2. Entrepreneurship

3. Entrepreneurship Glenn Muske Micro Business Specialist Oklahoma State University

4. Outline  Entrepreneurship –Myths –Defined –Opportunity, Risk and Reward –What the social sciences tell us  Entrepreneurs and the community –Entrepreneurs vs. small business owners & others –Role of entrepreneurs in the local economy –Building an entrepreneurial community  Entrepreneurial examples  Special entrepreneurial situations  Final thoughts

5. Personal Passion The freedom to pursue personal passion leads many to start businesses. “Nothing great in the world has been accomplished without passion.” George Wilhelm Friedrich Hegel German Philosopher (1770-1831)

6. Questions often asked but aren’t the most important 1. What can I do? What business should I start? 2. Can I get a grant? 3. What business will earn lots of money? 4. What about e-commerce?

7. Questions often not asked but should be!! 1. Am I an entrepreneur? 2. Is there a market? 3. Can I profitably tap that market? 4. How do I get to market? - E-commerce is just a means to market

8. The Myths of Entrepreneurship

9. Myth #1  Get Rich Quick!  Truth is –Life as an entrepreneur is not about money. –Success rarely happens overnight. –It's about what you want to do with your life.

10. Myth # 2  You must be born an entrepreneur (trait theory)  Truth is: –some of the most successful entrepreneurs are the most unlikely. –It is a lifestyle choice, not an accident.

11. Myth # 3  You must be at the right place at the right time (environment theory)  Truth is: –successful entrepreneurs operate whatever the macroeconomic and structural factors are

12. Myth # 4  "I'll have all this free time…"  Truth is entrepreneurs work many hours –advantages are:  control of time  variety of tasks

13. Myth # 5  It get easier.  Truth is it gets more challenging –must work faster, smarter & longer –must enjoy the battle

14. Myth # 6  If you build it, they will come.  Truth is building your business is just the start. Next is the real work: –planning –timing –strategizing and more.

15. Myth # 7  It's all about the bottom line.  Truth is that the bottom line is necessary but not sufficient –purpose and meaning to the business –inspire customers and employees

16. Myth # 8  Entrepreneurs are risk takers  Truth – Entrepreneurs are calculators –Studies show entrepreneurs are only moderate risk takers

17. Myth # 9  You have to have a great idea  Truth –Your idea must be good –Your idea must be doable –Your idea must be wanted or needed –Your idea must be priced right

18. Myth # 10  It takes a lot of money  Truth – Over 50% start for under $10,000 –Also look for  Certain business types  Turn-around situations  Possibility of using other people’s money

19. Entrepreneur’s goal is  By finding new solutions to existing problems  Or by connecting existing solutions to unmet needs or new opportunities” SOURCE: Lichtenstein & Lyons, Incubating New Enterprises: A Guide to Successful Practice, 1996 “to create or capitalize on new economic opportunities through innovation

20. Entrepreneurship Definitions: 1. Creation of an innovative economic organization for the purpose of gain or growth under conditions of risk and uncertainty 2. Self-employment through business ownership that includes significant elements of risk, control, and reward (Coleman Foundation) 3. Organizing a business venture assuming a certain amount of risk to make a profit (Burns and Bolton)

21. More Definitions:  Profits from bearing uncertainty and risk  Purposeful activity to initiate and develop a profit-oriented business  Moderate risk taking  Creation of new organizations  The pursuit of opportunity without regard to resources currently controlled

22. Entrepreneurship: Basic Elements 1. Opportunity recognition 2. Creation and/or innovation 3. Resource gathering and the founding of an economic organization 4. Desiring the chance for gain while accepting risk and uncertainty

23. Other Entrepreneurial Motivators

24. LIFE STYLE Time With Family

25. ?? Tell a time when you were entrepreneurial ?? Were you successful??

26. Opportunity Recognition

27. An Entrepreneurial Opportunity defined:  A situation in which changes in which changes in technology, or economic, political, social, and demographic conditions generate the potential to create something new or to remarket something existing.

