Part 1 Entrepreneurship in the TwentyFirst Century CHAPTER

Part 1 Entrepreneurship in the Twenty-First Century CHAPTER 1 The Revolutionary Impact of Entrepreneurship Power. Point Presentation by Charlie Cook The University of West Alabama © 2007 Thomson/South-Western. All rights reserved. theory | process | practice Seventh edition Donald F. Kuratko • Richard M. Hodgetts

Chapter Objectives Studying this chapter should provide you with the entrepreneurial knowledge needed: 1. To explain the importance of entrepreneurs for economic growth 2. To introduce the concept of an entrepreneurial perspective within individuals 3. To examine the entrepreneurial revolution taking place today 4. To illustrate the entrepreneurial environment 5. To highlight some of the latest trends in entrepreneurial research 6. To examine the emerging trends of e-commerce and the Internet in relation to entrepreneurship © 2007 Thomson/South-Western. All rights reserved. 1– 2 2

Entrepreneurs—Challenging the Unknown Entrepreneurs Ø Recognize opportunities where others see chaos or confusion Ø Are aggressive catalysts for change within the marketplace Ø Challenge the unknown and continuously create the future © 2007 Thomson/South-Western. All rights reserved. 3

Entrepreneurs versus Small Business Owners: A Distinction Small Businesses Owners Ø Manage their businesses by expecting stable sales, profits, and growth Entrepreneurs Ø Focus their efforts on innovation, profitability and sustainable growth © 2007 Thomson/South-Western. All rights reserved. 4

Entrepreneurship: A Perspective Entrepreneurship is more than the mere creation of business. Ø The characteristics of seeking opportunities, taking risks beyond security, and having the tenacity to push an idea through to reality combine into a special perspective that permeates entrepreneurs. Entrepreneurship is an integrated concept that permeates an individual’s business in an innovative manner. © 2007 Thomson/South-Western. All rights reserved. 5

Our Entrepreneurial Economy— The Environment for Entrepreneurship is the symbol of business tenacity and achievement. Entrepreneurs are the pioneers of today’s business successes. Two perspectives on entrepreneurship: Statistical: numbers that emphasize the importance of entrepreneurs to the economy. Ø Academic: trends in entrepreneurial research and education. Ø © 2007 Thomson/South-Western. All rights reserved. 6

Predominance of New Ventures in the US Economy New business incorporations average 600, 000 per year There are 25 million businesses; the number continues to grow 2% annually. Ø U. S. firms have over $20 trillion in annual revenues. Ø Small businesses More 50% of all businesses employ fewer than 5 people. Ø Almost 90% of firms employ fewer than 20 people. Ø © 2007 Thomson/South-Western. All rights reserved. 7

Effects of Entrepreneurship The Global Entrepreneurship Monitor (GEM) Provides an annual assessment of the entrepreneurial environment of 40 countries. Ø Latest GEM study: the U. S. outranks the rest of the world in important entrepreneurial support. Ø Entrepreneurs lead to growth by: Entering and expanding existing markets. Ø Creating entirely new markets by offering innovative products. Ø Increasing diversity and fostering minority participation in the economy. Ø © 2007 Thomson/South-Western. All rights reserved. 8

Entrepreneurs in the United States Reasons for the exceptional entrepreneurial activity in the United States include: Ø A national culture that supports risk taking and seeking opportunities. Ø Americans’ alertness to unexploited economic opportunity and a low fear of failure. Ø U. S. leadership in entrepreneurship education at both the undergraduate and graduate level. Ø A great percentage of individuals with professional, technological or business degrees which register as the highest entrepreneurial activity rate. © 2007 Thomson/South-Western. All rights reserved. 9

Entrepreneurial Firms’ Impact Entrepreneurial firms make two indispensable contributions to the U. S. economy: 1. They are an integral part of the renewal process that pervades and defines market economies. 2. They are the essential mechanism by which millions enter the economic and social mainstream of American society. Visit the National Federation of Independent Business (NFIB) website for more information about entrepreneurs. © 2007 Thomson/South-Western. All rights reserved. 10

Table 1. 1 Small Business Job Generation Source: NFIB Small Business Policy Guide (Washington, D. C. , November 2000), 31. © 2007 Thomson/South-Western. All rights reserved. 11

Research and Education The entrepreneurial and managerial domains are not mutually exclusive. Venture financing (venture capital and angel capital financing) and other innovative financing techniques strengthened in the 1990 s. Intrapreneurship (entrepreneurship within large organizations) and the need for entrepreneurial cultures has increased. Entrepreneurial entry strategies have been shown to share common denominators, issues, and trade-offs. © 2007 Thomson/South-Western. All rights reserved. 12

