Entrepreneurship Definition and Evaluation

Introduction

Entrepreneurship can be defined by describing what entrepreneurs do. For example: “Entrepreneurs use personal initiative, and engage in calculated risk-taking, to create new business ventures by raising resources to apply innovative new ideas that solve problems, meet challenges, or satisfy the needs of a clearly defined market.”

But as the following definitions state, entrepreneurship is not restricted to business and profit:

“Entrepreneurship involves bringing about change to achieve some benefit. This benefit may be financial but it also involves the satisfaction of knowing you have changed something for the better. (Entrepreneurship: Creating a Venture by Lily Kretchman et al. Toronto: Wiley, 1991.)

“Entrepreneurship is essentially the act of creation requiring the ability to recognize an opportunity, shape a goal, and take advantage of a situation. Entrepreneurs plan, persuade, raise resources, and give birth to new ventures.” (Entrepreneurship: The Spirit of Adventure by Richard Bodell et al. Toronto: Harcourt Brace Jovanovich, 1991.)

Who Are Entrepreneurs?

For a long time it was thought that entrepreneurs were special, that they were just born with the ability and desire to go their own way, on their own. Over the past twenty years or so, we’ve discovered that entrepreneurs learn to do what they do that they also learn, to a large extent, to be who they are. That’s why we say they are made not born.

Here’s a handy way to remember some facts about entrepreneurs and entrepreneurship:

E: xamine needs, wants, and problems to see how they can improve the way needs and wants are met and problems overcome.

N: arrow the possible opportunities to one specific “best” opportunity.

T: hink of innovative ideas and narrow them to the “best” idea.

R: esearch the opportunity and idea thoroughly.

E: nlist the best sources of advice and assistance that they can find.

P: lan their ventures and look for possible problems that might arise.

R: ank the risks and the possible rewards.

E: valuate the risks and possible rewards and make their decision to act or not to act.

N: ever hang on to an idea, no matter how much they may love it, if research shows it won’t work.

E: mploy the resources necessary for the venture to succeed.

U: nderstand that they will have to work long and hard to make their venture succeed.

R: ealize a sense of accomplishment from their successful ventures and learn from their failures to help them achieve success in the future.

The Top Ten Characteristics Found In Entrepreneurs Are

• Entrepreneurs are disciplined and can hold them self accountable.
• Entrepreneurs are a ball of physical energy.
• Entrepreneurs like to be in control.
• Entrepreneurs are very confident and believe in themselves.
• Entrepreneurs they love what they do and know their market.
• Entrepreneurs are very passion about succeeding in life.
• Entrepreneurs always learn from their mistakes and don’t make it twice.
• Entrepreneurs are willing to keep learning new skills.
• Entrepreneurs are good leaders and can lead a team to complete a common goal.
• Entrepreneurs will take a risk on new opportunities.

ENTREPRENEURS—CHALLENGING THE UNKNOWN

Entrepreneurs are individuals who recognize opportunities where others see chaos con­fusion. They are aggressive catalysts for change within the marketplace. They have been compared to Olympic athletes challenging themselves to break new barriers, to long­ distance runners dealing with the agony of the miles, to symphony orchestra conductors who balance the different skills and sounds into a cohesive whole, or to top-gun pilots who continually push the envelope of speed and daring. Whatever the pass in, because they all fit in some way, entrepreneurs are the heroes of today’s marketplace. They start companies and create jobs at a breathtaking pace. The U.S. economy has been revitalized because of the efforts of entrepreneurs, and the world has turned now to free enterprise as a model for economic development. The passion and drive of entrepreneurs move the world of business forward. They challenge the unknown and continuously create the future.

One anonymous quote found by Jeffry A. Timmons sums up the realities for entrepreneurs. “Anyone [can be an entrepreneur] who wants to experience the deep, dark canyons of uncertainty and ambiguity; and who wants to walk the breathtaking highlands of suc­cess. But I caution, do not plan to walk the latter, until you have experienced the former.”‘

Entrepreneurship: a perspective

Entrepreneurship is more than the mere creation of business. Although that is certainly an important facet, it’s not the complete picture. The characteristics of seeking opportunities, taking risks beyond security, and having the tenacity to push an idea through to reality combine into a special perspective that permeates entrepreneurs. As we will illustrate in Chapter 4, an entrepreneurial perspective can be developed in individuals. （Jeffry A.Timmons, New Venture Creation (Burr Ridge, IL:Irwin,1994),3.）This perspective can be exhibited inside or outside an organization, in profit or not-for-profit en­terprises, and in business or nonbusiness activities for the purpose of bringing forth creative ideas. Thus, entrepreneurship is integrated concept that permeates an individual’s” business in an innovative manner. It is this perspective that has revolutionized the way business is conducted at every level and in every country. Inc. magazine reported on the cover of one issue some lime ago that “America is once again becoming a nation of risk takers and the way we do business will never be the same.” So it is. The revolution has begun in an economic sense, and the entrepreneurial perspective is the dominant force.

