Entrepreneurship 673w6r

MODULE1: TECHNOLOGY BASED ENTREPRENEURSHIP

ENTREPRENEURSHIP • OBJECTIVES • LECTURES NOTES •

Introduction

•

An Entrepreneurial Perspective.

•

Defining Entrepreneurship.

•

Traits versus Characteristics.

• Creative Innovation. •

as

a

prerequisite

to

Innovation and Entrepreneurship.

• Significant enterprise.

ways

for

new

• TRANSPARENCIES

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ENTREPRENEURSHIP Objectives Define Entrepreneurship and discus the characteristics of Entrepreneurs. Discus the importance of creativity and innovation to Entrepreneurship. Compare and contrast the attitudes and behavior of entrepreneurial manager and the trustee with respect to creativity and innovation. Explain the innovation process, the characteristics of innovative organizations, the critical innovation roles, and the barriers to innovation in the organizations. Compare and contrast power bases, managerial behaviors, and advantages and disadvantages associated with alternative planned change strategies.

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Lectures Notes

ENTREPRENEURSHIP1

INTRODUCTION2 The concept of entrepreneurship has been around for a very long time, but its resurgent popularity implies a ”sudden discovery”, as if we had stumbled onto a new direction for American enterprise. This is a myth, as we shall see, because the American system of free enterprise has always engendered the spirit of entrepreneurship. America was discovered by entrepreneurs, and the United States became a world economic power through entrepreneurial activity. More important, our future rests squarely on entrepreneurial ventures founded by creative individuals. They are inspired people, often adventurers, who can at once disrupt a society and instigate progress. They are risk takers who seize opportunities to harness and use resources in unusual ways, and entrepreneurs will thrust us into the twenty-first century with a thunderous roar.

An Entrepreneurial Perspective • Entrepreneurship is one of the four mainstream economic factors: land, labor, capital, and entrepreneurship. • The word itself, derived from 17th-century French entreprendre, refers to individuals who were “undertakers”, meaning those who “undertook” the risk of new enterprise. They were “contractors” who bore the risks of profit or loss, and many early entrepreneurs were soldiers of fortune, adventurers, builders, merchants, and, incidentally, funeral directors. • Early reference to the entrepreneur in the 14th century spoke about tax contractors individuals who paid a foxed sum of money to a government for the license to collect taxes in their region. • In the 19th century, entrepreneurs were the “captains of industry”, the risk takers, the decision makers, the individuals who aspired to wealth and who gathered and managed resources to create new enterprises.

1 2

USE TRANSPARENCIES SLIDES ENTRE1.PPT Holt, David H., Entrepreneurship: New Venture Creation, Prentice Hall: 1992.

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• Notable early French, British, and Austrian economists wrote enthusiastically about entrepreneurs as the “change agents” of progressive economies.

Economics and Entrepreneurship •

Richard Cantillon, a French economist, was credited with giving the concept of entrepreneurship a central role in economics. In his Essaisur la nature du commerce en général, Cantillon described an entrepreneur as a person who pays a certain price for a product to resell it at an uncertain price, Thereby making decisions about obtaining and using resources while consequently assuming the risk of enterprise. A critical point in Cantillon’s argument was that entrepreneurs consciously make decisions about resources allocations. •

Adam Smith spoke of the “enterpriser” in his 1776 Wealth of Nations as an individual who undertook the formation of an organization for commercial purposes. In Smith’s view, entrepreneurs reacted to economic change, thereby becoming the economic agents who transformed demand into supply. •

French economist Jean Baptiste Say, in his 1803 Traité d’ éeconomie politique, described an entrepreneur as one who possessed certain arts and skills of creating new economic enterprises, yet a person who had exceptional insight into society’s needs and was able to fulfill them. •

In 1848, British economist John Stuart Mill elaborated on the necessity of entrepreneurship in private enterprise. The term entrepreneur subsequently became common as a description of business founders, and the “fourth factor” of endeavor was entrenched in economic literature as encoming the ultimate ownership of a commercial enterprise. •

Carl Menger (1840-1921) established the “subjectivist perspective of economics” in his 1871 Principles of Economics. The entrepreneur becomes, therefore, the change agent who transforms resources into useful goods and services, often creating the circumstances that lead to industrial growth. However, Menger saw the entrepreneur as an astute individual who could envision this transformation and create the means to implement it. Menger assigned priority numbers to different events in this chain so that a high-priority event would have a low number (e.g., 1) and would be an ultimate “end use” to satisfy a human need. At the other extreme, Menger assigned a low-priority event with a high number (e.b., 8), and this might represent raw material needed to create the number 1 event; fields of unharvested wheat would have a low priority.

