3 After studying this chapter, you should have a good understanding of: Learning ObjectivesAfter studying this chapter, you should have a good understanding of:The importance of opportunity recognition in the venture development processHow strategic concepts contribute to the competitive advantages of new ventures and small businessesThe role of product champions and autonomous strategic behaviors in internal corporate venturingHow corporations can develop an internal environment that promotes entrepreneurial developmentHow an entrepreneurial orientation can enhance a firm’s effortsThe pitfalls associated with new venture strategies and corporate entrepreneurship
4 Entrepreneurship Includes: Start-ups and new businessesSmall businesses (< 500 employees)Characteristics that distinguish entrepreneurs from othersNew venture creation and development in large businesses (Intrapreneurship)
5 Techniques to Stimulate Creativity Exhibit 12.1(adapted)CompanyCreative TechniqueDupontIn-housing training include brainstorming and avoiding creativity inhibitors. To create fresh perspectives, a mix of employees – high tech and low tech, management and staff– meet to create new product proposals.DoubleClickEncourages fun at work. Its New York City office includes a miniature version of Central Park and a rooftop basketball court where employees and bosses compete. The annual prize for the employee who brings in the most referrals is a motorcycle.Sources: Gundry, L.K., Kickul, J.R., & Prather, C.W Buildingthe creative organization. Organization Dynamics: 22-37; Mackie, K Ford RAPIDS helping UT departments streamline work processes. On Campus, April 14. Yaqub, R.M The play’s the thing. Worth, November:
6 All Small Companies*, By Industry Exhibit 12.2Services (40%) 2,215,000Agricultural Services (2%) 115,000Retail Trade (20%) 1,094,000Construction (12%) 662,000Mining (0.4%) 20,000Manufacturing (6.%) 329,000Finance, Insurance, and Real Estate (8%) 457,000Transportation, Communications, and Public Utilities (4%) 217,000Wholesale Trade (7.4%) 410,000Source: SBA’s Office of Advocacy, based on Data Provided by the U.S. Census Bureau, statistics of U.S. Businesses. (Percentages don’t add to 100% because of rounding.)* Businesses with 500 or fewer employees in 1997 (rounded)
7 Characteristics of Viable Opportunities AttractivePotential market demand.AchievablePractical and possible.DurableA sufficiently long window of opportunity exists.Value CreatingThere will be profit to justify the risk.
8 Traditional Sources of Financing Self/family/friends/associatesBank loans (Debt)Bonds (Debt)Venture capitalists (Equity)I.P.O.s – Initial Public Offerings (Equity)
9 Alternatives to Traditional Financing Exhibit 12.3A non-cash means of exchanging products or services.BarterReduces cash outflow, minimizes commitments to assets that might need updating as the company grows (or shrinks).LeasingDESCRIPTIONMETHODSuppliers that let you pay for goods or services in 60 or 90 days rather than after only 10 to 30 days are, in effect, financing your purchase.Supplier FinancingWhile a fast-growing technique for financing, high interest rates could make it risky.Credit CardsFactoringA method of raising cash by selling accounts receivables to a third party or financing against the value of receivables.Source: Fraser, J. A A hitchhiker’s guide to capital resources. Inc. Magazine, February: 74-82; Owens, T Getting financing in Small Business Reports, June:
10 Exemplars of Corporate Entrepreneurial Success and Failure MotorolaInitially failed to recognize the migration from analog to digital technology.Hewlett PackardUses know-how to improve people’s lives. Values employees while encouraging them to do better.Virgin GroupCreated over 200 businesses through a fun-loving, eclectic culture.
11 3M’s Rules for Successful Innovation Exhibit 12.4IMPLICATIONSRULETry and try again.. Encourage experimentation and risk taking, even when the outcome is unclear.Tolerate failureIdeas can be kept alive by individuals who believe in a project, even if it can’t find a home in one division.Don’t kill a projectProduct champions are challenged and rewarded. If a product takes off, its champion may run the product group.Motivate product championsDivisions have autonomy but are split up if too large. Division managers know staffers by their first names.Keep divisions smallOpen communication helps everyone benefit from the technological insights and breakthroughs of others.Share the wealthCustomers are invited to brainstorm with researchers and marketers.Stay close to customersSources: Collins, J. C., & Porras, J. I Built to Last. NewYork: HarperBusiness; Graham, A. B The Learning Organization: Managing Knowledge for Business Success; Mitchell, R Masters of innovation. Business Week, April 10: 58-63; Osborn, T The new product champions: How 3M manages for innovation. Marketing communications, 13(11):
12 Dimensions of Entrepreneurial Orientation Exhibit 12.5Dimensions of Entrepreneurial OrientationA forward-looking perspective characteristic of a market leader who has foresight.Proactive-nessThrough experimentation and creativity, develop new and novel products, services, processes.Innovative-nessIndependent action by an individual or team to bring forth and implement a business concept.AutonomyDEFINITIONDIMENSIONMaking decisions and taking action without certain knowledge of probable outcomes.Risk takingAn intense effort to outperform rivals, characterized by a combative posture or aggressive response.Competitive Aggressive-nessSource: Covin, J. G., & Slevin, D. P A conceptual model of entrepreneurship as firm behavior. Entrepreneurship Theory & Practice, Fall: 7-25; Lumpkin, G. G., & Dess, G. G Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, 21(1): ; Miller, D The correlates of entrepreneurship in three types of firms. Management Science, 29:
13 Types of Entrepreneurial Risk BusinessVenturing without knowing the probability of success, often due to untested markets and technologies.FinancialThe risk/return trade-off. Includes heavy borrowing and large resource commitments.PersonalRisks to personal reputation, career, and the company that occur by taking stands in favor of some actions.
14 Continuum of Radical and Incremental Innovations Exhibit 12.6Continuum of Radical and Incremental InnovationsRADICAL INNOVATIONINCREMENTAL INNOVATIONLaparoscopic “Keyhole” SurgeryBubble WrapFiber- optic CableSpeech Recognition SoftwareFrozen YogurtEnterprise Resource Planning (ERP)Online Auction ExchangesPolyesterInternet Browser