FEKH91 Entrepreneurship Fall 2014

ENTREPRENEURSHIP7.5 ECTS, 28 hoursProfessors: Frédéric Delmar, PhD Tobias Schölin, PhDE-mal : frederic.delmar@fek.lu.se tobias.scholin@fek.lu.sePhone : +46 46 222 6828

Course Description

The purpose of this course is to introduce the students to different perspectives on entrepreneurship. Specifically, we will help you develop an understanding for how entrepreneurship emerges and evolves in the economy. The course is designed for those interested in entrepreneurship and wanting to have both a practical and theoretical introduction to the subject.

The main questions are how entrepreneurship develops in the economy and how we can understand this process from different perspectives. We consider specifically for profit making entrepreneurship. The consequences for entrepreneurs themselves are discussed as well as practice, and economic policy targeted to foster entrepreneurship in these early phases.

The purpose of the course is achieved by following the entrepreneurial process: from the identification and exploitation of entrepreneurial opportunities through the creation of new ventures. This means the foci of the course are the identification of the entrepreneurial opportunity, the interactions among the entrepreneurial team, the idea and the environment. We define entrepreneurship as the process of how, by whom, and with what consequences opportunities to discover future products and services are identified, evaluated and exploited.

Those who are interested to work with entrepreneurship independent of their future role will benefit from the course, as an emphasis will be put on the practical use of the reviewed theories and research.

Content

Research on entrepreneurship as opportunity identification and exploitation through the creation of new venture has been done from many theoretical perspectives. A major explanation is that the entrepreneurial process is a function of the society, the economy, the entrepreneurial individual, and the characteristics of the opportunity. Hence, the entrepreneurial process also affects all these areas. In order to fully understand the process and its consequences, it has to be studied from different perspectives. We will work with the following topics on the course to understand what factors leads to the successful establishment of a new venture:

Topic 1: The role and discovery of opportunitiesTopic 2: The decision to exploitTopic 3: The context of entrepreneurshipTopic 4: Resource acquisitionTopic 5: Entrepreneurial strategy and organizing

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Objectives

The objective of the course is to create awareness of the causes leading to and consequences of the entrepreneurial process. By studying and discussing research in the field, students should develop knowledge and sensibility towards the topic. Those who are interested to work with entrepreneurship independent of their future role will benefit from the course, as an emphasis will be put on the practical use of the reviewed theories and research.

Teaching

This is an introductory course to the field of entrepreneurship. Students will be exposed to several phases and dimensions of the topic. Great emphasis is placed on the interaction of theoretical and practical aspects of the course. The governing idea throughout the course is to develop awareness about the entrepreneurial process and the ways it can be understood. In order to do this we will use three approaches:

1) The theoretical foundations of new venture creation. The literature is introduced to get a broad and in depth foundation about the entrepreneurial process. The literature will be discussed in seminars, where students will apply analytic skills in order to gradually increase understanding and provide material for the "Business plan".

2) The development of a method to understand and assess new ventures. In this part of the course you be asked to developed a due diligence method for assessing the value of new ventures. Based on your method you will be asked to make an investment decision. This part represents an intensive exercise where you will work in groups and assess cases of new ventures. This part will be finished by the respective groups presenting their method. This exercise will also allow you to better understand how the entrepreneurial process is perceived by stakeholders.

3) The development of a business plan. In groups, students are given an assignment to develop an entrepreneurial opportunity into a "business plan" and an “elevator pitch”. Here you adopt the role of the entrepreneur trying to develop a business plan based on your knowledge of what is important to succeed with a new venture.

4) No course in entrepreneurship is complete without the visit of entrepreneurs that can themselves convey their personal experiences of the entrepreneurial experience. To listen and discuss with entrepreneurs gives a valuable insights in to the every-day activities of these individuals.

Examination

The course's assessment consists of three main parts:

The first part is based on three (3) theory reports. These reports are written individually. They will each be a maximum of 5 pages long (double space, Times New Roman 12 points). They are handed in before each seminar (See section entitled “Schedule” tables 1 and 2 for details). The purpose of the theory report is for you to be able to reflect on the action in the class room as well as your own reading. See the report as a way to summarize your readings and impression from class, as well as develop a sense of what is lacking in theory compared

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to the needs of practice. Practice is here defined as situations where you would either be an entrepreneur, have to make due diligence or develop policy recommendations to support entrepreneurship. Let your own interest guide you. The theory report is graded on the variety of theories included, values of ideas and depth in development. The use of metaphors, examples, and personal experiences is a good way to augment your chances for a good grade. See the separate section for further instructions. This part accounts for 60 per cent of your total final grade.

