1. New Venture Creation Chapter 1: Introduction to Entrepreneurship and Review Modified from Barringer and Ireland (2008)

2. Introduction to Entrepreneurship Very exciting time to be involved in entrepreneurship Very exciting time to be involved in entrepreneurship GEM Studies GEM Studies 2005: 330 million people, 14% adults in 35 countries involved in forming new businesses 2005: 330 million people, 14% adults in 35 countries involved in forming new businesses 2005: 12.4% of US population engaged in entrepreneurial behavior 2005: 12.4% of US population engaged in entrepreneurial behavior New businesses responsible for significant new job growth New businesses responsible for significant new job growth ENT Education Surging ENT Education Surging Enrollment in entrepreneurship programs increasing Enrollment in entrepreneurship programs increasing To spur economic activity, many firms provide funding to ENT programs across the US To spur economic activity, many firms provide funding to ENT programs across the US Government Resources for ENTs growing Government Resources for ENTs growing Small Business Administration (SBA) resources Small Business Administration (SBA) resources Business incubators Business incubators

3. What is Entrepreneurship? Entrepreneurship Defined Entrepreneurship Defined The process by which individuals pursue opportunities without regard to the resources they currently control with the ultimate goal of creating new “value” The process by which individuals pursue opportunities without regard to the resources they currently control with the ultimate goal of creating new “value” Involves identifying opportunities, putting useful ideas into practice Involves identifying opportunities, putting useful ideas into practice Requires creativity, drive, and a willingness to take risks Requires creativity, drive, and a willingness to take risks Inventor ≠ Entrepreneur Inventor ≠ Entrepreneur An inventor creates something new An inventor creates something new Entrepreneurs put the resources together to commercialize inventions Entrepreneurs put the resources together to commercialize inventions Entrepreneurs assemble resources (e.g., money, people, strategy, and risk bearing ability) to transform inventions into viable businesses Entrepreneurs assemble resources (e.g., money, people, strategy, and risk bearing ability) to transform inventions into viable businesses Entrepreneurship requires a different set of skills that can be learned and honed Entrepreneurship requires a different set of skills that can be learned and honed That’s why we’re here!!! That’s why we’re here!!!

4. Another Type of Entrepreneurship Corporate Entrepreneurship Corporate Entrepreneurship Is entrepreneurship at the firm level Is entrepreneurship at the firm level Involves an existing firm acting entrepreneurially Involves an existing firm acting entrepreneurially Successful examples: Apple, Google, McDonald’s, Virgin Group, Darden Successful examples: Apple, Google, McDonald’s, Virgin Group, Darden Unsuccessful examples: Delta’s Song, Continental Lite Unsuccessful examples: Delta’s Song, Continental Lite To determine firms’ entrepreneurial orientations, imagine a conceptual continuum ranging from highly conservative to highly entrepreneurial To determine firms’ entrepreneurial orientations, imagine a conceptual continuum ranging from highly conservative to highly entrepreneurial The position of a firm on this continuum is its entrepreneurial intensity The position of a firm on this continuum is its entrepreneurial intensity Highly ENT intense firms are proactive, innovative, and risk taking Highly ENT intense firms are proactive, innovative, and risk taking Conservative firms take a more “wait and see” posture, are less innovative, and are risk averse Conservative firms take a more “wait and see” posture, are less innovative, and are risk averse

5. What Motivates People to Become Entrepreneurs? 3 primary reasons 3 primary reasons Desire to be their own boss Desire to be their own boss Most common reason Most common reason Due to frustration with traditional jobs Due to frustration with traditional jobs When this is the only reason, firms are usually small-to- medium sized at full growth When this is the only reason, firms are usually small-to- medium sized at full growth Desire to pursue their own ideas Desire to pursue their own ideas Passion to see ideas realized Passion to see ideas realized Identify a problem and a solution to that problem Identify a problem and a solution to that problem Many established firms resist change/innovation Many established firms resist change/innovation Financial rewards Financial rewards Secondary concern Secondary concern GEM study: In 1997, only 13.3% of owners of SMEs in the US made more than $50,000/year GEM study: In 1997, only 13.3% of owners of SMEs in the US made more than $50,000/year

6. 1. Passion for the Business #1 characteristic shared by successful entrepreneurs #1 characteristic shared by successful entrepreneurs Stems from beliefs that firm positive effect on society Stems from beliefs that firm positive effect on society Caution: Don’t wear “rose-colored glasses” Caution: Don’t wear “rose-colored glasses” 2. Product/Customer Focus Keeping a focus on the products and customers needs/requirements is very important Keeping a focus on the products and customers needs/requirements is very important Main point: successful entrepreneurs introduce products/services that fulfill needs versus introducing them for the sake of introducing them Main point: successful entrepreneurs introduce products/services that fulfill needs versus introducing them for the sake of introducing them Ex: Apple’s Steve Jobs vs. Infomercials (e.g., iPod Flea); iPhone Ex: Apple’s Steve Jobs vs. Infomercials (e.g., iPod Flea); iPhone 4 Main Characteristics of Successful Entrepreneurs

