Unit%201:%20Overview%20of%20Entrepreneruship

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Unit 1 Overview of Entrepreneruship

• Ace Institute of Management
• BBA 6th Semester

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Nature and Development of Entrepreneurship

• The word entrepreneur stems from French, means
  between-taker or go between.
• Our definition involves four aspects
• 1. The creation process.
• 2. The devotion of time and effort.
• 3. The assumption of risk.
• 4. Rewards of independence, satisfaction, money.
  

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Tools have changed with advances in Science
Technology, Ability to innovate has been
present in every Civilization Do we all Agree ?
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Nature Development Of Entrepreneurship

• Historical Evolution Of Entrepreneurship
• Earliest Period
• Middle Ages
• 17th Century
• 18th Century
• 19th 20th Century

THE ABILITY TO INNOVATE CAN BE OBSRVED THROUGHOUT
THE HISTORY
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Earliest Period

• Go-Between is Marco Polo
• Sign contract with a money person(Venture
  capitalist) to sell his goods
• VC passive risk bearer
• Merchant Adventurer took active role in trading-
  active risk bearer (Physical, emotional)
• Merchant Adventurer completes trip successfully
  profits were divided- VC taking 75 MA 25

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Middle Ages

• Actor person who managed large production
  projects
• Individual didnt take risks but only managed the
  project using the resources provided
• Usually by the Govt of the Country

Person in charge of architectural works- Castles,
public buildings, cathederals
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17th Century

• Emergent connection of risk with entrepreneurship
  developed
• E person who entered into contractual agreement
  with the government to perform a service or to
  supply products
• The contract price was fixed any profits or
  losses were of entrepreneurs.

Richard Cantillon E is a risk taker, observing
that merchants, craftsman, farmers other sole
proprietors buy at a certain price sell at an
uncertain price, therefore operating at a RISK
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18th Century

• Person with capital was differentiated from the
  one who needed capital
• E was distinguished from the capital
  provided(Venture capitalist)
• One reason for differentiation was the
  industrialization occurring throughout the world
• Invention developed during this time were
  reaction to the changing world
• Case of Eli Whitney and Thomas Edison

VC- professional money manager who makes risk
investments from a pool of equity to obtain high
ROR on the investments
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19th 20th Century

• In late 19th and early 20th Century E were viewed
  from Economic Perspective
• E organizes operates an enterprise for
  personal gain
• Pays prices for material consumed in the
  business, for land, personal services he employs,
  capital he requires
• Assumes the chance of loss and gain
• Residue of the annual receipts is retained for
  himself.
• 20th Century- Notion of an E as an innovator was
  established

• Innovation newness integral part of E
• Difficult part for E to introduce something new

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Entrepreneurship

• Process of creating something new with value by
  devoting the necessary time and effort, assuming
  the accompanying financial, psychological, and
  social risks receiving the resulting rewards
  of monetary and personal satisfaction.
• The process of initiating a business venture,
  organizing the necessary resources and assuming
  the associated risks and rewards.

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• Entrepreneurship can be described as a creative
  and innovative response to the environment.
• Such responses can take place in any field of
  social endeavour business, agriculture,
  education, social work and the like.
• Doing new things or doing things that are already
  being done in a new way is entrepreneurship.

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Entrepreneurship

• If we examine the common elements in these
  definitions then,
• Creativity and innovation
• Resource gathering and the founding of and
  economic organization
• The chance of gain under risk and uncertainty.

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What is an Entrepreneur?

• An Entrepreneur is a person who recognizes a
  viable idea for a business product or service and
  carries it out. Any person (any age) who starts
  and operates a business, in a new way, is an
  entrepreneur.

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What is an Entrepreneur?

• Economist Who brings resources, labor, materials
  and other assets into combination that make their
  value greater that before and also one who
  introduces change, innovation.
• Psychologist Drive by certain force or need to
  attain something or to escape authority of others
• Businessmen Competitor, or an ally or source of
  supply or customer

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Characteristics of an Entrepreneur

• Hard Work
• Desire for High Achievement
• Highly optimistic
• Independence
• Foresight
• Good Organizer
• Innovative

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Types of Entrepreneurs

• View of Clarence Danholf
• Innovating Entrepreneurs
• Imitative Entrepreneurs
• Fabian Entrepreneurs Great Caution and
  Skepticism in experimenting any change
• Drone Entrepreneurs Refusal to adopt
  opportunities to make changes. Suffers losses but
  make no changes
• Behavioral View
• Solo operators, Active partners, Inventors,
  Challengers, Buyers, Life timers

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Positive aspects of Entrepreneurship

