Entrepreneurship

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Entrepreneurship
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Entrepreneurship

• Glenn Muske
• Micro Business Specialist
• Oklahoma State University

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Outline

• Entrepreneurship
• Myths
• Defined
• Opportunity, Risk and Reward
• What the social sciences tell us
• Entrepreneurs and the community
• Entrepreneurs vs. small business owners others
• Role of entrepreneurs in the local economy
• Building an entrepreneurial community
• Entrepreneurial examples
• Special entrepreneurial situations
• Final thoughts

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Personal Passion

• The freedom to pursue personal passion leads many
  to start businesses.

• Nothing great in the world has been accomplished
  without passion.
• George Wilhelm Friedrich Hegel
• German Philosopher (1770-1831)

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Questions often asked but arent the most
important

1. What can I do? What business should I start?
2. Can I get a grant?
3. What business will earn lots of money?
4. What about e-commerce?

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Questions often not asked but should be!!

• Am I an entrepreneur?
• Is there a market?
• Can I profitably tap that market?
• How do I get to market?
• - E-commerce is just a means to market

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The Myths of Entrepreneurship
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Myth 1

• Get Rich Quick!
• Truth is
• Life as an entrepreneur is not about money.
• Success rarely happens overnight.
• It's about what you want to do with your life.

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Myth 2

• You must be born an entrepreneur
• (trait theory)
• Truth is
• some of the most successful entrepreneurs are the
  most unlikely.
• It is a lifestyle choice, not an accident.

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Myth 3

• You must be at the right place at the right time
• (environment theory)
• Truth is
• successful entrepreneurs operate whatever the
  macroeconomic and structural factors are

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Myth 4

• "I'll have all this free time"
• Truth is entrepreneurs work many hours
• advantages are
• control of time
• variety of tasks

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Myth 5

• It get easier.
• Truth is it gets more challenging
• must work faster, smarter longer
• must enjoy the battle

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Myth 6

• If you build it, they will come.
• Truth is building your business is just the
  start.
• Next is the real work
• planning
• timing
• strategizing and more.

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Myth 7

• It's all about the bottom line.
• Truth is that the bottom line is necessary but
  not sufficient
• purpose and meaning to the business
• inspire customers and employees

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Myth 8

• Entrepreneurs are risk takers
• Truth Entrepreneurs are calculators
• Studies show entrepreneurs are only moderate risk
  takers

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Myth 9

• You have to have a great idea
• Truth
• Your idea must be good
• Your idea must be doable
• Your idea must be wanted or needed
• Your idea must be priced right

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Myth 10

• It takes a lot of money
• Truth Over 50 start for under 10,000
• Also look for
• Certain business types
• Turn-around situations
• Possibility of using other peoples money

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Entrepreneurs goal is
to create or capitalize on new economic
opportunities through innovation

• By finding new solutions to existing problems
• Or by connecting existing solutions to unmet
  needs or new opportunities
• SOURCE Lichtenstein Lyons, Incubating New
  Enterprises A Guide to Successful Practice, 1996

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Entrepreneurship Definitions

1. Creation of an innovative economic organization
   for the purpose of gain or growth under
   conditions of risk and uncertainty
2. Self-employment through business ownership that
   includes significant elements of risk, control,
   and reward (Coleman Foundation)
3. Organizing a business venture assuming a certain
   amount of risk to make a profit (Burns and Bolton)

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More Definitions

• Profits from bearing uncertainty and risk
• Purposeful activity to initiate and develop a
  profit-oriented business
• Moderate risk taking
• Creation of new organizations
• The pursuit of opportunity without regard to
  resources currently controlled

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EntrepreneurshipBasic Elements

• Opportunity recognition
• Creation and/or innovation
• Resource gathering and the founding of an
  economic organization
• Desiring the chance for gain while accepting risk
  and uncertainty

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Other Entrepreneurial Motivators
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Be my own boss!
Time With Family
LIFE STYLE
MONEY
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?? Tell a time when you were entrepreneurial ??

• Were you successful??

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Opportunity Recognition
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An Entrepreneurial Opportunity defined

• A situation in which changes in which changes in
  technology, or economic, political, social, and
  demographic conditions generate the potential to
  create something new or to remarket something
  existing.

