6343 W3 D1

Chapter7--Enrepreneurship.pptx

Chapter 7

Entrepreneurship

© 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.

Because learning changes everything.®

Learning Objectives

7-1 Describe why people become entrepreneurs and what it takes, personally.

7-2 Summarize how to assess opportunities to start new businesses.

7-3 Identify common causes of success and failure.

7-4 Discuss common management challenges.

7-5 Explain how to increase your chances of success, including good business planning.

7-6 Describe how managers of large companies can foster entrepreneurship.

Entrepreneurship 1

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.

Entrepreneurship 2

Small business:

A business having fewer than 500 employees, independently owned and operated, not dominant in its field, and not characterized by many innovative practices.

Entrepreneurial venture:

A new business having growth and high profitability as primary objectives.

How does entrepreneurship differ from managing a small business? Small-business owners tend not to manage particularly aggressively, and they expect normal, moderate sales, profits, and growth. In contrast, 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.

Exhibit 7.1 Some Myths about Entrepreneurs

Some Myths about Entrepreneurs

Myth 1: Entrepreneurs are gamblers.

Reality: Successful entrepreneurs take very careful, calculated risks.

Myth 2: Entrepreneurs experience a great deal of stress and pay a high price.

Reality: There is no evidence that being an entrepreneur is more stressful than other highly-demanding professional roles.

Myth 3: If an entrepreneur is talented, success will happen in a year or two.

Reality: Rarely is a new business established solidly in less than three or four years.

Myth 4: Entrepreneurs are lone wolves and cannot work with others.

Reality: The most successful are leaders who build great teams.

SOURCE: S. Spinelli, Jr. and R. J. Adams, New Venture Creation: Entrepreneurship for the 21st Century, 9th ed., (New York: McGraw-Hill/Irwin, 2012), pp. 46–47. Copyright ©2012 McGraw-Hill Global Education Holdings LLC. All rights reserved. Used with permission.

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 (partially recreated here) to start thinking about the myths and realities of this important career option.

Entrepreneur or Intrapreneur

Entrepreneur:

Individuals who establish a new organization without the benefit of corporate sponsorship.

Intrapreneur :

New venture creators working inside big companies.

Thus, entrepreneurship is an activity that can and should contribute greatly to mature organizations. Entrepreneurship is vitally important across the entire life cycle of an organization.

Exhibit 7.2 Successful Entrepreneurs Who Started in Their 20s

Entrepreneurial Company	Founder(s)
Snapchat	Evan Spiegel
Kitchens for Good	Aviva Paley
Instagram	Kevin Systrom
Green Gas	David Cooch and Kyle Kornack
PartPic	Jewel Burks
Spotify	Daniel Ek
Zero Waste Solutions	Shavila Singh

SOURCES: A. Wilson and G. Toma, “Forbes 30 under 30,” Forbes, www.forbes.com, accessed February 4, 2019; A. Heath and M. Stone, “The Fabulous Life of Snap CEO Evan Spiegel,” Business Insider, March 3, 2017, www.businessinsider.com; C. Howard and E. Inverso, “Forbes 30 under 30,” Forbes, www.forbes.com, accessed March 25, 2017.

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. The real, more complete story of entrepreneurship is not about the famous people listed, it’s mostly about people you’ve probably never heard of. Often it’s about young people, and definitely it’s about every demographic group.

Why Become an Entrepreneur?

It’s a challenge

Profit potential

Personal satisfaction

Achieve a better quality of life

Feel progress is blocked at a big corporation

Entrepreneurs start their own firms because of the challenge, the profit potential, and the satisfaction they hope lie ahead. Others launch their own businesses to achieve a better quality of life than they might have at big companies. They seek independence and a feeling of being part of the action. They feel tremendous satisfaction in building something from nothing, seeing it succeed, and watching the market embrace their ideas and products.

Exhibit 7.3 Who Is the Entrepreneur?

SOURCE: J. A. Timmons and S. Spinelli Jr., New Venture Creation 7th ed., (Burr Ridge, IL: McGraw-Hill/Irwin, 2007), pp. 67–68. Copyright ©2007 McGraw-Hill Global Education Holdings LLC. All rights reserved. Used with permission.

