Innovation and New Business Ventures I

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Innovation and New Business Ventures I

• Prof. Dr. Arthur Sybrandy
• Cairo, Egypt
• January 2007

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Entrepreneur

• Someone who creates a new opportunity in the
  world of business and assembles the resources
  necessary to successfully exploit that
  opportunity.
• Home based entrepreneur
• Technology
• Resources
• (Tax) laws
• Can be part-time
• Virtual entrepreneur
• No traditional bricks-and-mortar location
• Serial entrepreneur
• Doesnt want to be traditional manager
• Traditional entrepreneur
• Bricks-and-mortar

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Entrepreneurial Ventures Differ From Small
Businesses in General

• Entrepreneurial venture
• Driven by opportunity
• Focused on innovation
• Determined to create new value by shaking up the
  marketplace
• Determined to grow
• Small business
• Lifestyle business
• Remains small
• Geographically bound
• Provides a job for the owner and income for the
  family
• Entrepreneurs generate the most jobs, not small
  businesses!
• The terms are often used informally and
  interchangeably

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Most Enterprises Start Small

• Small can be defined many ways
• Total assets
• Owners equity
• Yearly sales revenues
• Number of employees desirable because
• Inflation-proof
• Transparent
• Comparable
• Available
• Different criteria can and often are used for
  different industries for example the U.S. Small
  Business Administration (SBA)
• Manufactures and Wholesalers -gt number of
  employees (varies by SIC code)
• Retailers and Services -gt Annual sales (varies by
  SIC code)

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Small Business by Industry (U.S.)
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Small (entrepreneurial) Businesses

• Tend to outperform big business in terms of ROE
• Are more innovative
• Form a basis on which big business depends
• Create many jobs in the economy

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Small (entrepreneurial) Businesses

• Tend to have (very) high failure rates
• However, big businesses also fail!
• Fortune 500 changes over time
• For example, Digital Equipment Corporation (DEC)
• Dun Bradstreet identifies bad management as
  the number one reason for failure
• This includes lack of expertise to handle
  increased demands as the business grows
• Many small business owners are not professional
  managers, unlike their counterparts in big
  business

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Small Business Survival Rate
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Characteristics of Entrepreneurs

• A unique breed that comes in many varieties
• Very broadly (American) entrepreneurs are
• Married
• Men (but women are catching up rapidly)
• Desiring to be independent
• Comfortable with uncertainty and ambiguity
• Moderate or calculated risk takers
• They also
• Have a lot of energy and are confident in their
  abilities
• Tend to have a future orientation
• Value achievement over money
• Many researchers now feel that entrepreneurship
  is more about an opportunistic mindset and spirit
  than about a process for starting a new business

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Entrepreneurial Traits
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Entrepreneurial Characteristics
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Entrepreneurs are a Diverse Bunch

• Young
• Women
• Minorities
• Immigrants
• Part-time
• Home-based
• Family businesses
• Copreneurs
• Corporate castoffs
• Corporate dropouts
• Intrapreneurs

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Global Entrepreneurial Activity
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Entrepreneurship

• Chance to make a difference (in society)
• Opportunity to reach your full potential
• Possible great financial gains
• Independence, control your destiny
• Make your hobby your work and vice versa
• Risk losing your (and others) entire investment
• Variable, uncertain income, especially early on
• Lots of stress, with long hours, and having to
  make decisions in areas where youre not
  knowledgeable.
• At least initially, a lower quality of life

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Do you want to be an entrepreneur?

• Why do you want to start a business?
• Dont do it just for the money
• Wont take out any money first year(s)!
• Wealth comes from appreciation of value of the
  business, which takes time
• How is starting a business going to affect your
  personal life?
• Consider your age when evaluating risks
• Look at the needs of your family
• Are you in physical shape to start a business?
• How does gt 14 hours per day, 7 days per week
  sound?
• What aspects of business make you really
  uncomfortable?
• Factor your attitudes into the type of business
  you start
• How will your feelings about business affect the
  potential growth of your business?

