New Venture Creation

1. New Venture Creation Chapter 1: Introduction to Entrepreneurship Modified from Barringer and Ireland (2006)

2. Introduction to Entrepreneurship • Very exciting time to study entrepreneurship • GEM Studies • 2003: 300 million people, 12.5% adults in 40 countries involved in forming new businesses • 2005: USA early-stage entrepreneurial activity more than twice the rate of other countries (in 2005, 12.4% US population engaged in entrepreneurship) • Business School Education • To help spur economic activity, many firms providing funding to entrepreneurship programs across the USA • Governmental & Community Resources for Entrepreneurs • SBAs: http://www.sba.gov/ • SBIRs: http://www.sba.gov/SBIR/ • SBDCs: http://www.odod.state.oh.us/edd/osb/sbdc/default.htm • Business Incubators: http://www.techincubator.org/

3. What is Entrepreneurship? • Entrepreneurship Defined • The process by which individuals pursue opportunities without regard to the resources they currently control with the ultimate goal of creating new “value” • Involves identifying opportunities, putting useful ideas into practice • Tasks require creativity, drive, and a willingness to take risks • Ex: eBay’s Pierre Omidyar and Microsoft’s Bill Gates • Inventor ≠ Entrepreneur • An inventor creates something new • Entrepreneurs put the resources together to commercialize inventions • Entrepreneurs assemble resources (e.g., money, people, strategy, and risk bearing ability) to transform inventions into viable businesses • Entrepreneurship requires a different set of skills that can be learned and honed • That’s why we’re here!!!

4. Another Type of Entrepreneurship • Corporate Entrepreneurship • Is entrepreneurship at the firm level • Involves an existing firm acting entrepreneurially • Successful examples: Apple, Virgin Group, Darden • Unsuccessful examples: Delta’s Song, Continental Lite • To determine firms’ entrepreneurial orientations, imagine a conceptual continuum ranging from highly conservative to highly entrepreneurial • The position of a firm on this continuum is its entrepreneurial intensity • Highly entrepreneurially intense firms are proactive, innovative, and risk taking • Conservative firms take a more “wait and see” posture, are less innovative, and are risk adverse

5. What Motivates People to Become Entrepreneurs? • 3 primary reasons • Desire to be their own boss • Most common reason • Due to frustration with traditional jobs • When this is the only reason, firms are usually small-to-medium sized at full growth • Desire to pursue their own ideas • Passion to see ideas realized • Identify a problem and a solution to that problem • Many established firms resist change • Financial rewards • Secondary concern • GEM study: In 1997, only 13.3% of owners of SMEs in the US made more than $50,000/year

6. 4 Main Characteristics of Successful Entrepreneurs • Passion for the Business • #1 characteristic shared by successful entrepreneurs • Stems from beliefs that firm positive effect on society • Caution: Don’t wear “rose-colored glasses” • Product/Customer Focus • Keeping a focus on the products and customers needs/requirements is very important • Main point: successful entrepreneurs introduce products/services that fulfill needs versus introducing them for the sake of introducing them • Ex: Apple’s Steve Jobs vs. Infomercials (e.g., iPod Flea)

7. 4 Main Characteristics of Successful Entrepreneurs • Tenacity Despite Failure • Because entrepreneurs generally try new things, failure rate is naturally high • The ability to persevere through setbacks is key • Execution Intelligence • Involves the ability to translate thought, creativity, and imagination into action and measurable results • Successful examples: Starbucks, Wal-Mart • Problematic examples: The Singing Machine, Delta’s Song

8. Misconceptions of Entrepreneurs and Theory • Neoclassical school(Kirzner, 1973) • Fundamental attributes of people determine if they become entrepreneurs • Psychological school(cf. Covin & Slevin, 1989; Shave & Scott, 1991) • In addition to fundamental attributes, people must have ability and initiative • Austrian Economics school (Hayek, 1945; Shane, 2000) • Not everyone can be an entrepreneur • The possession of certain information determines who becomes an entrepreneur

9. 5 Common Myths about Entrepreneurs • Entrepreneurs are Born not Made • Entrepreneurs are not genetically predisposed but there are common characteristics of successful entrepreneurs and these can be developed via one’s social context (on next slide) • Entrepreneurs are Gamblers • Actually entrepreneurs are moderate risk takers • Entrepreneurs are Motivated Primarily by Money • Entrepreneurs should be Young and Energetic • Average age is 35-45 with 10+ years of work experience • Investors look at experience, maturity, reputation, and track record • Entrepreneurs Love the Spotlight • Often their work involves proprietary products/services

10. Achievement motivated Alert to opportunities Creative Decisive Energetic Internal locus of control Moderate risk taker High need to achieve Is a networker Persuasive Promoter Resource assembler/ leverager Self-confident Self-starter Strong work ethic Tenacious Tolerant of ambiguity Visionary Other Characteristics of Successful Entrepreneurs • Research suggests that people with entrepreneur parents are more likely to become entrepreneurs and people who know an entrepreneur are > twice as likely to start a business versus those who do not. • The lesson: a person’s social context helps to shape these characteristics

11. Types of New Ventures • Lifestyle or part-time firms (e.g., lifestyle firms, micro-businesses): • Usually pursued part-time and only until “something better comes along” • Sometimes allows founder(s) to pursue a special interest or hobby • Traditional small businesses (e.g., SMEs, salary-substitutes businesses): • Allow founders to earn a salary similar to a traditional job • No high growth aspirations and usually only one office location • Original founder(s) maintain control over the firm • Plan to operate the firm indefinitely • High-growth ventures: • Founder(s) intend to grow the firm in scale (multiple sites) • Target markets are generally at the national or international level • Founders usually do not maintain control over the firm indefinitely and hand it over to more qualified individuals when it grows to a certain level

12. Why Entrepreneurship is Important: Creative Destruction • Creative Destructionoccurs when new and/or improved products replace existing ones, which impacts consumer demand and stimulates economic activity • First discussed by Joseph Schumpeter in 1934 The Theory of Economic Development • Argued the new products and technologies make other obsolete through creative destruction • Start-up ventures initiate creative destruction as they are “innovators” or “agents of change”

13. Why Entrepreneurship is Important: Economic Impact on Society • Innovation • The process of creating something new, is central to the entrepreneurial process • Small firms responsible for over 2/3 all innovations in U.S. • Ex: Nistevo trucking; Southwest; eBay • Job Creation • 1970: Fortune 500 employed 20% US labor force • 1996: Fortune 500 employed 8.5% US labor force • Between 1993-1996, new high-growth firms created 2/3 of new job in US • Globalization • 2006, 97% of U.S. exporters are small businesses with < 500 employees • 2005 GEM report shows trend for entrepreneurship across the US and world is increasing

14. Why Entrepreneurship is Important: Impact on Society and Larger Firms • Impact on Society • Innovations of entrepreneurial firms have a dramatic impact on society • Think of new products and services that make our lives easier, more productive, healthier, and more entertained • PCs, Internet, digital media, George Foreman grill (“Knock the Fat Out!) • Impact on Larger Firms • Many firms build their entire business models around helping larger firms become more efficient and effective • Examples: Small biotech firms; shipping companies (e.g., FedEx); HRM companies • Porter’s Value Chain will help us to identify business models that fill this need (we’ll discuss this later in the semester)

15. The Entrepreneurial Process • The Entrepreneurial Process Consists of Four Steps • Step 1: Deciding to become an entrepreneur • Step 2: Developing successful business ideas • Step 3: Moving from an idea to an entrepreneurial firm • Step 4: Managing and growing the entrepreneurial firm • Throughout the semester, we will cover these steps