New Venture Creation and
Control Mechanism
Professor Alexander Settles
asettles@hse.ru
Introduction to the Course
• New Venture Creation
– Entrepreneurship / Research on
Entrepreneurship
– Innovation
– Business Planning
– Finance
• Organization Theory and Entrepreneurship
and Innovation
Course Design
• Requirements
– Attendance, Participation and Readings
– Personality Assessment
– Innovation Journal
– Assessment of New Venture or
Entrepreneurial Policy/Action (in Groups)
– Exam
Entrepreneurship
Entrepreneurs
Challenging the Unknown
• Entrepreneurs
– Recognize opportunities where others see
chaos or confusion
– Are aggressive catalysts for change within
the marketplace
– Challenge the unknown and continuously
create the future
Entrepreneurship: A Mindset
• Entrepreneurship is more than the mere
creation of business:
– Seeking opportunities
– Taking risks beyond security
– Having the tenacity to push an idea through to
reality
• Entrepreneurship is an integrated concept
that permeates an individual’s business in
an innovative manner.
The Evolution of
Entrepreneurship
• Entrepreneur is derived from the French
entreprendre, meaning “to undertake.”
– The entrepreneur is one who undertakes to
organize, manage, and assume the risks of a
business.
– Although no single definition of entrepreneur
exists and no one profile can represent
today’s entrepreneur, research is providing an
increasingly sharper focus on the subject.
A Summary Description
of Entrepreneurship
• Entrepreneurship (Robert C. Ronstadt)
– The dynamic process of creating incremental wealth.
– This wealth is created by individuals who assume
major risks in terms of equity, time, and/or career
commitment of providing value for a product or
service.
– The product or service itself may or may not be new or
unique but the entrepreneur must somehow infuse
value by securing and allocating the necessary skills
and resources.
An Integrated Definition
• Entrepreneurship
– A dynamic process of vision, change, and creation.
• Requires an application of energy and passion towards the
creation and implementation of new ideas and creative
solutions.
– Essential ingredients include:
• The willingness to take calculated risks—in terms of time,
equity, or career.
• The ability to formulate an effective venture team; the creative
skill to marshal needed resources.
• The fundamental skills of building a solid business plan.
• The vision to recognize opportunity where others see chaos,
contradiction, and confusion.
An Integrative Model of Entrepreneurial Inputs
and Outcomes
Source: Michael H. Morris, P. Lewis, and Donald L. Sexton, “Reconceptualizing Entrepreneurship:
An Input-Output Perspective,” SAM Advanced Management Journal 59, no.1 (Winter 1994): 21–31.
Entrepreneurs in the United
States
• Reasons for the exceptional entrepreneurial
activity in the U.S. include:
– A national culture that supports risk taking and
seeking opportunities.
– Americans’ alertness to unexploited economic
opportunity and a low fear of failure.
– U.S. leadership in entrepreneurship education at both
the undergraduate and graduate level.
– A high percentage of individuals with professional,
technological or business degrees who are likely to
become entrepreneurs.
Entrepreneurial Firms’ Impact
• Entrepreneurial components of the U.S.
Economy:
1. Large firms have increased profitability by returning to
their “core competencies through restructuring and
downsizing.
2. New entrepreneurial companies have been
blossoming in new technologies and new markets.
3. Thousands of smaller firms established by women,
minorities, and immigrants have strengthened the
economy.
Entrepreneurial Firms’ Impact
• Entrepreneurial firms make two
indispensable contributions to an 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 society.
Aspects of Entrepreneurship
Venture
Financing
Corporate
Entrepreneurship
Entrepreneurial
Cognition
Global
Entrepreneurial
Movement
Social
Entrepreneurship
Trends in
Entrepreneurship
Research
Women
and Minority
Entrepreneurs
Entrepreneurial
Education
Family
Businesses
Common Characteristics of
Entrepreneurs
• Commitment,
determination, and
perseverance
• Drive to achieve
• Calculated risk taking
• Tolerance for failure
• High energy level
• Opportunity orientation
• Creativity and
Innovativeness
• Initiative and
responsibility
• Vision
• Persistent problem
solving
• Seeking feedback
• Internal locus of control
• Tolerance for ambiguity
• Self-confidence and
optimism
• Independence
• Team building
Outline of the Entrepreneurial
Organization
Imagination
Flexibility
Acceptance
of Risks
Entrepreneurship Theory
• Entrepreneurs cause entrepreneurship.
– Entrepreneurship is a function of the
entrepreneur:
E  f (e )
– Entrepreneurship is the interaction of skills
related to inner control, planning and goal
setting, risk taking, innovation, reality
perception, use of feedback, decision making,
human relations, and independence.
Typology of Entrepreneurial Styles
Source: Thomas Monroy and Robert Folger, “A Typology of Entrepreneurial Styles:
Beyond Economic Rationality,” Journal of Private Enterprise IX(2) (1993): 71.
The Dark Side of
Entrepreneurship
• The Entrepreneur’s Confrontation with
Risk
– Financial risk versus profit (return) motive
varies in entrepreneurs’ desire for wealth.
