Chapter 1
The Power of
Entrepreneurship
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Definition of entrepreneurship
Schumpeter
An entrepreneur is the person who destroys the existing economic
order by introducing new products and services, by introducing
new methods of production, by creating new forms of organization,
or by exploiting new raw materials.
Simpler
An entrepreneur is the person who perceives an opportunity and
creates an organization to pursue it.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Business in the US
Part-time
employees
24 million
businesses
99.5% are small
businesses
(with 500 or fewer
employees)
Full-time
employees
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Have only
1 employee
10-year survival rates of business
establishments
81 % survive
40 % survive
1 year
5 years
2 years
10 years
65 % survive
25 % survive
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Entrepreneurship Revolution Strikes Gold
Netscape Communications:
$6 million of own money + $6 million of VC money = $2.2 billion of market
capitalization on the first day of IPO
182% ROI
eBay:
Benchmark Capital’s investment of $5 million in eBay multiplied 1500-fold
in just two years
Venture capital is only appropriate for high potential growth companies like these,
Google, and Facebook.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Venture Capital Investments in
Internet-related companies
$90
eBay IPO
1998
4500
$80
4000
3500
3000
1500
$60
$50
Yahoo IPO
1996
2500
2000
$70
Amazon.com IPO
1997
$40
Netscape IPO
1995
$30
1000
$20
500
$10
0
$0
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04
Number of Companies
Source: Venture Economics
Total Invested
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Total Invested ($ billion)
Number of Companies
5000
Changes in the Entrepreneurial Framework Conditions
Education,
Professionalization
Training
Changes in any
one or several of
these conditions
can lead to
entrepreneurial
opportunities
Financial
Cultural
and Social
Norms
Human
Government
Infrastructure
Physical
R&D transfer
Infrastructure
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
R&D observations
• Innovations don’t travel well within
university communities without a
significant investment in developing
networks and marketing concepts
• Innovators are rarely entrepreneurs
– No one wants to run a business
– No one uses the word “opportunity” – they
solve problems
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
TEA (total entrepreneurial activity) is the percent of the adult population that
are either nascent entrepreneurs or baby businesses’ owner-managers or both.
It measures the overall entrepreneurial activity of a nation.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
AVERAGE
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
-
Japan
Slovenia
Hong Kong
Belgium
Sweden
Croatia
Portugal
Hungary
Italy
Finland
Germany
Netherlands
Spain
Denmark
South Africa
Singapore
Greece
France
United Kingdom
Israel
Norway
Ireland
Poland
Canada
United States
Argentina
Australia
Brazil
Iceland
New Zealand
Jordan
Ecuador
Uganda
Peru
#/ 100 Adults, 18-64 Years Old [95%
Confidence Interval]
Total Entrepreneurial Activity
[TEA Prevalence] 2004: By Country
TEA (Opportunity)/TEA
(Necessity)
TEA (Opportunity)/TEA (Necessity) 2004
18.00
16.00
2
R = 0.57
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
0
10,000
20,000
30,000
40,000
50,000
60,000
GDP per capita, US$
TEA (opportunity) is the percent of the adult population that are trying to start or have started a
baby business to exploit a perceived opportunity.
