1 Introduction to entrepreneurship AND Becoming an entrepreneur CHAPTER

1

Introduction to entrepreneurship AND Becoming an

entrepreneur

CHAPTER

Learning Objectives

Define entrepreneurship.Explain the role of entrepreneurship in

economic growth. Distinguish entrepreneurial ventures

from small businesses in terms of their purpose and goals.

Describe the evolution of entrepreneurship as a field of study since the 1960s.

Identify today’s broad trends in the field of entrepreneurship.

Learning Objectives (Cont’d)

Dispel myths about entrepreneurs.Understand the many pathways to

entrepreneurship.Prepare to become an entrepreneur.

Definition of Entrepreneurship

“The process by which individuals—either on their own or in organizations—pursue opportunities without regard to the resources they currently control.” ~ Stevenson

Entrepreneurship is a mindset that is: Opportunity-focused Risk taking Innovative Growth-oriented

The Role of Entrepreneurship

Three schools of thought:1. An integrated input/output model 2. The career assessment approach 3. The new venture creation process

Affected by three categories of variables: The entrepreneur and what he/she brings to

process The environment (external variables) The organization (strategic aspects of the new

venture)

New Venture Creation Process

Economic Growth

Technological innovationGlobalizationShift of lower-skilled jobs outside U.S.China and India

Entrepreneurship and Technological Change

New Industry Formation

New industries are born when technological change produces a novel opportunity that an enterprising entrepreneur seizes.

Industry life cycles: birth, growth, decline

The Industry Life Cycle

Source: Adapted from M. R. Darby and L. G. Zucker, “Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up,” Economic Inquiry (January 2003), pp. 1-19.

Job Creation

Small businesses represent 99.7 percent of all employers and pay more than 45 percent of the total U.S. private payroll.

Small businesses have generated 65 percent of net new jobs over the past 15 years.

Job Creation (cont’d)

Economic development in three categories of countries: Factor-driven economies

Created out of necessity and rely on unskilled labor and extraction of natural resources

Efficiency-driven economies Growing and in need of improving their production

processes and quality of goods produced Innovation-driven economies

The most advanced and where business compete based on innovation and entrepreneurship

The Nature of Entrepreneurial Startups

An entrepreneurial venture brings something new to the marketplace.

Three primary characteristics:1. Innovative2. Value-creating3. Growth-oriented

New Business Formation

Entrepreneurs use identifiable milestones to measure their progress:• Deciding to start a business• Researching the concept• Preparing for launch• Securing the first customer• Obtaining the business license• Other activities which signal the

business is in operation

Social, Political, and Economic Context of the Entrepreneurial Process

Source: From Paul D. Reynolds, “National Panel of U.S. Business Start-ups: Background and Methodology,” in Databases for the Study of Entrepreneurship, edited by J.A. Katz, pp. 153–227. Copyright © 2000, with permission from Elsevier. Modified by Launching New Ventures author to reflect the concept of the fuzzy front end and its associated probabilities.

Business Failure

Not all entrepreneurs succeed in growing their startup into an established business.

Survival has been attributed to sufficient capital, having employees, and the entrepreneur’s intention in starting the business.

Starts and Closures of Employer Firms, 2004-2008

eEstimate using percentage changes in similar data provided by the U.S. Department of Labor, Employment and Training Administration.Sources: U.S. Bureau of the Census; Administrative Office of the U.S. Courts; and U.S. Department of Labor, Employment and Training Administration.

Category 2004 2005 2006 2007 2008

Births 628,917 644,122 670,058 633,100e 627,200e

Closures 541,047 565,745 599,333 571,300e 595,600e

Bankruptcies 34,317 39,201 19,695 28,322 43,546

The Entrepreneurial Revolution

United States founded on the principle of free enterprise.

The term entrepreneur didn’t come into popular use until the 1980s.

The Entrepreneurial Evolution

Entrepreneurial Trends

Global economic turmoilGreen powerThe women’s marketThe internet, social media, and

mass mingling

Seven Myths

1. Entrepreneurs start businesses solely to make money

2. It takes a lot of money to start a business3. It takes a great idea4. The bigger the risk, the bigger the reward5. A business plan is required for success 6. Entrepreneurship is for the young and

reckless7. Entrepreneurship cannot be taught

Paths to Entrepreneurship

The home-based entrepreneur The serial or portfolio entrepreneur The nonprofit entrepreneur The corporate entrepreneur

The Corporate Entrepreneur

Entrepreneurial mindset in large corporations: Senior management commitment A champion or several champions Corporate interoperability Clearly defined stages and metrics A superior team Spirit of entrepreneurship

Challenges and Opportunities with the Entrepreneur Career Path

Table 2.1

Preparing for EntrepreneurshipFigure 2.1

Build a Professional Network

Networking The exchange of information and resources

among individuals, groups, or organizations whose common goals are to mutually benefit and create value for the members

Strong ties – close friends and family Weak ties – acquaintances and business

contacts Brokering

Understand Personality and Business Preferences

Barriers to self-employment: Lack of confidence Financial needs Startup logistics Personal or family issues Time constraints Lack of skills

Critical Entrepreneurial Skills

Analysis and critical thinking

Persuasion and negotiation

Opportunity recognition

Written and oral communication

Resource gathering Leadership and people management

Organizational and time management

Decision making

Calculated risk taking Storytelling

Table 2.4