28. Entrepreneurial Opportunity Grid Product/Service Existing New Existing New Market Market Penetration Diversification New Offering Development Market Development

29. What are opportunities?  Small steps  Little jumps  Huge leaps

30. "Don't be afraid to take a big step if one is indicated; you can't cross a chasm in two small jumps." David Lloyd George

31. Opportunities can be...  Technical or scientific  Political and regulatory  Process or production method  Organizing  New market and marketing  Personnel  Social & demographic changes  New raw material  Product obsolescence  Corporate stagnation  One-product vulnerability  Chance

32. Think like a…..  Manager – Problem solving  Entrepreneur – Opportunity Exploitation

33. Opportunities  External –Unexpected event –Technology changes and convergence –Change in methods –Demographics/market – size, –Changes in competition  Internal  Other methods

34. The Opportunity Myth An Idea does not equal an Opportunity

35. Creation & Innovation

36. Creativity “ Imagination is more important than knowledge” - Einstein

37. The Creative Process  Planning & definition –focus on building the RIGHT product  Design, demonstration & customer support –focus on building the product RIGHT

38. Customer requirement Find a consumer Product Technology NOT Product solution

39. Basic questions  What is the customer’s need? –How large is the opportunity? –How likely is it to happen? –What is the market timing? –Is it aligned with our organizational strengths?

40. Time is money! Delays give others time to develop the same product.

41. Reduce product development time by 1/3 & you will triple profits & growth.

42. Exercise  In groups of 3-4, think of 3 things you have observed externally lately that would be a potential business opportunity.

43. Resource Gathering Resourced-based Theory of Entrepreneurship

44. Dimensions of Entrepreneurship New Venture Creation Individual Characteristics Constraints in the Environment OrganizationEnvironment

45. Resource  any thing or quality that is useful  used to develop sustainable competitive advantage  heterogeneous & immobile –you have them, others cannot easily get them

46. Strategic Resources  Valuable – Exploit an environmental opportunity  Rare – Not enough for all competitors  Imperfectly imitable – Cannot be merely copied  Non-substitutable

47. Competitive Advantage No Advantage Resource Dimension Advantage CommonValuable Exploits opportunities Readily available & cheap Rare Unique & expensive OrdinaryImitable Complex & ambiguous Many & easy SubstitutableDifficult

48. Types of Resources  Financial  Physical  Human  Technology  Reputation  Organizational

49. Risk and Reward

50. If the business succeeds, the entrepreneur reaps the reward of profits; if it fails, one takes the loss. If the business succeeds, the entrepreneur reaps the reward of profits; if it fails, one takes the loss.

51. Business Failure Rate

52. Statistics  10% of small businesses fail each year  40 - 80% of small businesses do not survive for 5 years  Most small businesses closures do not result in uncovered liabilities  Majority of small business owners who fail will start another business

53. Why do businesses fail? – 2 general categories  Financial  Nonfinancial

54. Financial Reasons  Under-capitalized  Poor cash flow planning  Lack of record keeping  Inadequate financial forecasting and review  Lack of accounting training  Excessive debt

55. Nonfinancial Reasons  Loneliness  Lack of management skills and training  Little passion  Impact of regulations  Inefficiency  Inexperience  Lack of planning

56. "I never failed once. It just happened to be a 200l-step process." Thomas A. Edison

57. Rewards ???

58. "In the realm of ideas everything depends on enthusiasm, in the real world all rests on perseverance." - Johann Wolfgang von Goethe

59. The Social Sciences on “What Makes an Entrepreneur”

60. Trait Theory  Energy/motivation  Business orientation  Business attitude  People skills

61. http://www.sba.gov/starting_business /startup/entrepreneurialtest.html http://www.toolkit.cch.com/tools/dow nloads/swchek.rtf