Entrepreneurship as a Process •

Joseph Schumpeter, Austrian economist revived the concept of entrepreneurship when he ed Harvard University and his work was published in the United States in 1934. Schumpeter described

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entrepreneurship as a force of “creative destruction” whereby established ways of doing things ate destroyed by the creation of new and better ways to get things done.

Defining Entrepreneurship •

The entrepreneur seeks, in Schumpeter’s word, to reform or revolutionized the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up anew source of supply of materials or a new outlet for products . . . . Entrepreneurship, as defined, essentially consists in doing things that are not generally done in the ordinary course of business routine.

•

The evolution of the concept has generated many definitions, but perhaps a recent one by writer Robert Ronstand captures its essence. we shall use Ronstad’s definition of entrepreneurship: Entrepreneurship is the dynamic process of creating incremental wealth. This wealth created by individuals who assume the major risks in of equity, time, and/or career commitment of providing value for some product or service. The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources.

Traits versus Characteristics In an effort to understand entrepreneurs better, researchers have sought to define traits common to a majority of individuals who start and operate new ventures. John Hornaday of Babson College was among the first to use surveys and intense interviews to develop a composite list of entrepreneurial traits,

Characteristic of Successful Entrepreneurs Self-confident and optimistic Able to take calculated risk Respond positively to challenges Flexible and able to adapt Knowledgeable of markets Able to get along well with others Independent minded

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Energic and diligent Creative, need to achieve Dynamic leader Responsive to suggestions Take initiatives Resourceful and persevering Perceptive with foresight

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Versatile knowledge

Responsive to criticism

Entrepreneurship and Innovation Creative as a prerequisite to innovation • The creativity and innovation are often used to mean the thing, but each has a unique connotation. 1.

Creativity - is “the ability to bring something new into existence. This definition emphasizes the “ability”, not the “activity”, of bringing something new into existence.

2.

Innovation - is the process of doing new thing.

• Innovation, therefore, is the transformation of creative ideas into useful applications, but creativity is a prerequisite to innovation.

The Creative Process • Entrepreneurs need ideas to pursue, and ideas seldom materialize accidentally. Ideas usually evolve through a creative process whereby imaginative people, germinate ideas, nuture them, and develop them successfully. • Various labels have been applied to stages in the creative process, but most social scientist agree on five stages that we label as: • • • • •

Idea Germination Preparation Incubation Illumination Verification

A model of the creative process:

Idea Germination: The seeding stage of a new idea Recognition

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Preparation: Conscious search for knowledge Rationalization

Incubation: Subconscious assimilation of information Fantasizing

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Illumination: Recognition of ideas as being feasible Realization

Verification: Application or test to prove ideas has value Validation

Innovation and Entrepreneurship • It is important to recognize that innovation implies action, not just conceiving new ideas. When people have ed through the illumination and verification stages of creativity, they may have become inventors, but they are not yet innovators. •

The difference between invention and innovation is: Invention - is the creation of new products, processes, and technologies not previously known to exist. 2. Innovation - is the transformation of creative ideas into useful applications by combining resources in new or unusual ways to provide value to society for or improved products, technology, or services. 1.

•

Elements in the Innovation Process 1.

Analytical Planning - to identify: product design, market strategy, financial need

2.

Organizing Resources - to obtain: materials, technology, human resources, capital

3.

Implementation - to manufacturing, services

4.

Commercial Application - to provide: value to customers, reward of employees, revenues for investors, satisfaction for founders

accomplish:

organization,

product

design,

Your own new enterprise serves your interest in significant ways:

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Salary. Nothing can spin out money like a profitable company. You should, in time, be able to make a far higher salary that you could ever earn working for someone else. Security. If you can consistently earn a big salary for many years running, you can take long step toward security. Beyond that lies a company profit-sharing plan, a retirement program, started at the moment that you company enter black, that will pile up a splendid asset for your later years. Assets builder. As your company grows and become more profitable, it takes on value. It becomes a separate unit which can be sold for a sum money. Naturally, the more profitable it becomes , the more it is worth. Perks. A company allows you the use of an automobile for business purposes, along with a host of other small advantages. it will make you a short-term loan or pay for your home security system. Independence. Your own business can set you free from financial worries. It removes the necessity to beholden to an employer. It allows you independence and freedom from bosses and supervisors. Fulfillment. The excitement and challenge of your own enterprise makes life immensely stimulating. You derive a deep, psychological satisfaction from “doing business”, and you banish boredom and restlessness from your life.