• Positive Aspects
• Opportunity to gain control over your own destiny
• Opportunity to reach your full potential
• Opportunity to reap unlimited profit
• Opportunity to contribute to society and be
  recognised for your efforts

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Positive aspects of Entrepreneurship

• Negative Aspects
• Uncertainty of income
• Risk of losing entire invested Capital
• Long work hours and hard work
• Lower quality of life
• Emotional stress.
• Complete responsibility

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Distinction Between Entrepreneur and Manager
Description Entrepreneur Manager
Motive Initiate business for self satisfaction Provide service in business established by others
Objective Maximize Profit Receive high salary and other facilities
Status Owner of the business Employee of the business
Risk taking Takes all risks and uncertainty No Risk
Reward Receive profit, which is uncertain Receives salary which is certain and fixed
Innovation An innovator Uses innovation in practice
Qualification Need to have high achievement tendency, original thinking, foresightedness and capacity to risk taking Need the knowledge of the theory and practice of management
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The Entrepreneurial Decision Process

• Individuals have difficulty bringing their ideas
  to the market creating a new venture
• Yet entrepreneurial decisions have resulted in
  several new businesses through out the world
• Despite recession- inflation- high interests
  rate, lack of infrastructure-economic uncertainty
  high probability of failure

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• Deciding to become an entrepreneur by leaving
  present activity

• Form new enterprise
• Desirability of New Venture
• Cultural
• Subcultural
• Family
• Teachers
• Peers
• Possibility of New Venture
• Government

• Changing from present life style
• Work Environment
• Disruption

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Changing from Present Lifestyle

• Work Environment
• Two environment have been for spawning new
  enterprises
• RD individuals develop new product ideas
  leave to form their own companies when these
  ideas are not accepted by their employers
• Marketing become familiar with customers
  unfilled needs wants- start enterprise

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Changing from Present Lifestyle

• Disruption
• Negative force retired
• Relocated due to a move by other family member in
  a dual-career family
• Who have been fired
• 12 new business listings in the yellow pages
  increased during layoff period
• Educational degree-MBA
• Student who is not promoted after receiving an
  MBA-frustrated start new company

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Desirability of New Venture FormationAspects of
a situation that make it desirable to start a new
company

• Cultural
• SubCultrual
• Family
• Teachers
• Peers

• American culture places a high value on beings
  ones own boss
• In some countries establishing a new business is
  not are not as highly valued-failure might be
  disgrace

• No culture is totally for or against
  entreprenshuip
• Silicon valley- subcultures support even
  promote- forming of new company as one of the
  best occupations

• High of the founders of Cos had fathers OR
  mothers who valued independence

• Encouragement by teachers- influence to regard E
  as a desirable viable career path
• No E courses a person takes-increases
  probability of starting Venture
• Standford is in the Silicon

• Meeting place where E potential entrepreneurs
  can discuss ideas-problems solutions spawns
  more new companies than an area where these are
  not available

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Possibility of New Venture Formation

• Provides infrastructure to help/support a new
  venture
• Give roads-communication systems-transportation
  system-utilities- economic stability TAX RATE
  can suppress company formation-since Co wont have
  money to start grow

• Government
• Background
• Marketing
• Finance
• Role Models

• E must have necessary background-Education,
  previous business experience skills needed to
  form manage a new enterprise
• Entrepreneurs are not born they develop

• Presence of market of sufficient size- must also
  be a level of marketing know-how to put together
  the best total package of product, price,
  distribution promotion needed for successful
  product launching
• A Co. is more easily formed when the driving
  force is more from market demand than a
  technology push

• Financial resources must be readily available
• Most start ups comes from personal
  savings-credit-friends-relatives, there is often
  a need for additional seed capital

• Most powerful influence in making Co seem
  possible
• see someone else succeed makes it easier to
  picture yourself engaged in a similar activity
• Frequent comment of E if that person could do
  it, so can I

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Types of Start Ups

• Lifestyle Firm - A small venture that supports
  the owner and usually does not grow much (sole
  proprietorship).
• Foundation company A type of company formed
  from research and development that usually does
  not go public (Private Ltd. Company).
• High-Potential venture A venture that has high
  growth potential and therefore receives great
  investor interest. High potential venture may
  start as foundation company and later on convert
  itself into high potential venture by going for
  public investment (Public Ltd. Company).

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Role of Entrepreneurship in Economic Development

• Role of entrepreneurship in economic development
  involves more than just increasing per capita
  output and income
• It involves initiating change in structure of
  business and society.
• In spite of importance of investment and
  innovation there is still lace of understanding
  of product evolution process.

