New Venture Creation Chapter 1 Introduction to Entrepreneurship

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

Introduction to Entrepreneurship n Very exciting time to study entrepreneurship n GEM Studies n n n Business School Education n n 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) To help spur economic activity, many firms providing funding to entrepreneurship programs across the USA Governmental & Community Resources for Entrepreneurs n SBAs: http: //www. sba. gov/ n SBIRs: http: //www. sba. gov/SBIR/ n SBDCs: http: //www. odod. state. oh. us/edd/osb/sbdc/default. htm n Business Incubators: http: //www. techincubator. org/

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

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

What Motivates People to Become Entrepreneurs? n 3 primary reasons n Desire to be their own boss Most common reason n Due to frustration with traditional jobs n When this is the only reason, firms are usually small-tomedium sized at full growth n n Desire to pursue their own ideas Passion to see ideas realized n Identify a problem and a solution to that problem n Many established firms resist change n n Financial rewards Secondary concern n GEM study: In 1997, only 13. 3% of owners of SMEs in the US made more than $50, 000/year n

4 Main Characteristics of Successful Entrepreneurs 1. Passion for the Business • • • 2. #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 n Ex: Apple’s Steve Jobs vs. Infomercials (e. g. , i. Pod Flea)

4 Main Characteristics of Successful Entrepreneurs 3. Tenacity Despite Failure • • 4. 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 n n Successful examples: Starbucks, Wal-Mart Problematic examples: The Singing Machine, Delta’s Song

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

5 Common Myths about Entrepreneurs 1. Entrepreneurs are Born not Made • 2. 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 3. Entrepreneurs are Motivated Primarily by Money 4. Entrepreneurs should be Young and Energetic 5. • Average 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 n n n n n Achievement motivated Alert to opportunities Creative Decisive Energetic Internal locus of control Moderate risk taker High need to achieve Is a networker n n n n n Persuasive Promoter Resource assembler/ leverager Self-confident Self-starter Strong work ethic Tenacious Tolerant of ambiguity Visionary • 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 n n n Lifestyle or part-time firms (e. g. , lifestyle firms, micro-businesses): n Usually pursued part-time and only until “something better comes along” n Sometimes allows founder(s) to pursue a special interest or hobby Traditional small businesses (e. g. , SMEs, salary-substitutes businesses): n Allow founders to earn a salary similar to a traditional job n No high growth aspirations and usually one office location n Original founder(s) maintain control over the firm n Plan to operate the firm indefinitely High-growth ventures: n Founder(s) intend to grow the firm in scale (multiple sites) n Target markets are generally at the national or international level n 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 n Creative Destruction occurs when new and/or improved products replace existing ones, which impacts consumer demand stimulates economic activity n First discussed by Joseph Schumpeter in 1934 Theory of Economic Development n n 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 n Innovation n The process of creating something new, is central to the entrepreneurial process n Small firms responsible for over 2/3 all innovations in U. S. n n n Ex: Nistevo trucking; Southwest; e. Bay Job Creation n 1970: Fortune 500 employed 20% US labor force n 1996: Fortune 500 employed 8. 5% US labor force n Between 1993 -1996, new high-growth firms created 2/3 of new job in US Globalization n 2006, 97% of U. S. exporters are small businesses with < 500 employees n 2005 GEM report shows trend for entrepreneurship across the US and world is increasing

Why Entrepreneurship is Important: Impact on Society and Larger Firms n Impact on Society n Innovations of entrepreneurial firms have a dramatic impact on society n Think of new products and services that make our lives easier, more productive, healthier, and more entertained n n PCs, Internet, digital media, George Foreman grill (“Knock the Fat Out!) Impact on Larger Firms n Many firms build their entire business models around helping larger firms become more efficient and effective n Examples: Small biotech firms; shipping companies (e. g. , Fed. Ex); HRM companies n 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 n n The Entrepreneurial Process Consists of Four Steps n Step 1: Deciding to become an entrepreneur n Step 2: Developing successful business ideas n Step 3: Moving from an idea to an entrepreneurial firm n Step 4: Managing and growing the entrepreneurial firm Throughout the semester, we will cover these steps