62. Personality Characteristics  Need for achievement  Locus of control  Risk-taking propensity

63. Career Anchors  Motivate vocational choices  Technical  Managerial  Security  Creativity  Autonomy

64. Sociological Characteristics  Negative displacement  Between things  Positive pull  Positive push

65. Situational Characteristics  Perceptions of desirability  Perceptions of feasibility  Entrepreneurial event

66. Desires Change: –Your life –A product or service –The environment

67. Entrepreneurs and the Community

68. CARE Model (Dr. Mike Woods, Jack Frye, & Stan Ralstin) Creation Attraction Retention Expansion % of New Jobs Created Attraction - 1% Retention & Expansion – 44% Creation – 55%

69. We all want to find the next gazelle!!

70. Entrepreneurs vs. Small Business Owners Carland, Hoy, Boulton, & Carland argue they are different - Entrepreneurs and entrepreneurial businesses involve innovation & growth - Entrepreneurs goal-orientation is different -financial success vs. other criteria -need for achievement/power - Entrepreneurs use strategic management practices

71. Small Business Independently owned and operated, not dominant in its field, and does not engage in any new marketing or innovative practices Owner – Establishes and manages for purpose of furthering personal goals. Business is primary source of income & consumes majority of time & resources. Owner perceived business as extension of personality, intricately bound with family needs and desires.

72. Entrepreneurial Venture Engages in growth and profitability and innovation by introducing new products, new processes, opening new markets, or reorganizes the industry Entrepreneur – Establishes and manages the business for growth and profit. Is innovative and employees strategic management practices.

73. ??QUESTION?? Are entrepreneurs and small business owners the same thing? Why?? Why not?? Does rural make a difference??

74. Comparing Entrepreneurs to Managers and Leaders EntrepreneurManagerLeader InnovatesAdministersInnovates CreatesMaintainsDevelops Sees opportunities See problems Sees the future Asks how and when Asks what and why Makes it happen Does things right Uses influence Builds the team Relies on control Inspires trust

75. Entrepreneurship is a style and a general method of operating, not just a set of business skills. Jerry Gustafson Beloit College

76. Entrepreneurs People who create and grow enterprises  Aspiring entrepreneurs  Survival entrepreneurs  Lifestyle entrepreneurs  Growth entrepreneurs  Serial entrepreneurs  Social entrepreneurs SOURCE: WK Kellogg Foundation

77. Entrepreneurs and the Community What they bring

78. Does it matter what they are called? Both:  Add income to the household and jobs and wealth to the community  Add economic strength to a community  Add stability to a community  Provide the owner with the ability to achieve his or her goals  Create new opportunities within the community - Multiplier

79. Who entrepreneurs are?  Classified as: –Small business –Micro business –Home-based business –Family business  Also: –Underground economy –Informal economy –Formal economy

80. Metro, Micro, Rural Comparison 20% of OK households own & run a business Metro(n=146)Micro(n=54)Rural(n=46) Primary bus. ServiceConstructionRetail Ag/For/Fish Service RetailAg/For/FishConstruction, FIRE & Service Family bus. 62%74%78% Home-based66%63%70% Spouse in bus. 48%46%65%

81. Metro, Micro, Rural Comparison Metro(n=146)Micro(n=54)Rural(n=46) Avg # empl 1.832.042.11 Gross inc. - Mean - Mean - Median - Median$241,891$49,000$333,589$35,000$162,190$40,000

82. The numbers  Small businesses – 16 million nonfarm –OK – 290,000 (employer & nonemployer)  50% of private workforce –OK – 54%  Create 2/3 of all new jobs  52% of all nonfarm output  Micro businesses – ??? –OK – 270,000 – 94%  + 84,000 farm/ranch operations

83. The numbers  Family businesses – 12.7% of households –OK – 185,000 - $6.5 billion inc transferred to family –South – 3.3 million - $109 billion transferred –U.S. – 9.7 million - $348 billion transferred  Home-based businesses – 5% - 18% of hh –OK – 67,000 – 176,000 - $1 - $6.2 billion/year - $1 - $6.2 billion/year

84. Creating Entrepreneurial Communities People Informal Organizations Formal Institutions

85. Entrepreneurial Communities 4 types 1.Those that develop entrepreneurs 2.Those that act entrepreneurially 3.Those that do both 4.Those that do neither

