McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Chapter 7 Entrepreneurship

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Learning Objectives After studying Chapter 7, you will know: the activities of entrepreneurship how to find and evaluate ideas for new business ventures what it takes to be a successful entrepreneur how to write a great business plan the important management skills, resources, and strategies needed to avoid failure and achieve success key criteria for deciding whether your start-up should be global from the outset how to foster intrapreneurship and entrepreneurial orientation in large companies

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Introduction Entrepreneurship the pursuit of lucrative opportunities by enterprising individuals initiate and build an organization create new systems, resources, or processes to produce new goods or services and/or to serve new markets differs from managing a small business A small business has fewer than 100 employees is independently owned and operated is not dominant in its field is not characterized by many innovative practices

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Introduction (cont.) Entrepreneurial venture has growth and high profitability as its primary objectives is managed aggressively develops innovative strategies, practices, and products Sources of new venture creation independent entrepreneurship - individual establishes a new organization without the benefit of corporate support intrapreneurs - corporate entrepreneurs who create a new venture working in big organizations

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs Why become an independent entrepreneur? enjoy the challenge and profit potential seek independence and a feeling of being part of the action experience the satisfaction in building something from nothing see their progress blocked in big corporations new immigrants may be blocked from conventional means of advancement

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) What business should you start? the idea - a great product, an untapped market, and good timing are essential ingredients for success personal inspiration is a great source of ideas idea may be the founder’s desire to build a great organization sees the product as a vehicle for the company the opportunity - entrepreneurs spot, create, and exploit opportunities in a variety of ways

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Lifestyle and taste changes To spot opportunities, be aware of: Technological discoveries Calamities Economic dislocations Demographic changes Government rules changes Spotting Opportunities

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) What business should you start? (cont.) franchises the next frontier - outer space huge demand for satellite launches entrepreneurs face large obstacles the internet side streets - heading down a road reveals unknown places unexpected opportunities begin to appear prepare to enable quick and effective action should an opportunity appear

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Commitment and determination Creativity, self-reliance, adaptability Tolerance of risk and uncertainty Leadership Motivation to excel Opportunity obsession What Does It Take To Be A Successful Entrepreneur? Successful entrepreneurs typically have:

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) What does it take to be successful? making good choices new ventures differ along two dimensions innovation - creation of something new and different risk - probability of major financial loss psychological risk to reputation and ego entrepreneurial strategy matrix matrix helpful in determining whether a particular venture meets entrepreneur’s particular objectives matrix helps identify effective strategies new ventures do not always require cutting-edge technology or a new product

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved LowHigh Risk (probability of a major loss) High innovation High risk Low innovation Low risk Low innovation High risk High innovation Low risk Low High Innovation (creating a unique and different product/service) The Entrepreneurial Strategy Matrix

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs The role of the economic environment entrepreneurs find success in favorable business environments success also depends upon the foresight and talent to survive hostile environments bad times can offer an opportunity to expand business incubators - protected environments for new, small businesses offer low rents and shared costs staff manager advises the new business owner often universities provide technical and business services have been successful throughout the U.S. and other regions of the world

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Entrepreneurial hazards hazards of striking out on your own are many poor understanding about new products or new geographic areas may find out after starting a company that you don’t enjoy it survival is difficult growth creates new challenges failure can be devastating Inadequate delegation – entrepreneur’s desire to personally control every aspect of the business Active leadership deteriorates into micromanagement

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Entrepreneurial hazards (cont.) misuse of funds - two types of mistakes apply financial resources to the wrong uses maintain inadequate control over financial resources poor planning and controls - failure to anticipate problems aversion to record keeping failure to maintain vigilance over other aspects of the business mortality - fate of the venture after the founder’s death venture can outlive founder if: company has gone public founder has planned an orderly family succession entrepreneurs seldom do either

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Planning opportunity analysis - provides the basis for making a decision on whether to act includes: a description of the product or service an assessment of the opportunity and the entrepreneur a specification of required activities and resources sources of capital

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Questions That Must Be Answered In An Opportunity Analysis What market need does my idea fill? What personal observations have I experienced or recorded with regard to that market need? What social condition underlies this market need? What market research data can be marshaled to describe this market need? What patents might be available to fulfill this need? What competition exists in this market? How would I describe the behavior of this competition? What does the international market look like? What does the international competition look like? Where is the money to be made in this activity?

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Planning (cont.) business plan - formal planning step that focuses on the entire venture and describes all the elements involved in starting it describes the venture and its market, strategies, and future directions helps determine the viability of your enterprise guides planning and organizing helps to obtain financing

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Planning cont.) key planning elements beyond the financial projections are: people - should be energetic, have skills and relevant expertise the most important element opportunity - should allow a defensible competitive advantage competition - identify competitors and their strengths and weaknesses predict competition’s responses to a new venture consider how to collaborate with competitors contexts - economic and regulatory environments should be favorable risk - must be understood and fully addressed

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Planning (cont.) selling the plan - who you try to convince to back the plan is important passive versus sophisticated investors today plans need to be developed and enacted quickly nonfinancial resources - crucial to success of new venture networks - create social capital top management teams - affect company image, develop long- term plans, support daily activities, and create information networks advisory boards - provide expertise about a variety of specific business matters and pass judgment on new ideas

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurs (cont.) Planning (cont.) nonfinancial resources (cont.) partners - help one another access capital, spread the workload, share the risk, and furnish expertise must: acknowledge one another’s talents communicate honestly listen to one another learn to trust each other

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Intrapreneurship Building support for your idea must build a network of allies who support and will help implement the idea steps in building support include: clear the investment with your immediate boss or bosses make cheerleaders - people who support the manager before formal approval from higher levels horse trading- offer promises of payoffs from the project in return for sponsor support get the blessing of relevant higher officials guarantee the project’s technical and political feasibility

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Intrapreneurship (cont.) Building intrapreneurship skunkworks - project team designated to produce a new, innovative product have a specific goal and time frame headed by a respected manager risk takers are not punished for taking risks and failing bootlegging - informal (secretive) efforts by managers and employees to create new products or new processes intrapreneurial organization should tolerate and even encourage bootlegging

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Intrapreneurship (cont.) Organizing new corporate ventures strategic alliances may be required for large scale innovation involves cooperation among different organizations large companies outsource for innovation, providing entrepreneurial opportunities for small firms

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Intrapreneurship (cont.) Hazards in intrapreneurship obvious risk: the effort can fail subtler, but possibly greater, risk is failing to foster intrapreneurship greatest risk is overreliance on a single project it is also risky to spread intrapreneurial efforts over too many projects hazards are related to scale one large project is a threat as are too many underfunded projects

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Entrepreneurial orientation tendency of an organization to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods and services determined by five tendencies allow independent action innovativeness risk taking proactiveness competitive aggressiveness Intrapreneurship (cont.)