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Entrepreneurial Opportunity Grid
Product/Service
Existing New
Market
Existing New
Market Penetration
New Offering Development
Market Development
Diversification
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What are opportunities?

• Small steps
• Little jumps
• Huge leaps

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"Don't be afraid to take a big step if one is
indicated you can't cross a chasm in two small
jumps." David Lloyd George
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Opportunities can be...

• Social demographic changes
• New raw material
• Product obsolescence
• Corporate stagnation
• One-product vulnerability
• Chance

• Technical or scientific
• Political and regulatory
• Process or production method
• Organizing
• New market and marketing
• Personnel

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Think like a..

• Manager Problem solving
• Entrepreneur Opportunity Exploitation

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Opportunities

• External
• Unexpected event
• Technology changes and convergence
• Change in methods
• Demographics/market size,
• Changes in competition
• Internal
• Other methods

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The Opportunity Myth

• An Idea
• does not equal an
• Opportunity

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Creation Innovation
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Creativity

• Imagination is more important than knowledge -
  Einstein

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The Creative Process

• Planning definition
• focus on building the RIGHT product
• Design, demonstration customer support
• focus on building the product RIGHT

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Customer requirement
Product solution
NOT
Find a consumer
Technology
Product
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Basic questions

• What is the customers need?
• How large is the opportunity?
• How likely is it to happen?
• What is the market timing?
• Is it aligned with our organizational strengths?

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Time is money!

• Delays give others time to develop the same
  product.

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Reduce product development time by 1/3 you will
triple profits growth.
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Exercise

• In groups of 3-4, think of 3 things you have
  observed externally lately that would be a
  potential business opportunity.

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Resource Gathering

• Resourced-based Theory of Entrepreneurship

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Dimensions of Entrepreneurship
Individual Characteristics
New Venture Creation
Organization
Environment
Constraints in the Environment
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Resource

• any thing or quality that is useful
• used to develop sustainable competitive advantage
• heterogeneous immobile
• you have them, others cannot easily get them

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Strategic Resources

• Valuable Exploit an environmental opportunity
• Rare Not enough for all competitors
• Imperfectly imitable Cannot be merely copied
• Non-substitutable

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Competitive Advantage
No Advantage Resource Dimension Advantage
Common Valuable Exploits opportunities
Readily available cheap Rare Unique expensive
Ordinary Imitable Complex ambiguous
Many easy Substitutable Difficult
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Types of Resources

• Financial
• Physical
• Human
• Technology
• Reputation
• Organizational

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Risk and Reward
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If the business succeeds, the entrepreneur reaps
the reward of profits if it fails, one takes
the loss.
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Business Failure Rate
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Statistics

• 10 of small businesses fail each year
• 40 - 80 of small businesses do not survive for
  5 years
• Most small businesses closures do not result in
  uncovered liabilities
• Majority of small business owners who fail will
  start another business

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Why do businesses fail?

• 2 general categories
• Financial
• Nonfinancial

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Financial Reasons

• Under-capitalized
• Poor cash flow planning
• Lack of record keeping
• Inadequate financial forecasting and review
• Lack of accounting training
• Excessive debt

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Nonfinancial Reasons

• Loneliness
• Lack of management skills and training
• Little passion
• Impact of regulations
• Inefficiency
• Inexperience
• Lack of planning

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"I never failed once. It just happened to be a
200l-step process." Thomas A. Edison
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Rewards

• ???