86. Entrepreneurship development the infrastructure of public and private supports that facilitate entrepreneurship Entrepreneurial communities those where significant economic and social entrepreneurial activity exists and where there is an effective system of entrepreneurship development SOURCE: WK Kellogg Foundation

87. Entrepreneurial Communities 1. Has critical mass of entrepreneurs actively engaged in capturing new market opportunities 2. Group of entrepreneurs recognizable within the community 3. Community as a whole is entrepreneurial Social capital (Floras) Human capital-diversity (Florida) Clusters (Porter) Public-Private Partnerships (Tupelo-Grishom) Innovative Infrastructure (Feldman)

88. Theory Expansion  Social capital –Trust, networks, reciprocity, and collective action –Horizontal, vertical, and flexible (not in the group at all times)  Human capital –Education  Beyond high school  Continuous and life-life long  Include specific and general  Inclusive – pre-K – older citizen  Just-in-time –Knowledgeable and involved citizens

89. Theory Expansion  Clusters –Why? – Based on economies of scale, technology transfer & availability of human capital (Eric Scorsone, Industrial clusters: Enhancing rural economies through business linkages, SRDC 21 st Century Series)  Innovative infrastructure –Basics plus items such as a visionary government, day care, & technology

90. Creating an Entrepreneurial Climate 1. Entrepreneurship must be an explicit economic development strategy 2. Community must embrace and nurture entrepreneurs –Goal - A continuous pipeline of entrepreneurs a.Supportive public policies b.Balances regulations with business needs c.Education – early & on-going, formal and nonformal 3. Access to capital – banks, investment, angels 4. Access to quality workers 5. Recognize entrepreneurial efforts

91. Enterprise Development “Assistance to entrepreneurs in support of the creation, growth, and survival of their businesses” Koven & Lyons (2003) nonprofit, private, public service providers youth entrepreneurship programs micro enterprise programs business incubators manufacturing network small business development centers angel capital networks revolving loan funds technology transfer programs

92. Nurturing of Entrepreneurs  Mentors and coaches  Business/management assistance & support –Coordinated, seamless, and local  Access to technology  Technical assistance  Inclusion of all into events, programs, & groups

93. Other Examples: How Communities Can Help  Purchase locally  Help create new local businesses  Develop human resources  Free-up potentially productive space  Initiate local investment strategies (endowments, fundraising, micro- loan programs)  Mobilize external resources

94. Challenges for Sustainable Rural Economic Development 1. Translating models to place- based strategies - no silver bullet 2. Implement strategy with tangible benefits - taxpayers see return on investment 3. Need to create good jobs - self-sustaining wages

95. Challenges for Sustainable Rural Economic Development (cont.) 4. Need for strategies that build on all assets - young, old, men, women, ethnicities 5. Shortage of resources in most small towns. SOURCE: Emery, Wall, Macke, 2004

96. Shortcomings of Enterprise Development #1 Tool-Driven-Not Needs-Focused Worked one-place and one-time Solutions in search of a client base Voice of the customer-the entrepreneur-is missing Entrepreneurial Needs Hard for entrepreneurs to articulate Entrepreneurs may not trust those asking the questions Entrepreneurs difficult to identify and reach SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

97. Shortcomings of Enterprise Development (continued) #2 Fragmented and Categorical “Creaming” – we need more than a quarterback #3 Too Little Focus on Execution Various gurus crisscross the country – then go home Gap between ideas and education #4 The Broken Learning Cycle Best practices vs. successful practices SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

98. Shortcomings of Enterprise Development (continued) #5 Focus on the Business, not the Entrepreneur #6 Missing Function: Responsibility for the Community’s Supply of Entrepreneurs #7 Funders, not Clients, Drive the Program #8 Impact is not Scalable Community-wide impact SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