TEA (necessity) is the percent of adults who are trying to start or have started a baby business
because all other options for work are either absent or unsatisfactory.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
TEA 2004: by Age Categories
and Country Income Group
#/ 100 Adults, 18-64 Years Old
25
18-24 years
25-34 year
35-44 years
20
45-54 years
55-64 years
15
10
5
0
low income countries
middle income countries
high income countries
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
AVERAGE
35.0
Japan
Slovenia
Hong Kong
Belgium
Sweden
Croatia
Portugal
Hungary
Italy
Finland
Germany
Netherlands
Spain
Denmark
South Africa
Singapore
Greece
France
United Kingdom
Israel
Norway
Ireland
Poland
Canada
United States
Argentina
Australia
Brazil
Iceland
New Zealand
Jordan
Ecuador
Uganda
Peru
#/ 100 Adults, 18-64 Years Old
TEA 2004: by Gender
45.0
40.0
Women
Men
30.0
25.0
20.0
15.0
10.0
5.0
0.0
TEA 2004: Education by Country Income Group
(GDP per capita)
up to some secondary
secondary degree
post secondary
high income
countries >$25,000
middle income
countries
low income
countries >$10,000
0%
20%
40%
60%
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
80%
100%
Informal investment and classic
venture capital as percent of GDP
2.50
0.00
Hungary
Finland
Norway
Portugal
Slovenia
France
Ireland
UK
Japan
Italy
Belgium
Sweden
Australia
South Africa
Hong Kong
Spain
USA
Germany
Netherlands
Denmark
Canada
Israel
Switzerland
Singapore
Poland
Greece
New Zealand
Informal Investment and Classic Venture Capital
Percent of GDP
3.00
Classic venture capital
Informal investment
2.00
1.50
1.00
0.50
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
21ST CENTURY ECONOMIES:
ANGLO-SAXON OR SOCIAL MODELS?
AngloSaxon
Economic
Systems
Anglo-Saxon economic systems have a high prevalence rate of high-expectation
entrepreneurial activity.
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Chapter 2
The Entrepreneurial
Process
Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©
A model of the entrepreneurial process
PERSONAL
PERSONAL
SOCIOLOGICAL
PERSONAL
ORGANIZATIONAL
Achievement
Locus of Control
Ambiguity Tolerance
Risk Taking
Networks
Entrepreneur
Job Dissatisfaction
Job Loss
Teams
Parents
Leader
Education
Age
Gender
Family
Commitment
Team
Strategy
Structure
Culture
Products
Role Models
Vision
Risk Taking
Personal Values
Education
Experience
Opportunity recognition
INNOVATION
Manager
Advisors
Commitment
Resources
TRIGGERING EVENT
IMPLEMENTATION
GROWTH
ENVIRONMENT
ENVIRONMENT
ENVIRONMENT
Opportunities
Role Models
Creativity
Economy
Competition
Competitors
Customers
Suppliers
Investors
Bankers
Lawyers
Resources
Government policy
Resources
Incubator
Government policy
Economy
Based on Carol Moore's Model (Moore 1986)
Entrepreneurship Defined:
Entrepreneur: someone who perceives an opportunity and builds an
organization to pursue that opportunity.
Entrepreneurship involves all the functions, activities, and actions associated
with perceiving opportunities and creating organizations to pursue them. These
include:
–Market and Customer Research
–Service and Product Innovation
–Team Building
–Finding & Managing Resources
–Leadership
–Etc…
Factors Influencing the
Decision to Start a Company
Personal
Attributes
•Higher Internal Locus of Control
•Desire for Financial Success
•Desire to Achieve Self-Realization
•Desire for Recognition
•Joy of Innovation
•Risk Tolerance
Environmental
Factors
•Local, Regional, or National attitudes
towards entrepreneurship
•Social and cultural pressures for or
against risk taking and entrepreneurship
•Access to entrepreneurial role models
•Responsibilities to family and
community
Remember: No single type of person is best suited for entrepreneurship!
Entrepreneurs come from all walks of life, backgrounds, etc!
Before Making the Commitment Would be
Entrepreneurs Must:
1) Assess their own financial reality.
It can be very difficult to sustain a salary in the early years of starting a new business,
and as a result it is essential for would be entrepreneurs to work through their own
personal income needs. If they have a family or other responsibilities that make taking
a financial risk more difficult, entrepreneurs must complete an honest assessment of
whether and when the company will be able to match past salary levels.
2) Identify key contacts in their networks.
The people in an entrepreneur’s network are his or her greatest potential source of
capital, clients, employees, and feedback. Before jumping into an entrepreneurial
endeavor it’s essential to take an inventory of the resources in one’s network.
3) Reach out to sources of free advice and feedback.
