems 2001 Linda-a-Velha Entrepreneurship – Rui Baptista

18 Entrepreneurship – Rui Baptista
“Entrepreneur” is someone who engages in the creation of a new business with the aim of achieving success, growth and profits A large self-employment rate (i.e. high percentage of small businesses) does not mean a country is highly entrepreneurial: Many people become self-employed through acquisition and by joining the family business Many people become self-employed out of necessity, i.e. due to the lack of a better income-generating alternative Entrepreneurship – Rui Baptista

19 Entrepreneurship – a way of thinking, reasoning, acting
The heart of the process is the creation and/or recognition of opportunities It requires the willingness to take calculated risks Entrepreneurship can occur, of fail to occur, in firms that are old and new, small and large Entrepreneurship involves continued renewal The classic expression of entrepreneurship is the start-up company Entrepreneurship – Rui Baptista

20 Entrepreneurship – Rui Baptista
“Opportunity” Opportunity is a set of favorable circumstances associated with a business idea that award it good chances of progress and future success The main function of the entrepreneur is to discover, screen and implement business ideas/opportunities Entrepreneurship can therefore be understood as the activity of identifying and exploiting new business opportunities Entrepreneurship – Rui Baptista

21 Entrepreneurship – Rui Baptista
The Start-up Startup company—an innovative idea that develops into a high growth company Qualities of a startup company Strong leadership from the main entrepreneur Complementary talents and outstanding team work of team members Skill and ingenuity to find and control resources Financial backing to pursue opportunity Entrepreneurship – Rui Baptista

22 The Entrepreneurial Process
It is opportunity driven It is driven by a lead entrepreneur and an entrepreneurial team It is resource parsimonious and creative It depends on the fit and balance among resources and needs It is integrated and holistic Entrepreneurship – Rui Baptista

23 Entrepreneurship – Rui Baptista
Commonly Shared Characteristics of Successful Entrepreneurs—The ‘Behaviorist’ Approach They seek out new opportunities, looking for the chance to profit from change and disruption in the way business is done They pursue opportunities with discipline and perseverance They pursue only the very best opportunities and avoid exhausting themselves and their organizations by chasing after every option They focus on execution—specifically, adaptive execution They are able to engage the energies of everyone in the company Entrepreneurship is neither confined to certain types of individuals nor organizations—it is easier to find in smaller and younger enterprises because the conditions favoring its development are more likely to be present Entrepreneurship – Rui Baptista

24 Administrator/Trustee vs. Entrepreneur/Promoter
Opportunity search and recognition Rapid commitment to pursuit of opportunity Structure Change: organizational: adaptable, co-ordinated Market: rapid growth and change Acceptance of controlled risk Resources: Limited control Gradual, efficient use Control/ownership of maximum resources Structure stability: Organizational: hierarchy Market: maturity/concentration Risk minimization Opportunities: evolutionary commitment, strategic consensus Entrepreneurship – Rui Baptista

25 Entrepreneurship – Rui Baptista
Leadership Entrepreneurship – Rui Baptista

26 Increasingly Fast Emergence of New Technology
Time for new technologies to reach 25% of the U.S. Population Household electricity (1873)—46 years Telephone (1875)—35 years Automobile (1885)—55 years Radio (1906)—22 years Television (1925)—26 years Videocassette recorder (1952)—34 years Personal computer (1975)—15 years Cellular phone—13 years World Wide Web—7 years Entrepreneurship – Rui Baptista

27 Disadvantages of Large Corporations (Christensen)
Characteristics of giant corporations in the face of radical innovation Hierarchical in structure Leadership as managing and administering from the top down Rewards/incentives for “the largest” (assets, budgets, etc.) Cause of downfall Slow to change archaic strategy Slow to change outdated culture Slow to recognize and incorporate entrepreneurship, entrepreneurial leadership, and entrepreneurial reasoning Entrepreneurship – Rui Baptista