7. 3. Tenacity Despite Failure Because entrepreneurs generally try new things, failure rate is naturally high Because entrepreneurs generally try new things, failure rate is naturally high The ability to persevere through setbacks is key The ability to persevere through setbacks is key Example: Thomas Edison and electricity Example: Thomas Edison and electricity 4. Execution Intelligence Ability to translate thought, creativity, and imagination into action and measurable results Ability to translate thought, creativity, and imagination into action and measurable results Involves developing a business model, assembling a new venture team, raising money, establishing partnerships, managing finances, managing employees, etc. Involves developing a business model, assembling a new venture team, raising money, establishing partnerships, managing finances, managing employees, etc. Successful example: Starbucks Successful example: Starbucks Problematic examples: The Singing Machine, Segway Problematic examples: The Singing Machine, Segway

8. Misconceptions of Entrepreneurs and Theory Neoclassical school Neoclassical school Fundamental attributes of people determine if they become entrepreneurs Fundamental attributes of people determine if they become entrepreneurs Psychological school Psychological school In addition to fundamental attributes, people must have ability and initiative In addition to fundamental attributes, people must have ability and initiative Austrian Economics school Austrian Economics school Not everyone can be an entrepreneur Not everyone can be an entrepreneur The possession of certain information determines who becomes an entrepreneur The possession of certain information determines who becomes an entrepreneur

9. 5 Common Myths about Entrepreneurs 1. Entrepreneurs are Born not Made Entrepreneurs are not genetically predisposed but there are common characteristics of successful entrepreneurs and these can be developed via one’s social context (on next slide) Entrepreneurs are not genetically predisposed but there are common characteristics of successful entrepreneurs and these can be developed via one’s social context (on next slide) 2. Entrepreneurs are Gamblers Actually entrepreneurs are moderate risk takers Actually entrepreneurs are moderate risk takers 3. Entrepreneurs are Motivated Primarily by Money 4. Entrepreneurs should be Young and Energetic Average age is 35-45 with 10+ years of work experience Average age is 35-45 with 10+ years of work experience Investors look at experience, maturity, reputation, and track record Investors look at experience, maturity, reputation, and track record 5. Entrepreneurs Love the Spotlight Often their work involves proprietary products/services Often their work involves proprietary products/services

10. Other Characteristics of Successful Entrepreneurs Achievement motivated Achievement motivated Alert to opportunities Alert to opportunities Creative Creative Decisive Decisive Energetic Energetic Strong work ethic Strong work ethic Moderate risk taker Moderate risk taker Lengthy attention span Lengthy attention span Is a networker Is a networker Optimistic disposition Persuasive Promoter Resource assembler/ leverager Self-confident Self-starter Tenacious Tolerant of ambiguity Visionary Research suggests that people with entrepreneur parents are more likely to become entrepreneurs and people who know an entrepreneur are > twice as likely to start a business versus those who do not. The lesson: a person’s social context helps to shape these characteristics

11. Types of New Ventures Lifestyle or part-time firms (e.g., lifestyle firms, micro-businesses): Lifestyle or part-time firms (e.g., lifestyle firms, micro-businesses): Usually pursued part-time and only until “something better comes along” Usually pursued part-time and only until “something better comes along” Sometimes allows founder(s) to pursue a special interest or hobby Sometimes allows founder(s) to pursue a special interest or hobby Traditional small businesses (e.g., SMEs, salary-substitutes businesses): Traditional small businesses (e.g., SMEs, salary-substitutes businesses): Allow founders to earn a salary similar to a traditional job Allow founders to earn a salary similar to a traditional job No high growth aspirations and usually only one office location No high growth aspirations and usually only one office location Original founder(s) maintain control over the firm Original founder(s) maintain control over the firm Plan to operate the firm indefinitely Plan to operate the firm indefinitely High-growth ventures (e.g., entrepreneurial firms): High-growth ventures (e.g., entrepreneurial firms): Founder(s) intend to grow the firm in scale (multiple sites) Founder(s) intend to grow the firm in scale (multiple sites) Target markets are generally at the national or international level Target markets are generally at the national or international level Founders usually do not maintain control over the firm indefinitely and hand it over to more qualified individuals when it grows to a certain level Founders usually do not maintain control over the firm indefinitely and hand it over to more qualified individuals when it grows to a certain level

