ThisIsLecture1OFEntreprenerusshipofBechlors

1-1
Chapter 1
Introduction to
Entrepreneurship
Bruce R. Barringer
R. Duane Ireland

©2010 Prentice Hall 2-2
Chapter Objectives
1 of 2
1. Explain entrepreneurship and discuss its
importance.
2. Describe corporate entrepreneurship and its use in
established firms.
3. Discuss three main reasons people decide to
become entrepreneurs.
4. Identify four main characteristics of successful
entrepreneurs.
5. Explain five common myths regarding
entrepreneurship.

Chapter Objectives
2 of 2
6. Explain how entrepreneurial firms differ from
salary-substitute and lifestyle firms.
7. Discuss the changing demographics of
entrepreneurs in the United States.
8. Discuss the impact of entrepreneurial firms on
economies and societies.
9. Identify ways in which large firms benefit from the
presence of smaller entrepreneurial firms.
10. Explain the entrepreneurial process.

Introduction to Entrepreneurship
There is tremendous
interest in
entrepreneurship in the
U.S. and around the world.
According to the 2007 GEM
study, 9.6% of Americans
are actively engaged in
starting a business or are
the owner/manager of a
business that is less than
three years old.

Indications of Increased Interest
in Entrepreneurship
• Books
– Amazon.com lists over 45,000 books dealing with
entrepreneurship and 118,000 focused on small business.
• College 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.

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.

Corporate Entrepreneurship
1 of 2
• 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.

Corporate Entrepreneurship
2 of 2
Entrepreneurial Firms Conservative Firms
• Proactive
• Innovative
• Risk taking
• Take a more “wait and see”
posture
• Less innovative
• Risk adverse

Why Become an Entrepreneur?
The three primary reasons that people become
entrepreneurs and start their own firms
Desire to be their own boss
Financial rewards
Desire to pursue their
own ideas

Characteristics of Successful Entrepreneurs
1 of 3
Four Primary Characteristics

2 of 3
• Passion for the Business
– The number one characteristic shared by successful
entrepreneurs is a passion for the business.
– This passion typically stems from the entrepreneur’s belief
that the business will positively influence people’s lives.
• Product/Customer Focus
– A second defining characteristic of successful
entrepreneurs is a product/customer focus.
– An entrepreneur’s keen focus on products and customers
typically stems from the fact that most entrepreneurs are, at
heart, craftspeople.

3 of 3
• Tenacity Despite Failure
– Because entrepreneurs are typically trying something new,
the failure rate is naturally high.
– A defining characteristic for successful entrepreneurs’ is
their ability to persevere through setbacks and failures.
• Execution Intelligence
– The ability to fashion a solid business idea into a viable
business is a key characteristic of successful entrepreneurs.

Common Myths About Entrepreneurs
1 of 5
• Myth 1: Entrepreneurs Are Born Not Made
– This myth is based on the mistaken belief that some people
are genetically predisposed to be entrepreneurs.
– The consensus of many studies is that no one is “born” to
be an entrepreneur; everyone has the potential to become
one.
– Whether someone does or doesn’t become an entrepreneur,
is a function of the environment, life experiences, and
personal choices.

2 of 5
Although no one is “born” to be an entrepreneur, there are common traits and
characteristics of successful entrepreneurs
• Achievement motivated
• Alert to opportunities
• Creative
• Decisive
• Energetic
• Has a strong work ethic
• Is a moderate risk taker
• Is a networker
• Lengthy attention span
• Optimistic disposition
• Persuasive
• Promoter
• Resource assembler/leverager
• Self-confident
• Self-starter
• Tenacious
• Tolerant of ambiguity
• Visionary

3 of 5
• Myth 2: Entrepreneurs Are Gamblers
– Most entrepreneurs are moderate risk takers.
– The idea that entrepreneurs are gamblers originates from
two sources:
• Entrepreneurs typically have jobs that are less structured, and so
they face a more uncertain set of possibilities than people in
traditional jobs.
• Many entrepreneurs have a strong need to achieve and set
challenging goals, a behavior that is often equated with risk taking.

4 of 5
• Myth 3: Entrepreneurs Are Motivated Primarily by
Money.
– While it is naïve to think that entrepreneurs don’t seek
financial rewards, money is rarely the reason entrepreneurs
start new firms.
– In fact, some entrepreneurs warn that the pursuit of money
can be distracting.