Most people root for the underdog, and as a result would be entrepreneurs have at their
disposal the advice and good will of countless people in their communities and the
business world at large. The best entrepreneurs reach out to these communities for all
the free advice and wisdom they can get.
The Timmons Model for Entrepreneurial Success:
Uncertainty
Opportunity
Entrepreneur
Fits & Gaps
Business plan
Uncertainty
Uncertainty
Resources
The Tenets of the Timmons Model:
1) The Opportunity
–Is there a clear customer need for the proposed product or service?
–Is the timing right: is the team ready, is the market ready?
–Ideas are a dime a dozen – it’s the combination of the factors above and the
execution of the business plan that makes an idea an opportunity.
2) The Lead Entrepreneur and Management Team
–Experience within the proposed industry can be essential to success.
–Investors and other backers prefer to see a track record of driving growth and profits.
–An ‘A’ team with a ‘B’ idea is almost always better than the opposite.
3) The Resources
–Resources include capital, technology, equipment, and most importantly – people.
–The entrepreneur’s mantra is one of Low Overhead, High Productivity, and Controlling
but not Owning resources.
–The best entrepreneurs are incredibly creative at finding ways to get things done
inexpensively and effectively. You can always find ways to do things faster,
cheaper, or better!
There are Two Key Forms
of Start Up Capital
Debt
•Requires no transfer of ownership of
the company.
•Presents potential for higher risk for
the entrepreneur.
•Requires repayment, and therefore
careful cash flow planning.
Equity
•Investors gain an ownership stake in
the company through a transfer of
shares.
•This transfers most of the risk to the
investor, which explains the costs and
expected returns.
•Does not require repayment, but does
require careful capital planning and
investment.
Remember: Most companies will never take on outside investors,
and many will never use debt financing for growth.
A Sample Financing Path:
Personal Savings
& Sweat Equity
Angel
Investment
Bank & SBA
Loans
Initial Public
Offering
Venture
Capital
Happiness is a Positive Cash Flow!
It’s Essential to Understand the Difference between Profits and Cash Flow:
–A profitable company can have a negative cash flow and risk running out of money.
–An unprofitable company can have a positive cash flow and be on a healthy trajectory.
Profit is measured as a Gain or Loss on the Income Statement, however…
–It is typically measured on an accrual basis, and therefore does not accurately
reflect the cash inflows and outflows of the company.
–Some transactions of cash occur off the Income Statement, and therefore impact cash
flow but not profits. A good example is repayment of a loan, which reduces cash
balances but has no impact on profits or losses.
Cash Flow measures the increase/decrease of cash during a given timeframe:
–It is comprised of three elements: operations, investing, and financing.
–Each of these areas can have a tangible impact on the Cash Flows of a business, and
must be planned and monitored closely.
–Positive or Negative Cash Flows are not necessarily good or bad on their own. What
matters is the context – is the company growing, struggling, etc?
Chapter 3
Opportunity Recognition,
Shaping and
Re-shaping
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Idea-to-opportunity transition
Seed of idea
Passion
Idea
Professional
Experience
Idea
Multiplication
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Viable
Opportunity
Idea multiplication – IDEO
technique
1
Gather
Stimuli
Observe
2
Multiply
Stimuli
Brainstorm/brain-write
3
Create
Customer
Concepts
Build a simple mock up
4
Optimize
Practicality
Add/remove features
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
The opportunity space
Global Business Environment
Competitors
Suppliers
Your Company
Customers
Competitors
Competitors
Government Regulations
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
The customer
Target Audience Categories
Primary
Target Audience
Secondary
Target Audience
Tertiary
Target Audience
Common Demographic/Psychographic Categories
Demographics
Age
Gender
Household Income
Family Size/Family Lifecycle
Occupation
Education Level
Religion
Ethnicity/Heritage
Nationality
Social Class
Marital Status
Psychographics
Social group (e.g., white collar, blue
collar, etc.)
Lifestyle (e.g., mainstream, sexual
orientation, materialistic, active, athletic,
etc.)