Access the text alternative for slide image

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.

What Business Should You Start?

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.

Limor Fried, Adafruit Industries, combined her academic knowledge and personal interests to prove her capabilities as an entrepreneur.

SOURCE: Brian Ach-/Stringer/Getty Images Entertainment/Getty Images

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. Photo: Limor Fried, Adafruit Industries, combined her academic knowledge and personal interests to prove her capabilities as an entrepreneur.

The Opportunity

Possibilities:

Technological discoveries.

Demographic changes.

Lifestyle and taste changes.

Economic dislocations.

Calamities.

Government initiatives and rule changes.

Opportunity is at the core of entrepreneurship; entrepreneurs find ways to spot, create, and capture opportunities. To spot opportunities, think carefully about events and trends as they unfold. Consider, for example, the possibilities listed on the slide.

Franchises

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. 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.

Franchising is an entrepreneurial alliance between a franchisor (an innovator who has created at least one successful store and wants to grow) and a franchisee (a partner who manages a new store of the same type in a new location).

E-commerce

Digital commerce is more than mobile-based shopping and social media-based influence.

Encompasses artificial intelligence, digital wallet payments, customization

Common e-commerce business models:

Storefront.

Subscription.

Business-to-business.

Conducting business online is a trend that is still expanding. Growing comfort with online shopping; more helpful, digital voice assistants; and the overall convenience and speed of online transactions are driving this growth. The new shopping habits and norms formed during the pandemic are likely to further accelerate this growth.

For individuals planning to start a new e-commerce business, it’s important to understand that digital commerce is more than mobile-based shopping and social media–based influence; it’s also about integrating technologies like artificial intelligence, digital wallet payments, and customization.

The Next Frontiers

Big Data

Space travel

Healthcare

The International Space Station is a habitable artificial satellite. Currently the largest artificial body in orbit, it is sometimes visible with the naked eye from Earth.

The next frontiers for entrepreneurship—where do they lie? Throughout history, aspiring entrepreneurs have asked this question.

Social Entrepreneurship

Social entrepreneurships leverage resources to address social problems.

They are organizations that use market-based methods to facilitate social entrepreneurship and 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 has 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 enterprises.

Social entrepreneurship creates social value by stimulating social change or meeting social needs.

SPOTLIGHT ON… Worldwide Competition for Student Social Entrepreneurs

Each year, about 1,500 students from 150 countries participate in the Hult Prize and spend over 2.5 million hours trying to solve the world’s most pressing issues. Since its founding in 2009, students from more than 600 schools have competed for the Hult Prize.

Of the recent award-winning start-ups mentioned, which do you find most likely to succeed? Why?

The Hult Prize has been awarded to new social enterprises from all over the world. Why do you think the competition has a global focus?

Of the recent award-winning start-ups mentioned, which do you find most likely to succeed? Why?

Students answers will vary.

The Hult Prize has been awarded to new social enterprises from all over the world. Why do you think the competition has a global focus?

Students answers will vary.

Exhibit 7.4 More 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.
BarrierBreak	Employs people with hearing loss to provide online services for others with hearing loss, utilizing an innovative “Sign-and-Talk” business over video-enabled web connections.
Edom Nutritional Solutions	Manufactures organically fortified staple flours cost-effectively and sells them at affordable prices to people who are malnourished in East Africa.
Jack and Jake’s	Has developed a local/organic wholesale company, sourcing food from within a 100-mile radius of New Orleans to provide healthy food for hospitals and schools.
Not Mass Produced	Is an online marketplace for local, independent businesses in the UK; its flagship site sources local food for UK restaurants, wholesale purchasers, and retail consumers.
Solidarium	Partners with Walmart and JCPenney to sell ethically produced, fair trade consumer products, selling over 100,000 units and paying its producers 50 percent more than competitors.

SOURCE: Courtesy of Village Capital.

What Does It Take, Personally?

Leadership

Opportunity obsession

Tolerance of risk, ambiguity, and uncertainty

Creativity, self-reliance, and ability to adapt

Motivation to excel

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.