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Role of Entrepreneurship in Economic Development

• Iterative synthesis Intersection of knowledge
  and social need that starts the product
  development process
• Ordinary innovation New product with little
  technological change
• Technological innovations New product with
  significant technological advancement.
• Breakthrough innovations New product with some
  technological change.
• Regardless of the level of uniqueness each
  innovation evolves into and develops toward
  commercialization through one of three mechanisms.

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Role of Entrepreneurship in Economic Development

• Government as an Innovator
• Intrapreneurship Entrepreneurship within
  existing organization
• Entrepreneurship

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To Sum up the Role

• Promotes Capital formation
• Optimum utilization of resources
• Promotion of employment opportunities
• Balances regional development
• Reduced concentration of economic power
• Backward and forward Linkage
• Promote foreign trade
• Industralization

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Sources of New Ideas (1 of 2)

• Consumers
• Informal formal monitoring of potential ideas
  and needs- express their opinions.
• Idea need represents a large enough market to
  support new venture .
• Existing Companies
• Potential (Entpr Intraprnrs) should also
  establish a formal method for monitoring
  evluating competitive products services on the
  market
• Distribution channels
• Channel members-Excellent source of new ideas
  bcoz of their familiarity with the needs of the
  market
• Help in marketing the newly developed products
• Example salesclerks suggesting entrpr changing
  color of product

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Sources of New Ideas (2 of 2)

• Federal government
• Files of the Patent Office contain numerous new
  product possibilities.
• Suggest more marketable product ideas
• Official Gazette, published summarize list of
  patents for license or sale
• New product ideas can come in response to
  government regulations. (OSHA- eliminating unsafe
  WCs in industry)
• Research and development
• Largest source of new ideas is the entrepreneurs
  own research and development efforts. May be
• A formal endeavor connected with ones current
  employment.
• An informal lab in a basement or garage.

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Methods of Generating New Ideas

• Focus groups
• number of group members from 6-12
• Moderator focuses discussion of the group in a
  directive or nondirective manner.
• Co. womens slipper-concept of warm
  comfortable slipper thats fits an old shoe 12
  women focus group
• An excellent method for initially screening ideas
  and concepts.
• Brainstorming
• A Group method for obtaining new ideas
  solutions

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Brainstorming Conti....

• 4 Rules should be followed
• No criticism is allowed by anyone in the group
• Freewheeling is encouraged-wilder the idea the
  better
• Quantity of ideas is desired- greater the no. of
  ideas the greater the likelihood of the emergence
  of useful ideas
• Combinations and improvements of ideas are
  encouraged- ideas of others can be used to
  produce still another new idea

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• Focus group and brainstorming is different in the
  sense that FG is structured or moderated...while
  BS is not a debate or discussion like that....its
  people giving lots of ideas without criticism
  allowed

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Methods of Generating New Ideas

• Problem inventory analysis
• Instead of generating new ideas themselves
  consumers provided with list of problems in
  general product category
• Then asked to identify discuss products in this
  category that have particular problem
• Can be used to test a new product idea.
• Effective method since its easier to relate known
  products to suggested problems arrive at a new
  product idea than to generate an entirely new
  product idea by itself
• Results must be carefully evaluated as they may
  not actually reflect a new business opportunity.

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Family Business

• A family business is characterised by direct
  involvement of family members in ownership and
  functioning. An existing family business is
  inherited from parents or relatives. Family
  business is an ongoing concern. The new owner
  replaces the old owner. It is all in the family.
• Family business is the simplest way of entering a
  small business. Succession can be planned or
  unplanned.

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• Advantages of Family Business
• Minimal Risk there is no risk involved. Family
  business is a going concern with track record.
  Generation of revenue and profits is likely to
  continue. Competitors are known.
• Reputation The business has an established
  image. Goodwill exists. Relationships have been
  established with customers, suppliers, banks,
  creditors and employees. There is commitment for
  quality and customer service.
• No start-up headaches There are no headaches
  associated with start-up of a new business. The
  market is established. Employees are in place.
  Production facilities are operational.
• Location The location is proven for successful
  operations.
• Taxation There are no taxation problems. The
  owner assumes all tax-related liabilities.

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• Disadvantages of Family Business
• Lack of interest The inheritors may lack
  interest in operating the business. They may be
  attracted towards other opportunities, such as
  salaried employment. The interests of inheritors
  may differ, This can create conflicts.
• Lack of skills The inheritors may lack talent
  skills and competencies to run the business. They
  may also lack experience.
• Overlap Business interests may overlap with
  family interests.
• Relationships The inheritors may not be able to
  maintain amicable relationships with employees,
  customers, suppliers, banks and creditors.
• Legal hassles Legal problems may arise related
  to inheritance of business. This happens where
  succession planning is lacking.