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• "In the realm of ideas everything depends on
  enthusiasm, in the real world all rests on
  perseverance." - Johann Wolfgang von Goethe

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The Social Sciences onWhat Makes an
Entrepreneur
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Trait Theory

• Energy/motivation
• Business orientation
• Business attitude
• People skills

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• http//www.sba.gov/starting_business/startup/entre
  preneurialtest.html
• http//www.toolkit.cch.com/tools/downloads/swchek.
  rtf

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Personality Characteristics

• Need for achievement
• Locus of control
• Risk-taking propensity

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Career Anchors

• Motivate vocational choices
• Technical
• Managerial
• Security
• Creativity
• Autonomy

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Sociological Characteristics

• Negative displacement
• Between things
• Positive pull
• Positive push

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Situational Characteristics

• Perceptions of desirability
• Perceptions of feasibility
• Entrepreneurial event

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Desires

• Change
• Your life
• A product or service
• The environment

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Entrepreneurs and the Community
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CARE Model (Dr. Mike Woods, Jack Frye, Stan
Ralstin)

• Creation
• Attraction
• Retention
• Expansion

of New Jobs Created Attraction - 1 Retention
Expansion 44 Creation 55
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• We all want to find the next gazelle!!

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Entrepreneurs vs. Small Business Owners

• Carland, Hoy, Boulton, Carland argue they are
  different
• - Entrepreneurs and entrepreneurial businesses
  involve innovation growth
• Entrepreneurs goal-orientation is different
• financial success vs. other criteria
• need for achievement/power
• Entrepreneurs use strategic management practices

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Small Business

• Independently owned and operated, not dominant in
  its field, and does not engage in any new
  marketing or innovative practices
• Owner Establishes and manages for purpose of
  furthering personal goals. Business is primary
  source of income consumes majority of time
  resources. Owner perceived business as extension
  of personality, intricately bound with family
  needs and desires.

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Entrepreneurial Venture

• Engages in growth and profitability and
  innovation by introducing new products, new
  processes, opening new markets, or reorganizes
  the industry
• Entrepreneur Establishes and manages the
  business for growth and profit. Is innovative
  and employees strategic management practices.

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??QUESTION??

• Are entrepreneurs and small business owners the
  same thing?
• Why??
• Why not??
• Does rural make a difference??

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Comparing Entrepreneurs toManagers and Leaders
Entrepreneur Manager Leader
Innovates Administers Innovates
Creates Maintains Develops
Sees opportunities See problems Sees the future
Asks how and when Asks how and when Asks what and why
Makes it happen Does things right Uses influence
Builds the team Relies on control Inspires trust
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• Entrepreneurship is a style and a general method
  of operating, not just a set of business skills.
• Jerry Gustafson
• Beloit College

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Entrepreneurs

• People who create and grow enterprises
• Aspiring entrepreneurs
• Survival entrepreneurs
• Lifestyle entrepreneurs
• Growth entrepreneurs
• Serial entrepreneurs
• Social entrepreneurs
• SOURCE WK Kellogg Foundation

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Entrepreneurs and the Community

• What they bring

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Does it matter what they are called?

• Both
• Add income to the household and jobs and wealth
  to the community
• Add economic strength to a community
• Add stability to a community
• Provide the owner with the ability to achieve his
  or her goals
• Create new opportunities within the community -
  Multiplier

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Who entrepreneurs are?

• Classified as
• Small business
• Micro business
• Home-based business
• Family business
• Also
• Underground economy
• Informal economy
• Formal economy

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Metro, Micro, Rural Comparison20 of OK
households own run a business
Metro (n146) Micro (n54) Rural (n46)
Primary bus. Service Construction Retail Ag/For/Fish Service Retail Ag/For/Fish Construction, FIRE Service
Family bus. 62 74 78
Home-based 66 63 70
Spouse in bus. 48 46 65
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Metro, Micro, Rural Comparison
Metro (n146) Micro (n54) Rural (n46)
Avg empl 1.83 2.04 2.11
Gross inc. - Mean - Median 241,891 49,000 333,589 35,000 162,190 40,000
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The numbers

• Small businesses 16 million nonfarm
• OK 290,000 (employer nonemployer)
• 50 of private workforce
• OK 54
• Create 2/3 of all new jobs
• 52 of all nonfarm output
• Micro businesses ???
• OK 270,000 94
• 84,000 farm/ranch operations

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The numbers

• Family businesses 12.7 of households
• OK 185,000 - 6.5 billion inc transferred to
  family
• South 3.3 million - 109 billion transferred
• U.S. 9.7 million - 348 billion transferred
• Home-based businesses 5 - 18 of hh
• OK 67,000 176,000
• - 1 - 6.2 billion/year

