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New Venture Creation. Chapter 1: Introduction to Entrepreneurship Modified from Barringer and Ireland (2006). Introduction to Entrepreneurship. Very exciting time to study entrepreneurship GEM Studies

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new venture creation

New Venture Creation

Chapter 1: Introduction to Entrepreneurship

Modified from Barringer and Ireland (2006)

introduction to entrepreneurship
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/
what is entrepreneurship
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!!!
another type of entrepreneurship
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
what motivates people to become entrepreneurs
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
4 main characteristics of successful entrepreneurs
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)
4 main characteristics of successful entrepreneurs1
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
misconceptions of entrepreneurs and theory
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
5 common myths about entrepreneurs
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
other characteristics of successful entrepreneurs
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
types of new ventures
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
why entrepreneurship is important creative destruction
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”
why entrepreneurship is important economic impact on society
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
why entrepreneurship is important impact on society and larger firms
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)
the entrepreneurial process
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
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