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The Nature and Importance of Entrepreneurs

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The Nature and Importance of Entrepreneurs

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The Nature and Importance of Entrepreneurs

  1. 1. Hisrich Peters Shepherd Chapter 1 The Nature and Importance of Entrepreneurs Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 1-2 Nature and Development of Entrepreneurship  Entrepreneur – An individual who takes initiative to bundle resources in innovative ways and is willing to bear the risk and/or uncertainty to act. Or  Entrepreneur – An individual who gather resources to create an economic activity while bearing different types of social and economic risks.
  3. 3. 1-3 Nature and Development of Entrepreneurship  Entrepreneurship is the process of creating something new (1) with value of devoting the necessary time and effort (2) assuming the accompanying financial, psychic, and social risks (3) and receiving the resulting rewards of monetary and personal satisfaction and independence (4).  Being an entrepreneur today: 1. Involves creation process. 2. Requires devotion of time and effort. 3. Requires assumption of necessary risks. 4. Involves rewards of being an entrepreneur.
  4. 4. 1-4 Nature and Development of Entrepreneurship 1. Involves creation process  Creating something new of value to the audience for which it is developed  Audience could be:- a. The market of buyers in the case of a business innovation b. The hospital’s administration in the case of a new admitting procedures and software c. Prospective students in the case of a new course or even college of entrepreneurship d. The constituency for a new service provided by a nonprofit agency
  5. 5. 1-5 Nature and Development of Entrepreneurship 2. Requires devotion of time and effort.  Only those going through the entrepreneurial process appreciate the significant amount of time and effort it takes to create something new and make it operational 3. Requires assumption of necessary risks.  Risks take a variety of forms, depending on the effort of the entrepreneur, but usually center around financial, psychological, and social areas.
  6. 6. 1-6 Nature and Development of Entrepreneurship 4. Involves rewards of being an entrepreneur.  Rewards include independence, followed by personal satisfaction.  Profit for entrepreneurs; the monetary reward comes into play sometimes considered as success.
  7. 7. 1-7 The Entrepreneurial Decision Process  Deciding to become an entrepreneur by leaving present activity  Millions of companies are formed despite recession, inflation, high interest rates, lack of infrastructure, economic uncertainty, and the high probability of failure.  Although no one knows the exact number in the united; states estimates indicate that 1.1 to 1.9 million new companies formed in a year.  The entrepreneurial decision process entails a movement, from something to something – a movement from a present lifestyle to forming a new enterprise
  8. 8. 1-8 The Entrepreneurial Decision Process Change from present lifestyle Work environment disruption Form new enterprise Desirable 1.Cultural 2.Sub-cultural 3.Family 4.Teachers 5.Peers Possible 1.Government 2.Background 3.Marketing 4.Role models 5.Financing
  9. 9. 1-9 The Entrepreneurial Decision Process  Change from present lifestyle  The decision to leave a career or lifestyle is not an easy one. It takes a great deal of energy and courage to change and do something new and different. 1. Work environment (R&D and Marketing)  While working in technology (research and development) individuals develop new product ideas or processes and often leave to form their own companies when these new ideas are not accepted by their employers (R&D).  Similarly, individuals in marketing become familiar with the markets and customers unfilled wants and needs, and they frequently leave to start new enterprises to fill these needs (Marketing).
  10. 10. 1-10 The Entrepreneurial Decision Process 2. Disruption (a negative force)  A significant number of companies are formed by individuals who have retired, who are relocated due to a move by the other member in a dual career family, or who have been fired.  There is possibly no greater force than personal dislocation to galvanize (shock into taking action) a person’s will to act.  The decision to start a new company occurs when an individual perceives that forming a new enterprise is both desirable and possible.
  11. 11. 1-11 The Entrepreneurial Decision Process  Desirability of new venture formation  Aspects of a once situation that make desirable to start a new enterprise are culture, subculture, family, teachers and peers 1. A culture that values an individual who successfully creates a new business will spawn more venture formation than one that does not. The American culture places a high value on being a success and making money – all aspects of entrepreneurship. (Culture) 2. Many subcultures that shape entrepreneurial value systems operate within a cultural framework. For- example Route 128 (Boston), Silicon Valley (California), Denver etc. (Subculture)
  12. 12. 1-12 The Entrepreneurial Decision Process  Desirability of new venture formation 3. Studies of companies in a variety of industries throughout the world indicate that a very high percentage of the founders of companies had fathers/mothers who valued independence. The independence achieved by company owners, professionals, artists, professors, or farmers permeates their entire family life giving encouragement and value to their children’s company-formation activity. (Family) 4. Encouragement to form a company is further stimulated by teachers, who can significantly influence individuals to regard entrepreneurship as desirable and viable career path. (Teachers)
  13. 13. 1-13 The Entrepreneurial Decision Process  Desirability of new venture formation 5. Finally peers are very important in the decision to form a company. An area with an entrepreneurial pool and a meeting place where entrepreneurs and potential entrepreneurs can discuss idea, problems, and solution spawns more new companies than an area where these are not available. (Peers)