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Creating Entrepreneurial Communities
People
Formal Institutions
Informal Organizations
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Entrepreneurial Communities

• 4 types
• Those that develop entrepreneurs
• Those that act entrepreneurially
• Those that do both
• Those that do neither

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• Entrepreneurship development
• the infrastructure of public and private supports
  that facilitate entrepreneurship
• Entrepreneurial communities
• those where significant economic and social
  entrepreneurial activity exists and where there
  is an effective system of entrepreneurship
  development
• SOURCE WK Kellogg Foundation

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Entrepreneurial Communities

1. Has critical mass of entrepreneurs actively
   engaged in capturing new market opportunities
2. Group of entrepreneurs recognizable within the
   community
3. Community as a whole is entrepreneurial

• Social capital (Floras)
• Human capital-diversity (Florida)
• Clusters (Porter)
• Public-Private Partnerships (Tupelo-Grishom)
• Innovative Infrastructure (Feldman)

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Theory Expansion

• Social capital
• Trust, networks, reciprocity, and collective
  action
• Horizontal, vertical, and flexible (not in the
  group at all times)
• Human capital
• Education
• Beyond high school
• Continuous and life-life long
• Include specific and general
• Inclusive pre-K older citizen
• Just-in-time
• Knowledgeable and involved citizens

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Theory Expansion

• Clusters
• Why? Based on economies of scale, technology
  transfer availability of human capital (Eric
  Scorsone, Industrial clusters Enhancing rural
  economies through business linkages, SRDC 21st
  Century Series)
• Innovative infrastructure
• Basics plus items such as a visionary government,
  day care, technology

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Creating an Entrepreneurial Climate

• Entrepreneurship must be an explicit economic
  development strategy
• Community must embrace and nurture entrepreneurs
• Goal - A continuous pipeline of entrepreneurs
• Supportive public policies
• Balances regulations with business needs
• Education early on-going, formal and
  nonformal
• Access to capital banks, investment, angels
• Access to quality workers
• Recognize entrepreneurial efforts

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Enterprise Development

• Assistance to entrepreneurs in support of the
  creation, growth, and survival of their
  businesses Koven Lyons (2003)

• nonprofit, private, public service providers
• youth entrepreneurship programs
• micro enterprise programs
• business incubators
• manufacturing network
• small business development centers
• angel capital networks
• revolving loan funds
• technology transfer programs

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Nurturing of Entrepreneurs

• Mentors and coaches
• Business/management assistance support
• Coordinated, seamless, and local
• Access to technology
• Technical assistance
• Inclusion of all into events, programs, groups

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Other ExamplesHow Communities Can Help

• Purchase locally
• Help create new local businesses
• Develop human resources
• Free-up potentially productive space

• Initiate local investment strategies (endowments,
  fundraising, micro-loan programs)
• Mobilize external resources

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Challenges for Sustainable Rural Economic
Development

• Translating models to place- based strategies
• - no silver bullet
• Implement strategy with tangible benefits
• - taxpayers see return on investment
• Need to create good jobs
• - self-sustaining wages

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Challenges for Sustainable Rural Economic
Development(cont.)

• Need for strategies that build on all assets
• - young, old, men, women, ethnicities
• Shortage of resources in most small towns.
• SOURCE Emery, Wall, Macke, 2004

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Shortcomings of Enterprise Development

• 1 Tool-Driven-Not Needs-Focused
• Worked one-place and one-time
• Solutions in search of a client base
• Voice of the customer-the entrepreneur-is missing
• Entrepreneurial Needs
• Hard for entrepreneurs to articulate
• Entrepreneurs may not trust those asking the
  questions
• Entrepreneurs difficult to identify and reach
• SOURCE Lichtenstein, Lyons, Kutzhanova, 2004

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Shortcomings of Enterprise Development (continued)

• 2 Fragmented and Categorical
• Creaming we need more than a quarterback
• 3 Too Little Focus on Execution
• Various gurus crisscross the country then go
  home
• Gap between ideas and education
• 4 The Broken Learning Cycle
• Best practices vs. successful practices
• SOURCE Lichtenstein, Lyons, Kutzhanova, 2004