5 of 5
• Myth 4: Entrepreneurs Should Be Young and
Energetic.
– The most active age for business ownership is 35 to 45
years old.
– While it is important to be energetic, investors often cite
the strength of the entrepreneur as their most important
criteria in making investment decisions.
• What makes an entrepreneur “strong” in the eyes of an investor is
experience, maturity, a solid reputation, and a track record of
success.
• These criteria favor older rather than younger entrepreneurs.

Types of Start-Up Firms

Changing Demographics of Entrepreneurs
1 of 3
Women Entrepreneurs
• There were 6.2 million women-
owned businesses in 2002 (the
most recent statistics available)
• This number was up 20% from
1997.

2 of 3
Minority Entrepreneurs Senior Entrepreneurs
• Minorities owned roughly 18%
of U.S. businesses in 2002.
• This number was up 10% from
1997.
• Although statistics are not kept
on senior entrepreneurs, there is
strong evidence that the number
of older people choosing
entrepreneurial careers is rapidly
increasing.

3 of 3
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.

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.

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.

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.

Steps in the Entrepreneurial Process
1 of 2
Step 1 Step 2
Developing Successful Business Ideas

Steps in the Entrepreneurial Process
2 of 2
Step 3 Step 4

©2010 Prentice Hall
Opening
Profile
Klymit

Klymit
• What do you think about the idea of using
noble gases to control temperature?
• The idea wasn’t new…it was being used.
What was new was the application to
outdoor wear.

What Went Wrong?
Page 11
ProtectMyPhotos

Protect My Photos
1. Why do you think Chris Shaw didn’t better
anticipate that his passion for ProtectMyPhotos
might quickly wane?
– Without fully realizing what he was feeling, when
ProtectMyPhotos started, Shaw may have been
more invigorated about the process of starting a firm
rather than photo sharing per se.
– Later, when the initial excitement was over, Shaw
was left with the day-to-day grid of running a photo
storage site, which he found he wasn’t as interested
in as he thought he’d be.

Protect My Photos …
1.B Describe what you believe are the keys to ensuring a
person is truly passionate about a business idea
before moving forward with the idea.
• One way to check whether one’s passion is real is to
work in the industry that your firm will participate in
(if possible) to see if you like it over an extended
period of time before you launch your own firm.
• As an example of this, some franchise organizations
require prospective franchisees to work in one of the
company’s franchise outlets for a period of time, just
to ensure that they like the work before they become
a franchisee.

2. Do you think it would have been difficult for anyone
to have remained passionate about
ProtectMyPhotos and the service it was offering?
• Not necessarily. People have different interests, and
it’s easy to imagine that someone could enjoy and
remain passionate about building a photo backup
storage site. ProtectMyPhotos actually had a lot
going for it and based on the material in the feature
is seems like the company had upside potential.

3. In what ways did Chris Shaw and
ProtectMyPhotos reflect the classic definition
of an entrepreneurial firm?
• Shaw and his team built ProtectMyPhotos
from the ground up, and provided “value” to
their customers via the ease-of-use of the
company’s service and the photo backup
that was offered.

4. How could ProtectMyPhotos been saved?
• The best way to save ProtectMyPhotos
would have been to sell it someone who saw
substantial upside potential in the company
and was passionate about the company and
its future possibilities.

Savvy Entrepreneurial Firm
Guitar Hero and iRobot

Savvy Entrepreneurial Firm
1. Contrast Guitar Hero and iRobot with ProtectMyPhotos,
the company featured in the “What Went Wrong” boxed
feature. Why have Guitar Hero and iRobot survived
and thrived while ProtectMyPhotos failed?
• Guitar Hero and iRobot appear to have survived and
eventually thrived through sheer perseverance on the
part of their founders. The founders of
ProtectMyPhotos weren’t as perseverant. It comes
down to a difference among people.

Savvy Entrepreneurial Firm …
2. Do you think you’d be able to “hang in there” as long as the
founders of Guitar Hero and iRobot did before they produced a
breakthrough product? What do you believe are the keys to
remaining “tenacious” when things take longer than planned?
• Normally, the keys to remaining tenacious include
– (1) strong vision,
– (2) encouragement from others,
– (3) strong will to succeed, and
– (4) the expectation of a large payoff, in terms of both personal
satisfaction and financial reward, if success if eventually
achieved.

