1 CHAPTER ONE &TWO UNDERSTANDING ENTREPRENEURSHIP &PREPARING FOR THE ENTREPRENEURIAL JOURNEY CHAPTER ONE &TWO
2 Entrepreneurship DefinedEntrepreneurship—a way of thinking, reasoning, and acting that is opportunity obsessed, holistic in approach, and leadership balanced for the purpose of value creation and capture. (This definition of entrepreneurship has evolved over the past three decades from research by Jeffry A. Timmons at Babson College and the Harvard Business School and has recently been enhanced by Stephen Spinelli, Jr. former Vice Provost for Entrepreneurship and Global Management at Babson College, and current President of Philadelphia University).
3 Entrepreneurship Flattens the WorldSignificant impact on the U.S. cultural and economic landscape Exploding in India, China, and the former Soviet bloc Adoption of the entrepreneurial mind-set is growing exponentially larger and faster
4 Outcomes of EntrepreneurshipEconomic growth New industry formation Job creation
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6 New Industry FormationNew industries are born when technological change produces a new opportunity that an enterprising entrepreneur seizes. Disruptive or metamorphic technologies that destroy previous technologies and create new industries display a different pattern of behavior. The pattern of growth, shakeout, stabilization, and decline of industry can be interrupted at any time by the entry of another disruptive technology.
7 Industry Life Cycles 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 (January 2003).
8 New Industries Launched by the E-GenerationPersonal computers Biotechnology Wireless cable TV Fast oil changes PC software Desktop information Wireless communications/handheld devices
9 Mega-Entrepreneurs Who Started in Their 20sMicrosoft—Bill Gates and Paul Allen Dell Computers—Michael Dell Apple Computers—Steve Jobs and Steve Wozniak Federal Express—Fred Smith Polaroid—Edward Land Nike—Phil Knight
10 America’s Self-Made MillionairesThe Millionaire Next Door by Thomas J. Stanley and William D. Danko Millionaire—a person with a net worth of $1 million or more Made their fortune in LOW technology industries
11 Job Creation Entrepreneurial ventures are responsible for significant job creation. SBA estimates that three-quarter of all net new jobs in 2000 were created by small business.* * U.S. Bureau of the Census; Administrative Office of the U.S. Courts; Endogenous Growth and Entrepreneurial Activities.
12 The Backbone of American EconomyResearch findings by David Birch of MIT New firms created 81.5 percent of the net new jobs from 1969 to 1976 Small businesses and entrepreneurs created more than 34 million new jobs since1980 Research findings by U.S. Small Business Administration’s Office of Advocacy Small businesses represent 99 percent of all employers Small businesses provide about 75 percent of all new net jobs
13 Innovation and R&D effectiveness of small entrepreneurial firms have resulted in:95% of the radical innovations that have occurred since WWII 2 times as many innovations per R&D dollar vs. the giants 50% of all innovations 2 times as many innovations per scientist 24 times as many innovations per R&D dollar vs. firms with > 10,000 employees
14 The Fall of the Giants Slow to change archaic strategy (average 6 years) Slow to change outdated culture (average 10 to 30 years) Slow to recognize and incorporate: entrepreneurship, entrepreneurial leadership, and entrepreneurial reasoning
15 Mkt.Capitalization(B) in Mid-March 2001How the Entrepreneurial Revolution has led to the Demise of “Brontosaurus Capitalism” Nobel-Prize winning economist “proved” any enterprise < 100 employees was irrelevant to the study of economics and policy making New ventures have created value: Source: Forbes 500s Annual Directory 2002 Sales in 2000 (B) Employees in 2000 (K) Mkt.Capitalization(B) in Mid-March 2001 GM, Ford, Chrysler Total 498.8 1219.6 122.2 Intel, Microsoft, Cisco Sys. 66.0 119.8 662.9
16 New Business Failure Not all entrepreneurs succeed in growing their start-up into an established business. Survival rates of new businesses vary by industry and demographics. The vital lesson for an entrepreneur is to minimize the cost of a possible failure: start with robust business model and test it in the marketplace prior to starting the business.
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18 Starts and Closures of Employer Firms, 1990-2002
19 Entrepreneurship as an Equalizer and MobilizerIndifferent to race, religion, sex, or geography Rewards performance and punishes shabbiness and ineptness Greatest chance for self-sufficiency, self-determination, and economic improvement
20 The Entrepreneurship Process
21 The Entrepreneurial ProcessIt is opportunity driven It is driven by a lead entrepreneur and an entrepreneurial team It is resource parsimonious and creative It depends on the fit and balance among these It is integrated and holistic
22 The Timmons Model of the Entrepreneurial Process
23 Social, Political, and Economic Context of the Entrepreneurial ProcessSource: Paul D. Reynolds. (2000) National Panel of U.S. Business Start-ups: Background and Methodology. Databases for the Study of Entrepreneurship, Amsterdam: JAI/Elsevier Inc. Vol. 4, pp
24 Definition of EntrepreneurshipEntrepreneurship is a mindset or way of thinking Pursuit of Opportunity without regards to Resources Currently Controlled New firm formation Growth Within the context of a corporation Intrapreneurship
25 The Nature of EntrepreneursEntrepreneurial Characteristics: Risk-taking Need for achievement A sense of independence Internal locus of control Tolerance for ambiguity
