Management and Entrepreneurship 6

1. An understanding of the three stages of entrepreneurship An overall appreciation for the opportunity concept and an understanding of the primary types of entrepreneurial opportunities An ability to distinguish between opportunity identification, evaluation, and exploitation

Insights regarding the various types of financing available to entrepreneurs An appreciation for how existing organizations use corporate entrepreneurship An understanding of and appreciation for the role of social entrepreneurship in society

Fundamentals of Entrepreneurship Entrepreneurial Opportunity Entrepreneur Entrepreneurship refers to the identification, evaluation, and exploitation of opportunities (the process is illustrated on the next slide). An entrepreneurial opportunity is an occasion to bring into existence new products and services at a price that produces a profit. An entrepreneur is an individual who identifies, evaluates, and exploits opportunities.

Fundamentals of Entrepreneurship This figure illustrates the entrepreneurship process. This process is explained throughout the chapter and on the following slides.

Fundamentals of Entrepreneurship This table illustrates failure rates of entrepreneurial ventures. Studies have shown that approximately 460,000 new businesses are started in the U.S. each month, but as this table shows, most will not last for the long term.

Opportunities Types of Opportunities Schumpeter described five different types of opportunities. On the following slide, a table will illustrate each one and provide and example.

Opportunities This table illustrates Schumpeter’s five types of opportunities and provides an example of each.

Opportunities Opportunity Identification Entrepreneurial alertness Information asymmetry Social networks Means-ends relationships Entrepreneurial alertness refers to an individual’s ability to notice and be sensitive to new information about objects, incidents, and patterns of behavior in the environment. Information asymmetry describes the concept that individuals vary in terms of the information to which they have access. This variation in information involves both new information and old information, and no two people share all of this information at the same time. Social networks are individuals’ patterns of social relationships. Some individuals have extended networks, whereas others have narrow social networks. The ability to assess means-ends relationships refers to the ability of entrepreneurs to understand how to turn a new technology into a product or service that will be valued by consumers. (all four of these concepts are illustrated on the next slide)

Opportunities This figure illustrates the four primary determinants of opportunity identification.

Opportunities Opportunity Evaluation Feasibility analysis Entrepreneurial risk Downside loss Law of small numbers Illusion of control A feasibility analysis is an analysis that helps entrepreneurs understand whether an idea is practical. Considered are customer demands, structure of the industry, and the entrepreneur’s ability to provide the product or service. Entrepreneurial risk is the likelihood and magnitude of the opportunity’s downside loss. Downside loss refers to the resources (money, relationships, etc.) the entrepreneur could lose if the opportunity does not succeed. The law of small numbers occurs when individuals rely on a small sample of information to inform their decision. Illusion of control exists when entrepreneurs over-estimate the extent to which they can control the outcome of an opportunity.

Opportunities Opportunity Exploitation Exploitation How entrepreneurs decide Exploitation refers to the activities and investments committed to gain returns from the new product or service arising from the opportunity. Several factors can help entrepreneurs decide whether they should exploit an opportunity. First, they are more likely to exploit an idea when they believe that customers will value their new product or service. Second, when they perceive that they have the support of important stakeholders. And third, when they perceive that their surrounding management team is capable (this is illustrated on the next slide).

Opportunities This figure shows the factors that influence opportunity exploitation.

Opportunities Financing Exploitation Angel investors Venture capitalists Bank financing Angel investors are wealthy individuals who provide capital to new companies. Venture capitalists are firms that raise money from investors and then use this money to make investments in new firms. Bank financing occurs when an entrepreneur obtains financing from a financial institution in the form of a loan.

Corporate Entrepreneurship Sustained regeneration Organizational rejuvenation Strategic renewal Domain definition Corporate entrepreneurship is the process in which an individual or group in an existing corporation create a new organization or instigate renewal or innovation within that corporation. Corporate entrepreneurship can be classified into four general types: Sustained regeneration occurs when firms develop new cultures, process, or structures to support new product innovations in current markets as well as with existing products into new markets. Organizational rejuvenation involves improving the firm’s ability to execute strategies and focuses on new processes instead of new products. Strategic renewal occurs when a firm attempts to alter its own competitive strategy. Doman definition occurs when a firm proactively seeks to create a new product market position that competitors have not recognized.

Social Entrepreneurship Commercial Entrepreneurship Social Entrepreneurship Social Value Commercial entrepreneurship is what is considered “traditional” entrepreneurship – the pursuit of sales and profit. Social entrepreneurship involves the recognition, evaluation, and exploitation of opportunities that create social value as opposed to personal or shareholder wealth. Social value refers to the basic long-standing needs of society and has little to do with profits.

Social Entrepreneurship How Do Commercial and Social Entrepreneurs Differ? Mission or purpose Availability of resources Performance measures

Social Entrepreneurship Success Factors in Social Entrepreneurship Social networks Capital bases Public’s acceptance