3. Why do you think Guitar Hero has been so
successful?
• One thing that Guitar Hero unique does is that
allows nonmusicials to sense what it feels like
to be a musician, which was the original goal of
the Harmonix company.
• It is also a very interactive game that people
can play with their friends and family members.

4. Although the case doesn’t provide specific information to help you
answer these questions, give them a stab anyway. Why do you
think the founders of Guitar Hero and iRobot stuck with their firms
as long as they did? Wouldn’t it have made perfect sense for the
founders of Guitar Hero and iRobot to have thrown in the towel
years before they produced their breakthrough products?
• The founders of Guitar Hero and iRobot likely stuck with their
ideas for the reasons described in the answer to #2 above. They
also may have progressively seen themselves as getting closer to
achieving their vision. There is nothing more encouraging than to
be within reach of a goal.

Partnering for Success
Page 23
Topics Entertainment

Topics Entertainment
1. What was Topics Entertainment able to
do for the smaller producers of children’s
educational DVDs that they would have
never had been able to do on their own?
– Get their products in big-box stores like
Costco and Best Buy, and expose their
work to literally hundreds of thousands of
children who would never have seen their
videos otherwise.

Topics Entertainment …
2. For a small firm, what are the advantages and
disadvantages of having its products sold
through a large retailer like Sam’s or Costco?
– The advantages are
• (1) earning additional revenue through licensing income
and
• (2) gaining greater exposure for their work.
– The disadvantages are
• (1) bundling their work with the work of other companies
selling a similar product and
• (2) positioning themselves, at least in part, as producers
of bargain-priced children’s educational videos that are
sold through mass retailers.

3. What risks do the small firms mentioned in the article
take partnering with a larger company like Topics
Entertainment, other than the risks mentioned in the
article? Think about all aspects of entrepreneurship
when formulating your answer.
– The biggest risk is that they become a captive of their
larger partners. One company should never be totally
dependent on another company for its survival or success.
– As a result, the small children’s DVD companies that
partner with Topics Entertainment should at the same time
develop their own distribution channels to sell through
specialty shops and other outlets. That way, if Topics
Entertainment at some point pulls the rug out from under
them, they will still have distribution of their product.

4. If you were the founder/CEO of one of the
small firms mentioned in the article would you
have accepted Topic’s partnership offer? If so,
explain why.
– Most people will say they would have accepted
the partnership offer.
– It accomplishes just what’s talked about in the
article—provides the small firms wide distribution
of their product and frees them to focus on their
core competencies (i.e., making high-quality
children’s educational DVDs) rather than selling.

Be the V.C. 1.1
iVideosongs

iVideosongs
The Business Idea:
• Teach guitar online by connecting
students directly with the artists who
created their favorite songs.

iVideosongs
Strength of New Venture Team: (Scale of 1 to 5)
(Rate and Explain)
– 5
– iVideosongs is led by co-founder and CEO Tim
Huffman and COO Aaron Hawthorne.
– Huffman is a Grammy-nominated recording artist with
deep experience in both music and technology.
– Hawthorne is a music industry veteran, and has
worked on a number of high profile technology
initiatives, including initiatives surrounding World
Series games and Super Bowl games. The balance
of the management team is also strong.

iVideosongs
Strength of the Opportunity: (Scale of 1 to 5)
(Rate and Explain)
– 3
– The opportunity strikes me as moderate to strong.
– iVideoSong’s technology, the quality of its online
lessons (there are free lessons that you can watch
before you buy), and its ability to bring musician
partners on board is impressive.
– It’s hard to know how many people will actually sign
up, however.

iVideosongs
Strength of the Industry: (Scale of 1 to 5)
(Rate and Explain)
– 3
– The music industry as a whole continues to contract. CD sales
are down and the illegal downloading of music remains a
problem. Digital revenue is growing but not at a fast pace.
Reliable statistics are not kept for the “music lesson” industry.
The popularity of Guitar Hero is one indication that people are
interested in playing instruments, but it’s hard to know if Guitar
Hero’s popularity will translate into an increasingly number of
people actually enrolling in music lessons.

