Chapter 1
Entrepreneurship
and the
Entrepreneurial Mind-Set
Nature and Development of
Entrepreneurship
 Entrepreneur – An individual who takes initiative
to bundle resources in innovative ways and is
willing to bear the risk and/or uncertainty to act.
 Individual who takes risks and starts something
new or unique.
 Being an entrepreneur:




Involves creation process.
Requires devotion of time and effort.
Involves rewards of being an entrepreneur.
Requires assumption of necessary risks.
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Nature and Development of
Entrepreneurship (cont.)
 Entrepreneurial action - Behavior in
response to a judgmental decision under
uncertainty about a possible opportunity for
profit.
 Entrepreneurship:
Process of creating something new and
assuming the risks and rewards.
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What is Entrepreneurship?
• Academic Definition (Stevenson & Jarillo)
– Entrepreneurship is the process by which individuals pursue
opportunities without regard to resources they currently
control.
• Venture Capitalist (Fred Wilson)
– Entrepreneurship is the art of turning an idea into a
business.
• Explanation of What Entrepreneurs Do
– Entrepreneurs assemble and then integrate all the resources
needed –the money, the people, the business model, the
strategy—needed to transform an invention or an idea into a
viable business.
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Corporate Entrepreneurship
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• Corporate Entrepreneurship
– Is the conceptualization of entrepreneurship at the firm
level.
– All firms fall along a conceptual continuum that ranges
from highly conservative to highly entrepreneurial.
– The position of a firm on this continuum is referred to as its
entrepreneurial intensity.
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Corporate Entrepreneurship
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Entrepreneurial Firms
• Proactive
• Innovative
• Risk taking
Conservative Firms
• Take a more “wait and see”
posture
• Less innovative
• Risk adverse
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Why Become an Entrepreneur?
The three primary reasons that people become
entrepreneurs and start their own firms
Desire to be their own boss
Desire to pursue their
own ideas
Financial rewards
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Characteristics of Successful Entrepreneurs
Four Primary Characteristics
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Entrepreneurial Revolution
• 7 Million American Millionaires are ‘self-made
entrepreneur’.
• The poor become rich due to
entrepreneurial process.
• Building entrepreneurial community is the
priority of the new E-Generation.
• Secret weapon of
!
the American economy
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Mega Entrepreneurs/Founders
•
•
•
•
•
•
•
•
•
Jeff Bezos – Amazon.Com
Sergey Brin & Larry Page- Google
Bill Gates & Paul Allen - Microsoft
Larry Ellison - Oracle
Steve Jobs & Steve Wozniak - Apple Computer
Michael Dell - Dell Computer
Mark Zuckerberg - Facebook
Phil Knight – Nike
Akio Morita - Sony
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Entrepreneurial Impact – Old & New Companies
Sales
(2000)
$Billion
• General Motors
185
• Ford
163
• Crysler
151
Total
499
• Intel
• Microsoft
• Cisco
Total
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22
15
66
Workers
(2000)
Thousands
Capital
(2001)
$Bilion
386
365
464
1215
34
45
43
122
67
31
21
119
179
362
121
662
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Indications of Increased Interest in Entrepreneurship
 Books& Magazines
 Amazon.com lists over 45,000 books dealing with entrepreneurship and
118,000 focused on small business.
 •College or universities Courses
 In 1985, there were about 250 entrepreneurship courses offered across all
colleges in the United States.
 Today, more than 5,000 entrepreneurship courses are offered in two- year
and four-year colleges and universities in the United States.
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Successful Entrepreneurs
Although no one is “born” to be an entrepreneur, there are common traits
and characteristics of successful entrepreneurs
• Achievement motivated
• Optimistic disposition
• Alert to opportunities
• Persuasive
• Creative
• Promoter
• Decisive
• Resource assembler/leverager
• Energetic
• Self-confident
• Has a strong work ethic
• Self-starter
• Is a moderate risk taker
• Tenacious
• Is a networker
• Tolerant of ambiguity
• Lengthy attention span
• Visionary
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Types of Start-Up
Firms
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Changing Demographics of
Entrepreneurs
1 of 2
Women Entrepreneurs
•
There were 6.2 million
women- owned businesses in
2002 (the most recent
statistics available)
• This number was up 20%
from 1997.
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Changing Demographics of
Entrepreneurs
2 of 2
Young Entrepreneurs
•
Interest among young people in entrepreneurial careers
is growing.
•
According to a Gallop study, 7 out of 10 high school
students want to start their own business.
•
Over 2,000 two-year and four-year colleges and
universities offer entrepreneurship courses.