  14. 14. 1-14 The Entrepreneurial Decision Process  Possibility of new venture formation  Factors making possible to create a new venture are government, background, marketing, role models, financing. 1. The government contributes by providing the infrastructure to help and support a new venture (e.g. roads, communication, transportation system, utilities, tax rate and economic stability). (Government) 2. Entrepreneur must have the necessary background. Formal education and previous business experience give the skills needed to form and manage a new enterprise. (Background)
  15. 15. 1-15 The Entrepreneurial Decision Process  Possibility of new venture formation 3. Marketing also plays a critical role in forming a new company. In addition to the presence of a market of sufficient size, there must also be a level of marketing know how to put together the best total package of product, price, distribution (placement) and promotion needed for successful product launch. (Marketing) 4. A role model can be one of the most powerful influences in making company formation seem possible. To see someone else succeed makes it easier to picture yourself engaged in a similar activity. (Role models) 5. Finally financial resources must be readily available. Although most of the start up money for any new company comes from personal savings, credit, friends, family and relatives, there is often need for addition seed capital. (Financing)
  16. 16. 1-16 Types of Start-ups 1. Lifestyle-firm: A small venture that supports the owners and usually have little opportunities to grow and expand  A lifestyle firm is privately held and achieve modest growth due to the nature of the business, the objectives of the entrepreneur, and the limited money devoted to research and development.  This type of firm may grow after several years to 30-40 employees and have annual revenues of about $20 million
  17. 17. 1-17 Types of Start-ups 2. Foundation company: A type of company formed from research and development that usually does not go public.  The foundation is created from research and development and lays the foundation for a new business.  This type of startup rarely goes public, it usually draw the interest of private investors only, not the venture- capital community.  This firm can grow in 5-10 years from 40-400 employees and from $10 million to $20 million in yearly revenues.
  18. 18. 1-18 Types of Start-ups 3. High-potential venture (These firms are also called gazelles): A venture that has high growth potential and therefore receives great investor interest and are integral to the economic development of an area.  High-potential venture is the one that receives the greatest investment interest and publicity. While the company may start out like a foundation company, its growth is far more rapid.  After 5-10 years the company could employ around 500 employees with $20 million to $30 million in revenue.
  19. 19. 1-19 Role of Entrepreneurship in Economic Development  The role of entrepreneurship in economic development involves more than just increasing per capital output and income; it involves initiating and constituting change in the structure of business and society. This change is accompanied by growth and increased output, which allows more wealth to be divided within the various participants.  Innovation is depicted as a key to economic development, not only in developing new products (or services) for the market but also in stimulating investment interest in the new ventures being created.
  20. 20. 1-20  Defining a New Innovation (Product or Service)  Newness can be:  In the consumer concept.  A change in the package or container.  Slight changes or modifications in the appearance of the product. (Industrial market)  Companies also add products to their product line that are already marketed by other companies; products are new to the manufacturer but not the consumer. Defining Innovation
  21. 21. 1-21 Innovation  Types of Innovation  Breakthrough  Breakthrough – New products with some technological change e.g. Virtual 3D Glasses, telephone, alkaline batteries  Fewest number of innovations.  Establishes the platform on which future innovations in an area are developed.  Should be protected by patents, trademarks, and copyrights.
  22. 22. 1-22  Technological  Technological – New products with significant technological advancement e.g. Nokia 3310 to Nokia Lumia or cassettes to CD’s  Occurs more frequently; not at the same level of breakthrough inventions.  Offers advancements in the product/market area.  Needs to be protected. Innovation (cont.)
  23. 23. 1-23  Ordinary  Ordinary - New products with little change e.g. Smart Phone series S3, S4, S5  Occurs most frequently.  Extends a technological innovation into a better product or service or one that has a different market appeal.  Usually come from market analysis and pull, not technology push. Innovation (cont.)
  24. 24. 1-24 Role of Entrepreneurship in Economic Development  Product-evolution process - Process through which innovation is developed and commercialized through entrepreneurial activities (see Figure 1.1).  Iterative synthesis - The intersection of knowledge and social need that starts the product development process (III)  Iterative synthesis often fails to evolve into a marketable innovation and is where the entrepreneur needs to concentrate his/her efforts such as:-  Expertise in this area  Matching the technology with the appropriate market and making the needed adjustments
  25. 25. 1-25 Figure 1.1 - Product Evolution I. Recognition of social needs II. Initiation of technological innovation III. Iterative synthesis leading to invention IV. Development phase V. Industrial phase
  26. 26. 1-26 Role of Entrepreneurship in Economic Development  Regardless of innovation level of uniqueness or technology, each innovation evolves into and develops towards commercialization through one of three mechanisms.  Entrepreneurship:  Government as an innovator: a government active in commercializing technology e.g. JF-17 (Dubai-show)  Intrapreneurship: Entrepreneurship within an existing organisation. In the present era of hyper-competition, the need for new products and the intrapreneruial spirit have become so great that more and more companies are developing an intrapreneruial environment, often in the form of strategic business unit (SBU’s).

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