Introduction to Entrepreneurship: What, Why, and How

1. Chapter 1 Introduction to Entrepreneurship What is entrepreneurship? Why become an entrepreneur? Characteristics of successful entrepreneurs Common myths about entrepreneurs Entrepreneurship` s importance The entrepreneurial process

2. What is entrepreneurship? There is an increasing interest in entrepreneurship around the world. The Global Entrepreneurship Monitor (GEM), a joint research effort by Babson College and the London Business School tracks entrepreneurship in more than 40 countries and identified that about 12.5 percent of adults in the countries surveyed are involved in forming new businesses. This study also identified the reasons people start new businesses: • To take advantage of attractive opportunities • Because they find no better choice for work

3. In the United States 20 percent of new firms fail in the first year, while another 20 percent fail in the second year of their existence. This statistic show that while many people are motivated to start new firms, motivation alone is not enough. It must be coupled with good information, a good business idea and an effective execution to maximize chances for success. The word entrepreneur was originally used to describe people who "take on the risk“ between buyers and sellers or who start new ventures. Inventors and entrepreneurs differ from each other. An inventor creates something new. An entrepreneur assembles and then integrates all the resources needed to transform the invention into a viable business (the money, the people, the business model, the strategy).

4. Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. The entrepreneurial behavior is identifying opportunities and putting useful ideas into practice. The tasks called for by this behavior can be accomplished by either an individual or a group and requires creativity, drive and a willingness to take risks. Entrepreneurship is focused on entrepreneurs as individuals or groups of persons launching a new business. However, ongoing firms can also behave entrepreneurially, being proactive, innovative and risk taking.

5. The indication of the importance of entrepreneurship to an individual or to a firm is the degree of effort they undertake to behave in an entrepreneurial manner. Example: Virgin Group, the large British conglomerate works hard to keep its units small and instill in them an entrepreneurial spirit. Every time one of their ventures gets too big they divide it up into smaller units.

6. Why become an entrepreneur? The reasons that people become entrepreneurs and start their own firms are the following: • To be their own boss Many entrepreneurs want to be their own boss because either they have had a long-time ambition to own their own firm or they have become frustrated working in traditional jobs. There are also people who like independence. 2. To pursue their own ideas When some people recognize ideas for new products or services, they have a desire to see those ideas realized. Established firms often resist innovation. When this happens, some employees choose to leave the firm in order to start their own business.

7. 3. To get financial rewards This motivation is secondary to the first two. The average entrepreneur does not make more money than someone with a similar amount of responsibility in a traditional job. Example: People such as Michael Dell of Dell Computer, Jerry Yang of Yahoo! and Scott McNealy of Sun Microsystems made hundreds of millions of dollars building their firms. But these people said that money was not their primary motivation.

8. Characteristics of successful entrepreneurs Passion for the business It stems from the entrepreneur` s belief that the business will positively Influence people` s lives. This passion explains why people leave secure jobs to start their own firms and why billionaires such as Bill Gates of Microsoft, Michael Dell of Dell Computer and Larry Ellison of Oracle continue working after they are financially secure. They believe that the product or service they are selling makes a difference in people` s lives and makes the world a better place to live in.

9. Product/Customer focus While it is important to think about management, marketing, finance, none of those functions makes any difference if a firm does not have good products with the capability to satisfy customers. Example: Steven Jobs, the cofounder of Apple Computer wrote: The computer is the most remarkable tool we have ever built. But the most important thing is to get them in the hands of as many people as possible. Tenacity despite failures Because entrepreneurs are trying something new, the failure rate associated with their efforts is high. Setbacks and failures inevitably occur during this process. The litmus test for entrepreneurs is their ability to persevere through setbacks and failures.

10. Execution intelligence The ability to fashion a solid business idea into a viable business is a key characteristics of successful entrepreneurs. In many cases, execution intelligence is the factor that determines whether a start-up is successful or fails. Examples: 1. Jeff Bezos, the founder of Amazon.com said: Ideas are easy. It`s execution that`s hard. 2. Howard Schultz, the entrepreneur who purchased Starbucks in 1987, realized that most Americans didn`t have a place to enjoy coffee in a comfortable. Quiet setting. Seeing a great opportunity to satisfy customers` needs, Schultz attacked the market aggressively to make Starbucks the industry leader. He hired a seasoned management team, constructed a world-class roasting facility to supply its outlets with premium coffee beans and focused on building an effective organizational infrastructure. 

11. Then Schultz recruited a management information systems expert from McDonald`s to design a point of sale system capable of tracking customer purchases across 300 outlets. This decision was crucial to the firm`s ability to sustain rapid growth over the next years. Starbucks succeeded because Schultz knew how to execute a business idea.

