Ppt01Allen

CHAPTER ONE

UNDERSTANDING

ENTREPRENEURSHIP

Copyright © Houghton Mifflin Company. All rights reserved 1 - 2

Learning Objectives

• Explain the role of entrepreneurship in economic growth.

• Discuss the characteristics and behaviors of entrepreneurs.

• Distinguish entrepreneurial ventures from small businesses in terms of their purpose and goals.


Learning Objectives (continued)

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

• Identify the three broad categories of research in entrepreneurship.


Definition of Entrepreneurship

• Entrepreneurship is a mindset or way of thinking that is:– opportunity-focused– innovative– growth-oriented


The Promise of Entrepreneurship

• Technological innovation is the biggest engine of growth for the U.S. economy.

• Technological change has facilitated the globalization of economic growth.

• It is responsible for the biggest productivity gain achieved in the US in 19 years posted in Q1 of 2002.


Figure 1.1: Entrepreneurship and Technological Change


Outcomes of Entrepreneurship

• Globalization

• New industry formation

• Job Creation

• New business formation


New Industry Formation

• New 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.


Figure 1.2: 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. 1-19 (January 2003).


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.


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.


Figure 1.3: Social, Political, and Economic Context of the Entrepreneurial Process

Source: 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. 153-227.


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 mode and test it in the marketplace prior to starting the business.


Table 1.1: Starts and Closures of Employer Firms, 1990-2002


Figure 1.4: Entrepreneurship in the United States by Gender, Age, and Education

Source: H. Neck, A.L. Zacharakis, W. Bygrave, and P. Reynolds (Eds.). Global Entrepreneurship Monitor 2002 Executive Report, p. 14.


The Nature of Entrepreneurs

• Entrepreneurial Characteristics:– Risk-taking– Need for achievement– A sense of independence– Internal locus of control– Tolerance for ambiguity


Entrepreneurial Behavior

• The entrepreneurial act is the act of creating a business by:– perceiving an opportunity– assessing the opportunity– risking resources to exploit the opportunity– managing the process of building a venture

from and idea– managing creative value


Ted FernandezAnswerThink

•National Managing Partner of KPMG’s strategic services

•Founder & CEO ofAnswerThink, a consulting firm

•Has experience in both small and large companies


Entrepreneurial Behavior (continued)

• Entrepreneurs: – have a passion to build innovative

businesses from the idea stage.– continue to act entrepreneurially, making

strategic decisions that engage the business in risk-oriented activity, growth, and consequent high performance.


Theresa BergeronThermohair, Inc

•Founder and President of Thermohair, Inc.

•Company produces goods made from mohair (fleece from angora goats)

•Discusses marketing, business planning and entrepreneurship


Types of Entrepreneurs

• The Home-Based Entrepreneur

• The Cyber Entrepreneur

• The Serial Entrepreneur

• The Traditional Entrepreneur

• The Nonprofit Entrepreneur

• The Corporate Venturer


Nature of Entrepreneurial Start-Ups

• Primary characteristics:– Innovative– Value-creating– Growth-oriented


Daniel Stein JDS Capital and eMusic

•President of JDS Capital, based in New York City

•CEO of Dimensional Associates – operating company which manages JDS Capital’s digital media assets including eMusic

•Discusses entrepreneurship, risk, managing people, leadership, business planning and work-life balance

•Bachelor’s degree from Cornell University


Figure 1.5: The Entrepreneurial Revolution


The Entrepreneurial Phenomenon

• What constitutes the study of Entrepreneurship? – Sources of opportunities– Processes of discovery, evaluation, and

exploitation of opportunities– Individuals and teams who recognize the

opportunities, evaluate them, and exploit them.


The Entrepreneurial Phenomenon (continued)

• “Entrepreneurship: The intersection of lucrative opportunities and enterprising individuals.” *

* Finkle, T.A., and D. Deeds (2001). “Trends in the Market for Entrepreneurship Faculty During the Period 1989-1998.” Journal of Business Venturing, 16(6):613.


Essentials for Entrepreneurship

• Opportunity Recognition

• Opportunity Exploitation

• Networking