Entrepreneurship Entrepreneurship Glenn Muske Micro Business Specialist Oklahoma

Entrepreneurship

Entrepreneurship Glenn Muske Micro Business Specialist Oklahoma State University

Outline u Entrepreneurship u Entrepreneurs and the community – Myths – Defined – Opportunity, Risk and Reward – What the social sciences tell us – Entrepreneurs vs. small business owners & others – Role of entrepreneurs in the local economy – Building an entrepreneurial community u Entrepreneurial examples u Special entrepreneurial situations u Final thoughts

Personal Passion The freedom to pursue personal passion leads many to start businesses. “Nothing great in the world has been accomplished without passion. ” George Wilhelm Friedrich Hegel German Philosopher (1770 -1831)

Questions often asked but aren’t the most important 1. What can I do? What business should I start? 2. Can I get a grant? 3. What business will earn lots of money? 4. What about e-commerce?

Questions often not asked but should be!! 1. Am I an entrepreneur? 2. Is there a market? 3. Can I profitably tap that market? 4. How do I get to market? - E-commerce is just a means to market

The Myths of Entrepreneurship

Myth #1 u Get u Rich Quick! Truth is – Life as an entrepreneur is not about money. – Success rarely happens overnight. – It's about what you want to do with your life.

Myth # 2 u You must be born an entrepreneur (trait theory) u Truth is: – some of the most successful entrepreneurs are the most unlikely. – It is a lifestyle choice, not an accident.

Myth # 3 u You must be at the right place at the right time (environment theory) u Truth is: – successful entrepreneurs operate whatever the macroeconomic and structural factors are

Myth # 4 u "I'll have all this free time…" u Truth hours is entrepreneurs work many – advantages are: u control of time u variety of tasks

Myth # 5 u It get easier. u Truth is it gets more challenging – must work faster, smarter & longer – must enjoy the battle

Myth # 6 u If u you build it, they will come. Truth is building your business is just the start. Next is the real work: – planning – timing – strategizing and more.

Myth # 7 u It's u all about the bottom line. Truth is that the bottom line is necessary but not sufficient – purpose and meaning to the business – inspire customers and employees

Myth # 8 u Entrepreneurs u Truth are risk takers – Entrepreneurs are calculators – Studies show entrepreneurs are only moderate risk takers

Myth # 9 u You have to have a great idea u Truth – Your idea must be be good doable wanted or needed priced right

Myth # 10 u It takes a lot of money u Truth – Over 50% start for under $10, 000 – Also look for u Certain business types u Turn-around situations u Possibility of using other people’s money

Entrepreneur’s goal is “to create or capitalize on new economic opportunities through innovation § § By finding new solutions to existing problems Or by connecting existing solutions to unmet needs or new opportunities” SOURCE: Lichtenstein & Lyons, Incubating New Enterprises: A Guide to Successful Practice, 1996

Entrepreneurship Definitions: 1. 2. Creation of an innovative economic organization for the purpose of gain or growth under conditions of risk and uncertainty Self-employment through business ownership that includes significant elements of risk, control, and reward (Coleman Foundation) 3. Organizing a business venture assuming a certain amount of risk to make a profit (Burns and Bolton)

More Definitions: u Profits from bearing uncertainty and risk u Purposeful activity to initiate and develop a profit-oriented business u Moderate risk taking u Creation of new organizations u The pursuit of opportunity without regard to resources currently controlled

Entrepreneurship: Basic Elements 1. Opportunity recognition 2. Creation and/or innovation 3. Resource gathering and the founding of an economic organization 4. Desiring the chance for gain while accepting risk and uncertainty

Other Entrepreneurial Motivators

LE TY ES LIF Tim e. W Fam ith ily

? ? Tell a time when you were entrepreneurial ? ? Were you successful? ?

Opportunity Recognition

An Entrepreneurial Opportunity defined: u. A situation in which changes in technology, or economic, political, social, and demographic conditions generate the potential to create something new or to remarket something existing.