12. Why Entrepreneurship is Important: Creative Destruction Creative Destruction occurs when new and/or improved products replace existing ones Creative Destruction occurs when new and/or improved products replace existing ones Impacts consumer demand Impacts consumer demand Stimulates economic activity Stimulates economic activity First discussed by Joseph Schumpeter in 1934 The Theory of Economic Development First discussed by Joseph Schumpeter in 1934 The Theory of Economic Development Argued the new products and technologies make others obsolete through creative destruction Argued the new products and technologies make others obsolete through creative destruction Start-up ventures initiate creative destruction as they are “innovators” or “agents of change” Start-up ventures initiate creative destruction as they are “innovators” or “agents of change”

13. Why Entrepreneurship is Important: Economic Impact on Society Innovation Innovation The process of creating something new, is central to the entrepreneurial process The process of creating something new, is central to the entrepreneurial process Impactful when solve a problem or satisfy a need in a new and cost-effective way Impactful when solve a problem or satisfy a need in a new and cost-effective way Small firms responsible for over 55% all innovations in U.S. Small firms responsible for over 55% all innovations in U.S. Ex: Nistevo trucking; eBay; uShip Ex: Nistevo trucking; eBay; uShip Job Creation Job Creation 1970: Fortune 500 employed 20% US labor force 1970: Fortune 500 employed 20% US labor force 1997: 52% of the workforce employed by small firms 1997: 52% of the workforce employed by small firms 67% first jobs obtained through small firms 67% first jobs obtained through small firms Between 1993-1996, new high-growth firms created 2/3 of new jobs in US Between 1993-1996, new high-growth firms created 2/3 of new jobs in US Globalization Globalization 2008: 97% of U.S. exporters are SMEs with < 500 employees 2008: 97% of U.S. exporters are SMEs with < 500 employees 2005 GEM report shows trend for entrepreneurship across the US and world is increasing 2005 GEM report shows trend for entrepreneurship across the US and world is increasing

14. Why Entrepreneurship is Important: Impact on Society and Larger Firms Impact on Society Impact on Society Innovations of entrepreneurial firms have a dramatic impact on society Innovations of entrepreneurial firms have a dramatic impact on society Think of new products and services that make our lives easier, more productive, healthier, and more entertained Think of new products and services that make our lives easier, more productive, healthier, and more entertained PCs, Internet, digital media, George Foreman grill (“Knock the Fat Out!”) PCs, Internet, digital media, George Foreman grill (“Knock the Fat Out!”) Impact on Larger Firms Impact on Larger Firms Many firms build their entire business models around helping larger firms become more efficient and effective Many firms build their entire business models around helping larger firms become more efficient and effective Examples: Small biotech firms; shipping companies (e.g., FedEx); HRM companies Examples: Small biotech firms; shipping companies (e.g., FedEx); HRM companies Porter’s Value Chain will help us to identify business models that fill this need (we’ll discuss this later in the semester) Porter’s Value Chain will help us to identify business models that fill this need (we’ll discuss this later in the semester)

15. Changing Demographics of Entrepreneurs Women Entrepreneurs 1997: ≈ 5.4 million 1997: ≈ 5.4 million 2002: ≈ 6.5 million 2002: ≈ 6.5 million Primary Industries: Primary Industries: Health care, Professional services, Construction, Agriculture, Transportation, Communications Health care, Professional services, Construction, Agriculture, Transportation, Communications Young Entrepreneurs ≤ 21 entrepreneurs increasing in prevalence ≤ 21 entrepreneurs increasing in prevalence Due to education/training Due to education/training Access to key resources and fewer opportunity costs Access to key resources and fewer opportunity costs Minority Entrepreneurs Significantly increasing in prevalence Primary Industries: Initially service industries Increasing prevalence in all industry sectors Senior Entrepreneurs 2000: ≈ 1.7 million 55+ 2005: ≈ 2.1 million 55+ Industries: Consulting Lifestyle ventures

16. The Entrepreneurial Process Consists of Four Steps The Entrepreneurial Process Consists of Four Steps Step 1: Deciding to become an entrepreneur Step 1: Deciding to become an entrepreneur Step 2: Developing successful business ideas Step 2: Developing successful business ideas Step 3: Moving from an idea to an entrepreneurial firm Step 3: Moving from an idea to an entrepreneurial firm Step 4: Managing and growing the entrepreneurial firm Step 4: Managing and growing the entrepreneurial firm Throughout the semester, we will cover these steps Throughout the semester, we will cover these steps The Entrepreneurial Process