Exhibit 7.5 Entrepreneurial Strategy Matrix

SOURCE: M. Sonfield and R. Lussier, “The Entrepreneurial Strategy Matrix: A Model for New and Ongoing Ventures,” Business Horizons, May–June 19 97.

Access the text alternative for slide image

Success is a function not just of knowledge and luck but of making good decisions. 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.

Success and Failure

Two major liabilities:

Newness

Smallness

Management in Action Entrepreneurs Turning the Corner During the Pandemic?

Courtney Caldwell spent over 20 years at Oracle doing technology marketing. Tye Caldwell, her husband, was a well-known hair stylist in Dallas, Texas. In 2016, they decided to combine their experiences and talents to form ShearShare, “the first B2B app that matches licensed beauty professionals to unused salon space.”

The concept is simple: Salons often find themselves with empty, unused space (or seats), which translates into lost revenue; stylists often find themselves without a consistent, functional place to work. ShearShare helps connect the two.

Based on what you’ve read in this chapter, what do you think have been the most important contributors to ShearShare’s success?

Has the Caldwells’ idea for an app inspired you? What other disparate parties with mutual interests might benefit from a way to connect more directly?

Based on what you’ve read in this chapter, what do you think have been the most important contributors to ShearShare’s success?

Student answers will vary.

Has the Caldwells’ idea for an app inspired you? What other disparate parties with mutual interests might benefit from a way to connect more directly?

Student answers will vary.

Incubators and Accelerators

Business incubator:

Protected environments for new, small businesses.

Offer benefits such as low rents and shared costs for up to a five-year period.

Business accelerator:

A three- to six- month intensive process designed to help entrepreneurs build and launch rapidly successful ventures.

Provides support and advice.

The need to provide a nurturing environment for fledgling enterprises led to the creation of business incubators. Business incubators are protected environments for new small businesses, often located in industrial parks or abandoned factories. Incubators offer benefits such as low rents and shared costs for up to a five-year period. Incubators often are associated with universities, which provide technical and business services for the new companies.

Whereas a business incubator hatches new businesses in a gradual way in a noncompetitive environment, a business accelerator is a 3three- to 6six-month intensive process designed to help budding entrepreneurs build and launch rapidly successful ventures.

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.

Going Public

Initial Public Offering (I P O):

Sale to the public, or the first time, of federally registered and underwritten shares of stock in the company.

Reasons for going public:

Raise more capital.

Reduce debt.

Improve balance sheet.

Enhance net worth.

Pursue otherwise unaffordable opportunities.

Improve credibility.

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.

Increasing Your Chances of Success

Planning:

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.

Business plan: a formal planning step that focuses on the entire venture and describes all the elements involved in starting it.

The first formal planning step is to do an opportunity analysis.

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.

Then 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.

Exhibit 7.6 Opportunity Analysis

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?

SOURCE: R. Hisrich and M. Peters, Entrepreneurship: Starting, Developing, and Managing a New Enterprise, (Boston, MA: Irwin/McGraw-Hill, 19 98) p. 41. Copyright ©1998 McGraw-Hill Global Education Holdings LLC. All rights reserved. Used with permission.

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

SOURCE: J. A. Timmons and S. Spinelli Jr., New Venture Creation: Entrepreneurship for the 21st Century, 7th ed., (Burr Ridge, IL: McGraw-Hill/Irwin, 2007), p. 229. Copyright ©2007 McGraw-Hill Global Education Holdings LLC. All rights reserved. Used with permission.

Exhibit 7.7 shows an outline for a typical business plan.

The business plan (1) helps determine the viability of your enterprise, (2) guides you as you plan and organize, and (3) helps you obtain financing. It is read by potential investors, suppliers, customers, and others.

Key Planning Elements

Raising money is the biggest initial concern.

Best plans take into account:

The people.

The opportunity.

The competition.

The context.

The risk and reward.

The people should be energetic and have skills and expertise directly relevant to the venture.

The opportunity should provide a competitive advantage that can be defended.

The plan must identify current competitors and their strengths and weaknesses, predict how they will respond to the new venture, indicate how the new venture will respond to the competitors’ responses, identify future potential competitors, and consider how to collaborate with or face off against actual or potential competitors.

