The Foundations of Entrepreneurship Sergey Anokhin, Ph.D. Kent State University January 12, 2009

Presentation highlights Introduction Definitions of entrepreneurship Entrepreneurial revolution Leadership vs. Management vs. Entrepreneurship Pros & Cons of Entrepreneurship Ethics and leadership Q&A

How much would it be worth today (picture taken in 1997)?

Elements of entrepreneurship Opening example: Bill Gates, Michael Dell, Sergey Brin –Innovative opportunity –Growing industry –Individual characteristics Individual-opportunity nexus New venture creation Risks

Opportunities Opportunities are associated with changes in the external environment: –Political/legal –Economic –Socio-cultural –Demographic –Technological (innovative) Importance of industry

Understanding innovation New product or service New way of organizing New market New method of production New raw material

Towards the definition Entrepreneurship is about: –Individuals exploiting new value-creating opportunities via various means to produce a wide range of effects Baron-Shane definitional exercise

What entrepreneurship is not Being small does not make you entrepreneurial automatically Being a young company is not necessarily entrepreneurship Being a business owner does not by itself make you an entrepreneur

Types of entrepreneurial ventures Hisrich’s classification: –Lifestyle: employees, $2M sales –Foundational: employees, $10-20M sales –High potential (gazelles): about 500 employees, $20-30M sales

Why people do it? Money Lifestyle Independence Necessity

Do people get what they want? Money: entrepreneurship vs. corporate career Lifestyle: working hours, family responsibilities Independence: employers vs. employees Net balance: drive

What kind of people do it? Independence/Need for achievement Locus of control Risk-taking Tolerance for ambiguity Focus: promotion, prevention Skills: technical, business management, personal entrepreneurial skills

Exercise How good are your ideas about entrepreneurship? Hisrich, p , explanation p. 32, 34 Do you have what it takes to become an entrepreneur? Hisrich, p. 33, explanation p. 32 Test yourself: locus of control, independence, risk taking. Hisrich, p

Entrepreneurial revolution (Babson) New management paradigm –Flat, fast, flexible, innovation-driven –Principle- and value-based management –Opportunity- and customer-focused –Resource parsimonious (which eliminated loyalty) –Living with and managing chaos/change –People- and team-centered management New education paradigm Not-for-profit world Beyond business schools

Leadership, management, entrepreneurship Leadership is essential for both management (top management) and entrepreneurship (founder team): –Determining strategic direction –Establishing organizational control –Effectively managing resource portfolio –Sustaining an effective organizational culture –Emphasizing ethical practices Leadership and followership Unique question for entrepreneurial firms: leadership succession

Management vs. entrepreneurship Entrepreneurship: exploration and growth Management: optimizing, exploitation, and efficiency Dimensions on which they differ: –Strategic orientation –Commitment to opportunity –Commitment of resources –Control of resources –Management structure Management begins where entrepreneurship ends: stages of evolution

Managers, entrepreneurs, intrapreneurs Important dimensions –Primary motives –Time orientation –Activity –Risk –Status –Failure and mistakes –Decisions –Who serves –Family history –Relationship with others

Pros and Cons of Entrepreneurship Pros –Job creation –Creative destruction (radical innovation) – 95% are introduced by new firms –Entrepreneurship and economic development –May become a billionaire, own boss Cons –Risk (failure; culture specific) –Emotional toll –“Chronically entrepreneurial” industries: scale argument –Ethical considerations

Entrepreneurship and Ethics There are a number of specific ethical issues facing small companies Entrepreneurs routinely report having to make decisions based on their judgment of what’s right and wrong. Disturbing statistics.

Questions?