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Table 1.1 - Aspects of the
Entrepreneurial Process
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The Entrepreneurial Process
 Opportunity identification - The process
by which an entrepreneur comes up with
the opportunity for a new venture.
 Market size and the length of the window
of opportunity are the primary bases for
determining risks and rewards.
 Window of opportunity - The time period
available for creating the new venture.
 Business plan - The description of the
future direction of the business.
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How Entrepreneurs Think
 Entrepreneurs in particular situations may
think differently when faced with a different
task or decision environment.
 Given the nature of their decision-making
environment, entrepreneurs need to
sometimes:
 Bricolage (applying combinations of the
resources at hand to new opportunities)
 Effectuate. (Make it happen)
 Be cognitively adaptable. (Connected with
mental process)
 Learn from failure.
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How Entrepreneurs Think
(cont.)
 Causal process
 Starts with a desired outcome.
 Focuses on the means to generate that
outcome.
 Effectuation process
 Starts with what one has (who they are, what
they know, and whom they know).
 Selects among possible outcomes.
 Entrepreneurial mind-set involves the
ability to rapidly sense, act, and mobilize,
even under uncertain conditions.
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How Entrepreneurs Think
(cont.)
 Cognitive adaptability describes the extent
to which entrepreneurs are:
 Dynamic, flexible, self-regulating and engaged
in the process of generating multiple decision
frameworks focused on sensing and processing
changes in their environments and then acting
on them.
 It reflects in an entrepreneur’s
metacognitive awareness.
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How Entrepreneurs Think
(cont.)
 Achieving cognitive adaptability
 Comprehension questions – Aids understanding of the
nature of the environment before addressing an
entrepreneurial challenge.
 Connection tasks – Stimulates thinking about the
current situation in terms of similarities and differences
with situations previously faced and solved.
 Strategic tasks – Stimulates thoughts about which
strategies are appropriate for solving the problem (and
why) or pursuing the opportunity (and how).
 Reflection tasks – Stimulates thinking about their
understanding and feelings as they progress through
the entrepreneurial process.
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How Entrepreneurs Think
(cont.)
 Entrepreneurs who are able to increase
cognitive adaptability have an improved ability
to:
 Adapt to new situations.
 Be creative.
 Communicate one’s reasoning behind a particular
response.
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How Entrepreneurs Think
(cont.)
 Learning from Business Failure
 Uncertainty, changing conditions, and
insufficient experience can contribute to failure
among entrepreneurial firms.
 An entrepreneur’s motivation is not simply from
personal profit but from:




Loyalty to a product.
Loyalty to a market and customers.
Personal growth.
The need to prove oneself.
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How Entrepreneurs Think
(cont.)
 Loss of a business can result in a negative
emotional response from the entrepreneur.
 It can interfere with:
 Entrepreneur’s ability to learn from the failure.
 Motivation to try again.
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Ethics and Social Responsibility of
Entrepreneurs
 Entrepreneurs usually develop an internal
ethical code.
 Personal value systems tend to be
influenced by:
 Peer pressure.
 General social norms in the community.
 Pressures from their competitors.
 Business ethics - The study of behavior and
morals in a business situation.
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Economic Impact of
Entrepreneurial Firms
• Innovation
– Is the process of creating something new, which is central
to the entrepreneurial process.
– Small firms are twice as innovative per employee as large
firms.
• Job Creation
– In the past two decades, economic activity has moved in
the direction of smaller entrepreneurial firms, which may
be due to their unique ability to innovate and focus on
specialized tasks.
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Role of Entrepreneurship in
Economic Development
 Innovation is depicted as a key to economic
development.
 Product-evolution process - Process through
which innovation is developed and
commercialized.
 Iterative synthesis - The intersection of knowledge
and social need that starts the product
development process.
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Entrepreneurial Firms’ Impact on
Society and Larger Firms
• Impact on Society
– The innovations of entrepreneurial firms have a dramatic
impact on society.
– Think of all the new products and services that make our
lives easier, enhance our productivity at work, improve our
health, and entertain us in new ways.
• Impact on Larger Firms
– Many entrepreneurial firms have built their entire business
models around producing products and services that help
larger firms become more efficient and effective.
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Role of Entrepreneurship in
Economic Development (cont.)
 Three types of innovation:
 Ordinary - New products with little technological
change.
 Technological – New products with significant
technological advancement.
 Breakthrough – New products with some
technological change.
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The Entrepreneurial
Process
The Entrepreneurial Process Consists of Four Steps Step
1: Deciding to become an entrepreneur.
Step 2: Developing successful business ideas.
Step 3: Moving from an idea to an entrepreneurial firm.
Step 4: Managing and growing the entrepreneurial firm.
Step 5: Exiting the venture.
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Figure 1.1 - Product Evolution
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