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Entrepreneurial Environment

• The environment is constantly changing
• We have to consider three components
• Systems of Behavior
• Systems of Meaning
• Systems of Resources

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System Definition

• Organized
• unitary whole composed of
• two or more interdependent parts, components, or
  subsystems and
• delineated by identifiable boundaries from
• its environment.

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Key System Terms (1)

• Holism v. Reductionism
• Open v. Closed systems
• Input
• Transformation
• Output
• System boundaries
• Negative entropy

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Key System Terms (2)

• Feedback
• Steady state, Dynamic equilibrium (Chaos?)
• Hierarchy
• Multiple goal seeking
• Equifinality
• Internal elaboration

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Environmental Hierarchies
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Examples

• The (global) economy
• Growth
• Changing character
• Integration
• The entrepreneur
• Passion, vision, personality
• Political and legal systems
• At home and abroad
• Suppliers
• Raw materials, parts ,labor, etc.
• Competitors
• Marketing strategy, sourcing, etc.
• Customers
• Technology
• E-Commerce, Internet, etc.
• Money
• Educational system
• Entrepreneurship courses ?

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Some Internet Effects

• Perception that all business now takes place at
  Internet Speed
• Can be the base for your entire business
• Easy, fast access to vital information, and
  turning information into (shared) knowledge
• Reach sustainable size more quickly
• Synergy due to opportunity to work with virtual
  partners
• Scaling out -gt let someone else do what you cant
  do in-house
• Keep your business as small as possible to be as
  fast as possible -gt outsourcing -gt concentrate on
  your expertise (core processes)
• Shortening of value chains
• Hierarchy is out, Network is in
• Continually reinvent yourself, make yourself
  obsolete before someone else does.
• Pricing has become more important

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Growth of Entrepreneurship

• Some environmental changes are particularly
  firing growth in entrepreneurship in the U.S.
• American attitude of entrepreneur as hero,
  Individualism
• Increased availability of entrepreneurial
  education
• Demographic and Economic factors
• Baby-boomers
• Economic growth, more affluence (and leisure?)
• Shift to a service economy
• Technology advancements
• E-Commerce
• International opportunities
• At least some of these changes are also
  applicable outside the U.S. and
• Urbanization
• Increasingly free enterprise

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10 Deadly Mistakes

• Management Mistakes
• Lack of Experience
• Poor Financial Control
• Weak Marketing Efforts
• Failure to Develop a Strategic Plan
• Uncontrolled Growth
• Poor Location
• Improper Inventory Control
• Incorrect Pricing
• Inability to make the Entrepreneurial
  Transition
• View failure as learning !

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Avoiding Trouble

• Know Your Business
• Get an education before doing your own thing
• Possible work in the industry in various
  positions
• Read, Read, and Read some more
• Understand the Industry (Starbuck Porter
  framework)
• Develop a Good Business Plan
• This includes a solid Feasibility Analysis
• Marketing Planning (often Niche Strategy is good)
• Carefully Manage Financial Resources
• Practical Information System
• Understand Financial Statements!
• Learn to Manage People
• Manage Your Time

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10 Reasons Not to Start a Business

• Because everyone is doing it
• Because you want to be a millionaire
• Because youre looking for a secure job
• Because you dont want to work for someone else
• Because you just came into some money
• Because if the kid down the street did it, so can
  I
• Because you want to give everyone in your family
  a job
• Because youve got a great idea
• Because its too risky
• Start a business because its what you most want
  to do (a positive note at the end ?)

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10 Ways to Spark Your Spirit

• Start Reading about great new businesses
• Join a community business organization
• Hang around a university business school
  (excellent idea!)
• Tell a friend
• Do a feasibility study
• Leave your job (or get laid off)
• Discover an industry (immerse yourself)
• Spend time with an entrepreneur
• Find a mentor
• Do something Anything (Just do it!)