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Shortcomings of Enterprise Development (continued)

• 5 Focus on the Business, not the Entrepreneur
• 6 Missing Function Responsibility for the
  Communitys Supply of Entrepreneurs
• 7 Funders, not Clients, Drive the Program
• 8 Impact is not Scalable
• Community-wide impact
• SOURCE Lichtenstein, Lyons, Kutzhanova, 2004

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Successful Entrepreneurial(?) Communities

• Acceptance of Controversy
• Ability to Depersonalize Politics
• Surplus Income to Invest
• Willingness to Take Risks
• Ability to Define Community More Broadly
• Networking Ability
• Emphasis on Academics
• Flexible, Dispersed Leadership
• SOURCE Flora and Flora

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SOURCES FOR THIS PRESENTATION

• Lichtenstein, Lyons, Kutzhanova
• Building Entrepreneurial Communities The
  Appropriate Role of Enterprise Development
  Activities Journal of the Community Development
  Society, 2004
• Emery, Wall, Macke
• From Theory to Action Energizing
  Entrepreneurship (E2), Strategies to Aid
  Distressed Communities Grow Their Own Journal of
  the Community Society, 2004

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Entrepreneurs We Know
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Do you know who they are?

• Stan Clark
• Frank Epperson
• Fred Smith
• Bill Bowerman Philip Knight
• Dr. John Pemberton Asa Chandler

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Do you know who they are?

• Jeff Bezos
• Cohen and Greenfield
• Ray Kroc
• Tom Monaghan
• Bill Gates
• Howard Schultz

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Entrepreneurs

• All are not equal,
• nor do they want to be!!

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Entrepreneurs

• People who create and grow enterprises
• Aspiring entrepreneurs
• Survival entrepreneurs
• Lifestyle entrepreneurs
• Growth entrepreneurs
• Serial entrepreneurs
• Social entrepreneurs
• SOURCE WK Kellogg Foundation

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Family Business Names
Wal-Mart Ford Weyerhaeuser Michelin Gap Anheuser-Busch Tyson Foods Dillards Cargill Koch Industries Ikea Cox Communication Enterprise Rent-A-Car Hallmark Levi Strauss Kohler
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Family Businesses

• Generate 62 of nonfarm business receipts - 16.8
  trillion in 1996
• Even greater impact in midwest economy
• Dominate form in agriculture, retail, wholesale,
  and distribution sectors
• Employ 54.8 of workforce 69.5 million
• Provide higher than average household income and
  net worth
• Only 1 of households are poor vs. 11 overall

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Sustainable Family Business Model
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More info

• www.hce.osu.edu/fambus
• http//www.human.cornell.edu/ne167/

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Home-based Business Names

• Hewlet-Packard
• Nike
• Coke
• Mrs. Fields Cookies
• Microsoft
• Dell

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Home-based Business Facts

• Nine-state study (1988)
• Typical home-based worker
• 44 year old male, married, with children, 14 yrs.
  education, a homeowner
• Mean gross business income - 53,164
• Mean net business income - 15,628
• Mean household income - 42,263
• Had medical insurance from some other source
• As children increased, number of work hours
  decreased (1 day per child on average)
• Had greater longevity in the community

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Copreneurs

• Defined Couples in business together
• 31 of family businesses
• Have more children, lower educational levels,
  rural location, business manager earns less per
  year, more likely home-based, and have fewer
  employees
• Make significantly less business income and
  business profits (by factor of 5) feel business
  is less successful
• Copreneurs more likely to view business as a way
  of life as opposed to a way to earn income

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Copreneurs cont.

• More likely to intermingle money between business
  and family More often family to business
• Also use more ways of intermingling
• Approximately 20 of couples discontinued the
  copreneurial relationship (but stayed together as
  a couple) in a 3-year period
• Made less money saw the business as less
  successful.
• Another 20 started a copreneurial relationship
• Made most money of all 3 groups, run by older men
  with more education, had fewer dependents, and
  spouse worked fewer hours in business.

