1. Strategies for Entrepreneurship
CHAPTER 6
Strategies for Entrepreneurship
and Innovation

2. Learning Objectives
Understand the importance of entrepreneurship and organizational entrepreneurship
Be able to create a simple business plan
Understand the steps in the creation of an entrepreneurial venture
Know the pitfalls associated with new venture failures
Consider the various options for new venture funding
Select an appropriate structure for an internal venture
Be able to create a plan for fostering innovation in an existing firm

3. Entrepreneurship Entrepreneurship is the creation of new business
Opportunity recognition or creation (entrepreneurial discovery is the intersection of a need and a solution)
Assembling resources to pursue the opportunity, including capital (typically associated with a business plan)
Managing activities that bring a new venture into existence
Some ventures are complete start-ups
Other ventures occur within existing firms
Organizational entrepreneurship or “intrapraneurship”

4. Entrepreneurs Opportunists Resourceful Creative Visionary Hardworking
Recognize and take advantage of opportunities
Resourceful
Creative
Visionary
Hardworking
Optimistic
Independent Thinkers
Excellent Leaders
Dreamers

5. What’s in a Business Plan?
Executive Summary
Business Description
Environmental Analysis (see next slide for details)
Resource Analysis (with a focus on the entrepreneur)
Functional Plans
Financial Projections
Implementation Schedule
End-game Strategy
Risk Analysis

6. What’s in the Environmental Analysis for a Business Plan?
Market analysis
Existing competitor analysis
Supplier analysis
Evaluation of potential substitutes
Discussion of entry and exit barriers
Relevant government regulations and regulators
Financial condition of the industry
Availability of funding
Overall economic factors for the host country
Availability of technology

7. Sources of Capital for Entrepreneurs
Commercial Banks
Personal Contacts
Venture Capitalists
Corporate Partnerships
Business Angels
Initial Public Offerings

8. Initial Public (IPO) Offering Process
Select Underwriter
Draft Letter of Intent
Assemble the
Syndicate
Determine
Offering Price
Place
the
Offering
Draft Prospectus
Revise & Print the Prospectus
Develop Business Plan
Due Diligence
Present to Potential Investors
Board
Approval
Determine
Offering Size
Time

9. First Year Agenda for Entrepreneurial Startups
Financial Management
Obtain initial capital
Establish systems to track revenues and expenses and control costs.
A record-keeping system must be established that will satisfy the demands of investors, creditors and the internal revenue service.

10. First Year Agenda for Entrepreneurial Startups
Marketing
Selection of initial product/service offering.
Selection of initial market.
Targeted advertising.
Product / service Development
Establishment of a system for collecting feedback from early customers. Continuous improvement is essential.

11. First Year Agenda for Entrepreneurial Startups
Resource Acquisition
Site selection and construction.
Acquisition of machinery, furnishings, information systems, utilities and supplies.
Contracts with suppliers.
Process Development
Focus is on production and operations management to ensure efficiency, quality and continuous improvement.

12. First Year Agenda for Entrepreneurial Startups
Management and Staffing
Recruitment of motivated, well-trained employees
Selection of managers.
Assignment of responsibilities
Establishment of personnel policies
Training
Compensation system, which may include benefits.
Supportive culture.

13. First Year Agenda for Entrepreneurial Startups
Legal Requirements
Legal form (sole proprietorship, partnership, corporation).
Other legal requirements and filing of forms.
Patents and trademarks if necessary.

14. Legal Forms of Business
Sole proprietorship
The entrepreneur is the owner and legally liable for the venture in its entirety

15. Legal Forms of Business
Partnership
Each of the partners contribute resources such as money, physical goods, services, knowledge and relationships
Limited partnership means that management responsibility and legal liability of partners are limited, except that one partner must be a general partner with unlimited liability

16. Legal Forms of Business
Corporation
Risk of a shareholder is limited to investment in stock
However, the tax advantages of a partnership are lost
S Corporations allow some partnership-type tax advantages, but they must meet restrictions and have few shareholders

17. Internal and External Problems Faced by Entrepreneurs
Customer Contact (27.3%)
Market Knowledge (19.3%)
Market Planning (14.4%)
Location (11.1%)
Pricing (8.4%)
Product Issues (7.6%)
Competitors (6.3%)
Expansion (5.5%)
Internal Problems
Adequate Capital (15.9%)
Cash Flow (14.9%)
Facilities / Equipment (12.6%)
Inventory Control (12.3%)
Human Resources (12.0%)
Leadership (11.1%)
Organizational Structure (10.8%)
Accounting Systems (10.4%)