The environmental context should be a favorable one from regulatory and economic perspectives.

The risk must be understood and addressed as fully as possible. Although you cannot predict the future, you must contemplate head-on the possibilities of key people leaving, interest rates changing, a key customer leaving, or a powerful competitor responding ferociously.

Nonfinancial Resources

Crucial to the success of a new business are nonfinancial resources.

Legitimacy.

Networks.

Top management teams.

Advisory boards.

Partners.

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.

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).

Building Intrapreneurship

Skunkworks:

A project team designated to produce a new, innovative product.

Bootlegging:

Informal work on projects, other than those officially assigned, of employees’ own choosing and initiative.

Fostering a culture in which intrapreneurs flourish comes from deciding to foster entrepreneurial thinking and behavior, creating new venture teams, and changing the compensation system so it encourages, supports, and rewards creative and innovative behaviors. Thus, building intrapreneurship derives from careful and deliberate strategy.

Management Challenges

The most dangerous risk is overreliance on a single project.

Failure is also possible when companies spread their entrepreneurial efforts over too many projects.

Organizations that encourage intrapreneurship face an obvious risk: the effort can fail. However, failing to foster entrepreneurship within the corporation may be a subtler but greater risk than encouraging it. The organization that resists entrepreneurial initiative may lose its ability to adapt and innovate when needed.

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:

Independent action.

Innovativeness.

Risk taking.

Proactive.

Competitive aggressiveness.

Entrepreneurial orientation is an organization’s tendency 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 important in social enterprises as well as corporations and is determined by five tendencies: to allow independent action, innovate, take risks, be proactive, and be competitively aggressive.

Management in Action Stitch Fix: Innovating How People Shop

Katrina Lake’s idea for her start-up was not exactly a slam dunk. After all, back in 2011, the idea of buying clothes that you never tried on, or even saw, was not a pillar of conventional consumer wisdom.

What would be the benefits and drawbacks of working for a start-up like Stitch Fix?

Lake’s decision to turn down the buyout offer turned out in her favor, but what were the pros and cons of that choice?

What would be the benefits and drawbacks of working for a start-up like Stitch Fix?

Student answers will vary but might include the ability to get higher level experience early in one’s career and the risk of a sudden loss in compensation or one’s job if the company’s growth slows.

Lake’s decision to turn down the buyout offer turned out in her favor, but what were the pros and cons of that choice?

Student answers will vary but should note the guaranteed million dollar plus payout versus the risk involved with waiting for the larger valuation.

In Review

Describe why people become entrepreneurs and what it takes, personally.

Summarize how to assess opportunities to start new businesses.

Identify common causes of success and failure.

Discuss common management challenges.

Explain how to increase your chances of success, including good business planning.

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.”

End of Main Content

Because learning changes everything.®

www.mheducation.com

Accessibility Content: Text Alternatives for Images

Exhibit 7.3 Who Is the Entrepreneur? – Text Alternative

Return to parent-slide containing images.

Entrepreneurs are high in creativity and innovation, as well as in general management skills, business know-how, and networks while promoters are lower in these categories. Inventors are high in creativity and innovation, and managers and administrators are low in that same category.

Managers and administrators are high in management skills and business know-how and networks. Inventors are low in management skills, business know-how, and networks.

Return to parent-slide containing images.

Exhibit 7.5 Entrepreneurial Strategy Matrix – Text Alternative

Return to parent-slide containing images.

The matrix moves along two dimensions: innovation and risk. Innovation is creating a unique and different product or service. Risk is the probability of major loss.

The upper-left quadrant, high innovation/low risk, depicts ventures of truly novel ideas with little risk.

In the upper-right quadrant, high innovation/high risk, novel product ideas are accompanied by high risk because the financial investments are high and the competition is great.

The lower-left quadrant, low innovation/low risk is associated with fairly conventional entries in well-established fields.

In the lower-right quadrant, low innovation/high risk includes ventures that require minimal investment and/or face minimal competition.

6343 W3 D1

image2.png

image3.png

image4.png

image5.png

image1.png