Entrepreneurship

Chapter Seven Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objectives

LO1 LO2 LO3 LO4 LO5 LO6

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

Summarize how to assess opportunities to start a new company.

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.

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Entrepreneurship 

Entrepreneurship

 The pursuit of lucrative opportunities by enterprising individuals.

 Discovering, evaluating, and capitalizing on opportunities to create new and future goods and services.

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Entrepreneurship 

Small business

 A business having fewer than 100 employees, independently owned and operated, not dominant in its field, and not characterized by many innovative practices.

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Entrepreneurship 

Entrepreneurial venture

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

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Some Myths About Entrepreneurship 1.

2.

3.

4.

Entrepreneurs are born, not made.

Anyone can start a business Entrepreneurs are gamblers Entrepreneurs want the whole show to themselves 5.

Entrepreneurs are their own bosses and completely independent.

6.

Entrepreneurs work longer and harder than managers in big companies.

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Some Myths About Entrepreneurship 7.

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

8.

Start a business and fail and you’ll never raise money again.

9.

Money is the most important start-up ingredient.

10.

Entrepreneurs should be young and energetic.

11.

Entrepreneurs are motivated solely by the quest for the almighty dollar.

12.

Entrepreneurs seek power and control over others.

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Entrepreneurship 

Entrepreneur

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



Intrapreneurs

 New-venture creators working inside big companies.

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Table 7.2

Mega-Entrepreneurs Who Started in Their 20s 7-9

Figure 7.1

Who is The Entrepreneur?

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The Idea  A great product, a viable market, and good timing are essential ingredients in any recipe for success.

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What Business Should You Start?

An entrepreneur should consider opportunities in:

 Technological discoveries  Demographic changes  Lifestyle and taste changes  Economic dislocations  Calamities  Government initiatives and rule changes.

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What Business Should You Start? 

Franchising

 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).

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Question A.

B.

C.

D.

Which Internet model charges fees to advertise on a site? Transaction fee model Subscription model Advertising support model Affiliate model 7-14

The Internet 

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.

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The Internet 

Intermediary model

 Charging fees to bring buyers and sellers together.



Affiliate model

 Charging fees to direct site visitors to other companies’ sites.

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Social Entrepreneurship 

Social entrepreneurship

 Leveraging resources to address social problems 7-17

Table 7.3

Examples of Social Entrepreneurship Companies 7-18

What Does it Take, Personally? 1.

2.

3.

4.

5.

6.

Commitment and determination Leadership Opportunity obsession Tolerance of risk, ambiguity, and uncertainty Creativity, self-reliance , and ability to adapt Motivation to excel 7-19

Figure 7.2

Entrepreneurial Strategy Matrix 7-20

Success and Failure  Anticipate risk  Consider the role of the economic environment  Utilize business incubators  Realize there are common management challenges  Going public with an initial public offering (IPO) 7-21

Biggest Start-Up Mistake 7-22

Question A _____________ is a protected environment for small businesses.

A.

B.

C.

D.

Business incubator Small business office SBA Service incubator 7-23

Success and Failure 

Business incubators

 Protected environments for new, small businesses 7-24

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 7-25

Going Public 

Initial public offering (IPO)

 Sale to the public, for the first time, of federally registered and underwritten shares of stock in the company 7-26

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.

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Table 7.4

Opportunity Analysis 7-28

Planning 

Business plan

 A formal planning step that focuses on the entire venture and describes all the elements involved in starting it.

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Outline of a Business Plan 7-30

Outline of a Business Plan 7-31

Five Key Factors

The people The opportunity The competition The context Risk and reward

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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.

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Nonfinancial Resources 

Social capital

 A competitive advantage in the form of relationships with other people and the image other people have of you.

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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 7-35

Building Intrapreneurship 

Skunkworks

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

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Building Intrapreneurship 

Bootlegging

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

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Entrepreneurial Orientation 

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 7-38

Characteristics of Entrepreneurial Orientation  Allow independent action  Innovativeness  Risk taking  Proactiveness  Competitive aggressiveness 7-39

Video: Pillow Pets  What was the impetus for Jennifer Telfer to start Pillow Pets?

 How did she expand the business?

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