1. Entrepreneurship
CHAPTER 7
Copyright zlikovec/Shutterstock.com RF

2. Chapter Introduction Quote
“A man is known by the company he organizes.” Ambrose Bierce

3. Learning Objectives
1 Describe why people become entrepreneurs and what it takes, personally. 2 Summarize how to assess opportunities to start new businesses. 3 Identify common causes of success and failure. 4 Discuss common management challenges. 5 Explain how to increase your chances of success, including good business planning. 6 Describe how managers of large companies can foster entrepreneurship.

4. Entrepreneurship
The pursuit of lucrative opportunities by enterprising individuals To initiate and build an organization rather than being only a passive part of one Discovering, evaluating, and capitalizing on opportunities to create new and future goods and services
Entrepreneurship occurs when an enterprising individual pursues a lucrative opportunity. To be an entrepreneur is to initiate and build an organization rather than being only a passive part of one. The entrepreneurial process involves discovering, evaluating, and capitalizing on opportunities to create new and future goods and services.
Creating value is a central objective of entrepreneurship, just as it is in strategic management. Wealth may be an entrepreneur’s ultimate goal, but it won’t come without providing value for other individuals, organizations, and/or society.
Copyright The Traveller Tours

5. Entrepreneurial Venture
Small business A business having fewer than 100 employees, independently owned and operated, not dominant in its field, and not characterized by innovative practices
Entrepreneurial venture A new business having growth and high profitability as primary objectives
How does entrepreneurship differ from managing a small business? A small business is often defined as having fewer than 500 employees, being independently owned and operated, not dominant in its field, and not characterized by many innovative practices. Small-business owners tend not to manage particularly aggressively, and they expect normal, moderate sales, profits, and growth. In contrast, an entrepreneurial venture has growth and high profitability as primary objectives. Entrepreneurs manage aggressively and develop innovative strategies, practices, and products. They and their financial backers usually seek rapid growth, immediate and high profits, and sometimes a quick sellout with large capital gains.

6. Some Myths about Entrepreneurship
Entrepreneurs are born, not made.
Entrepreneurs experience a great deal of stress and pay a high price.
Anyone can start a business.
If an entrepreneur is talented, success will happen in a year or two.
Entrepreneurs are gamblers.
Entrepreneurs want the whole show to themselves.
Entrepreneurs are lone wolves and cannot work with others.
Entrepreneurs are their own bosses and completely independent.
Entrepreneurs work longer and harder than managers in big companies.
Simply put, entrepreneurs generate new ideas and turn them into business ventures. But entrepreneurship is not simple, and is frequently misunderstood; we need more research and theory, although we do have a lot of useful knowledge. Review Exhibit 7.1 (recreated here) to start thinking about the myths an realities of this important career option.

7. Entrepreneur or Intrapreneur
Individuals who establish a new organization without corporate sponsorship
Intrapreneurs
New-venture creators working inside big companies
Entrepreneurs are individuals who establish a new organization without the benefit of corporate support.
Intrapreneurs are new venture creators working inside big companies; they are corporate entrepreneurs, using their company’s resources to build a profitable line of business based on a fresh new idea.
Thus, entrepreneurship is an activity that can should contribute greatly to mature organizations. Entrepreneurship is vitally important across the entire life cycle of an organization.

8. Successful Entrepreneurs Who Started in Their 20s
Entrepreneurial Company
Founder(s)
Snapchat
Evan Spiegel
Facebook
Mark Zuckerberg
Suja Juice
Annie Lawless
Google
Sergey Brin and Larry Page
Instagram
Kevin Systrom
Microsoft
Bill Gates and Paul Allen
Pinterest
Ben Silbermann and Evan Sharp
PartPic
Jewel Burks
Spotify
Daniel Ek
Zero Waste Solutions
Shavila Singh
Apple
Steve Jobs and Steve Wozniak
Exhibit 7.2 (recreated on this slide) lists some extraordinary entrepreneurs. The companies they founded are famously successful—and all of the founders started in their 20s.
SOURCES: Heath, A. and Stone, M., "The Fabulous Life of Snap CEO Evan Spiegel," Business Insider, March 3, 2017, Howard, C. and Inverso, E., "Forbes 30 Under 30," Forbes, accessed March 25, 2017; Borison, R., “10 Entrepreneurs Who Can’t Be Overshadowed by Men–Even in Silicon Valley,” Inc. (online), December 18, 2014, Blake, Brock, “Why 20-Somethings Are the Most Successful Entrepreneurs,” Forbes, November 30, 2012,

9. Exhibit 7.3 Who Is the Entrepreneur?
What can we learn from the people who start their own companies and succeed? What enables entrepreneurs to succeed? In general terms, Exhibit 7.3 shows that successful entrepreneurs are innovators who also have good knowledge and skills in management, business, and networking. In contrast, inventors may be highly creative but may lack the skills to turn their ideas into a successful business.
Jump to Appendix 1 for long description of image.
Timmons, J. A. and Spinelli Jr., S., New Venture Creation: Entrepreneurship for the 21st Century, 7th ed., 2007, pp. 67–68. Copyright ©2007 McGraw-Hill Global Education Holdings LLC. All rights reserved. Used with permission.