12. Common myths about entrepreneurs There are many misconceptions about who entrepreneurs are and what motivates them to launch firms to develop their ideas. • Entrepreneurs are born, not made. Psychological and sociological research shows that entrepreneurs are not genetically different from other people. No one is “born“ to be an entrepreneur. Everyone has the potential to become an entrepreneur. Whether someone does or doesn`t is a function of environment, life experiences and personal choices. Studies show that people with parents who were self-employed are more likely to become entrepreneurs. People who know an entrepreneur are more than twice as likely to be involved in starting a new firm.

13. 2. Entrepreneurs are gamblers and take big risks. The truth is, entrepreneurs are moderate risk takers, as are most people. This myth originates from two sources: a). Entrepreneurs have jobs that are less structured, so they face a more uncertain set of possibilities than managers and employees. b). Many entrepreneurs have a strong need to achieve and often set challenging goals, a behavior that is considered risk taking. 3. Entrepreneurs are motivated primarily by money. Entrepreneurs seek financial rewards, but money is not the primary reason entrepreneurs start new firms.

14. 4. Entrepreneurs should be young and energetic. The average entrepreneur is 35 to 45 years old and has 10 or more years of experience in a large company. What makes an entrepreneur strong in the eyes of an investor is experience in the area of the proposed business, skill and abilities that will help the business, a solid reputation, a track record of success and passion about the business idea. Most of these qualities favor older rather than younger entrepreneurs. Studies report that many people start their own business after retirement.

15. 5. Entrepreneurs love the spotlight. Most entrepreneurs do not attract public attention. People know many companies because they use their products or services but they can not name the entrepreneurs who launched these ventures.

16. Entrepreneurship` s importance • Economic importance of entrepreneurial firms Entrepreneurial behavior has a strong impact on the strength and stability of the economy for the following reasons: • Innovation It is the process of creating something new, which is central to the entrepreneurial process. In the USA small entrepreneurial firms are responsible for 67 percent of all innovations. Many innovations help individuals and businesses work more efficiently. • Job creation Economic activity has moved in the direction of smaller entrepreneurial firms. Large firms are increasingly focusing on what they do best (manufacturing, sales, service) and are outsourcing other tasks to smaller firms.

17. Globalization Entrepreneurial firms are increasingly expanding their activity across the borders, especially by exporting their products. 2. Entrepreneurial firms` impact on society The innovations of entrepreneurial firms have a dramatic impact on society: the new products and services make our lives easier, enhance our productivity at work, improve our health and entertain us. Examples: Cellular phones, personal computing, Internet shopping, overnight package delivery, digital photos, microwave ovens. 3. Entrepreneurial firms` impact on larger firms • Some entrepreneurial firms manufacture parts and components that are needed by larger firms.

18. Examples: Many new products such as DVD players, digital cameras are not solely the result of the efforts of larger companies with strong brand names (such as Sony, Kodak). They were produced with parts or research and development provided by entrepreneurial firms. • Many entrepreneurial firms have built their business model around producing products and services that help larger firms be more efficient or effective. Examples: a). Many international firms face the challenge of translating the content of their Web sites into other languages for attracting foreign customers. For this task they worked with small start-up firms. b). Many large firms occasionally need temporary labor. A small start-up called IQ navigator has developed software to help large firms quickly hire temporary labor through a network of sources.

19. In many cases, entrepreneurial firms partner with larger companies to reach mutually beneficial goals. • Participation in business partnerships accelerates a firm` s growth by giving it access to some of its partner` s resources and competencies. The entrepreneurial process The entrepreneurial process consists of four steps: Step 1: Decision to become an entrepreneur Usually there is a triggering event which forces an individual to become an entrepreneur: • An individual may lose her job and decide to start his business. • A person might receive an inheritance and he has money to start its own company. • Lifestyle issues: a woman may wait until her youngest child is in school and after that she decides to start her own firm.

20. Step2: Developing successful business ideas Manu new businesses fail because there was no real opportunity to begin with. Developing a successful business idea includes opportunity recognition, feasibility analysis, industry analysis and the development of an effective business model. Step 3: Moving from an idea to an entrepreneurial firm It includes: building a new venture team, assessing a new venture` s financial strength and viability, preparing a proper ethical and legal foundation, writing a business plan, getting financing and funding. Step 4: Managing and growing an entrepreneurial firm It is the final stage of an entrepreneurial process. Because of the competitive environment all firms must be managed and grown properly to ensure their ongoing success.