EVOLUTION OF ENTREPRENEURSHIP

Entreprendre – French for to undertake: where entrepreneurship is derived from.

The Corridor Principle – With every venture launched, new and unintended opportunities often arise. (Post it notes)

Entrepreneurial Schools-of-Thought Approach

The Macro View (External locus of control)

• The Environmental School of Thought
• The Financial/Capital School of Thought
• The Displacement School of Thought

1. Political Displacement

2. Cultural Displacement

3. Economic Displacement

The Micro View (Internal locus of control)

• The Entrepreneurial Trait School of Thought
• The Venture Opportunity School of Thought
• The Strategic Formulation School of Thought

Strategic Formulation as a Leveraging of Unique Elements

– Unique Markets: mountain gap strategies

– Unique People: great chef strategies

– Unique Products: better widget strategies

– Unique Resources: water well strategies

Process Approaches

– “Integrative” Approach –

– Entrepreneurial Assessment Approach –

– Multidimensional Approach –

3M’s Innovation Rules

• Don’t kill a project
• Tolerate failure
• Keep divisions small
• Motivate the champions
• Stay close to the customer
• Share the wealth

Corporate Entrepreneurship Assessment Instrument (CEAI)
(measured key entrepreneurial climate factors)

• Management Support
• Autonomy/Work Discretion
• Rewards/Reinforcement
• Time Availability
• Organizational Boundary

Venture Team – composed of two or more people who formally create and share the ownership of a new organization.

• The leader is called a “product champion” or an “intrapreneur”.

The Top Ten Characteristics Today’s Entrepreneurs Share:

• Recognize and take advantage of opportunities
• Resourceful
• Creative
• Visionary
• Independent thinker
• Hard worker
• Optimistic
• Innovator
• Risk taker
• Leader

The Dark Side of Entrepreneurship

• Confrontation with Risk
  1. Financial Risk
  2. Career Risk
  3. Family and Social Risk
  4. Psychic Risk
• Stress
• Ego
  1. Extreme Sense of Distrust
  2. Overbearing Need for Control
  3. Overriding Desire for Success
  4. Unrealistic Optimism

Creativity – the generation of ideas that result in the improved efficiency or effectiveness of a system.

Innovation – The process by which entrepreneurs convert opportunities into marketable ideas. More than just a good idea.

1. Types of Innovation

• Invention
• Extension
• Duplication
• Synthesis

2. Sources of Innovation

1. Unexpected Occurrences
2. Incongruities
3. Process Needs
4. Industry and Market Changes
5. Demographic Changes
6. Perceptual Changes
7. Knowledge-Based Concepts

The four rationalizations are believing….

1. that the activity is not “really” illegal or immoral;
2. that it is in the individual’s or the corporation’s best interest;
3. that it will never be found out; and
4. that because it helps the company, the company will condone it.

Types of morally questionable acts:

Non-role:  Against the firm. Expense Acct cheating

Role Failure: Against the firm. Superficial Performance Appraisal

Role Distortion: For the firm. Bribery

Role Assertion: For the firm. Not withdrawing product line until sold enough

Code of conduct – is a statement of ethical practices or guidelines to which an enterprise adheres.

Immoral Management: Managerial decisions, actions and behavior imply a positive and active oppositions to what is moral (ethical). Decisions are discordant with accepted ethical principles.  An active negation of what is moral is implied.

Amoral Management: Management is neither moral or immoral, but decisions lie outside the sphere to which moral judgments apply. Managerial activity is outside or beyond the moral order of a  particular code.  A lack of ethical perception and moral awareness may be implied.

Moral Management: Managerial activity conforms to a standard of ethical, or right, behavior. Managers conform to accepted professional standards of conduct.  Ethical Leadership is common- place on the part of management.

A Holistic Approach

Principle 1: Hire the right people

Principle 2: Set standards more than rules

Principle 3: Don’t let yourself get isolated

Principle 4: The most important principle is to let your ethical example at all times be absolutely impeccable

The Social Responsibility Challenge

– Social Obligation: Some firms simply react to social issues through obedience to the laws

– Social Responsibility: others respond more actively; accepting responsibility for various programs

– Social Responsiveness: still others are highly proactive and are even willing to be evaluated by the public for various activities

Pitfalls in Selecting New Ventures

• Lack of Objective Evaluation
• No Real Insight into the Market
• Inadequate Understanding of Technical Requirements
• Poor Financial Understanding
• Lack of Venture Uniqueness
• Ignorance of Legal Issues

Critical Factors for New-Venture Development

• Uniqueness
• Investment
• Sales Growth
  • Lifestyle ventures
  • Small profitable ventures
  • High-growth ventures
• Product Availability
• Customer Availability

Why New Ventures Fail

• Product/Market Problems
• Financial Difficulties
• Managerial Problems

Types and Classes of First-Year Problems

1. Obtaining external financing

2. Internal financial management

3. Sales/marketing

4. Product development

5. Production/operations management

6. General management

7. Human resource management

8. Economic environment

9. Regulatory environment

Business incubator – is a facility with adaptable space that small businesses can lease on flexible terms and at reduced rents.

