Entrepreneurship

1. McGraw-Hill/Irwin 5-1
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
 L01: Describe why people become entrepreneurs.
 L02: Summarize how to assess opportunities to start new
companies.
 L03: Identify common causes of success and failure.
 L04: Discuss common management challenges.
 L05: Explain how to increase your chances of success,
including good business planning.
 L06: Describe how managers of large companies can
foster intrapreneurship and entrepreneurial orientation.
5-2

3. 5-3

4. What is an Entrepreneur?
 Entrepreneur
 an individual who establishes a new organization
without the benefit of corporate sponsorship.
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5. Small Business vs. Entrepreneurial Venture
 Small business
 fewer than 100 employees, independently owned
and operated, not dominant in its field, and not
characterized by many innovative practices.
 Entrepreneurial venture
 new business having growth and high profitability
as primary objectives
5-5

6. New Venture Creation
 Entrepreneurs
 Individuals who establish a new organization
without the benefit of corporate support.
 Intrapreneurs
 New-venture creators working inside big
companies; corporate entrepreneurs.
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7. Why become an entrepreneur?
 Challenge
 Profit potential
 Enormous satisfaction
 Better quality of life
 Desire for independence
 Satisfaction of building something from nothing
 Watching the market embrace your ideas
5-7

8. What does it take to succeed?
 Innovation and creativity skills
 General management skills
 Business know-how
 Social networks
5-8

9. Ingredients for starting a business
 A great idea
 Spot, create and exploit opportunities
 Technological discoveries
 Demographic changes
 Lifestyle and taste changes
 Economic dislocations
 Calamities
 Government initiatives and rule changes
5-9

10. Franchises
 An entrepreneurial alliance between a
franchisor and a franchisee.
 Franchisor – an innovator who has created at least
one successful store and seeks partners to operate
the same concept in other local markets.
 Franchisee – the operator of one or more stores
according to the terms of the alliance.
5-10

11. Characteristics of an Entrepreneur
 Commitment and determination
 Leadership
 Opportunity obsession
 Tolerance of risk, ambiguity, and uncertainty
 Creativity, self-reliance, and ability to adapt
 Motivation to excel
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12. Improving the odds of success
 Anticipate risk and cushion business
 help it weather setback.
 Foresight and talent
 to survive in an hostile environment.
 Business incubators
 protected environments for new, small
businesses.
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13. Common Management Challenges
 You might not enjoy it
 Survival is difficult
 Growth creates new challenges
 It’s hard to delegate
 Misuse of funds
 Poor controls
 Mortality
 Going public
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14. Initial Public Offering
Sale to the public, for the first time, of
federally registered and underwritten shares
of stock in the company.
5-14

15. Planning for Success
Business Plan
 helps determine viability of your enterprise, guides
you as you plan and organize, and helps you obtain
funding.
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16. Opportunity Analysis
 A description of good or service
 Assessment of opportunity
 Assessment of entrepreneur
 Specification of activities and resources needed to
translate your idea into a viable business
 Source of capital
 What market need does my idea fill?
 What personal observations have I experienced or recorded
with regard to that market need?
 What social condition underlies this market need?
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17. Key Planning Elements
 The People
 The Opportunity
 The Competition
 The Context
 Risk and Reward
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18. Nonfinancial Resources
 Legitimacy
 people’s judgment of company’s acceptance,
appropriateness, and desirability, generally
stemming from company goals and methods that
are consistent with societal values.
 Social capital
 competitive advantage from relationships with
other people and the image other people have of
you.
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19. Nonfinancial Resources
 Top-management team
 Advisory boards
 Partners
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20. Build support for intrapreneurship ideas
 Get others in organization to buy in or sign on.
 Clearing investment with immediate boss.
 Make cheerleaders – people who will support
manager before formal approval from higher
levels.
 Horse trading – offer promises of payoffs from
project in return for support, time, money, and
other resources that peers and others
contribute.
 Get blessing of relevant higher-level officials.
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21. Building in Intrapreneurship
 Skunkworks
 project team designated to produce a new,
innovative product.
 Bootlegging
 informal work on projects, other than those
officially assigned, of employees’ own choosing
and initiative.
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22. Entrepreneurial Orientation
 The tendency of an organization to identify and
capitalize successfully on opportunities to launch new
ventures by entering new or established markets with
new or existing goods or services.
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23. Five Components of Entrepreneurial Orientation
 Independent action
 Innovativeness
 Risk taking
 Proactiveness
 Competitive agressiveness
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24.  The remaining slides are for review only.
5-24