The second exam is based on your group’s report and presentation from the due diligence exercise. Your grades will be based on both the written report and the presentation. The purpose of this exercise is to develop your skills in group work, to develop diagnostics of new venture, initiation to new venture development, improve your presentation skills, and audit you knowledge and skills in this particular domain. See the separate section for further instructions. This part accounts for 15 percent of your total final grade.

The third assignment is the business plan and elevator pitch. This is also a group assignment. The purpose is to identify an opportunity and create a business plan detailing how you would exploit it. The business plan will be reviewed by peer students in class after you group has performed an elevator pitch. More details on the business plan are given on a separate heading. See the separate section for further instructions. This part accounts for 25 per cent of your total final grade.

To pass the course the student has to have a minimum pass (E) on all three parts.

Literature

Article and Case Compendium (cases, “From student to entrepreneur”, 2 business plans, and research articles). Details are given at the end of this document.

Power point presentations from the lecture will be posted on the course web in conjunction with the respective lecture.

Absence

To receive the benefits of a face-to-face class, it's essential that you arrive on time, attend every class, and stay for the entire class meeting. Research shows that the discussions, review of material, questions and answers, etc., that take place during class significantly increase success and retention, produce a higher grade in the class, and are difficult if not impossible to repeat on an individual basis. ((Attendance will be taken. Three consecutive absences and you may be dropped from the class.)) If you are absent contact a classmate, find out from them what happened and get a copy of their notes or read the lecture notes on the course website

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Schedule

Please see Live@lund for exact details concerning the schedule and hand in of the different reports.

Week Day Date Time Topic Comments

36 Thursday 2014-09-04 12-14 IntroductionGo through what a start-up process is(readings)/What is the pedagogical model/ Introduction to the business plan platform

36 Thursday 2014-09-04 14-18 Simulation HBS: Entrepreneurship Simulation: The Startup Game

36 Friday 2014-09-05 12-16Opportunity Recognition and Team Formation Creativity exercise: Coat Hanger

37Wednesday 2014-09-10 12-16

Presentation of three opportunities and TP1

Three opportunities and how dissimilar they are from each other; TP1: Your ideas generated from "From Student to Entrepreneur" plus reflections on papers/book chapters

38 Thursday 2014-09-18 12-16 Due diligence exercise and TP2 Two business plans to analyze; TP2: Reflections on the resource acquisition process

39 On 2014-09-24 12-14 Understanding the business planEntry ticket: Idea and Goal Report (A maximum three page report specifying your idea, the goals to be reached and a detailed planning)

40 Thursday 2014-10-02 12-16 Guest entrepreneur and TP3 Guest plus two written cases to compare in TP3: reflections on entrepreneurial careers

41 Thursday 2014-10-09 13-17 Support on BPEntry ticket: Mid-Time Progress Report ((A maximum three page report specifying how well you are achieving your goals specified in the Idea and Goals Report )

42 Thursday 2014-10-23 08-12 Final presentation Final presentation of the business plan with students rating each other’s projects

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The Role and Discovery of Opportunities

Topic:

An entrepreneurial opportunity is a situation in which an entrepreneur can create new means-ends framework for recombining resources that she believes will yield a profit. It is important to note that most opportunities do not become profitable, but when initiating actions to exploit the opportunity entrepreneurs believe they will be able to generate profits. Entrepreneurial opportunities differ from other types of profit generating opportunities because they require the creation of new means-ends frameworks. It is important to understand opportunities because the characteristics of the opportunity affect who is going to discover it and how it is going to be exploited.

It is therefore interesting to understand not only the source of opportunities, but how they are discovered. A way to understand how opportunities are discovered is to realise that the price system which is the foundation of micro economics cannot handle the new information and the uncertainty inherent to the entrepreneurial process. Hence, equilibrium cannot be reached and there exits people who have more information and information different from others in the economy. These differences in information coupled with the individual characteristics of entrepreneurs lead to the discovery of new opportunities.