Personality Traits (Worriers, Type A’s,
Shy, Extroverted, etc.)
Values (Liberal, Conservative, OpenMinded, Traditional, etc.)
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Macro trends
Important Trends over the Last 50 Years
Trend
Impact
Baby Boom Generation
Pampers, Rock & Roll, Television,
Minivans, Real Estate,
McMansions, etc.
Personal Computing
Internet, media on demand,
electronic publishing,
spreadsheets, electronic
communication
Obesity
Drain on healthcare system, growth
of diet industry, changes in food
industry, health clubs, home gyms
Dual-Income households
Child care, Home services –
landscaping, house cleaning,
prepared foods
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Market Adoption
S-curve
1
2
3
Time
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Setting prices
Price
Penetration Pricing
Strategy
Cost-plus Pricing
Strategy
Assessing Market
Prices for Competing
Products
Strategy
Requires
Enormous
Financing
Price May Not
Match
The Value
The Best Option
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Reaching customer – the value
chain
Example - Value Chain of Gourmet Chili
Base
Ingredients
-Beef,
Sauce, etc.
-From Food
Distributor
Gourmet
Chili
Food
Distributors
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Grocery
Stores
Learning about “stealth”
competitors
Business
Angels
and
VCs
Sources
Of
Intelligence
Suppliers
Databases
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Opportunity checklist
Customer
Trends
Competition
Vendors
Government
Global
Environment
Market size
Price/
Frequency/
Value
Market
Growth
Distribution
Key Success
Factors
Bygrave & Zacharakis, 2007. Entrepreneurship,
New York: Wiley. ©
Chapter 4
Understanding your
Business Model and
Developing your Strategy
Basic strategy categories are:
Differentiation
Low cost
Niche
Business model
Revenue model
Revenue categories
Cost model
Cost of Goods Sold
Operating Costs
Amazon.com’s Revenue Model
US$ in Thousands
Total revenues
$6,000,000
$5,000,000
$4,000,000
Media
Electronics
Other
$3,000,000
$2,000,000
$1,000,000
$0
2001
2002
2003
2004
2005
Amazon. com’s cost model
US$ in Thousands
Total costs and expenses
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
Cost of
Revenue
Operating
Expenses
2001 2002 2003 2004 2005
Several key aspects about capturing a
first mover’s advantage
 You have to be first (or very early) into
the market
 You need to capture a large percentage
of the market quickly
 You need to create switching costs so
the customer will stick with you
 Very expensive, hard to win
 First Movers rarely win
Attributes of winning strategies
Cheaper
Faster
Better
Entry Strategy
Benchmark
Devise Initial Market Test
Create a Platform
Growth Strategy
Franchising
Expanding your
product mix
Geographic
expansion
Benefits of
franchising
Adds new
revenues
Speeds
growth
Factors defining
success of
geographic
expansion
Customers
Vendors
Distribution
The Entrepreneurial Firm International Expansion Process
Gradual
Global
Born
Global
Intermediating:
Networks & Alliances
Born Again
Global
Enabling
Processes
Direct:
Technology
Technology
Transfer
Technology
Licensing
Outsourcing
Exporting
Foreign
Direct
Investment
Enacting
Processes
Franchising
Venture
Finance
M&A
Activities
Means to expand
globally
Pros
Cons
Technology Transfer
- Reduces entry costs
- Risk of losing the technology
Technology Licensing
- Generates revenue
- Conserves resources
- A lost opportunity to extend your
own brand
Outsourcing
- Cost-saving
Exporting
- Cheap
- Easy
- Additional costs in after-sales
support and transportation
- Moral hazard
Foreign Direct Investment (FDI)
- Physical presence
- Control of assets
- Expensive
Franchising
- Licenses an operational system
- Risk of damaging the brand
name
Venture financing
- Both an enabling and an
enacting mechanism
- Often leads to mergers and
acquisitions with foreign
companies
Mergers and acquisitions (M&A)
- Established infrastructure
- Allow a company to grow and
expand quickly
- Very expensive