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Value-Added Opportunities
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Value-Added

• Defined Adding consumer-desired features to raw
  materials
• Done by
• Additional processing
• Marketing - change from the current method of
  distribution
• Use existing resources to produce a new, more
  valued product/service
• Some combination

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Reap New Profits

• Marketing
• Strategies
• for Farmers
• Ranchers

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Farmers Markets
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• People dont come all the way out here to get
• cheap food. They come because its fun and the
• berries are absolutely fresh.
• -- Earnie Bohner, Persimmon Hill Berry Farm

Pick Your Own
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ENTERTAINMENT
FARMING
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OTHER OPTIONS

• Farm Stands
• Community supported agriculture (CSA)
• Cooperatives
• Restaurant sales
• Mail order/ Internet/ Direct marketing

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Resources

• USDA Sustainable Agriculture Research and
  Education (SARE) www.sare.org
• Farmers Markets - www.ams.usda.gov/farmersmarkets
• Alternative Farming Systems Info Ctr
• www.nal.usda.gov/afsic
• USDA Farmer Direct Marketing
• www.ams.usda.gov/directmarketing
• North American Direct Marketing Assn.
• www.familyfarms.com

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Minorities and Women
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General Information

• Small business ownership rates for women and
  minorities are increasing faster than for white
  males Still men start new businesses at twice
  the rate of women
• Women 9.8 own businesses
• Translates to over 50 of all businesses
• Minorities Ranges from 5 (Blacks) to 10.4
  (Asian)
• Firm receipts average about 2/3 of all bus.
• Proprietor income averages about 50 of all other
  businesses
• Firms employee fewer people

125
Special Issues

• Access to capital
• Acceptance by business community
• Acceptance by family and friends
• Networks are smaller and more family-focused
• Most often in retail or service industries
• Industries with highest failure rates and lowest
  profits

126
Barriers to Entrepreneurship
127
A lack of

1. Steady stream of want-a-bes
2. Can-do attitude held by the entrepreneur and
   the community
3. Coordinated, accessible, long-term support
   network
4. Coaches and mentors
5. Capital
6. Available human capital
7. Multi-faceted healthy community
8. Supportive regulatory environment

128

• The man who makes no mistakes does not usually
  make anything."
• Edward John Phelps, American lawyer and diplomat
  (1822-1900)
• "Nothing great was ever achieved without
  enthusiasm." Ralph Waldo Emerson

129
Highlights
130
Highlights

• Entrepreneurship is an ever-continuing, growing
  trend
• Entrepreneurs contribute to their household and
  to their community
• Entrepreneurship is a learned talent
• Entrepreneurs form our economic base
• Entrepreneurship allows people to remain in a
  community
• Communities can encourage entrepreneurship

131

• Entrepreneurs
• - See opportunity
• - Are innovative in developing that
• opportunity through creativity
• and resource gathering
• - Seek gain while accepting risk
• and uncertainty

132
One Last MythThe key to success is a great idea
The keys are
Good idea
Great plan
Passion!
133
How Extension can help?
134

1. Awareness of owners priorities
2. Comfort with subject matter

• One-on-one
• Mentoring
• Advocating
• Partnering
• Community support
• Awareness of other programs
• Education

135
Resources

• Southern Rural Development Center
• http//srdc.msstate.edu/
• Kansas City Federal Reserve Bank
• Center for the Study of Rural America
• http//www.kc.frb.org/RuralCenter/RuralMain.htm
• Rural Policy Research Institute (RUPRI)
• http//www.rupri.org/

136
Resources cont.

• Adult
• Cashing In On Business Opportunities
• NeXt Level/Fasttrac/other commercial
• OSU
• Putting It All Together
• Food Based Business The Owners Guide
• An Exploration of Entrepreneurship
• Visual Merchandising
• Educational program
• Demonstration program
• Mapping Your Marketing Future
• Magazines, i.e. Entrepreneur

137
Resources cont.

• Youth
• Mini-Society
• Be the E Entrepreneurship (4-H CCS)
• http//youngbiz.com/
• http//www.celcee.edu/ - clearinghouse
• General
• http//www.entre-ed.org/index.htm

138
Entrepreneurship

• Glenn Muske
• Micro Business Specialist
• Oklahoma State University