New Venture Creation Chapter 1 Introduction to Entrepreneurship

New Venture Creation Chapter 1: Introduction to Entrepreneurship and Review Modified from Barringer and Ireland (2008)

Introduction to Entrepreneurship n Very exciting time to be involved in entrepreneurship n GEM Studies n n 2005: 330 million people, 14% adults in 35 countries involved in forming new businesses 2005: 12. 4% of US population engaged in entrepreneurial behavior New businesses responsible for significant new job growth ENT Education Surging n Enrollment in entrepreneurship programs increasing n n To spur economic activity, many firms provide funding to ENT programs across the US Government Resources for ENTs growing n n Small Business Administration (SBA) resources Business incubators

What is Entrepreneurship? n 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 Requires creativity, drive, and a willingness to take risks 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, Google, Mc. Donald’s, 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 ENT intense firms are proactive, innovative, and risk taking n Conservative firms take a more “wait and see” posture, are less innovative, and are risk averse

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/innovation 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); i. Phone

4 Main Characteristics of Successful Entrepreneurs 3. Tenacity Despite Failure • Because entrepreneurs generally try new things, failure rate is naturally high • The ability to persevere through setbacks is key • 4. Example: Thomas Edison and electricity Execution Intelligence • Ability to translate thought, creativity, and imagination into action and measurable results • Involves developing a business model, assembling a new venture team, raising money, establishing partnerships, managing finances, managing employees, etc. n Successful example: Starbucks n Problematic examples: The Singing Machine, Segway

Misconceptions of Entrepreneurs and Theory n Neoclassical school n n Psychological school n n Fundamental attributes of people determine if they become entrepreneurs In addition to fundamental attributes, people must have ability and initiative Austrian Economics school 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 Strong work ethic Moderate risk taker Lengthy attention span Is a networker n n n n n Optimistic disposition Persuasive Promoter Resource assembler/ leverager Self-confident Self-starter 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 (e. g. , entrepreneurial firms): 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 n Creative Destruction occurs when new and/or improved products replace existing ones n Impacts consumer demand n Stimulates economic activity First discussed by Joseph Schumpeter in 1934 Theory of Economic Development n n Argued the new products and technologies make others 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 Impactful when solve a problem or satisfy a need in a new and cost-effective way Small firms responsible for over 55% all innovations in U. S. n n Job Creation n n Ex: Nistevo trucking; e. Bay; u. Ship 1970: Fortune 500 employed 20% US labor force 1997: 52% of the workforce employed by small firms 67% first jobs obtained through small firms Between 1993 -1996, new high-growth firms created 2/3 of new jobs in US Globalization n n 2008: 97% of U. S. exporters are SMEs 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 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)

Changing Demographics of Entrepreneurs Women Entrepreneurs Minority Entrepreneurs n 1997: ≈ 5. 4 million n Significantly increasing in prevalence n 2002: ≈ 6. 5 million n Primary Industries: n Health care, Professional services, Construction, Agriculture, Transportation, Communications n Initially service industries n Increasing prevalence in all industry sectors Senior Entrepreneurs Young Entrepreneurs n ≤ 21 entrepreneurs increasing in prevalence n Due to education/training n Access to key resources and fewer opportunity costs n 2000: ≈ 1. 7 million 55+ n 2005: ≈ 2. 1 million 55+ n Industries: n Consulting n Lifestyle ventures

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