Entrepreneurial Opportunity Grid Market Existing New Product/Service Existing New Market Penetration New Offering Development Market Development Diversification

What are opportunities? u Small steps u Little jumps u Huge leaps

"Don't be afraid to take a big step if one is indicated; you can't cross a chasm in two small jumps. " David Lloyd George

Opportunities can be. . . Technical or scientific u Political and regulatory u Process or production method u Organizing u New market and marketing u Personnel u Social & demographic changes u New raw material u Product obsolescence u Corporate stagnation u One-product vulnerability u Chance u

Think like a…. . u Manager – Problem solving u Entrepreneur Exploitation – Opportunity

Opportunities u External – Unexpected event – Technology changes and convergence – Change in methods – Demographics/market – size, – Changes in competition u Internal u Other methods

The Opportunity Myth An Idea does not equal an Opportunity

Creation & Innovation

Creativity “ Imagination is more important than knowledge” - Einstein

The Creative Process u Planning & definition – focus on building the RIGHT product u Design, demonstration & customer support – focus on building the product RIGHT

Customer requirement Product solution NOT Technology Product Find a consumer

Basic questions u What is the customer’s need? – How large is the opportunity? – How likely is it to happen? – What is the market timing? – Is it aligned with our organizational strengths?

Time is money! Delays give others time to develop the same product.

Reduce product development time by 1/3 & you will triple profits & growth.

Exercise u In groups of 3 -4, think of 3 things you have observed externally lately that would be a potential business opportunity.

Resource Gathering Resourced-based Theory of Entrepreneurship

Dimensions of Entrepreneurship Individual Characteristics Environment New Venture Creation Constraints in the Environment Organization

Resource u any thing or quality that is useful u used to develop sustainable competitive advantage u heterogeneous & immobile – you have them, others cannot easily get them

Strategic Resources u Valuable – Exploit an environmental opportunity u Rare – Not enough for all competitors u Imperfectly imitable – Cannot be merely copied u Non-substitutable

Competitive Advantage Resource Dimension Advantage Valuable Exploits opportunities Rare Unique & expensive Ordinary Imitable Complex & ambiguous Many & easy Substitutable Difficult No Advantage Common Readily available & cheap

Types of Resources u Financial u Physical u Human u Technology u Reputation u Organizational

Risk and Reward

If the business succeeds, the entrepreneur reaps the reward of profits; if it fails, one takes the loss.

Business Failure Rate

Statistics 10% of small businesses fail each year u 40 - 80% of small businesses do not survive for 5 years u Most small businesses closures do not result in uncovered liabilities u Majority of small business owners who fail will start another business u

Why do businesses fail? – 2 general categories u. Financial u. Nonfinancial

Financial Reasons Under-capitalized u Poor cash flow planning u Lack of record keeping u Inadequate financial forecasting and review u Lack of accounting training u Excessive debt u

Nonfinancial Reasons Loneliness u Lack of management skills and training u Little passion u Impact of regulations u Inefficiency u Inexperience u Lack of planning u

"I never failed once. It just happened to be a 200 l-step process. " Thomas A. Edison

Rewards ? ? ?

"In the realm of ideas everything depends on enthusiasm, in the real world all rests on perseverance. " Johann Wolfgang von Goethe

The Social Sciences on “What Makes an Entrepreneur”

Trait Theory § Energy/motivation § Business orientation § Business attitude § People skills

http: //www. sba. gov/starting_business /startup/entrepreneurialtest. html http: //www. toolkit. cch. com/tools/dow nloads/swchek. rtf

Personality Characteristics § Need for achievement § Locus of control § Risk-taking propensity

Career Anchors § Motivate vocational choices § Technical § Managerial § Security § Creativity § Autonomy

Sociological Characteristics § Negative displacement § Between things § Positive pull § Positive push

Situational Characteristics § Perceptions of desirability § Perceptions of feasibility § Entrepreneurial event

Desires Change: – Your life – A product or service – The environment

Entrepreneurs and the Community

CARE Model (Dr. Mike Woods, Jack Frye, & Stan Ralstin) Creation Attraction Retention Expansion % of New Jobs Created Attraction - 1% Retention & Expansion – 44% Creation – 55%

We all want to find the next gazelle!!