Types of Incubators

1. Publicly Sponsored
2. Nonprofit-sponsored
3. University-related
4. Privately sponsored

Market – a group of consumers (potential customers) who have purchasing power and unsatisfied needs.  A new venture will survive only if a market exists for its product or service.

Marketing Philosophy?

Production-driven philosophy

Sales-driven philosophy

Consumer-driven philosophy

Market segmentation – is the process of identifying a specific set of characteristics that differentiate one group of consumers from the rest (market niche).

Consumer Behavior

Five Major Classifications:

1. Convenience goods: gum at the register, milk.
2. Shopping goods: things you shop for, car, house, college
3. Specialty goods: hard to find, price doesn’t matter, souveniers
4. Unsought goods: insurance, cemetery plot, they find you
5. New products: Unknown, new invention

Pricing for the Product Life Cycle

– Unique product: Skimming-deliberately setting a high price to maximize short-term profits

– Non-unique product: Penetration-setting prices at such a low level that products are sold at a loss

– Growth Stage: Consumer Pricing– combining penetration and competitive pricing to gain market share; depends on consumer’s perceived value of product

– Maturity Stage: Demand oriented pricing– a flexible strategy that bases pricing decisions on the demand level for the product

– Decline Stage: Loss Leader Pricing– pricing the product below cost in an attempt to attract customers to other products

Geographic Pricing: depending on where you live

The Balance Sheet – Represents the financial condition of a company at a certain date.  It details the items the company owns (assets) and the amount the company owes (liabilities).  It also shows the net worth of the company and its liquidity.

The Income Statement – Commonly referred to as the P & L (profit and loss) statement, which provides the owner/manager with the results of operations.

Statement of Cash Flow – An analysis of the cash availability and cash needs of the business.

The Operating Budget – Typically, the first step in creating an operating budget is the preparation of the sales forecast.  An entrepreneur can prepare the sales forecast in several ways.  One way is to implement a statistical forecasting technique such as simple linear regression.
The Cash-Flow Budget – The first step in the preparation of the cash-flow budget is the identification and timing of the cash inflows.  For the typical business, cash inflows will come from three sources: (1) cash sales, (2) cash payments received on account, and (3) load proceeds.

Pro Forma Statements – Pro forma statements are projections of a firm’s financial position over a future period (pro forma income statement) or on a future date (pro forma balance sheet).

Capital Budgeting – The first step in capital budgeting is to identify the cash flows and their timing.  The inflows, or returns as they are commonly called, are equal to net operating income before deduction of payments to the financing sources but after the deduction of applicable taxes and with depreciation added back.

Payback Method – In this method the length of time required to “pay back” the original investment is the determining criterion.

Net Present Value (NPV method) – The concept works on the premise that a dollar today is worth more than a dollar in the future.  The cost of capital is the rate used to adjust future cash flows to determine their value in present period terms.  This procedure is referred to as discounting the future cash flows, and the discounted cash value is determined by the present value of the cash flow.

Internal Rate of Return (IRR method) – This method is similar to the net present value method in that the future cash flows are discounted.  However, they are discounted at a rate that makes the net present value of the project equal
to zero.

Pitfalls to Avoid in Planning

Pitfall 1: No Realistic Goals

Pitfall 2: Failure to Anticipate Roadblocks

Pitfall 3: No Commitment or Dedication

Pitfall 4: Lack of Demonstrated Experience (Business or Technical)

Pitfall 5: No Market Niche (Segment)

Conclution

Entrepreneurs have been known to boost people’s confidence to take the risks necessary to explore their current life circumstances. They understand that change is rarely with out significant risk taking.

Helping Others To Understand

They generally want others to understand the importance of what they are doing and how it will enhance organization and individual’s growth and development.

Providing Motivation

Entrepreneurs at their best tend to be enthusiastic, Fun and passionate. They inspire people to believe they can do difficult tasks and enjoy the journey getting there. They can be charismatic leaders, Motivating people to unite and deliver for the cause.

As Risk Takers

Entrepreneurs tend to be calculative risk takers, seeking the challenge of greater achievement while understanding the odds underlying their options, They distinguish risk taking from gambling. As leaders they are often restless for change and want to move onto identifly the next set of problems to conquer. As risk takers they choose to pursue identify and exploit a market opportunity.

Challenging The Unknown

Entrepreneurs recognize opportunity where as others see chaos are confusion. Even 2009 being the worst downfall massive layoffs from 2007-2009 The United States economy has been revitalized because of the efforts of Entrepreneurs as a model for econmic development the world has turned now to free enterprise. Entrepreneurs challenge the unknown and continuosly crate the future as their passion and drive move the world of business forward. Entrepreneurs are like olympic athletes challenging them self to break new barriers. Like runners dealing with the agony of a 26mile run, And like top gun pilots who continually push the envelope of speed and daring. Because of their passion and desire Entrepreneurs are the heroes of todays market place.