C HAPTER O NE U NDERSTANDING E NTREPRENEURSHIP

2 Definition of Entrepreneurship  Entrepreneurship is a mindset or way of thinking  Pursuit of Opportunity without regards to Resources Currently Controlled New firm formation Growth Within the context of a corporation Intrapreneurship

3 The Entrepreneurship Process

4 Figure 1.2: Industry Life Cycles Adapted from M. R. Darby and L. G. Zucker, “Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up,” Economic Inquiry, January 2003, pp (January 2003).

5 Table 1.1: Starts and Closures of Employer Firms,

6  Healthy living products  Electronic paging  Voice mail information technology services  Cellular phone services  CD-ROM  Internet publishing and shopping  Desktop computing  Virtual imaging New Industries Launched by the E- Generation

7  Personal computers  Biotechnology  Wireless cable TV  Fast oil changes  PC software  Desktop information  Wireless communications/handheld devices

8 Figure 1.3: Social, Political, and Economic Context of the Entrepreneurial Process Source: Paul D. Reynolds. (2000) National Panel of U.S. Business Start-ups: Background and Methodology. Databases for the Study of Entrepreneurship, Amsterdam: JAI/Elsevier Inc. Vol. 4, pp

9 Job Creation  Entrepreneurial ventures are responsible for significant job creation.  SBA estimates that three-quarter of all net new jobs in 2000 were created by small business.* * U.S. Bureau of the Census; Administrative Office of the U.S. Courts; Endogenous Growth and Entrepreneurial Activities.

10 New Business Failure  Not all entrepreneurs succeed in growing their start-up into an established business.  Survival rates of new businesses vary by industry and demographics.  The vital lesson for an entrepreneur is to minimize the cost of a possible failure: start with robust business mode and test it in the marketplace prior to starting the business.

11 The Backbone of American Economy  Research findings by David Birch of MIT New firms created 81.5 percent of the net new jobs from 1969 to 1976 Small businesses and entrepreneurs created more than 34 million new jobs since1980  Research findings by U.S. Small Business Administration’s Office of Advocacy Small businesses represent 99 percent of all employers Small businesses provide about 75 percent of all new net jobs

12 Innovation and R&D effectiveness of small entrepreneurial firms have resulted in:  95% of the radical innovations that have occurred since WWII  2 times as many innovations per R&D dollar vs. the giants 50% of all innovations 2 times as many innovations per scientist 24 times as many innovations per R&D dollar vs. firms with > 10,000 employees “It ain’t what you don’t know that hurts you. It’s what you know that ain’t true!” (Solow)

13 Moore’s Law & Peter Drucker’s Postulate  Moore’s Law —the power of the computer chip will double every eighteen months at constant price—is actually being exceeded by modern chip technology.  Peter Drucker’s Postulate states that a tenfold increase in the productivity of any technology results in economic discontinuity. (radical innovation) These innovations have led to creation of major new inventions and technologies.

14 Gilder’s & Metcalf’s Law  Gilder’s Law – the total bandwidth of communication systems triples every twelve months. New developments seem to confirm that bandwidth availability will continue to expand at a rate that supports Gilder's Law.  Robert Metcalf's law states that the "value" or "power" of a network increases in proportion to the square of the number of nodes on the network. In other words, if you have four nodes, or computers, on a network, say, an office intranet, its "value" would be four squared (4^2), or 16. If you added on addition node, or PC, then the value would increase to 25 (5^2).

15 Mega-Entrepreneurs Who Started in Their 20s  Microsoft—Bill Gates and Paul Allen  Dell Computers—Michael Dell  Apple Computers—Steve Jobs and Steve Wozniak  Federal Express—Fred Smith  Polaroid—Edward Land  Nike—Phil Knight

16 How the Entrepreneurial Revolution has led to the Demise of “Brontosaurus Capitalism”  Nobel-Prize winning economist “proved” any enterprise < 100 employees was irrelevant to the study of economics and policy making  New ventures have created value: Source: Forbes 500s Annual Directory 2002 Sales in 2000 (B) Employees in 2000 (K) Mkt.Capitalization(B) in Mid-March 2001 GM, Ford, Chrysler Total Intel, Microsoft, Cisco Sys. Total

17 Entrepreneurship as an Equalizer and Mobilizer  Indifferent to race, religion, sex, or geography  Rewards performance and punishes shabbiness and ineptness  Greatest chance for self-sufficiency, self- determination, and economic improvement

18 The Nature of Entrepreneurs  Entrepreneurial Characteristics: Risk-taking Need for achievement A sense of independence Internal locus of control Tolerance for ambiguity

19 America’s Self-Made Millionaires  The Millionaire Next Door by Thomas J. Stanley and William D. Danko Millionaire—a person with a net worth of $1 million or more Made their fortune in LOW technology industries

20 Moving On Up Income quintile in 1975Percent in each quintile in st 2 nd 3 rd 4 th 5 th 5 th (highest) th rd (middle) ND ST (lowest)

21 The Global Economic Weapon  Global Entrepreneurship Monitor 2000 Report High levels of entrepreneurial activity equals above average economic growth Top three of twenty-one countries surveyed  Brazil  Korea  United States

22 Global Entrepreneurship Monitor ENTREPRENEURIAL ACTIVITY IN 2007 ACROSS THE GLOBE 12  Entrepreneurial Activity and the Link with Economic Development  Entrepreneurial Activity in Country Groups  Development of Early-Stage Entrepreneurial Activity 2002–2007  Entrepreneurial Motivations

23 Global Entrepreneurship Monitor CHARACTERISTICS OF ENTREPRENEURIAL ACTIVITY 2  Age and Gender Structure  High-Growth Expectation Entrepreneurial Activity  Innovation-Oriented Entrepreneurial Activity  Discontinuing a Business: How Many Entrepreneurs Do It and Why

24 Global Entrepreneurship Monitor GLOBAL ECONOMIC INSTITUTIONS, NATIONAL REGULATIONS, AND ENTREPRENEURSHIP  What’s At Stake  Domestic Entrepreneurial Framework Conditions and Global Institutions  EFC Focus: Regulations for New and Growing Businesses  Entrepreneurial Activity and Global Aid Institutions  Entrepreneurs as Agents of Change in the Global Economy