Research and Education Entrepreneurs have been the subject of keen research interest. Women and minority entrepreneurs have emerged in unprecedented numbers. The entrepreneurial spirit is universal. Entrepreneurs’ economic and social contributions of are significant for job creation, innovation, and economic renewal. Entrepreneurial education is one of the hottest topics at U. S. business and engineering schools. © 2007 Thomson/South-Western. All rights reserved. 13

The Age of Gazelles A “Gazelle” Ø A business establishment with at least 20% sales growth in each year for five years, starting with a base of at least $100, 000 in annual sales. Gazelles as leaders in innovation: Produce twice as many product innovations per employee as do larger firms. Ø Have been responsible for 55% of the innovations in 362 different industries and 95% of all radical innovations. Ø Obtain more patents per sales dollar than do larger firms. Ø © 2007 Thomson/South-Western. All rights reserved. 14

Table 1. 2 Mythology Associated with Gazelles are the goal of all entrepreneurs. Gazelles receive venture capital. Gazelles were never mice. Gazelles are high-tech. Gazelles are global. Source: NFIB Small Business Policy Guide (Washington, D. C. , November 2000), 31. © 2007 Thomson/South-Western. All rights reserved. 15

Survival of Gazelles How many gazelles survive? Ø The simple answer is “none. ” Sooner or later, all companies wither and die. The Common Myth of Failure: Ø 85% of all firms fail in the first year—in actuality, about half of all start-ups last between 5 and 7 years. Ø Nearly 82% of firms that are more than 20 years in age survive © 2007 Thomson/South-Western. All rights reserved. 16

Table 1. 3 Survival Rate Of Firms By Age Of Firm And Region, 1994– 1998 Source: David Birch, Jan Gundersen, Anne Haggerty, and William Parsons, Corporate Demographics (Cambridge, MA: Cognetics, Inc. , 1999), 8. © 2007 Thomson/South-Western. All rights reserved. 17

Emerging Trends: The Internet and E-Commerce U. S. businesses spent $120 billion to build their Internet capabilities in 2000. Smaller ventures use the Internet for a variety of operations: Ø Customer-based identification Ø Advertising, consumer sales Ø Business-to-business transactions Ø E-mail and private internal networks for employees © 2007 Thomson/South-Western. All rights reserved. 18

Figure 1. 1 The Internet Explosion © 2007 Thomson/South-Western. All rights reserved. 19

Table 1. 4 Web Facts about Small Businesses q 57% use the Internet for business-related activities. q 61% of small firms on the Internet (35% of all small employers) report they have a business Web site. q Small-business Websites most often generate income indirectly. q The majority of sales made over the Internet by small businesses are made to consumers and non-business entities. q The cost of creating and operating a Website, both in direct outlays and employee hours, appears modest. q The most noted benefit of a Website is additional customers. q The most cited reason for not having a Web site (by those on the Internet, but not having one) is that their products or services don’t lend themselves to sale on the Internet. q One-third of those not now using the Internet for business-related activities expect to be on the Internet within the next 12 months. Source: Adapted from William J. Dennis, Jr. , “The Use and Value of Websites, ” NFIB National Small Business Poll 1(2) (2001): 2. © 2007 Thomson/South-Western. All rights reserved. 20

E-Commerce The Electronic Commerce (E-Commerce) Challenge Ø Marketing, promoting, buying, and selling of goods and services electronically, particularly via the Internet is the new wave in transacting business. E-Commerce Modes of Internet Use: E-tailing (virtual store fronts) Ø Electronic data interchange (EDI) Ø E-mail and computer faxing Ø Business-to-business (B 2 B) buying and selling Ø Ø Ensuring the security of data transactions © 2007 Thomson/South-Western. All rights reserved. 21