Goal:

1) To be aware of different sources of opportunities2) To understand the limits of the price system 3) To understand the role of individuals in the discovery of new opportunities

Preparation questions:- Why do you think new opportunities or innovations are important to economic

growth?- Why are new firms important to economic growth?- Why are some people more creative than others?- Is there a tension or paradox between exploration and exploitation in a venture?- Can you give examples of new means-ends framework from the same opportunity?- What kind of opportunities are you most likely to discover, and why?- What kind of information would you gather if you had an opportunity to test?- In your own view, is there a need for a big idea or innovation behind a successful new

venture?

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The Decision to Exploit

Topic:

The discovery of the opportunity is just the first step in the entrepreneurial process. A decision to exploit the opportunity must also be made. In this section we look more closely at what individual differences that affect who is going to exploit the opportunity.

Individual differences are any type of variation among people. They can be demographic differences such as age and income. They can be can psychological differences such as personality, intelligence, or motivations. Individual differences can be stable over time or unstable over time. Stable characteristics are for example sex and personality (often social group). Unstable characteristics are motivations, salary or employment status. The mix of characteristics that makes an individual different from another will also influence the probability of that person acting to exploit an opportunity. Individual differences in the decision to exploit is one of the most popular areas of research in entrepreneurship

Goal:

1) To understand the decision to exploit from the perspective of individual differences.2) To be able to recollect a number of demographic factors that influence individuals’

decision to exploit opportunities.3) To be able to recollect a number of psychological factors that influence individuals’

decision to exploit opportunities.4) To be able explain how these factors affect the decision to exploit.

Preparation questions:

Networks are important for the decision to exploit. Why are networks important at both stages (identification and exploitation)?- Previous industry and start-up experience is important. However, when do you think experience is the most useful? Or when can it be negative?- What are the most important motivational drives behind starting a new venture? What motivational drives are needed to become successful? Be specific.

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Resource Acquisition

Topic:

We will here investigate how entrepreneurs acquire the financial resources necessary to exploit entrepreneurial opportunities. The exploitation of an entrepreneurial resource requires the acquisition and recombination of resources before the sale of the output from that recombination. Those resources have to be financed, either by the entrepreneur herself or by others.

External finance take a variety of forms, including equity financing, debt financing, asset-based financing, and grants. Furthermore, the amount of financing varies as well as the sources of financing. Hence, financing can differ across types, sources and amounts.

Two basic characteristics of exploitation process influence the acquisition of resources: uncertainty and information asymmetry. Information asymmetry enables the discovery of opportunities. Opportunities are uncertain until they have been tested on the market. In order to test them on the market, the process of bringing the new product to the market must be financed. While this information asymmetry and uncertainty gives rise to the existence of discovery of opportunities, it also makes the resources acquisition difficult for the entrepreneur.

Goal:

1) To understand the importance of resource acquisition.2) To understand the problems related to resource acquisition for entrepreneurs.3) To understand the strategies entrepreneurs employ to secure the resources needed.4) To understand the strategies financers use to secure their financial resources in

entrepreneurial ventures

Preparation questions:

- Due diligence is central to the entrepreneurial process, what would you look at in such a situation and why? There has to be a “fit” between people, opportunity, context and deal. What is important to think about here?

- What problems can you think of when it comes to syndication?- Financial bootstrapping not only leads more effective use of resources, it can also have

other important strategic consequences. Can you think of such consequences?- Trustworthy, committed and competent employees are another type of crucial

resources: How would you attract new employees to a new venture?

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Entrepreneurial Strategy and Organizing

Topic:

Entrepreneurial strategies are developed to overcome two major issues faced by the entrepreneurs. The first issue is for an entrepreneur to develop a competitive advantage that hinders the dissipation of the opportunity once she has begun to exploit it. When an entrepreneur starts to exploit an opportunity, she will automatically reveal the nature of that opportunity, and potential competitors might want imitate and thereby reduce profits. The entrepreneur needs to develop a strategy to preserve profits.

The second issue is for an entrepreneur to develop a strategy that enables her to manage the uncertainty and information asymmetry inherent in the exploitation of the opportunity when she seeks to generate profits. When an entrepreneur exploits an opportunity, she will also automatically have to deal with not knowing what the future has in reserve. She does not know if the product will work, and she does not know if there exists a demand necessary for survival. The entrepreneur needs to develop a strategy that enables her to handle uncertainty and information asymmetry.