28 Entrepreneurship – Rui Baptista
Radical Innovation Entrepreneurship – Rui Baptista

29 The Timmons Model of the Entrepreneurial Process
Communication Opportunity (2) Resources (4) Business Plan Fits and gaps Ambiguity Exogenous forces Creativity Team (3) Leadership Uncertainty Capital market context Founder (1) Entrepreneurship – Rui Baptista

30 Timmons Model: The Driving Forces
Opportunity Resources Context Team Entrepreneurship – Rui Baptista

31 Timmons Model Interpreted
The process starts with opportunity, not strategy, resources or planning Opportunity recognition results from creativity, which is shared by the entrepreneur and the entrepreneurial team; Creativity results from collision between academic learning and real world practice Value Creation results from integration of opportunity and efficient use of resources Combination of people, opportunity and resources coming together at a particular time may determine the chance for success Entrepreneurship – Rui Baptista

32 Entrepreneurial Traits
Minimize and control vs. maximize and own Creativity—opportunity recognition and generation Unique/not easily imitated (technological?) assets Knowledge of the market and competition People (entrepreneurial team) and motivation skills Financial resources (identify needs) Business plan Implementation and management skills Ability to devise a growth/exit strategy Entrepreneurship – Rui Baptista

33 A Descriptive Model of The Entrepreneurial Process
Entrepreneurial Interest Generate Business Ideas—Opportunity Identification Opportunity Evaluation/Assessment Develop and Refine the Concept Determine the Resources Required Acquire the Necessary Financing/Partners Develop the Business Plan Implement and Manage Harvest the Venture—Growth/Exit Strategy Entrepreneurship – Rui Baptista

34 The Entrepreneurial Process I
What are my interests? What am I passionate about? What am I good at? Do I want to be an entrepreneur? Searching processes and methods Unique assets and knowledge Past business experience Establish goals for the business Preliminary resource needs Entrepreneurial Interest Generate Business Ideas/Opportunity Identification Entrepreneurship – Rui Baptista

35 The Entrepreneurial Process II
Changing Demographics Size/Growth of Market; or Emergence of New Market New Technologies: products/processes Regulatory Change Social Change Competitive advantages: potential for value creation Define Products/Services, Processes Target Customers Define Competition New Organizational Structures/Forms Sales or Distribution Channels Start Developing the Business Plan Venture Screening: Business/Opportunity Assessment Develop and Refine the Concept Entrepreneurship – Rui Baptista

36 The Entrepreneurial Process III
Marketing and Sales Expertise Technical Expertise Financing Needs Distribution Channels Sources of Supply Licenses, Patents, & Legal Protection Debt Supplier Financing Equity Joint Ventures Outsourcing Partnerships Leasing Barter Determine the Required Resources Acquire the Necessary Financing/Partners Entrepreneurship – Rui Baptista

37 The Entrepreneurial Process IV
Detailed Concept/Opportunity Description Detailed Operating Plan Detailed Marketing Plan Detailed Financial Plan Management Team Agreement Implementation of Plan Monitor Performance Payback to Resources Providers Reinvestment/Expansion Achievement of Performance Goals Licensing of Rights Sell or Merge Go Public – IPO Shut Down Developing the Business Plan Implement and Manage Growth/Exit Entrepreneurship – Rui Baptista

38 Entrepreneurship and Innovation
Schumpeterian view: entrepreneur translates new scientific knowledge into new products/markets and/or processes in order to gain monopoly power Drucker’s view: innovation is a specific function of entrepreneurship—it is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth Entrepreneurship – Rui Baptista

39 Sources of Innovation/New Business Ideas
Entrepreneurship – Rui Baptista

40 Market-Pull Opportunities/Innovations
Oriented primarily towards satisfying the needs of a specific market Tend to occur when customers are technologically sophisticated Occurs more frequently with older technologies Are mostly incremental innovations where an established market bases its perceptions of opportunity on known technologies Entrepreneurship – Rui Baptista