10. The Idea
A great product, a viable market, and good timing are essential ingredients in any recipe for success. Many great organizations have been built on the founder’s desire to build a great organization rather than to offer a particular product.
You need a good idea, and you need to find or create the right opportunity.
Many entrepreneurs and observers say that in contemplating your business, you must start with a great idea. A great product, a viable market, and good timing are essential ingredients.
Many great organizations have been built on a different kind of idea: the founder’s desire to build a great organization rather than to offer a particular product.
Copyright Brian Ach/Getty Images

11. Opportunities Entrepreneurs Should Consider
Technological discoveries Demographic changes Lifestyle and taste changes Economic dislocations Calamities Government initiatives and rule changes
To spot opportunities, think carefully about events and trends as they unfold. Consider, for example, the possibilities listed on the slide.

12. Franchising
Franchising is an entrepreneurial alliance between a franchisor and a franchisee. It presents an opportunity to adopt a proven business concept. It provides the franchisor the opportunity for growth.
One important type of opportunity is the franchise. Franchising is an entrepreneurial alliance between two organizations: the franchisor and the franchisee. The franchisor is the innovator who has created at least one successful store and seeks partners to operate the same concept in other local markets. For the franchisee, the opportunity is wealth creation via a proven (but not failure proof!) business concept, with the added advantage of the franchisor’s expertise.

13. The Next Frontiers Big Data Space Healthcare
The next frontiers for entrepreneurship—where do they lie? Throughout history, aspiring entrepreneurs have asked this question.  
Source: NASA

14. Internet Business Models
Transaction fee model
Charging fees for goods and services
Subscription model
Charging fees for site visits
Advertising support model
Charging fees to advertise on a site
Intermediary model
Charging fees to bring buyers and sellers together
Affiliate model
Charging fees to direct site visitors to other companies’ sites
At least five successful business models have proven successful in the e-commerce market: transaction fee, advertising support, intermediary, affiliate, and subscription models.
In the transaction fee model, companies charge a fee for goods or services. In the advertising support model, advertisers pay the site operator to gain access to the demographic group that visits the operator’s site.
eBay is a prime example of the intermediary model, bringing buyers and sellers together and charging a commission for each sale.
With the affiliate model, sites pay commissions to other sites to drive business to their own sites.
Finally, websites using the subscription model charge a monthly or annual fee for site visits or access to site content

15. Social Entrepreneurship
Social Entrepreneurships leverage resources to address social problems. They are organizations using market-based methods to facilitate social entrepreneurship are termed social enterprises. Social enterprises create social value.
Social entrepreneurship has been around for decades, but is surging in popularity and impact and as a focus for academic research.
Social entrepreneurship been defined in many ways, but most fundamentally it refers to leveraging resources to address social problems.
It does so by using market-based methods.
Organizations that do this are social enterprise.
Social entrepreneurship creates social value by stimulating social change or meeting social needs
Copyright Imeh Akpanudosen/Getty Images

16. Examples of Social Enterprises
Company Name
Description
40K Plus Education
Sets learning “pods” in rural villages that offer tablet-based after-school tutoring to students of government and low-cost private schools.
Barrier Break
Employs deaf people to provide services for those who are hearing impaired online, utilizing an innovative “Sign-and-Talk” business over video-enabled web connections.
Buy42.com
Promotes sustainable living and resells goods collected from individuals and businesses online with a proportion of the revenue being used to fund charity projects.
This table partially recreates Exhibit 7.2.