26 Who Is the Entrepreneur?
27 Fit of Entrepreneur and Venture CapitalNeed graphic
28 7 Myths + 1 Entrepreneurs start businesses solely to make moneyIt takes a lot of money to start a business It takes a great idea Rich Get Richer
29 Percent in each quintile in 1991Moving On Up Income quintile in 1975 Percent in each quintile in 1991 1st 2nd 3rd 4th 5th 5th (highest) .9 2.8 10.2 23.6 62.5 1.9 9.3 18.8 32.6 37.4 3rd (middle) 3.3 19.3 28.3 30.1 19.0 2ND 4.2 23.5 20.3 25.2 26.8 1ST (lowest) 5.1 14.6 21.0 30.3 29.0
30 7 Myths + 1 (continued) The bigger the risk, the bigger the rewardA business plan is required for success Entrepreneurship is for the young and reckless Entrepreneurship cannot be taught
31 Entrepreneurial ParadoxesTo make money you have to first lose money. To succeed, one first has to experience failure. For creativity and innovativeness to prosper, rigor and discipline must accompany the process. Entrepreneurship requires a bias toward action and a sense of urgency, but also demands patience and perseverance. To realize long-term equity value, you have to forgo the temptations of short-term profitability.
32 Entrepreneurial ParadoxesIN SUM: These paradoxes illustrate just how contradictory and chaotic the world can be. To thrive in this environment, one needs to be adept at coping with ambiguity, chaos, and uncertainty, and at building management skills.
33 Six Themes of Desirable and Acquirable Attitudes and Behaviors:COMMITMENT AND DETERMINATION LEADERSHIP OPPORTUNITY OBSESSION TOLERANCE OF RISK, AMBIGUITY, AND UNCERTAINTY CREATIVITY, SELF-RELIANCE, AND ADAPTABILITY MOTIVATION TO EXCEL
34 Six Themes of Desirable and Acquirable Attitudes and Behaviors:COMMITMENT AND DETERMINATION: Tenacious and decisive, able to recommit/commit quickly Intensely competitive in achieving goals Persistent in solving problems, disciplined Willing to undertake personal sacrifice Immersed LEADERSHIP: Self-starter; high standards but not perfectionist Team builder and hero maker; inspires others Treats others as you want to be treated Shares the wealth and all the people who helped create it Honest and reliable; builds trust; practices fairness Not a lone wolf Superior learner and teacher Patient and urgent
35 Six Themes of Desirable and Acquirable Attitudes and Behaviors:OPPORTUNITY OBSESSION Market driven Has intimate knowledge of customers’ needs and wants Obsessed with value creation and enhancement TOLERANCE OF RISK, AMBIGUITY, AND UNCERTAINTY Calculated risk taker Risk sharer Manages paradoxes and contradictions Tolerates uncertainty and lack of structure Tolerates stress and conflict
36 Six Themes of Desirable and Acquirable Attitudes and Behaviors:CREATIVITY, SELF-RELIANCE, AND ADAPTABILITY Nonconventional, open-minded, lateral thinker Restless with status quo Able to adapt and change; creative problem solver Quick learner No fear of failure Able to conceptualize and “sweat details” MOTIVATION TO EXCEL Goal-and-results oriented; high but realistic goals Drive to achieve and grow Low need for status and power Interpersonally supporting (versus competitive) Aware of weaknesses and strengths Has perspective and sense of humor
37 Non-entrepreneurial Mindsets that Can Cause FailureSome thought patterns can be hazardous to new venture entrepreneurs: Invulnerability Machismo Anti-authoritarian Impulsivity Outer control Perfectionist Know it all Counterdependency
38 Core and Desirable Entrepreneurial Attributes
39 Skills and Abilities Not Measured by TestsThere are many skills and abilities that are NOT measured by SATs, IQ tests, GMATs, and others: Interpersonal skills Self-discipline Creativity Motivation Learning skills (versus knowledge) Persistence and determination Values, ethics, honesty, and integrity Goal-setting orientation Leadership skill Frugality Resourcefulness Resiliency and capacity to handle adversity Ability to seek, listen, and use feedback Reliability Dependability Sense of humor
40 Preparing to be an EntrepreneurFind a mentor Build a network Learn about entrepreneurs Identify reasons for wanting to own a business Analyze personality and business preferences Improve or acquire critical skills Study an industry
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42 Entrepreneurial ParadoxesTo make money you have to first lose money. To succeed, one first has to experience failure. Entrepreneurship requires considerable thought, preparation, and planning, yet is basically an unplannable event. For creativity and innovativeness to prosper, rigor and discipline must accompany the process.
43 Entrepreneurial ParadoxesEntrepreneurship requires a bias toward action and a sense of urgency, but also demands patience and perseverance. The greater the organization, orderliness, discipline, and control, the less you will control your ultimate destiny. To realize long-term equity value, you have to forgo the temptations of short-term profitability.