41 Technology-Push or Capability-Push Opportunities/Innovations
Oriented primarily towards increased technical performance Require that scientists and engineers have direct experience with users in order to apply new technology successfully Technical information lies mostly with the innovators, while users tend to be relatively unsophisticated Are often the major source of radical changes in market and organizational structures Entrepreneurship – Rui Baptista

42 Opportunity Recognition: Innovation and New Venture Strategies
Old Products New Products Old Markets New product variants, features, services Market niches Tinkering; Examples are the Japanese electronic companies--Sony, Panasonic. Old ideas/new mkts; Starbucks in Seattle and then U.S.; Chuck Burkett--key chains, Disney agreement. New Ideas/old markets; Snapple and Nantucket Nectars, Harry Potter books. New/new; high risk, high reward; Betamax and VCR, Zerography. Source: Bob Reiss, 2000, Low Risk, High Reward, Free Press, New York. Bob Reiss was the creator of the TV Guide Trivia Game and Valdawn Watch Company. Tinkering;Japanese electronic companies---Sony, Panasonic. Old ideas/new mkts; Starbucks in Seattle and then U.S. New ideas/old markets; Harry Potter books; Snapple or Nantuckett Nectars. New/new;Zerography, Betamax, VCR; high risk/high reward. Source:Bob Reiss, 2000, Low Risk, High Reward, Free Press, New York. Reiss founded the TV Guide Trivia Game and the Valdawn Watch Company. New Markets New geographical markets or new users Significant innovation, new product and market Entrepreneurship – Rui Baptista

43 A Typology of New Venture Opportunities (I)
Increasing the value of a good or service to the consumer: ex.: improvements in quality, accessibility, image... New applications for existing technologies and resources: ex.: use of magnetic cards (already used as credit cards) in hotel doors Creation of mass markets: ex.: automobiles, disposable cameras and shavers; personal computers “Customization”: ex.: Dell, BMW New sales platforms: ex.: Amazon.com Entrepreneurship – Rui Baptista

44 A Typology of New Venture Opportunities (II)
Mass distribution: ex: Wal-Mart; Worten; Continente Discontinuities and changes to the environmental context: ex.: regulation and de-regulation of trade and markets; government policy; internet Process innovation: ex:mass production (Ford, Intel) “hubbing” (FedEX) Consolidation: ex: cost reduction in declining industries (Blockbuster) Entrepreneurship – Rui Baptista

45 Descontinuities as Opportunities
Sources of Discontinuities: Radical innovation: new technological knowledge, technology convergence – nanotechnologies, genetics, computer science, biosensors Society – cultural changes, life style and preference changes Government policy: environmental regulations, market de-regulation and privatization Demographics – aging of the population; growing urban poulation Entrepreneurship – Rui Baptista

46 Accidental Innovation
Levi Strauss: Denim Blue Jeans (originally intended for tents) Clarence Birdseye: frozen foods Charles Goodyear: vulcanization of rubber Percy Spencer: microwave oven Arthur Fry (3M): Post-it Peter Dunn & Albert Wood (Pfizer): Viagra Entrepreneurship – Rui Baptista

47 Technological Trends and Market Opportunities
Life sciences: biogenetics, biometrics, stem cells ICTs: diffusion and increasing application of wireless devices; VOIP; voice recognition interface; security software, smarcards Security verification devices Nanotechnology and biosensors Robotics: new uses in security, search and rescue Energy: hydrogen and hydrocarbon (fuel cells) Entrepreneurship – Rui Baptista

48 Society Trends and Market Opportunities
Increase in geriatric population Rise of the middle class in developing countries Greater ethnic and cultural diversity in urban centers Greater religious diversity; more secular vs. more religious societies Convergence in access to higher education and codified/embodied knowledge Increasingly important role played by ICTs and the media in everyday life Entrepreneurship – Rui Baptista


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