1-1 Introduction

1. 1-1 Introduction • Entrepreneurism refers to the study, understanding, and practice of business as a process from the perspective of the chief executive officer (CEO). • It a potent area of study for people who seek to become entrepreneurs. • Other career tracks also require knowledge of entrepreneurism; one such being that of the intrapreneur.

2. Entrepreneurism • Entrepreneurial Opportunity-A desirable and timely innovation that creates value for interested buyers or end-users. • Intrepreneur-Anyone who starts and/or operates a business in order to exploit and entrepreneurial opportunity

3. Intrapreneur • An intrapreneur is a person who works within a large corporation and who applies the principles of entrepreneurism to facilitate innovation and growth for the large enterprise.

4. Ch. 1 Outline • Three Forms of Management • Characteristics of Entrepreneurial Management • Creative Destruction and Entrepreneurism • Entrepreneurial Education • The Business Process

5. 1-2 Three Forms of Management • In the history of business, three basic forms of management have evolved: • Entrepreneurial management • Focused on growth and an exit strategy • Traditional management • Focused on large company issues and challenges • Small business management • Focused on stability and maintaining a reliable customer base • Overlap occurs among the three forms of management.

6. 1-3 Characteristics of Entrepreneurial Management • The entrepreneur whose business arrives at the first stage of maturity and profitability will continue to seek to grow the business rapidly. • A company in the second stage of growth is called an “emerging” company. • This stage of growth requires additional financing, which attracts the attention of venture capitalists. • During this phase in the life of the business, an entrepreneur is most likely to lose ownership control of the business.

7. 1-3 Characteristics of Entrepreneurial Management (cont.) • The distinction between small business management and entrepreneurial management is not its size but the differing views of growth and risk acceptance.

8. Entrepreneurs Differ Relative To: • Innovation and Growth • Decision Making • Productivity and Efficiency • Risk Management

9. 1-3a Innovation and Growth • Entrepreneurs do not innovate for the sake of change. They look for innovations that will fill a need and that customers will pay for. • To be a good business idea: • An innovation must attract customers who will pay a price that will yield the entrepreneur a satisfactory profit after all associated costs have been deducted. • The product or service must have large growth possibilities. • An entrepreneur’s job is to turn an idea into a productive and growing business,that by definition, must manage growth constantly.

10. 1-3b Decision Making • Entrepreneurial management attempts to flatten the organization in order to achieve timely decisions from the highest possible level. • The ideal entrepreneurial management situation occurs when the CEO is directly in touch with the level of management that has contact with the customer.

11. 1-3c Productivity and Efficiency • Entrepreneurial companies are usually not efficient because of the constant changes they incur. • However, they are often productive because of the technology they employ or because of the work ethic they follow. • Productivity in the entrepreneurial company is usually achieved by unpaid hours as opposed to additional employees. • Early adopters: • As innovators and business owners concerned with enabling rapid growth, entrepreneurs are often early adopters of affordable new technologies.

12. 1-3d Risk Management • The way that risk is viewed and managed is another distinguishing factor between traditional management and entrepreneurial management. • The opportunity for an entrepreneur to become wealthy from taking risks is different from the traditional manager’s. • Good entrepreneurs work hard to minimize risk. Still, they usually must take more risks than the traditional CEO could accept. • Successful entrepreneurs: • Become wealthy based on the ability to establish an enterprise that creates and sustains value. • Often share their newfound wealth with their key personnel.

13. Management Methods—Traditional vs. Entrepreneurial • The size of the organization is one factor that must be considered in the selection of a management method. • Flexibility is the next most obvious factor that distinguishes traditional and entrepreneurial management methods. • Large organizations tend to adopt structures that are designed to be stable over time • Change in large organizations is therefore usually difficult to enact and, if done too rapidly, can produce negative consequences.

14. Management Methods—Traditional vs. Entrepreneurial (cont.) • Entrepreneurial organizations, in contrast, normally start with very little structure and are more likely to survive if they are able to change structure rapidly as they grow. • Perhaps the starkest contrast between the entrepreneurial and traditional management methods lies in the focus and emphasis of the CEO.

15. 1-5 Entrepreneurial Education • Most entrepreneurship scholars are convinced that no single set of traits or characteristics are common to entrepreneurs because: • Knowledge of the skills associated with successful entrepreneurs will increase an individual’s chances of becoming a successful entrepreneur. • There will always be persons with a “natural” ability in entrepreneurship. • The natural entrepreneur has a built-in advantage. • Training in the skills of entrepreneurship rarely offsets the advantage.

16. 1-5 Entrepreneurial Education • Until recently, entrepreneurship was widely believed to result from a unique set of character traits. • The teaching of entrepreneurismmust focus on teaching: • Entrepreneurship • Personal characteristics • Business process from the CEO’s viewpoint, if it is to be effective • An entrepreneur who does not have a business plan runs unacceptable risks and is very unlikely to succeed in raising capital. • Many educators are under the impression that entrepreneurship cannot be taught.

17. 1-6 The Business Process • The business process has three basic elements— revenue, cost and capital. • The entrepreneur must have knowledge of each element and of the way in which they interact with one another. • The most important formula of business is: • Revenue – Cost = Profit • Profitis the fundamental objective of businesses in a free enterprise system. • The formula does not include capital, although capital is one of the three basic elements of the business process.

18. 1-6 The Business Process (cont.) • Entrepreneurs must become familiar with both the operations and capital requirements of their business. • The challenge to business educators is to develop an entrepreneurial management education that mirrors the quality and academic rigor found in traditional management education.