We will here define what an entrepreneurial strategy is, and what the components of such strategies are.

Once the decision to exploit has been taken, and the need for resources is known, the entrepreneur must engage in organizing. Organizing involves creating the organizational structures, and the routines that support the activities that are need to recombine the resources according to the entrepreneur’s conjectures.

Organizing evolves over time, as entrepreneurs initiate a set of activities, such as obtaining equipment, establish production processes, attracting employees, and setting up legal entities. The organizing process varies with the commitment and the ability of the entrepreneurs and the nature of the opportunities. Entrepreneurs motivated to create a high growth venture will organize differently then will an entrepreneur interested in creating a smaller firm. Experienced entrepreneurs will organize differently than novice entrepreneurs. Finally, the organizing process is different for low technology service than for a high technology product. We will here investigate how entrepreneurs organize their ventures by first investigating the dynamic nature of the process, and then examine the different dimensions of the organizing process.

Goal:

1) To explain why a competitive advantage is needed.2) To account for how entrepreneurs can act to create a competitive advantage.3) To explain why uncertainty and information asymmetry must be managed.4) To account for how entrepreneurs can act to handle uncertainty and information

asymmetry.5) To account for different modes of exploitation.6) To understand different dimensions of the organizing process.7) To explain the critical components of the entrepreneurial process.

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Preparation questions:

- Think about what is the competitive advantage of the opportunity you present in your business plan. What is the advantage and how do you intend to protect it?

- Communication is central to successful venturing. What skills are needed and how can you get these?

- How do you relate legitimacy to the business opportunity in your plan?- What specific short term and long term advantages and disadvantages are linked to

different modes of exploitation?

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Due Diligence: Assessment of Business Plans

Topic:

By now you have understood that despite an occurring debate, business plans have some important merits. The most important in the context of the course is that it gives you an opportunity to explore what it means to create a new means-ends framework to exploit an entrepreneurial opportunity. You have seen that there are a number of factors to take into account. Factors related to the nature of the opportunity, resource acquisition, entrepreneurial strategies, and organizing needs, as well as legal dimensions. In sum four factors are to be taken into account:

What service or product does a new venture provide and what needs on the market does it fill?

Who are the potential customers for the new venture’s product or service and why will they purchase it?

How will the new venture reach its potential customers? Where will founder get the necessary resources to start their business?

A business plan precisely defines a venture, identifies its goals, and serves as the new firm's resume. The basic components include a balance sheet, an income statement, and a cash flow analysis. It helps founders to allocate resources properly, handle unforeseen difficulties, and make good business decisions. Because it provides specific and organized information about the new venture and how founders will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs stake holders such as suppliers, sales personnel, customers, and others about the new venture’s operations and goals.

The plan has three basic purposes: communication, management, and planning. As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows founders to show that they have worked out all the problems and decided on potential alternatives before actually launching your business.

Here you will get two business plans that you have to assess as potential investors. You have to develop a methodology allowing you to weed out bad business plans and select the good one. A good method is easy to apply to a number of business plans. You need to present your method (pros and cons) and your informed choice of business plan to invest in. Investment choices are most often followed by requirements, so you need to consider these as well.

Goal:

1) To be able incorporate all factors of the entrepreneurial process2) To develop a method to assess the value of a business plan3) To get an outsider perspective on business plans before writing your own.

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Business Plan and Pitching Opportunities

Topic:

Communication is a key success factor for entrepreneurs. An entrepreneur needs to be able to tell a compelling story about why this specific opportunity should work, why it is better than current alternatives, and why the entrepreneurial team is best fitted to make it happen. Basically how value is created, retained and distributed among the stakeholders. This means a lot of hard work to understand what are the strengths and weaknesses of an opportunity and how to communicate them to stakeholders.

Pitching opportunities. There are different ways to pitch an opportunity. It ranges from the short elevator pitch to a longer presentation. Common for a pitch is that is an overview of an idea for a product, service, or project. The elevator pitch reflects the fact that an elevator pitch can be delivered in the time span of an elevator ride (for example, thirty seconds and 100-150 words). The concept is typically used in the context of an entrepreneur pitching an idea to a stakeholder to receive funding. Stakeholders such as venture capitalists often judge the quality of an idea and team on the basis of the quality of its elevator pitch, and will ask entrepreneurs for the elevator pitches to quickly weed out bad ideas and weak teams. A longer presentation as the same objective but allows for more details.

