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Chapter
7
McGraw-Hill
Entrepreneurship
© 2003 The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
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After studying Chapter 7, you will know:
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the activities of entrepreneurship
how to find and evaluate ideas for new business ventures
what it takes to be a successful entrepreneur
how to write a great business plan
the important management skills, resources, and strategies
needed to avoid failure and achieve success
key criteria for deciding whether your start-up should be
global from the outset
how to foster intrapreneurship and entrepreneurial orientation
in large companies
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Introduction
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Entrepreneurship
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the pursuit of lucrative opportunities by enterprising
individuals
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initiate and build an organization
create new systems, resources, or processes to produce new
goods or services and/or to serve new markets
differs from managing a small business
A small business
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has fewer than 100 employees
is independently owned and operated
is not dominant in its field
is not characterized by many innovative practices
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Introduction (cont.)
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Entrepreneurial venture
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has growth and high profitability as its primary objectives
is managed aggressively
develops innovative strategies, practices, and products
Sources of new venture creation
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independent entrepreneurship - individual establishes a new
organization without the benefit of corporate support
intrapreneurs - corporate entrepreneurs who create a new
venture working in big organizations
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Entrepreneurs
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Why become an independent entrepreneur?
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enjoy the challenge and profit potential
seek independence and a feeling of being part of the action
experience the satisfaction in building something from nothing
see their progress blocked in big corporations
new immigrants may be blocked from conventional means of
advancement
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Entrepreneurs (cont.)
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What business should you start?
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the idea - a great product, an untapped market, and good
timing are essential ingredients for success
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personal inspiration is a great source of ideas
idea may be the founder’s desire to build a great organization
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sees the product as a vehicle for the company
the opportunity - entrepreneurs spot, create, and exploit
opportunities in a variety of ways
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Spotting Opportunities
Demographic
changes
Technological
discoveries
Government
rules changes
Calamities
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To spot
opportunities,
be aware of:
Lifestyle and
taste changes
Economic
dislocations
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7-8
Entrepreneurs (cont.)
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What business should you start? (cont.)
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franchises
the next frontier - outer space
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huge demand for satellite launches
entrepreneurs face large obstacles
the internet
side streets - heading down a road reveals unknown places
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unexpected opportunities begin to appear
prepare to enable quick and effective action should an
opportunity appear
© 2003 The McGraw-Hill Companies, Inc. All rights reserved.
What Does It Take To Be A Successful
Entrepreneur?
Commitment
and determination
Motivation
to excel
Creativity,
self-reliance,
adaptability
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Successful
entrepreneurs
typically have:
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Leadership
Opportunity
obsession
Tolerance of
risk and
uncertainty
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7 - 10
Entrepreneurs (cont.)
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What does it take to be successful?
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making good choices
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new ventures differ along two dimensions
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entrepreneurial strategy matrix
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innovation - creation of something new and different
risk - probability of major financial loss
 psychological risk to reputation and ego
matrix helpful in determining whether a particular venture meets
entrepreneur’s particular objectives
matrix helps identify effective strategies
new ventures do not always require cutting-edge technology or a
new product
© 2003 The McGraw-Hill Companies, Inc. All rights reserved.
Innovation
(creating a unique and
different product/service)
The Entrepreneurial Strategy Matrix
High
High innovation
Low risk
High innovation
High risk
Low
Low innovation
Low risk
Low innovation
High risk
Low
High
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Risk
(probability of a major loss)
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7 - 12
Entrepreneurs
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The role of the economic environment
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entrepreneurs find success in favorable business environments
success also depends upon the foresight and talent to survive
hostile environments
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bad times can offer an opportunity to expand
business incubators - protected environments for new, small
businesses
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offer low rents and shared costs
staff manager advises the new business owner
often universities provide technical and business services
have been successful throughout the U.S. and other regions of the
world
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7 - 13
Entrepreneurs (cont.)
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Entrepreneurial hazards
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hazards of striking out on your own are many
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poor understanding about new products or new geographic areas
may find out after starting a company that you don’t enjoy it
survival is difficult
growth creates new challenges
failure can be devastating
Inadequate delegation – entrepreneur’s desire to personally
control every aspect of the business
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Active leadership deteriorates into micromanagement
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Entrepreneurs (cont.)
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Entrepreneurial hazards (cont.)