17. Social Enterprise Empowering Latina Entrepreneurs
Nely Galan founded Adelante, a movement “designed to empower Latinas in the United States economically through inspiration, motivation, training, and resources on entrepreneurship.”
What factors are motivating Galan to help Latinas become successful entrepreneurs?
Why do you think Coca-Cola, a consumer products company, is collaborating with Galan to empower women entrepreneurs?
What factors are motivating Galan to help Latinas become successful entrepreneurs?
Galan’s childhood idol has taught her that successful entrepreneurship by a woman is most definitely possible. Making Latinas more financially successful is important as this population is set to drastically grow to 13 percent of the U.S. population by A more financially savvy Latina community will have a positive impact on Latina families and communities. This ties in perfectly with social entrepreneurship.
Why do you think Coca-Cola, a consumer products company, is collaborating with Galan to empower women entrepreneurs?
Coca-Cola’s sales are based off of consumer consumption of its products. When you look at the fact that the U.S. domestic market is turning towards a 13 percent Latina population, it is important for Coca-Cola to insure the success of its consumer base. This is how a social entrepreneurship venture can turn into a profitable venture for a large company like Coca-Cola.

18. What Does It Take, Personally?
Commitment and determination
Leadership
Opportunity obsession
Tolerance of risk, ambiguity, and uncertainty
Many people assume that there is an entrepreneurial personality. No single personality type predicts entrepreneurial success, but you are more likely to succeed as an entrepreneur if you exhibit certain characteristics as depicted on this slide.
Creativity, self-reliance, and ability to adapt
Motivation to excel

19. Exhibit 7.5 Entrepreneurial Strategy Matrix
Success is a function not only of personal approaches but also of making good choices about the business you start. Exhibit 7.5 presents a model for conceptualizing entrepreneurial ventures and making the best possible choices. It depicts ventures along two dimensions: innovation and risk.
Jump to Appendix 2 for long description of image.
SOURCE: Sonfield and Lussier, “Entrepreneurial Strategy Matrix: A Model of New and Ongoing Ventures,” Business Horizons, May–June 1997.

20. Incubators and Accelerators
Business incubators
Protected environments for new, small businesses
Offer benefits such as low rents and shared costs for up to a 5-year period
Business accelerators
A 3- to 6-month intensive process designed to help entrepreneurs build and launch rapidly successful ventures
Accelerators receive an equity stake
Business incubators, are protected environments for new, small businesses. Incubators offer benefits such as low rents and shared costs for up to a 5-year period Whereas a business incubator hatches new businesses in a gradual way in a noncompetitive environment, a business accelerator is a 3- to 6-month intensive process designed to help budding entrepreneurs build and launch rapidly successful ventures.

21. Common Management Challenges
You might not enjoy it. Survival is difficult. Growth creates new challenges. It’s hard to delegate. Misuse of funds. Poor controls. Mortality and succession.
As an entrepreneur, you are likely to face several common challenges that you should understand before you face them and then manage effectively when the time comes.

22. Initial public offering (IPO)
Sale to the public, for the first time, of federally registered and underwritten shares of stock in the company
Many entrepreneurs prefer to avoid going public, feeling they’ll lose control of their business. But, often companies reach a point at which the owners want to go public. Initial public stock offerings (IPOs) offer a way to raise capital through federally registered and underwritten sales of shares in the company.

23. Increasing Your Chances of Success
Opportunity analysis
A description of the good or service, an assessment of the opportunity, an assessment of the entrepreneur, specification of activities and resources needed to translate your idea into a viable business, and your source(s) of capital
The first formal planning step is to do an opportunity analysis.
An opportunity analysis includes a description of the good or service, an assessment of the opportunity, an assessment of the entrepreneur (you), a specification of activities and resources needed to translate your idea into a viable business, and your source(s) of capital.
The opportunity analysis, or opportunity assessment plan, focuses on the opportunity, not the entire venture. It provides the basis for making a decision on whether to act.

24. Questions the Opportunity Analysis Should Address
What market need does my idea fill?
What competition exists in this market?
What personal observations have I experienced or recorded with regard to that market need?
How would I describe the behavior of this competition? What does the international market look like?
What social condition underlies this market need?
What does the international competition look like?
What market research data can be marshaled to describe this market need?
Where is the money to be made in this activity?
What patents might be available to fulfill this need?
Exhibit 7.6 (recreated on this slide) shows the questions you should answer in an opportunity analysis.
Hisrich, R. and Peters, M., Entrepreneurship: Starting, Developing, and Managing a New Enterprise, p. 41. Copyright ©1998 McGraw-Hill Global Education Holdings LLC. All rights reserved. Used with permission.