Entrepreneurs vs. Small Business Owners Carland, Hoy, Boulton, & Carland argue they are different - Entrepreneurs and entrepreneurial businesses involve innovation & growth - Entrepreneurs goal-orientation is different - financial success vs. other criteria - need for achievement/power - Entrepreneurs use strategic management practices

Small Business Independently owned and operated, not dominant in its field, and does not engage in any new marketing or innovative practices Owner – Establishes and manages for purpose of furthering personal goals. Business is primary source of income & consumes majority of time & resources. Owner perceived business as extension of personality, intricately bound with family needs and desires.

Entrepreneurial Venture Engages in growth and profitability and innovation by introducing new products, new processes, opening new markets, or reorganizes the industry Entrepreneur – Establishes and manages the business for growth and profit. Is innovative and employees strategic management practices.

? ? QUESTION? ? Are entrepreneurs and small business owners the same thing? Why? ? Why not? ? Does rural make a difference? ?

Comparing Entrepreneurs to Managers and Leaders Entrepreneur Manager Leader Innovates Administers Innovates Creates Maintains Develops Sees opportunities Asks how and when Makes it happen See problems Sees the future Asks how and when Does things right Relies on control Asks what and why Uses influence Builds the team Inspires trust

Entrepreneurship is a style and a general method of operating, not just a set of business skills. Jerry Gustafson Beloit College

Entrepreneurs People who create and grow enterprises Ø Aspiring entrepreneurs Ø Survival entrepreneurs Ø Lifestyle entrepreneurs Ø Growth entrepreneurs Ø Serial entrepreneurs Ø Social entrepreneurs SOURCE: WK Kellogg Foundation

Entrepreneurs and the Community What they bring

Does it matter what they are called? Both: u Add income to the household and jobs and wealth to the community u Add economic strength to a community u Add stability to a community u Provide the owner with the ability to achieve his or her goals u Create new opportunities within the community - Multiplier

Who entrepreneurs are? u Classified as: – Small business – Micro business – Home-based business – Family business u Also: – Underground economy – Informal economy – Formal economy

Metro, Micro, Rural Comparison 20% of OK households own & run a business Primary bus. Metro Micro Rural (n=146) (n=54) (n=46) Service Ag/For/Fish Construction Service Construction, Retail FIRE & Service Family bus. 62% 74% 78% Home-based 66% 63% 70% Spouse in bus. 48% 46% 65%

Metro, Micro, Rural Comparison Avg # empl Metro Micro Rural (n=146) (n=54) (n=46) 1. 83 2. 04 2. 11 $241, 891 $49, 000 $333, 589 $35, 000 $162, 190 $40, 000 Gross inc. - Mean - Median

The numbers u Small businesses – 16 million nonfarm – OK – 290, 000 (employer & nonemployer) u 50% of private workforce – OK – 54% Create 2/3 of all new jobs u 52% of all nonfarm output u Micro businesses – ? ? ? u – OK – 270, 000 – 94% u + 84, 000 farm/ranch operations

The numbers u Family businesses – 12. 7% of households – OK – 185, 000 - $6. 5 billion inc transferred to family – South – 3. 3 million - $109 billion transferred – U. S. – 9. 7 million - $348 billion transferred u Home-based businesses – 5% - 18% of hh – OK – 67, 000 – 176, 000 - $1 - $6. 2 billion/year

Creating Entrepreneurial Communities People Formal Institutions Informal Organizations