99. Successful Entrepreneurial(?) Communities 1. Acceptance of Controversy 2. Ability to Depersonalize Politics 3. Surplus Income to Invest 4. Willingness to Take Risks 5. Ability to Define Community More Broadly 6. Networking Ability 7. Emphasis on Academics 8. Flexible, Dispersed Leadership SOURCE: Flora and Flora

100. SOURCES FOR THIS PRESENTATION Lichtenstein, Lyons, Kutzhanova “Building Entrepreneurial Communities: The Appropriate Role of Enterprise Development Activities” Journal of the Community Development Society, 2004 Emery, Wall, Macke “From Theory to Action: Energizing Entrepreneurship (E2), Strategies to Aid Distressed Communities Grow Their Own” Journal of the Community Society, 2004

101. Entrepreneurs We Know

102. Do you know who they are?  Stan Clark  Frank Epperson  Fred Smith  Bill Bowerman & Philip Knight  Dr. John Pemberton & Asa Chandler

103. Do you know who they are?  Jeff Bezos  Cohen and Greenfield  Ray Kroc  Tom Monaghan  Bill Gates  Howard Schultz

104. Entrepreneurs All are not equal, nor do they want to be!!

105. Entrepreneurs People who create and grow enterprises Aspiring entrepreneurs Aspiring entrepreneurs Survival entrepreneurs Survival entrepreneurs Lifestyle entrepreneurs Lifestyle entrepreneurs Growth entrepreneurs Growth entrepreneurs Serial entrepreneurs Serial entrepreneurs Social entrepreneurs Social entrepreneurs SOURCE: WK Kellogg Foundation

106. Family Business Names Wal-MartFordWeyerhaeuserMichelinGapAnheuser-Busch Tyson Foods DillardsCargill Koch Industries Ikea Cox Communication Enterprise Rent-A-Car Hallmark Levi Strauss Kohler

107. Family Businesses  Generate 62% of nonfarm business receipts - $16.8 trillion in 1996 –Even greater impact in midwest economy  Dominate form in agriculture, retail, wholesale, and distribution sectors  Employ 54.8% of workforce – 69.5 million  Provide higher than average household income and net worth –Only 1% of households are poor vs. 11% overall

108. Available Resources and Constraints PROCESSES Time of Stability Interpersonal Transactions Resource Constraints Times of Change Interpersonal Transactions Resource Transactions Achievements Objective Success Subjective Success BUSINESS Disruptions in Family/Business Transactions Responses to Disruptions in Family/Business Transactions Sustainability Available Resources and Constraints PROCESSES Time of Stability Interpersonal Transactions Resource Constraints Time of Change Interpersonal Transactions Resource Transactions Achievements Objective Success Subjective Success Sustainable Family Business Model

109. More info  www.hce.osu.edu/fambus  http://www.human.cornell.edu/ne167/

110. Home-based Business Names  Hewlet-Packard  Nike  Coke  Mrs. Fields Cookies  Microsoft  Dell

111. Home-based Business Facts Nine-state study (1988) –Typical home-based worker  44 year old male, married, with children, 14 yrs. education, & a homeowner  Mean gross business income - $53,164  Mean net business income - $15,628  Mean household income - $42,263 –Had medical insurance from some other source –As # children increased, number of work hours decreased (1 day per child on average) –Had greater longevity in the community

112. Copreneurs Defined – Couples in business together –31% of family businesses –Have more children, lower educational levels, rural location, business manager earns less per year, more likely home-based, and have fewer employees –Make significantly less business income and business profits (by factor of 5) & feel business is less successful –Copreneurs more likely to view business as a way of life as opposed to a way to earn income

113. Copreneurs cont. –More likely to intermingle money between business and family – More often family to business  Also use more ways of intermingling –Approximately 20% of couples discontinued the copreneurial relationship (but stayed together as a couple) in a 3-year period  Made less money & saw the business as less successful. –Another 20% started a copreneurial relationship  Made most money of all 3 groups, run by older men with more education, had fewer dependents, and spouse worked fewer hours in business.