25. YOU should be able to
 L01: Describe why people become entrepreneurs and
what it takes, personally.
 L02: Summarize how to assess opportunities to start new
companies.
 L03: Identify common causes of success and failure.
5-25

26. YOU should be able to
 L04: Discuss common management challenges.
 L05: Explain how to increase your chances of success,
including good business planning.
 L06: Describe how managers of large companies can
foster intrapreneurship and entrepreneurial orientation.
5-26

27. Coulee Region Bio-Fuels Runs on Veggie
Power Read the story on page 104
 Taavi McMahon had an idea for a business. Do
you think it is a good idea? Why or why not?
How is that idea reflected in his vision for CRBF?
 Do you think CRBF, PrarieFire, and INOV8 have a
better chance of success with producing,
distributing, and marketing their products than
three giant corporations that are trying to do
the same thing? What are the advantages and
disadvantages of a small operation?
5-27

28. Test Your Knowledge
Which of the following characteristic(s) does NOT
contribute to entrepreneurs’ success?
A) commitment and determination.
B) tolerance of risk, ambiguity, and uncertainty.
C) motivation to excel.
D) opportunity obsession.
E) need for affiliation.
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29. Test Your Knowledge
Entrepreneurial ventures must be prepared to face all
but one of the following hazards. Which one?
A) mortality of the entrepreneur
B) misuse of funds
C) poor planning and controls
D) inability to delegate
E) decreased mortality.
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30. Test Your Knowledge
A description of the product or service, an
assessment of the opportunity, an assessment
of the entrepreneur, specification of activities
and resources needed to translate the idea into
a viable business, and the source(s) of capital is
a(n):
A) opportunity analysis.
B) business incubator.
C) business audit.
D) accounting analysis.
E) business plan.
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31. Test Your Knowledge
Justine decides to offer incentives from a potential
project to her subordinates. She is:
A) making cheerleaders.
B) horse trading.
C) clearing the investment.
D) getting the blessing.
E) bootlegging.
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32. Test Your Knowledge
The tendency of an organization to identify and
capitalize successfully on opportunities to
launch new ventures by entering new or
established markets with new or existing goods
or services is a(n):
A) entrepreneurial orientation.
B) opportunity cost.
C) multinational corporation.
D) global business.
E) skunkworks.
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33. Which one are you?
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34. Side Street Effects
 When entrepreneurs start their enterprises and then
let the market decide whether it likes their ideas.
 Unexpected opportunities may appear, so you must
be prepared to act quickly and effectively on any
opportunity that presents itself.
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35. Entrepreneurial Strategy Matrix
5-35

36. Can organizations outlive the entrepreneur?
Yes, if…
 Company has gone public
 Entrepreneur has planned an orderly
succession, usually to a family member
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37. Myths about Entrepreneurship
 Myth #1: Anyone can start a business.
 Myth #2: Entrepreneurs are gamblers.
 Myth #3: Entrepreneurs want the whole show to themselves.
 Myth #4: Entrepreneurs are their own bosses and completely
independent.
 Myth #5: Entrepreneurs work longer and harder than
managers in big companies.
 Myth #6: Entrepreneurs experience a great deal of stress and
pay a high price.
 Myth #7: Entrepreneurs are motivated solely by the quest for
the almighty dollar.
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38. Myths about Entrepreneurship
 Myth #8: Entrepreneurs seek power and control over others.
 Myth #9: If an entrepreneur is talented, success will happen in
a year or two.
 Myth #10: Any entrepreneur with a good idea can raise
venture capital.
 Myth #11: If an entrepreneur has enough start-up capital, he
or she can’t miss.
 Myth #12: Entrepreneurs are lone wolves and cannot work
with others.
 Myth #13: Unless you attained 600 on your SATS or GMATs,
you’ll never be a successful entrepreneur.
5-38

39. E-commerce Business Models
 Transaction fee model
 companies charge a fee for goods or services.
 Advertising support model
 advertisers pay site operator to gain access to
demographic group that visits the operator’s
site.
 Intermediary model
 web site brings buyers and sellers together and
charges a commission for each sale.
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40. More E-commerce Business Models
 Affiliate model
 sites pay commissions to other sites to drive
business to their own sites.
 Subscription model
 website charges a monthly or annual fee for site
visits or access to site content.
5-40

41. Pointers for Family Businesses
 Family members working in business must be
at least as capable and hard-working as other
employees.
 At least one key position should be filled by
nonfamily member.
 Someone outside family and business should
help plan succession.
5-41