Entrepreneurial Communities 4 types 1. 2. 3. 4. Those that develop entrepreneurs act entrepreneurially do both do neither

Entrepreneurship development u the infrastructure of public and private supports that facilitate entrepreneurship Entrepreneurial communities u those where significant economic and social entrepreneurial activity exists and where there is an effective system of entrepreneurship development SOURCE: WK Kellogg Foundation

Entrepreneurial Communities 1. Has critical mass of entrepreneurs actively engaged in capturing new market opportunities 2. Group of entrepreneurs recognizable within the community 3. Community as a whole is entrepreneurial Social capital (Floras) Human capital-diversity (Florida) Clusters (Porter) Public-Private Partnerships (Tupelo-Grishom) Innovative Infrastructure (Feldman)

Theory Expansion u Social capital – Trust, networks, reciprocity, and collective action – Horizontal, vertical, and flexible (not in the group at all times) u Human capital – Education u Beyond high school u Continuous and life-life long u Include specific and general u Inclusive – pre-K – older citizen u Just-in-time – Knowledgeable and involved citizens

Theory Expansion u Clusters – Why? – Based on economies of scale, technology transfer & availability of human capital (Eric Scorsone, Industrial clusters: Enhancing rural economies through business linkages, SRDC 21 st Century Series) u Innovative infrastructure – Basics plus items such as a visionary government, day care, & technology

Creating an Entrepreneurial Climate 1. 2. Entrepreneurship must be an explicit economic development strategy Community must embrace and nurture entrepreneurs – a. b. c. 3. 4. 5. Goal - A continuous pipeline of entrepreneurs Supportive public policies Balances regulations with business needs Education – early & on-going, formal and nonformal Access to capital – banks, investment, angels Access to quality workers Recognize entrepreneurial efforts

Enterprise Development “Assistance to entrepreneurs in support of the creation, growth, and survival of their businesses” Koven & Lyons (2003) nonprofit, private, public service providers youth entrepreneurship programs micro enterprise programs business incubators manufacturing network small business development centers angel capital networks revolving loan funds technology transfer programs

Nurturing of Entrepreneurs u Mentors and coaches u Business/management assistance & support – Coordinated, seamless, and local u Access to technology u Technical assistance u Inclusion of all into events, programs, & groups

Other Examples: How Communities Can Help u u Purchase locally Help create new local businesses u Develop human resources Free-up potentially productive space u Initiate local investment strategies (endowments, fundraising, microloan programs) Mobilize external resources

Challenges for Sustainable Rural Economic Development 1. 2. 3. Translating models to placebased strategies - no silver bullet Implement strategy with tangible benefits - taxpayers see return on investment Need to create good jobs - self-sustaining wages

Challenges for Sustainable Rural Economic Development (cont. ) 4. 5. Need for strategies that build on all assets - young, old, men, women, ethnicities Shortage of resources in most small towns. SOURCE: Emery, Wall, Macke, 2004

Shortcomings of Enterprise Development #1 Tool-Driven-Not Needs-Focused Worked one-place and one-time Solutions in search of a client base Voice of the customer-the entrepreneur-is missing Entrepreneurial Needs Hard for entrepreneurs to articulate Entrepreneurs may not trust those asking the questions Entrepreneurs difficult to identify and reach SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

Shortcomings of Enterprise Development (continued) #2 Fragmented and Categorical “Creaming” – we need more than a quarterback #3 Too Little Focus on Execution Various gurus crisscross the country – then go home Gap between ideas and education #4 The Broken Learning Cycle Best practices vs. successful practices SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

Shortcomings of Enterprise Development (continued) #5 Focus on the Business, not the Entrepreneur #6 Missing Function: Responsibility for the Community’s Supply of Entrepreneurs #7 Funders, not Clients, Drive the Program #8 Impact is not Scalable Community-wide impact SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

