Chapter 5 Entrepreneurship

Chapter 5
Entrepreneurship

Amazon.com, Inc. is an American e-commerce
company based in Seattle, Washington. It was one of the
first major companies to sell goods over the Internet.
Founded by Jeff Bezos in 1994, and launched in 1995,
Amazon.com began as an online bookstore but soon
diversified its product lines by adding VHSs, DVDs,
music CDs, MP3s, computer software, video games,
electronics, apparel, furniture, food, toys, and more.
 Amazon has established separate websites in Canada, the
United Kingdom, Germany, Austria, France, China, and
Japan . It ships globally on selected products .
 It made its first annual profit in 2003.
•
Hotmail.com
Sabeer Bhatia was born in Chandigarh, India in 1968.
went to Stanford in 1989 to pursue his M.S. in Electrical
Engineering.
At Stanford, he was inspired by entrepreneurs such as Steve Jobs
and Scott McNealy eventually deciding to become one himself.
Instead of pursuing a Ph.D. after his Masters, he decided to join
Apple in 1991.
After a brief stint at Apple, Sabeer joined a startup company
called Firepower Systems Inc, where he spent two years. In
1994, Sabeer started working on new ideas for the Internet and
he teamed up with Jack Smith, a colleague from Apple
Computer, Inc.
Hotmail (Cont.)
 The
two came up with the concept of a web-based database
entitled Javasoft. While pursuing this idea, they subsequently
realised the potential of a web-based e-mail system and thus
decided to create one called HoTMaiL (the uppercase letters
spelling out HTML - the language used to write the base of a
webpage).In order to attract attention, the e-mail service was
provided for free and revenue was obtained through the
advertising on the website. Draper Fisher Ventures invested
$300,000 on the project and the service was launched on July 4,
1996.
 In less than six months, the website attracted over 1 million
subscribers. As the interest in the web-based email provider
increased, Microsoft eventually took notice and on December 30,
1997, Hotmail was sold to Microsoft for a reported sum of $400
million.
Hotmail (Cont.)
http://www.businessweek.com/smallbiz/news/coladvice/book/bk990903.htm
Entrepreneur Unveils New Tourist
Spacecraft
Sir Richard Branson
Burt Rutan
http://www.nytimes.com/2008/01/23/science/space/23cnd-spaceship.html?_r=1&oref=slogin
 Learning Goals
1. Explain the nature of entrepreneurship and
the impact the environment has on it
2. Describe the competencies that contribute to
entrepreneurs’ success
3. Outline the planning essentials for potential
entrepreneurs
4. Describe the basic essentials of corporate
entrepreneurship
Entrepreneurs and External
Factors
Entrepreneurs create something for the
purpose of gain while accepting the risk
and uncertainty associated with their
ventures.
 Entrepreneurs typically incorporate at least
one of the following:

– Something new
– Something better
– An underserved or new market
– New delivery system or distribution channel
Entrepreneurship: Its Meaning
and Scope
What is
Entrepreneurship?
 The creation of
an innovative
organization for
the purpose of
economic gain
or growth
under
conditions of
risk or
uncertainty
Common Components of Entrepreneurship
Something
new
Something
better
New delivery
system or
distribution
channel
Entering an
underserved or
new market
How Does the Environment Affect
Entrepreneurship?
 Open and free markets
 Deregulation
 Political climate
 Economic and technological conditions
 Support system
 Availability of capital and loans
 Tax rates and policies
 Support services: SBA, SBDCs, venture capital
firms, chambers of commerce, etc.
How Does the Environment
Affect Entrepreneurship?
Business incubation: a business support process that
accelerates the successful development of start-up
and fledging companies by providing entrepreneurs
with an array of targeted resources and services
Common features in business incubators
 Management and technical guidance
 Networking
 Rental space/flexible leases
 Shared business services and equipment
 Psychological and moral support
Assistance in obtaining financing
 Small business—one that is independently owned
and operated and which is not dominant in its
field of operation. refer to anyone who owns a major equity
stake in a company with fewer than 500 employees.
 SBA defines size by number of employees or
dollars of sales, depending upon industry
 Small business firm may be entrepreneurial,
depending upon its initiatives
Are Family Businesses
Entrepreneurial Firms?
 Family business: one owned and managed
mostly by people who are related by blood
and/or marriage
 May or may not be entrepreneurial
 30% of family businesses survive to the second
generation, 12% to the third generation, and
3% to the fourth and beyond
Common Attributes of Successful
Entrepreneurs
(adapted from Figure 5.1)
Technical Proficiency
Attributes
• Varies by Type
of Business Started
Personal
Attributes
• Need for Achievement
• Desire for Independence
• Self-Confidence
• Self-Sacrifice
Successful
Entrepreneurs
Managerial
Competencies Attributes
• Strategic Action
• Planning and Administration
• Teamwork
• Communication
• Self-Management
Self management
 Need for
achievement
 Desire for
independence
 Self confidence
 Self sacrifice
Communication
Planning
Teamwork
Strategic
and
administration action
Successful
entrepreneurs
Multicultural
Specialized Knowledge
Varies by type of
business launched
Importance of Self-Confidence
and Optimism
I think its’ important to see this clear path and not be
discouraged when people throw stones at it, because
they will. You will have to be willing to see the path,
believe in it, and have the stamina and persistence to
stick with it. You have to stand your ground and
have confidence.
Denise Divine
Founder of Devine Foods
Delivering products and
services that are perceived as
high quality and that are seen
by its customers or clients
as adding value
Generating new customers
or clients that expand
revenue
Maintaining financial
control of the firm
Developing or improving
products and services on a
regular basis
Focusing marketing
expenditures and
developing customeroriented employees
Establishing a strong
commitment to ethical
practices
Planning and Administration
Competency: Snapshot
Do your homework prior to starting the business.
Make sure the market truly needs your service or product.
Finally, make sure you can differentiate your service or
product from the competition in a way that is beneficial to the
customer. Stay focused on your goals, but be flexible enough
to modify your business plan to match what the market is truly
asking for. As evidenced of why this is important: 75 percent
of my firm’s revenue today is from services we did
not offer in my original business plan.
Daniel Driesenga
Founder and CEO
Driesenga & Associates
Communication
Competency
 Successful entrepreneurs score higher than
82 percent of the population on their ability
to express support and encouragement
 Successful entrepreneurs succeed by helping
other people—their employees, partners,
investors, suppliers—become successful
themselves
Planning Essentials for Entrepreneurs
 Business Plan
 Snapshot
 Describes the
basic idea that is
the foundation
for the start-up
and outlines how
that idea can be
turned into
reality
“Someone once said: If you don’t know
where you’re going, any road will take you
there. You need to know exactly where you
want to go, what route you’re going to
take, when you will arrive and what you
are to do upon arrival—no guesswork at
all. You need to determine whether there is
a demand for your service and, if so, what
constitutes your market.”
Don Doggett
Management Counselor
Counselors to America’s Small Business
Business Plan: Essential
Components
I. Executive Summary
 What, how, why, where, and when must be
summarized
II. Business Description Component
 The name of the business
 The potential and uniqueness of the new venture
(continued)
Business Plan: Essential
Components (cont’d)
III. Marketing Component
 Convince investors that sales projections
and competition can be met
 Identify target market, market position,
market share, pricing strategy
 Evaluate all competition and state why and
how you will be better than your competitors
 Identify advertising plans with cost estimates
Business Plan: Essential
Components (cont’d)
IV. Location Component
 Describe the advantages of your location
(zoning, tax laws, wage rates); list the
production needs in terms of facilities (plant,
storage, office space) and equipment
(machinery, furnishings, supplies)
 Indicate proximity to your suppliers
Business Plan: Essential
Components (cont’d)
V. Management Component
 Supply résumés of all key people in the
management of your venture
 Describe the legal structure of your venture (sole
proprietorship, partnership, or corporation)
 Give information on how and how much everyone
is to be compensated
Business Plan: Essential
Components (cont’d)
VI. Financial Component
 Describe the needed sources for your
funds and the uses you intend for the
money
 Develop an estimated budget, cash flow
statement, and profit and loss statement
 Create stages of financing for purposes of
allowing evaluation by investors at various
points
Business Plan: Essential
Components (cont’d)
VII. Potential Critical-Risks Component
 Any potentially unfavorable industry-wide
trends, such as price cutting by competitors
 Design or manufacturing costs in excess of
estimates
 Sales projections not achieved
 Product development schedule not met
 Provide some alternative courses of action
Business Plan: Essential
Components (cont’d)
VIII. Milestone Schedule Component
 Develop a timetable or chart to
demonstrate when each phase of the
venture is to be completed
IX. Appendix or Bibliography
How to Start the Business
Buy Strategy
Start-up
strategy
Other
options
Franchise
strategy
Principle of Affordable Loss
 The conscious determination of the amount
of resources (money, time, and effort)
entrepreneurs are willing to commit to an
idea, which, in turn, influences the choice of
strategies and methods needed to generate
early revenues
 Addresses tension between excessive analysis
and quick action
Finding Funds
Venture capitalist
Business
incubators,
government
agencies (SBA)
Business angel
Entrepreneur,
family,
friends
Private sector
financial
institutions
Factors That Favor a Global
Start-Up
(adapted from Figure 5.2)
Human
Resources Are
Dispersed Among
Countries
Foreign
Financing
is Better
Target
Customers
Require an International
Presence
Global
Start-Up
Foreign
Competition Will
Quickly Enter the
Market
Domestic
Market is Too
Small to Support
Expenses
Domestic
Inertia Could Impede
Later Efforts to
Internationalize
Recommendations to Ensure a
Successful Family Business
Clear Job
Explicit Hiring Criteria
Responsibilities
For Family Members
And Authority
Relationships Commitment to
Resolving Conflicts
Quickly
Plan for Management
Transitions
Use of Outside
Advisors/Directors
Corporate Intrepreneurship
 What is Corporate Intrepreneurship?
• Refers to the fostering of entrepreneurial behavior
within established companies to product growth and
profits.
 Essential for the survival of firms
 Who Is a Corporate Entrepreneur?
 Someone in an organization who champions
turning new ideas into profitable realities
Fostering Corporate Intrepreneurship
Commitment from senior management
Flexible organization
design
Appropriately
designed control
system
Autonomy of the
venture team
Incentives
and rewards
for risk taking
Competent and
talented people who
exhibit entrepreneurial
behaviors and attitudes