114. Value-Added Opportunities

115. Value-Added Defined: Adding consumer-desired features to raw materials Done by: 1. Additional processing 2. Marketing - change from the current method of distribution 3. Use existing resources to produce a new, more valued product/service 4. Some combination

116. MarketingStrategies for Farmers for Farmers & Ranchers Reap New Profits :

117. Farmers Markets

118. “People don’t come all the way out here to get cheap food. They come because it’s fun and the berries are absolutely fresh.” -- Earnie Bohner, Persimmon Hill Berry Farm Pick Your Own

119. ENTERTAINMENTENTERTAINMENT FARMINGFARMING

120. 4Farm Stands 4Community supported agriculture (CSA) 4 Cooperatives 4 Restaurant sales  Mail order/ Internet/ Direct marketing OTHEROPTIONSOTHEROPTIONS

123. Resources: 4 USDA Sustainable Agriculture Research and Education (SARE) – www.sare.org 4 Farmers Markets - www.ams.usda.gov/farmersmarkets 4 Alternative Farming Systems Info Ctr www.nal.usda.gov/afsic 4 USDA Farmer Direct Marketing www.ams.usda.gov/directmarketing 4 North American Direct Marketing Assn. www.familyfarms.com

124. Minorities and Women

125. General Information  Small business ownership rates for women and minorities are increasing faster than for white males – Still men start new businesses at twice the rate of women –Women – 9.8% own businesses  Translates to over 50% of all businesses –Minorities – Ranges from 5% (Blacks) to 10.4% (Asian)  Firm receipts average about 2/3 of all bus.  Proprietor income averages about 50% of all other businesses  Firms employee fewer people

126. Special Issues  Access to capital  Acceptance by business community  Acceptance by family and friends  Networks are smaller and more family-focused  Most often in retail or service industries –Industries with highest failure rates and lowest profits

127. Barriers to Entrepreneurship

128. A lack of: 1. Steady stream of “want-a-be’s” 2. “Can-do” attitude held by the entrepreneur and the community 3. Coordinated, accessible, long-term support network 4. Coaches and mentors 5. Capital 6. Available human capital 7. Multi-faceted healthy community 8. Supportive regulatory environment

129. The man who makes no mistakes does not usually make anything." Edward John Phelps, American lawyer and diplomat (1822- 1900) "Nothing great was ever achieved without enthusiasm." Ralph Waldo Emerson

130. Highlights

131. Highlights  Entrepreneurship is an ever-continuing, growing trend  Entrepreneurs contribute to their household and to their community  Entrepreneurship is a learned talent  Entrepreneurs form our economic base  Entrepreneurship allows people to remain in a community  Communities can encourage entrepreneurship

132. Entrepreneurs: - See opportunity - Are innovative in developing that opportunity through creativity and resource gathering - Seek gain while accepting risk and uncertainty

133. One Last Myth The key to success is a great idea Good idea Great plan Passion! The keys are:

134. How Extension can help?

135. One-on-oneMentoringAdvocatingPartnering Community support Awareness of other programs Education 1.Awareness of owner’s priorities 2.Comfort with subject matter

136. Resources  Southern Rural Development Center http://srdc.msstate.edu/  Kansas City Federal Reserve Bank –Center for the Study of Rural America http://www.kc.frb.org/RuralCenter/RuralMain.htm  Rural Policy Research Institute (RUPRI) http://www.rupri.org/

137. Resources cont.  Adult –Cashing In On Business Opportunities –NeXt Level/Fasttrac/other commercial –OSU  Putting It All Together  Food Based Business: The Owner’s Guide  An Exploration of Entrepreneurship  Visual Merchandising –Educational program –Demonstration program  Mapping Your Marketing Future –Magazines, i.e. Entrepreneur

138. Resources cont.  Youth –Mini-Society –Be the E: Entrepreneurship (4-H CCS) –http://youngbiz.com/ –http://www.celcee.edu/ - clearinghouse  General –http://www.entre-ed.org/index.htm

139. Entrepreneurship Glenn Muske Micro Business Specialist Oklahoma State University