Successful Entrepreneurial(? ) Communities 1. Acceptance of Controversy 2. Ability to Depersonalize Politics 3. Surplus Income to Invest 4. Willingness to Take Risks 5. Ability to Define Community More Broadly 6. Networking Ability 7. Emphasis on Academics 8. Flexible, Dispersed Leadership SOURCE: Flora and Flora

SOURCES FOR THIS PRESENTATION Lichtenstein, Lyons, Kutzhanova “Building Entrepreneurial Communities: The Appropriate Role of Enterprise Development Activities” Journal of the Community Development Society, 2004 Emery, Wall, Macke “From Theory to Action: Energizing Entrepreneurship (E 2), Strategies to Aid Distressed Communities Grow Their Own” Journal of the Community Society, 2004

Entrepreneurs We Know

Do you know who they are? u. Stan Clark u. Frank Epperson u. Fred Smith u. Bill Bowerman & Philip Knight u. Dr. John Pemberton & Asa Chandler

Do you know who they are? u. Jeff Bezos u. Cohen and Greenfield u. Ray Kroc u. Tom Monaghan u. Bill Gates u. Howard Schultz

Entrepreneurs All are not equal, nor do they want to be!!

Entrepreneurs People who create and grow enterprises ü ü ü Aspiring entrepreneurs Survival entrepreneurs Lifestyle entrepreneurs Growth entrepreneurs Serial entrepreneurs Social entrepreneurs SOURCE: WK Kellogg Foundation

Family Business Names Wal-Mart Ford Weyerhaeuser Michelin Gap Anheuser-Busch Tyson Foods Dillards Cargill Koch Industries Ikea Cox Communication Enterprise Rent-A-Car Hallmark Levi Strauss Kohler

Family Businesses u Generate 62% of nonfarm business receipts - $16. 8 trillion in 1996 – Even greater impact in midwest economy Dominate form in agriculture, retail, wholesale, and distribution sectors u Employ 54. 8% of workforce – 69. 5 million u Provide higher than average household income and net worth u – Only 1% of households are poor vs. 11% overall

Sustainable Family Business Model PROCESSES Available Resources and Constraints Time of Stability Interpersonal Transactions Resource Constraints Times of Change Interpersonal Transactions Resource Transactions Disruptions in Family/Business Transactions Achievements Objective Success Subjective Success Responses to Disruptions in Family/Business Transactions Sustainability PROCESSES Available Resources and Constraints Time of Stability Interpersonal Transactions Resource Constraints Time of Change Interpersonal Transactions Resource Transactions Achievements Objective Success Subjective Success BUSINESS

More info u u www. hce. osu. edu/fambus http: //www. human. cornell. edu/ne 167/

Home-based Business Names u Hewlet-Packard u Nike u Coke u Mrs. Fields Cookies u Microsoft u Dell

Home-based Business Facts Nine-state study (1988) – Typical home-based worker u 44 year old male, married, with children, 14 yrs. education, & a homeowner u Mean gross business income - $53, 164 u Mean net business income - $15, 628 u Mean household income - $42, 263 – Had medical insurance from some other source – As # children increased, number of work hours decreased (1 day per child on average) – Had greater longevity in the community

Copreneurs Defined – Couples in business together – 31% of family businesses – Have more children, lower educational levels, rural location, business manager earns less per year, more likely home-based, and have fewer employees – Make significantly less business income and business profits (by factor of 5) & feel business is less successful – Copreneurs more likely to view business as a way of life as opposed to a way to earn income

Copreneurs cont. – More likely to intermingle money between business and family – More often family to business u Also use more ways of intermingling – Approximately 20% of couples discontinued the copreneurial relationship (but stayed together as a couple) in a 3 -year period u Made less money & saw the business as less successful. – Another 20% started a copreneurial relationship u Made most money of all 3 groups, run by older men with more education, had fewer dependents, and spouse worked fewer hours in business.