– Career risk—loss of employment security
– Family and social risk—competing
commitments of work and family
– Psychic risk—psychological impact of failure
on the well-being of entrepreneurs
A Model of Entrepreneurial
Motivation
Source: Douglas W. Naffziger, Jeffrey S. Hornsby, and Donald F. Kuratko, “A Proposed
Research Model of Entrepreneurial Motivation,”2–20
Entrepreneurship Theory and Practice
(spring 1994): 33.
Opportunity Identification:
The Search for New Ideas
• Opportunity identification is central to
entrepreneurship and involves:
– The creative pursuit of ideas
– The innovation process
• The first step for any entrepreneur is the
identification of a “good idea.”
– The search for good ideas is never easy.
– Opportunity recognition can lead to both
personal and societal wealth.
Entrepreneurial Imagination
and Creativity
• How entrepreneurs do what they do:
– Creative thinking + systematic analysis =
success
– Seek out unique opportunities to fill needs
and wants
– Turn problems into opportunities
– Recognize that problems are to solutions
what demand is to supply
The Role of Creative Thinking
• Creativity
– The generation of ideas that result in the
improved efficiency or effectiveness of a
system.
• Two important aspects of creativity exist:
– Process
• The process is goal oriented; it is designed to
attain a solution to a problem.
– People
• The resources that determine the solution.
The Critical Thinking Process
The Creative Climate
• Characteristics of a creative climate:
– A trustful management that does not overcontrol the personnel
– Open channels of communication among all business members
– Considerable contact and communication with outsiders
– A large variety of personality types
– A willingness to accept change
– An enjoyment in experimenting with new ideas
– Little fear of negative consequences for making a mistake
– The selection and promotion of employees on the basis of merit
– The use of techniques that encourage ideas, including
suggestion systems and brainstorming
– Sufficient financial, managerial, human, and time resources for
accomplishing goals
Country Level Competitiveness
The Global Competitiveness Index 2009–2010 rankings and 2008–2009 comparisons
© 2009 World Economic Forum
GCI 2009–2010
GCI 2008–2009
Country/Economy
Rank
Score
Rank*
Switzerland
1
5.60
2
United States
2
5.59
1
Singapore
3
5.55
5
Sweden
4
5.51
4
Denmark
5
5.46
3
Finland
6
5.43
6
Germany
7
5.37
7
Japan
8
5.37
9
Canada
9
5.33
10
Netherlands
10
5.32
8
China
29
4.74
30
India
49
4.30
50
Brazil
56
4.23
64
Russian Federation
63
4.15
51
Economy
Ease of Doing Business Rank
Singapore
1
New Zealand
2
Hong Kong, China
3
United States
4
United Kingdom
5
Denmark
6
Ireland
7
Canada
8
Australia
9
Norway
10
Georgia
11
China
89
Bangladesh
119
Russian Federation
120
Costa Rica
121
Brazil
129
India
133
Innovation Rankings INSEAD 2009
1. United States
2. Germany
3. Sweden
4. United Kingdom
5. Singapore
6. South Korea
7. Switzerland
8. Denmark
9. Japan
10. Netherlands
Russia’s Innovation Capacity
64. Vietnam
65. Trinidad and
Tobago
66.Mauritius
67. Panama
68. Russia
69. Romania
70. Nigeria
29. Estonia
42. Lithuania
57. Azerbaijan
59. Uzbekistan
60. Latvia
72. Kazakhstan
79. Ukraine
98. Georgia
104. Armenia
112. Tajikistan
116. Moldova
122. Kyrgyzstan
Russia Components
•
•
•
•
•
•
•
Legacy of innovation - 49
Culture to innovate - 46
Quality of the educational system - 41
Quality of management schools – 66
Intellectual property protection – 93
Technological awareness - 91
Firm level technology absorption - 90
United States
•
•
•
•
Human Capacity – 1
Culture to innovate - 2
Quality of the educational system – 3
Quality of management schools - 10
Innovation and the Entrepreneur
• Innovation:
– Is the process by which entrepreneurs convert
opportunities into marketable ideas.
– Is a combination of the vision to create a good idea
and the perseverance and dedication to remain with
the concept through implementation.
– Is a key function in the entrepreneurial process.
– Is the specific function of entrepreneurship.
The Innovation Process
• Types of
Innovation
– Invention
– Extension
– Duplication
– Synthesis
• Sources of Innovation
– Unexpected
occurrences
– Incongruities
– Process needs
– Industry and market
changes
– Demographic changes
– Perceptual changes
– Knowledge-based
concepts
Type
Description
Examples
Invention
Totally new product, service, Wright brothers—airplane
or process
Thomas Edison—light bulb
Alexander Graham Bell—telephone
Extension
New use or different
application of an already
existing product, service,
or process
Ray Kroc—McDonald’s
Mark Zuckerberg—Facebook
Barry Sternlicht—Starwood Hotels &
Resorts
Duplication Creative replication of an
existing concept
Wal-Mart—department stores
Gateway—personal computers
Pizza Hut—pizza parlor
Synthesis
Fred Smith—Fed Ex
Howard Schultz—Starbucks
Combination of existing
concepts and factors into a
new formulation or use
Major Innovation Myths
• Myth 1: Innovation is planned and predictable
• Myth 2: Technical specifications should be
thoroughly prepared
• Myth 3: Creativity relies on dreams and bluesky ideas
• Myth 4: Big projects will develop better
innovations than smaller ones
• Myth 5: Technology is the driving force of
innovation success