Entrepreneurs and opportunities The four constructs of entrepreneurship

An entrepreneur is the person who destroys the existing economic order by introducing new products and services, by introducing new methods of production, by creating new forms of organization, or by exploiting new raw materials. Definition of entrepreneurship Schumpeter An entrepreneur is a person who perceives an opportunity and creates an organization to pursue it.* * Note that in order to be an entrepreneur, having an idea is necessary, but not sufficient. One must act upon the opportunity Simpler

The Four Constructs of Entrepreneurship

The four constructs of entrepreneurship 1) The Opportunity –Clear customer need for the proposed product or service? Is it attractive (a good fit for the entrepreneur), durable (enduring long enough to earn a desirable return on investment), timely (the market is ready to accept this solution), and grounded in a product or service that deliver value to a customer group? – Key question: How is your solution to the opportunity different from what your customers are currently using? 2) The Lead Entrepreneur and Management Team –Experience within the proposed industry can be essential to success. –Investors and other backers prefer to see a track record of driving growth and profits. –An ‘A’ team with a ‘B’ idea is almost always better than the opposite. –An entrepreneur’s insights into an opportunity are based on her/his experience, education, and cognitive abilities

The four constructs of entrepreneurship 3) Resources Resources include capital ($), technology, equipment, property, and people (advice, hands-on workers, advocates, etc.) The entrepreneur’s mantra is one of Low Overhead, High Productivity, and Controlling but not Owning resources The best entrepreneurs are incredibly creative at finding ways to get things done inexpensively and effectively. They always find ways to do things faster, cheaper, or better 4) Uncertainty Unlike risk, uncertainty does not have a distribution curve; you cannot predict what will happen under uncertainty; entrepreneurs “act” in small or large resource commitments to reduce uncertainty. You can think of uncertainty as a type of “pollution” that keeps other people from seeing the opportunity or prevents them from pursuing it.

Opportunities versus “ideas” An opportunity is a situation in which something can be improved, usually when value can be created for a constituency and captured by the creator An idea is a conception of how to make the improvement Both are subjective to the extent that they are non-obvious (e.g., how Tivo could improve television)

Entrepreneurial opportunities defined Situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at a price that is greater than their cost of production (Casson, 1982) An opportunity that is attractive, durable, timely, and grounded in a product or service that delivers value to a customer (Armstrong)

Sources of opportunities Technological innovations Regulatory changes Discovery of new uses for “old” materials Changes in industry or market structure Demographics Changes in perception, mood, or meaning New knowledge, both scientific and nonscientific

Identify and evaluate the opportunity Opportunity identification: the process by which an individual comes up with an opportunity for a new venture The opportunity can be identified by using input from consumers, business associates, channel members, or “technical people” Entrepreneur must understand the cause of the opportunity – is it technological change, market shift, government regulation, or competition?

Functions of entrepreneurship Entrepreneurship involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them. These include: –Market and Customer Research –Service and Product Innovation (features, value) –Differentiating offer from competitors’ offerings –Team Building –Finding & Managing Resources (people, capital, equipment) –Leadership

Entrepreneurship is an iterative, multi-stage process The term “iterative” means that you are constantly testing and refining your concept of the opportunity until you find the right offering and right target market The term “multi-stage process” means that you must engage in several steps (see next two slides) in order to realize a reward for your entrepreneurial pursuits

Taken together… Opportunity recognition or creation Creativity Experience and related knowledge Opportunity evaluation Market valuation Opportunity exploitation Logistics “Fit” analysis Growth and profit Marshal resources

Adding the environment…

Entrepreneurship profile Attitudes –Perceived opportunities and capabilities –Fear of failure –Social status of entrepreneurship Activity –Opportunity- / necessity-driven –Early stage, established, exit Aspirations –Growth, innovations, international orientation 14

Factors Influencing the Decision to Start a Company Higher Internal Locus of Control Desire for Financial Success Desire to Achieve Self-Realization Desire for Recognition Joy of Innovation Risk Tolerance Personal Attributes Environmental Factors Local, Regional, or National attitudes towards entrepreneurship Social and cultural pressures for or against risk taking and entrepreneurship Access to entrepreneurial role models Responsibilities to family and community No single type of person is best suited for entrepreneurship! Entrepreneurs come from all walks of life

Run a prison! Attractive? Timely? Durable? Grounded in a product or service that delivers value to a customer? Do you see yourself thriving in an environment of being an entrepreneur in the prison industry?

Type writer repair! Attractive? Timely? Durable? Grounded in a product or service that delivers value to a customer?

Customer list Then –Everyone Now –NYPD desk cops –Stubborn “hangers-on” –Urban retro hipsters See also:

Pet rocks! Attractive Timely? Durable? Grounded in a product or service that delivers value to a customer?

Gary Dahl and pet rocks Hears friends complain about their pets Creates “perfect pet!” Apr 1975 Jun 1975 Dec 1975 Sales spike up to Christmas Feb 1976 Discounted due to decrease in sales Mar 1976 Fad ends; Dahl sells 1.5M rocks, becomes millionaire