Value-Added Opportunities

Value-Added Defined: Adding consumer-desired features to raw materials Done by: 1. Additional processing 2. Marketing - change from the current method of distribution 3. Use existing resources to produce a new, more valued product/service 4. Some combination

Reap New Profits: Marketing Strategies for Farmers & Ranchers

Farmers Markets

“People don’t come all the way out here to get cheap food. They come because it’s fun and the berries are absolutely fresh. ” -- Earnie Bohner, Persimmon Hill Berry Farm Pick Your Own

E N T E R T A I N M E N T F A R M I N G

O T H E R O P T I O N S 4 Farm Stands 4 Community supported agriculture (CSA) 4 Cooperatives 4 Restaurant sales 4 Mail order/ Internet/ Direct marketing

Resources: 4 USDA Sustainable Agriculture Research and Education (SARE) – www. sare. org 4 Farmers Markets www. ams. usda. gov/farmersmarkets 4 Alternative Farming Systems Info Ctr www. nal. usda. gov/afsic 4 USDA Farmer Direct Marketing www. ams. usda. gov/directmarketing 4 North American Direct Marketing Assn. www. familyfarms. com

Minorities and Women

General Information u Small business ownership rates for women and minorities are increasing faster than for white males – Still men start new businesses at twice the rate of women – Women – 9. 8% own businesses u Translates to over 50% of all businesses – Minorities – Ranges from 5% (Blacks) to 10. 4% (Asian) Firm receipts average about 2/3 of all bus. u Proprietor income averages about 50% of all other businesses u Firms employee fewer people u

Special Issues u Access to capital u Acceptance by business community u Acceptance by family and friends u Networks are smaller and more family-focused u Most often in retail or service industries – Industries with highest failure rates and lowest profits

Barriers to Entrepreneurship

A lack of: 1. 2. 3. 4. 5. 6. 7. 8. Steady stream of “want-a-be’s” “Can-do” attitude held by the entrepreneur and the community Coordinated, accessible, long-term support network Coaches and mentors Capital Available human capital Multi-faceted healthy community Supportive regulatory environment

The man who makes no mistakes does not usually make anything. " Edward John Phelps, American lawyer and diplomat (18221900) "Nothing great was ever achieved without enthusiasm. " Ralph Waldo Emerson

Highlights

Highlights Entrepreneurship is an ever-continuing, growing trend u Entrepreneurs contribute to their household and to their community u Entrepreneurship is a learned talent u Entrepreneurs form our economic base u Entrepreneurship allows people to remain in a community u Communities can encourage entrepreneurship u

Entrepreneurs: - See opportunity - Are innovative in developing that opportunity through creativity and resource gathering - Seek gain while accepting risk and uncertainty

One Last Myth The key to success is a great idea The keys are: Good idea Great plan Passion!

How Extension can help?

1. Awareness of owner’s priorities 2. Comfort with subject matter One-on-one Mentoring Advocating Partnering Community support Awareness of other programs Education

Resources u Southern Rural Development Center http: //srdc. msstate. edu/ u Kansas City Federal Reserve Bank – Center for the Study of Rural America http: //www. kc. frb. org/Rural. Center/Rural. Main. htm u Rural Policy Research Institute (RUPRI) http: //www. rupri. org/

Resources cont. u Adult – Cashing In On Business Opportunities – Ne. Xt Level/Fasttrac/other commercial – OSU u Putting It All Together u Food Based Business: The Owner’s Guide u An Exploration of Entrepreneurship u Visual Merchandising – Educational program – Demonstration program u Mapping Your Marketing Future – Magazines, i. e. Entrepreneur

Resources cont. u Youth – Mini-Society – Be the E: Entrepreneurship (4 -H CCS) – http: //youngbiz. com/ – http: //www. celcee. edu/ - clearinghouse u General – http: //www. entre-ed. org/index. htm

Entrepreneurship Glenn Muske Micro Business Specialist Oklahoma State University