iVideosongs
Strength of Business Model: (Scale of 1 to 5)
(Rate and Explain)
– 4
– iVideosong’s makes money by selling music lessons
online.
– It shares its revenues with the musicians who create
the lessons and allow their music to be featured.
– Its business model is highly reliant on iVideosongs
continuing to sign up additional artists and
maintaining good relationships with the artists it signs.

iVideosongs
AVERAGE SCORE
– Strength of New Venture Team = 5
– Strength of the Opportunity = 3
– Strength of the Industry = 3
– Strength of Business Model = 4
– 3.75/5

iVideosongs
DECISION
– We would not fund this firm because there are
simply too many unknowns. We’ll follow it,
however, and will jump on board if the
company can prove that it can sign up
customers and achieve steady growth. It’s
proven it can produce impressive technology,
sign up musicians, and gain visibility, so it’s
our hope it’s able to sign up customers too.

iVideosongs
MORE INFORMATION
– Note: There is a recording of iVideoSong’s
initial pitch of its product idea on Demo’s Web
site at www.demo.com. Just type
iVideosongs in the search bar to access the
pitch.

Case 1.1
eHarmony:
Passion and a Product/Customer Focus
Page 31 - 33

eHarmony
1. Describe the ways in which eHarmony practices
“execution intelligence.” How important of a part of
eHarmony’s success do you think these practices
represent?
– The company has painstakingly developed its 436-
question questionnaire.
– In addition, it has well-thought out rules for who can
participate in its service (to produce the best
possible results for those who do participate), and
well-developed procedures for how its potential
matches are generated.
– These various forms of “execution intelligence”
have been instrumental to eHarmony’s success.

eHarmony
2. To what degree does eHarmony’s founding story debunk one or
more of the common myths of entrepreneurship?
– The two myths it debunks in particular are
• (1) entrepreneurs are motivated primarily by money and
• (2) entrepreneurs should be young and energetic.
– In regard to the first myth listed above, through its rules and
restrictions, eHarmony has turned down 1.5 million potential
customers, which is evidence that the company cares more about
the integrity of its product than short-term financial gain.
– Also, throughout the case, the impression is given that money has
never been the primary motivator for eHarmony and its service.
– In regard to the second myth listed above, Dr. Warren started
eHarmony was he was 65. Greg Waldorf, eHarmony’s CEO,
basically came out of semi-retirement to lead the firm.

eHarmony
3. In what ways has eHarmony sacrificed short-term
financial gains to build as healthy a business as
possible for the long run?
– To maintain their commitment to facilitating healthy
marriages, eHarmony has turned down over 1.5 million
customers.
– There are an initial set of rules. For example you can’t
participate if you’re already married, have been married and
divorced more than three times, or are severely depressed.
In addition, if you don’t answer the questionnaire truthfully
(based on sophisticated methods that eHarmony has for
testing this) you’ll be excluded.
– All told, eHarmony figures it has passed up more than $100
million in revenue by turning people away that it felt weren’t
good candidates for its service.

eHarmony
4. What do you think? Do you think
eHarmony will be able to grow beyond a
matchmaking Web site, or do you think
the company will have a difficult time
expanding its menu of services?
– Despite eHarmony’s strengths, most should
be skeptical that it will be able to expand
beyond its core matchmaking service at any
significant scale.

eHarmony
Application Questions
1. Why do you think eHarmony is able to
persuade people to fill out a 436-
question questionnaire and accept the
fact that they’ll only be provided potential
matches that the “company” deem
appropriate?
– Because obtaining a successful match is
something that is extremely important to
eHarmony’s clientele.

eHarmony
Application Questions
2. What is it about eHarmony, and the people
behind it, that make it special? Would it be
easy or difficult for another firm to imitate what
eHarmony has done?
– The people behind eHarmony exemplify what can
happen when a group of entrepreneurs, regardless
of their age, are sincerely passionate about a
business idea, and have the savvy to execute the
idea in an impressive manner.
– It will be difficult for any firm to match eHarmony in
terms of passion and execution intelligence.

Conclusion to Chapter 1
Introduction to Entrepreneurship

All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher. Printed in the
United States of America.
Copyright ©2010 Pearson Education, Inc.
publishing as Prentice Hall

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