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misuse of funds - two types of mistakes
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poor planning and controls - failure to anticipate problems
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apply financial resources to the wrong uses
maintain inadequate control over financial resources
aversion to record keeping
failure to maintain vigilance over other aspects of the business
mortality - fate of the venture after the founder’s death
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venture can outlive founder if:
company has gone public
 founder has planned an orderly family succession
entrepreneurs seldom do either
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Entrepreneurs (cont.)
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Planning
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opportunity analysis - provides the basis for making a
decision on whether to act
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includes:
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a description of the product or service
an assessment of the opportunity and the entrepreneur
a specification of required activities and resources
sources of capital
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Questions That Must Be Answered In
An Opportunity Analysis
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•What market need does my idea fill?
•What personal observations have I experienced or recorded with regard
to that market need?
•What social condition underlies this market need?
•What market research data can be marshaled to describe this market
need?
•What patents might be available to fulfill this need?
•What competition exists in this market? How would I describe the
behavior of this competition?
•What does the international market look like?
•What does the international competition look like?
•Where is the money to be made in this activity?
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7 - 17
Entrepreneurs (cont.)
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Planning (cont.)
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business plan - formal planning step that focuses on the entire
venture and describes all the elements involved in starting it
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describes the venture and its market, strategies, and future
directions
helps determine the viability of your enterprise
guides planning and organizing
helps to obtain financing
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Entrepreneurs (cont.)
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Planning cont.)
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key planning elements beyond the financial projections are:
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people - should be energetic, have skills and relevant expertise
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opportunity - should allow a defensible competitive advantage
competition - identify competitors and their strengths and
weaknesses
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the most important element
predict competition’s responses to a new venture
consider how to collaborate with competitors
contexts - economic and regulatory environments should be
favorable
risk - must be understood and fully addressed
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7 - 19
Entrepreneurs (cont.)
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Planning (cont.)
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selling the plan - who you try to convince to back the plan is
important
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passive versus sophisticated investors
today plans need to be developed and enacted quickly
nonfinancial resources - crucial to success of new venture
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networks - create social capital
top management teams - affect company image, develop longterm plans, support daily activities, and create information
networks
advisory boards - provide expertise about a variety of specific
business matters and pass judgment on new ideas
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7 - 20
Entrepreneurs (cont.)
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Planning (cont.)
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nonfinancial resources (cont.)
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partners - help one another access capital, spread the workload,
share the risk, and furnish expertise
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must:
 acknowledge one another’s talents
 communicate honestly
 listen to one another
 learn to trust each other
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7 - 21
Intrapreneurship
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Building support for your idea
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must build a network of allies who support and will help
implement the idea
steps in building support include:
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clear the investment with your immediate boss or bosses
make cheerleaders - people who support the manager before
formal approval from higher levels
horse trading- offer promises of payoffs from the project in
return for sponsor support
get the blessing of relevant higher officials
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guarantee the project’s technical and political feasibility
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Intrapreneurship (cont.)
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Building intrapreneurship
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skunkworks - project team designated to produce a new,
innovative product
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have a specific goal and time frame
headed by a respected manager
risk takers are not punished for taking risks and failing
bootlegging - informal (secretive) efforts by managers and
employees to create new products or new processes
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intrapreneurial organization should tolerate and even encourage
bootlegging
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Intrapreneurship (cont.)
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Organizing new corporate ventures
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strategic alliances may be required for large scale innovation
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involves cooperation among different organizations
large companies outsource for innovation, providing
entrepreneurial opportunities for small firms
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Intrapreneurship (cont.)
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Hazards in intrapreneurship
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obvious risk: the effort can fail
subtler, but possibly greater, risk is failing to foster
intrapreneurship
greatest risk is overreliance on a single project
it is also risky to spread intrapreneurial efforts over too many
projects
hazards are related to scale
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one large project is a threat as are too many underfunded projects
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7 - 25
Intrapreneurship (cont.)
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Entrepreneurial orientation
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tendency of an organization to identify and capitalize
successfully on opportunities to launch new ventures by
entering new or established markets with new or existing
goods and services
determined by five tendencies
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allow independent action
innovativeness
risk taking
proactiveness
competitive aggressiveness
© 2003 The McGraw-Hill Companies, Inc. All rights reserved.