25. Planning Business plan
A formal planning step that focuses on the entire venture and describes all the elements involved in starting it
The business plan describes all the elements involved in starting the new venture. The business plan describes the venture and its market, strategies, and future directions. It often has functional plans for marketing, finance, manufacturing, and human resources.
Copyright John Lund/Marc Romanelli/Getty Images RF

26. Outline of a Business Plan
Executive summary
The industry and the company and its product(s) or service(s)
Market research and analysis
The economics of the business
Marketing plan
Design and development plans
Manufacturing and operations plan
Management team
Overall schedule
Critical risks, problems and assumptions
The financial plan
Proposed company offering
Appendixes

27. Five Key Factors
The people The opportunity The competition The context Risk and reward
The best plans convey—and make certain that the entrepreneurs have carefully thought through—five key factors: the people, the opportunity, the competition, the context, and risk and reward.

28. Nonfinancial Resources
Legitimacy
People’s judgment of a company’s acceptance, appropriateness, and desirability, generally stemming from company goals and methods that are consistent with societal values
Social capital
A competitive advantage in the form of relationships with other people and the image other people have of you
Advisory Board
Board members with business experience can help an entrepreneur learn basics such as how to do cash flow analysis, identify needed strategic changes, and build relationships
An important resource for the new venture is legitimacy—people’s judgment of a company’s acceptance, appropriateness, and desirability.
The entrepreneur is aided greatly by having a strong network of people. Social capital—being part of a social network and having a good reputation—helps entrepreneurs gain access to useful information, gain trust and cooperation from others, recruit employees, form successful business alliances, receive funding from venture capitalists, and become more successful. Social capital provides a lasting source of competitive advantage. Whether or not the company has a formal board of directors, entrepreneurs can assemble a group of people willing to serve as an advisory board. Board members with business experience can help an entrepreneur learn basics such as how to do cash flow analysis, identify needed strategic changes, and build relationships with bankers, accountants, and attorneys.

29. Building Support for Your Idea
Clear the investment with your immediate boss.
Make cheerleaders who will support your idea.
Horse trading for support, time, money, and other resources.
Get the blessing of relevant higher-level officials.
Large corporations are more than passive bystanders watching entrepreneurs create new businesses. Even established companies try to find and pursue new and profitable ideas—and they need in-house entrepreneurs (sometimes called intrapreneurs).
Copyright ZUMA Press, Inc./Alamy Stock Photo

30. Building Intrapreneurship
Skunkworks
Bootlegging
A project team designated to produce a new, innovative product
Informal work on projects, other than those officially assigned, of employees’ own choosing and initiative
Two well-known approaches used to stimulate internal entrepreneurial activity are skunkworks and bootlegging.
Skunkworks are project teams designated to produce a new product. Bootlegging refers to informal efforts—as opposed to official job assignments—in which employees work to create new products and processes of their own choosing and initiative.

31. Entrepreneurial Orientation
The 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 or services
Determined by five tendencies:
Allowing independent action
Innovativeness
Risk taking
Proactiveness
Competitive aggressiveness
Entrepreneurial orientation is the tendency of an organization to engage in activities designed to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods or services. Entrepreneurial orientation is determined by five tendencies.

32. Management in Action Starbucks its retaining its entrepreneurial spirit
Starbucks places value on entrepreneurship, even as it has become a worldwide corporate brand operating thousands of stores in more than 60 countries around the world.
How successfully does Starbucks embody an entrepreneurial orientation? How willing to take risks does it appear to be?
What evidence do you see that Starbucks supports intrapreneurial behavior? What are some of the risks a large company takes in doing so?
Howard Schulz recently stepped down as CEO’s of Starbucks, the company he founded, to return to a more entrepreneurial role within the company. He will be in charge of developing two new premium brands.
How successfully does Starbucks embody an entrepreneurial orientation? How willing to take risks does it appear to be?
While student answers will vary, Starbuck’s continual initiatives and its continued success in a now crowded market may indicate a healthy entrepreneurial culture within the firm.
What evidence do you see that Starbucks supports intrapreneurial behavior? What are some of the risks a large company takes in doing so?
The position of entrepreneur in residence and the desire to foster a culture of innovation communicates a desire for intrapreneurial behavior. The scale of the organization may demand a level of consistency which could limit such behavior.

33. In Review
1 Describe why people become entrepreneurs and what it takes, personally. 2 Summarize how to assess opportunities to start new businesses. 3 Identify common causes of success and failure. 4 Discuss common management challenges. 5 Explain how to increase your chances of success, including good business planning. 6 Describe how managers of large companies can foster entrepreneurship.
This slide may be used to facilitate a review and questioning.
This concludes Part Two of the text section on “Planning: Delivering Strategic Value.”
Chapter 8 will start Part 3 of the text “Organizing, Building a Dynamic Organization.”