18. Most Common Sources of Entrepreneurial Failure
Poor Management Skills
Lack of Adequate Capitalization
Product/Service Problems
External Market Conditions

19. Factors Encouraging or Discouraging Innovation
Factors Encouraging Innovation
Vision and culture that support innovation, personal growth and risk taking
Top management support and organizational champions
Teamwork and collaboration; a flat management hierarchy
Decentralized approval process
The ideas of every employee are considered valuable
Excellent communications
Innovation grants and time off to pursue projects
Large rewards for successful entrepreneurs
Focus on learning

20. Factors Encouraging or Discouraging Innovation
Factors Discouraging Innovation
Rigid bureaucracy and conservatism in decision making
Absence of management support or champions
Authoritarian leadership and traditional hierarchy
Difficult approval process
Only the ideas of certain people (researchers or managers) are given attention
Closed-door offices
Inadequate resources devoted to entrepreneurial activities
Harsh penalties for failure
Exclusive emphasis on measurable outcomes

21. Designs for Corporate Entrepreneurship
Special
Business
Units
Complete
Spin-off
Unrelated
Related
Operational
Relatedness
Nurturing
and
Contracting
Direct
Integration
Important Not Important
Strategic Importance
Adapted from R.A. Burgelman, “Designs for Corporate Entrepreneurship in Established Firms,” California Management Review,26: 3 (1984) used with permission.

22. E-Commerce Business dealings that are electronically based Dot-Coms
E-tailing (retailing through the Internet)
Exchanging data
Business-to-business buying and selling
communications
Dot-Coms
Internet-based businesses
Early race to attract “eye balls”
Many of the failures were due to inadequate business models for sustaining revenues and producing profits
Internet is an increasingly important business tool
Retail sales are dramatically increasing
A wide variety of applications
Investors have become wary of hollow promises
Information technologies continue to change

23. Common Growth Tactics Internal Growth Tactics
Market Penetration: Increase market share in current business
Market Development: Repositioning a product or service to appeal to a new market or markets.
Product or Service Development: Firms modify existing products and services or develop new ones for existing or new market segments.
Growth Tactic That May Be Internal or External
Vertical Integration: The firm moves forward towards its customers or backwards towards its suppliers on its industry’s vertical supply chain.

24. Common Growth Tactics External Growth Tactics
Horizontal Acquisition: Purchase a company in the same line of business.
Related Acquisition: Purchase a company with common or complementary products, services, markets, or technologies.
Unrelated Acquisition: Purchase a company with no commonality or complementarity between products, services, markets, or technologies.
Joint Venture: Cooperative endeavor resulting in a new, jointly-owned firm.

25. Stability Strategies
A “no growth” philosophy is hard to defend for public corporations
However, such a philosophy is acceptable if:
All relevant stakeholders agree, as in a small family business
A growth strategy is ineffective, such as in a mature or declining market with high exit barriers
The firm is restructuring (however, future growth is anticipated after the restructuring is complete)

26. Major Concepts in Chapter 6
Entrepreneurships involves the creation of new business
Entrepreneurship can involve a new start-up or organizational entrepreneurship, the creation of new business within an existing firm
Entrepreneurial tasks include opportunity recognition or creation, assembling resources, and managing the activities that bring the venture into existence
Entrepreneurial discovery is the intersection of a need and a solution

27. Major Concepts in Chapter 6
A business plan is at the center of an entrepreneurial venture. It forces the entrepreneur to think through the details of the venture and determine its feasibility
A business plan includes an executive summary, a description of the proposed venture, an analysis of the environment, a resource analysis (with special emphasis on the entrepreneur), functional plans such as marketing and operations, financial projections, a schedule for major events, an endgame strategy and an analysis of risks

28. Major Concepts in Chapter 6
Obtaining start-up capital is one of the most difficult problems facing an entrepreneur
Lack of management skills is a primary source of failure of entrepreneurial ventures
Firms that foster organizational entrepreneurship tend to have a vision, culture and top management that support innovation, organizational champions, teamwork and collaboration, a flat management hierarchy, a decentralized approval process, respect for ideas, excellent communications, resources for entrepreneurial activities, rewards that encourage innovation and a focus on learning

29. Major Concepts in Chapter 6
The optimal design for an internal venture depends on the strategic importance of the venture and how closely related it is to current activities
Organizations can pursue internal growth strategies, external growth strategies or a combination. Internal growth strategies provide more control but they tend to be slower