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Family business and Succession strategies

• Succession
• Handing over the business to family members.
• Succession Planning
• Planning in advance regarding the continuity of
  the business after retirement of the owner.
  Developing and selecting heir to the business.

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Family business and Succession strategies

• Barriers to successful succession planning

Founder/ Owner Family
Death Anxiety Death as taboo Discussion is a hostile act Fear of loss/abandonment
Company as symbol Loss of identity Concern about Legacy Fear of Sibling rivalry
Dilemma of Choice Change of Spouses position
Generational envy Loss of power
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Key Factors in Succession

• Pressure and Interest inside the firm
• Family members family members are also employees
• Non family members Employees
• Pressure and Interest outside the firm
• Family members Family members who are not
  employee
• Non family members Competitors, Regulatory
  agencies
• Forcing Events Death, illness, legal problems,
  financial difficulties
• Sources of Succession
• Environmental Forces

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Family business and Succession strategies

• Developing a Succession strategy involves steps
• Understanding The contextual aspects
• Time Early the better
• Type of venture Venture with high tech and based
  on personal business contacts are difficult to
  replace
• Skills, desires and abilities of heirs.
• Entrepreneurs vision
• Identifying successors quality
• Sufficient knowledge of business
• Interest.
• Honesty and capabilities
• Health, energy, maturity, perseverance, problem
  solving.
• Agreement with the owners philosophy about the
  business

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Family business and Succession strategies

• Understanding the influencing forces
• If ideal successor is not found than they should
  be developed
• Family and business culture issues Business
  cultures, stage of firms development, business
  traditions and norms, family culture and
  strengths.
• Owners concern Relinquishing power and
  authority, defining family members future role in
  business, assuring competent future leader,
  educating family and non family members about key
  roles in business.
• Family members concern Gaining and losing of
  control of family assets. Control over decisions
  by successors in years to come. Getting money
  from business, Assurance that business will
  continue.

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Family business and Succession strategies

• Carry out succession plan
• Identify successor
• Groom
• Agree on a plan
• Consider outside help.

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Succession Strategies

• Transfer to Family Members
• Can create internal problem with employees
• Knowledge of business required for successor
• Helpful if entrepreneur stays around for a while
  as advisor
• Old employees may resent the younger family
  member taking control
• Successor may prove his ability and run business
  successfully

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Succession Strategies

• Transfer to Non Family Members Three Choices
• Train a key employee and retain some equity
• Question of how much of equity to be retained
• Retain control and hire a manager
• Sell the business outright ( Harvesting Strategy
  )
• Direct Sale ( buyer outsider )
• Employee Stock Option Plan
• Management Buyout ( Buyer Loyal employee )
• Initial Public Offering
• Merger

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Fundamental Issues of Entrepreneurship

• Strategic Planning and decision making issues
• Should be participative and decentralized.
• Staffing issue should be based on expertise,
  knowledge and talent and not with relationship
• Technological issues Should have non imitable,
  unique, cutting edge technology
• Infrastructure issue Should have adequate
  infrastructure, water, power supply

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• Issues of entrepreneurial skills and strategies
  Entrepreneurs should posses various skills and
  strategies
• Financial issues Sources of funding should be
  well identified so that they can be made
  available at the time of expansion and crisis
• Issues of governmental support The government
  should provide supportive policies and facilities
  so that new starts ups can flourish easily

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• Market issue An entrepreneur should be able to
  create their own market
• Structural and leadership issue most appropriate
  organizational structure should be formed and
  leader should possess required quality to drive
  the system according to the strategy adopted.

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Questions

• Define entrepreneurship. How is an entrepreneur
  different entrepreneurship.
• Entrepreneurs are catalyst of economic
  development. Explain
• What is entrepreneurship? What roles
  entrepreneurs can play for national economic
  development?
• Define Creative process. Identify and briefly
  describe the sources of new business ideas.
• Entrepreneurship is the process of exploiting
  opportunities by using the new ways of organizing
  resources and managing the resulting reward.
  Explain

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Questions

• What is family business? Briefly explain the
  challenge and succession strategies of family
  business.
• Define family business. Why should the owner of a
  family business plan for succession of business
• What is entrepreneurship? Differentiate between
  roles of an entrepreneurs and a manager.
• Conflict and friction are the major challenges of
  family business. Explain briefly the ways of
  dealing with these challenges and exit strategies
  of family business.