Table 1. 5 Advantages And Challenges Of E-Commerce For Entrepreneurial Firms ADVANTAGES 1. Ability of small firms to compete with other companies both locally and nationally (promotional tools) 2. Creation of the possibility and opportunity for more diverse people to start a business 3. Convenient and easy way of doing business transactions (not restricted to certain hours of operation, open 24 hours a day, seven days a week) 4. An inexpensive way (compared to the cost of paper, printing, and postage prior to the Internet) for small business to compete with larger companies and for U. S. firms to make American products available in other countries 5. Higher revenues for small businesses that utilize the Internet, averaging $3. 79 million compared to $2. 72 million overall (IDC research) CHALLENGES 1. Managing upgrades (anticipating business needs/application) 2. Assuring security for a Web site and the back-in integration with existing company systems 3. Avoiding being a victim of fraudulent activities online 4. Handling the costs required to maintain the site 5. Finding and retaining qualified employees Source: E-Commerce: Small Business Ventures Online (Washington, D. C. : U. S. Small Business Administration, Office of Advocacy, July 1999). © 2007 Thomson/South-Western. All rights reserved. 22

E-Names: The Web Address Choosing an Internet Name Ø Choosing an Internet brand (domain) name isn’t easy • Should be short , snappy, and memorable. Ø Registering the Domain Name • Internet Corporation for Assigned Names and Numbers (ICANN) is responsible for coordinating the domain name system. Ø Problems • Availability of domains • Cybersquatters © 2007 Thomson/South-Western. All rights reserved. 23

Table 1. 6 Five of the Most Expensive Domain Names Sold DOMAIN PRICE Bingo. com (Bingo-based e-mail community) $ 1. 1 million Wall. Street. com (online “wagering” on stocks) $ 1 million Drugs. com (pharmaceutical and drug portal) $ 823, 456 University. com (a training and education “super-portal”) $530, 000 Blackjack. com (online gambling) Source: The Wall Street Journal (E-Commerce Special, November 22, 1999). © 2007 Thomson/South-Western. All rights reserved. $460, 000 24

Developing a Web Site Attractive and Useful Too much flash slows page load times Ø Too little substance (e. g. , no ordering system) drives customers away Ø Sticking to Your Web Site Ø Stickiness • The host of potential value—ads, features, functions, and “gimmies”—all of which serve to make people want to stay at your site longer. Ø Chat • An excellent way to increase stickiness, because customers can speak their minds and swap ideas with fellow buyers. © 2007 Thomson/South-Western. All rights reserved. 25

Table 1. 7 Use of Internet Sites Company information 93% Corporate image building 89 Product information 80 Advertising 78 Marketing 77 Customer communications 76 Recruiting 75 Customer service 72 Product sales 61 Business-to-business transactions 55 Business-to-employee communications 43 Source: Ernst & Young’s 18 th Annual Survey of Retail Information Technology, 1999. © 2007 Thomson/South-Western. All rights reserved. 26

Figure 1. 2 The Most Important Factors for Customers To Do Business Online Source: The Wall Street Journal (E-Commerce special, November 22, 1999). © 2007 Thomson/South-Western. All rights reserved. 27

Emerging E-Commerce Strategies 3 -P Growth Model (Ernst & Young) Presence: the ramp-up stage Ø Penetration: the “hypergrowth” stage Ø Profitability: the managed growth stage Ø Competitive Advantage through Navigation Reach relates to access and connection. Ø Richness focuses on the depth and detail of information. Ø Affiliation is the specific interests that the business represents. Ø © 2007 Thomson/South-Western. All rights reserved. 28

Entrepreneurial Opportunities Free Enterprise Ø The economic basis for all entrepreneurial activity. It means that any individual is free to transform an idea into a business. Opportunities for potential entrepreneurs are unlimited. Ø Opportunities during this century will be immense. Ø Entrepreneurial opportunities will continue to arise for individuals willing to take the risk. Ø © 2007 Thomson/South-Western. All rights reserved. 29

Figure 1. 3 Self-Employment, 1966 -2006 Source: Office of Advocacy, U. S. Small Business Administration, from data provided by the Bureau of Labor Statistics. © 2007 Thomson/South-Western. All rights reserved. 30

Figure 1. 4 New Employer Firms, 1980 -2010 *Estimate. Note: Data estimated from 1982– 1988 Department of Labor data and 1989– 1996 Bureau of the Census data. The rate of increase in new employer firms from 1982 to 1998 was used to both forecast subsequent years and impute data for prior years. Source: Office of Advocacy, U. S. Small Business Administration, from data provided by the Department of Labor, Employment and Training Administration, and the Bureau of the Census, Statistics of U. S. Business. © 2007 Thomson/South-Western. All rights reserved. 31

Key Terms and Concepts affiliation domain name e-commerce Entrepreneurial Revolution entrepreneurship gazelle Internet © 2007 Thomson/South-Western. All rights reserved. National Federation of Independent Business (NFIB) reach richness stickiness 3 -P Growth Model web site 32