An effective pitch generally answers questions such as:• What the product, service, or project is. • What it does for the buyer, investor, or sponsor (e.g. the benefits). • Who you are and why you will be successful.

The project will allow you to apply newly acquired entrepreneurship and communication skills to real opportunities. The project will culminate in a class presentation of each group’s output.

For your business idea, your team will develop an opportunity pitch to be given to a venture capitalist or business angel.

Team CompositionYou choose the team you want to work with. The team needs be balanced in terms of gender and backgrounds.

Deliverables are: • Business plan. Below follows a short template of what is normally expected in a business plan.• Power point presentation or other supports used during the presentation.

This means that you are likely to be able to tell us:

- Who you are (experience, motivation and network) and why you can make this succeed

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- -What is the value proposition (what is the promise and customer value): idea (source, development, protection), for whom (general context, market, segment): Ambition and position (competitors, key success factors, key strategic risks)

- Value creation: resources needed, ability to attract resources, resource utilization, Competitive advantage, position in the value chain

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Theory Report

The grade is based on all three papers.

The papers should be no more than 3 pages, double space, times roman 12 pts (or similar), 2.5 cm margins. Title page and references are not counted. The title page has to include:

- Course title;- Theory paper number (TP1, or TP 2 or TP3);- Your full name.

The paper is to be uploaded at live@lund previous to the lecture.

Grading

The grading of your reports will be based upon an evaluation of the following three components, each carrying a specific weight (in parenthesis): the originality of your work (40%), and your justification/analysis (40%) and the format (20%).

Originality:In evaluating your originality, the following points will be considered:- Have you identified interesting topics?- Are the topics detailed enough?- Have clearly connected the papers with each other?- Do you provide a personal reflection based on what was done in the course?

Justification and Analysis:A thorough justification consists of:- thorough and in-depth analysis of relevant facts;- complete and correct use of data/papers available;- justifications of all assumptions made;- convincing writing style.

Format:The report you submit in this class should be of the same quality as one submitted to an executive committee at a company. Write in memorandum style and be direct. A good format satisfies the following requirements:- excellent organization of paper and exhibits;- grammar and spelling are correct;- neat appearance (text, exhibits) via word processing;- visually pleasing, easy to read.

Use the following questions to stimulate the writing of your theory reports.

1. Ask yourself what happened to you when reading about this topic:

- What did we do?- What have you read?- What did you observe? Think about?- What feelings did you have during the experience?

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2. Next ask yourself so what?

- What benefits did you get from this topic?- What did you learn? Relearn?- What are the implications of this topic?- How might this be different next time?

3. Finally, ask yourself now what?

- How do you want to do things differently in the future?- How can you extend the learning you had?- What steps can you take to apply what you have learned?

Theory Paper1:

This paper should address the role of the business idea in entrepreneurship. You have worked with creativity exercises and with potential business ideas. You have two different academic papers to read plus your recent personal experiences to reflect upon. Use your experience and ideas generated from "From Student to Entrepreneur", with the team plus reflections on the papers.

Theory Paper 2:

The purpose of this paper is to have you reflect on the resource acquisition process of start-ups. As you will see from the literature, there are many different sources (internally and externally generated resources) and strategies for new firms to acquire needed resources. One of the most important ones to attract external resources is the business plan, use the experience from the exercise and the assigned literature to discuss the resource acquisition process.

Theory Paper 3:

This final paper focuses on entrepreneurs as individuals and entrepreneurial careers. Up until now, we focused on the idea and new firm, specifically resource acquisition. However, a central component is the entrepreneur and that person's willingness to invest time, talent and treasure to get a business going. Here you are asked to read to cases profiling two entrepreneurs and then two research articles taking a different view on the individual entrepreneur. Compare and contrast the two cases with help of the research articles.

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Literature

Pease see Live@lund folder “documents”

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Useful Internet Resources

Here you will further information about business plans.

http://www.entrepreneur.com/businessplan/index.html

http://www.inc.com/startup#/startup

http://www.bplans.co.uk/?utm_source=bplansUS&utm_medium=banner&utm_campaign=Geo

http://www.gate2growth.com/

http://www.businessplans.org/

http://www.business.vic.gov.au/

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