Entrepreneur: What's In a Definition? How do we define "entrepreneur"? Is there anything to be learned about entrepreneurship and building a business by studying the definition? Or, is studying the historical definition of "entrepreneur" just an academic exercise? Let's look at how some small business experts define the word "entrepreneur": Bob Reiss, successful entrepreneur and author of Low-Risk, High-Reward: Starting and Growing Your Small Business With Minimal Risk, says: "Entrepreneurship is the recognition and pursuit of opportunity without regard to the resources you currently control, with confidence that you can succeed, with the flexibility to change course as necessary, and with the will to rebound from setbacks." A key factor in Reiss's definition is that entrepreneurs undertake opportunities regardless of the resources the entrepreneur currently controls. I've known many people who say they'd love to start a business, but they just don't have the money to get started. Neither did many of history's greatest entrepreneurs like Michael Dell, who started his computer company in his college dorm room or Lillian Vernon, who started her mail-order business when she was a housewife looking for extra income. These successful entrepreneurs didn't start rich and successful. They ended rich and successful. Entrepreneurs find ways to acquire the resources they need to achieve their goals. One of those resources is capital. "Entrepreneurial" is often associated with venturesome or creative. Be creative in acquiring the resources you need to build and grow your

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business. Think outside the box and you'll improve your chances of acquiring what you need to succeed. Linda Pinson, author of much of the SBA's material about writing a business plan and creator of business plan software (business-plan.com) says: "I have always thought of an entrepreneur as a person who starts a business to follow a vision, to make money, and to be the master of his/her own soul (both financially and spiritually). Inherent in the venture is the risk of what the future may bring. Therefore, I believe that an essential key to success is that the entrepreneur also be an "educated" risk taker.... " Pinson continues: "I think that there is a general iration for the entrepreneur who has a skill and bravely jumps into the middle of the fire hoping not to get burned. If he makes it, he is our shining example of who we want to be. If he does not, we say, "Oh, well" and pay no heed to the plight of his venders, associates, and customers who have been burned in the process. The view, though, I think is rapidly changing because a large percentage of American entrepreneurs have not been successful. Their industry knowledge and skills have been everything we could hope for......but their business skills have been sorely lacking. I think it is now recognized that the "educated risk taker" will win the race." Pinson makes two key points. First, many entrepreneurs want to be masters of their own fate and they can't find this outside of entrepreneurship. While studies have shown that people derive tremendous satisfaction from their work, how many people are really doing exactly what they want to be doing? Entrepreneurs are usually doing what they want, or, at least, they are doing something which they feel gives them control over their future. Entrepreneurs like to be in control of their future. They like to set their own course. Many entrepreneurs feel that running a business offers far more security than being an employee. Entrepreneurs often argue that you can acquire wealth much faster if you own a business and you can build a buffer of personal financial security. Further, an entrepreneur's continued paycheck isn't dependent upon a single employer whose faulty business decisions could lead to being laid off. So, while some people see starting a business as more risky than conventional employment, other people see it as less risky. Pinson's second point is the growing awareness of "professional entrepreneurship." Today, more people aren't just starting one business. They are starting one business followed by another and often another. Such entrepreneurs are sometimes called "serial entrepreneurs." Sometimes these people become angel investors who invest their own money into start-up companies. The more you understand about business and entrepreneurship, the better your chance of succeeding in business. Become an educated risk taker. Pinson reminds us that entrepreneurs have a certain responsibility not only to themselves but also to their customers, suppliers, and associates. Gillian Murphy, leader of San Joaquin Delta College Small Business Development Center, says: "An entrepreneur is not static but fluid...continues to seek opportunities and/or different methods of operation. When I think of someone with 'an entrepreneurial spirit,' I think of a person who will do whatever it takes to be successful in business, e.g.,

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A former client wanted to open a business in a specific strip mall. However, there were no vacancies. He sought out a business that didn't appear to be very healthy. The business owner agreed to my client's suggestion of dividing her premises, leaving her with reduced rent, inventory needs, and general operations. In turn, my client "found" a location where he could operate his business!" Murphy again shows the value of creativity in acquiring the necessary business resources. Thinking outside the box or taking creative approaches can often gain access to resources that appear unavailable to less entrepreneurial-minded people. Further, entrepreneurs are willing to propose unique ideas to potential partners or to negotiate unconventional deals to get what they want.

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