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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 3
ENTREPRENEURIAL PROCESS/START UPS
LEARNING OBJECTIVES
1. To identify the basic types of start-up ventures.
2. To explain the role of entrepreneurship in economic development
3. To discuss the ethics and racial responsibility of
TYPES OF START-UPS
Life-Style Firms
A life-style firm exists primarily to support the owners and usually has little growth opportunity.
This type of firm may grow after several years to 30 or 40 employees.
Foundation Companies
A type of company formed from research and development that usually does not go public. This firm can
grow in five to ten years from 40 to 400 employees.
High-Potential Venture
A venture has high growth potential and therefore receives great investor interest. The company may start
out like a foundation company, but its growth is far more rapid. After five to ten years the company could
employ around 500 employees. These firms are also called gazelles and are most important for the
economic development of an area.
ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT
The role of entrepreneurship in economic development involves initiating change in the structure of
business and society. One theory of economic growth depicts innovation as the key, not only in
developing new products, but also in stimulating investment interest. The new capital created expands the
capacity for growth (supply side), and new spending utilizes the new capacity and output (demand side.)
In spite of the importance of investment and innovation in the economic development of an area, there is
still a lack of understanding of few factors which are as follows:
The product-evolution process is the process through which innovation develops and
commercializes through entrepreneurial activity, which in turn stimulates economic growth. It
begins with knowledge in the base technology and ends with products or services available in the
marketplace.
The critical point in the process is the intersection of knowledge and a recognized social need,
called the iterative synthesis. This point often fails to evolve into a marketable innovation.
Most innovations introduced in the market are ordinary innovations, with little uniqueness.
Technological innovations refer to new products with significant technological advancements.
Breakthrough innovations mean the development of new products with some technological
change.
Regardless of the level of uniqueness or technology, each innovation evolves into and develops towards
commercialization through one of three mechanisms: the government, entrepreneurship, or
entrepreneurship. Entrepreneurship has assisted in revitalizing areas of the inner city. Individuals in inner-
city areas can relate to the concept and see it as a possibility for changing their present situation.
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Entrepreneurship ­ MGT602
VU
GOVERNMENT AS AN INNOVATOR
A government active in commercializing technology is known as an innovative government.
Commercializing technology is frequently called technology transfer.
However, few inventions resulting from government-sponsored research have reached the commercial
market. Most of the by-products from scientific research have little application to any social need. The
government lacks the business skills needed for successful commercialization. Government bureaucracy
and red tape also often inhibit the timely formation of the business. Recently, federal labs have been
required to commercialize some of their technology each year and some are providing entrepreneurial
training.
Entrepreneurship
Entrepreneurship refers to entrepreneurship within an existing organization or business structure.
Entrepreneurship can also bridge the gap between science and the marketplace.
Existing businesses have the financial resources, business skills, and marketing and distribution system to
commercialize innovation successfully. Often the bureaucratic structure, emphasis on short-term profits,
and structured organization inhibit creativity. Some corporations have tried to establish an
Entrepreneurial spirit in their organization, some in the form of strategic business units (SBUs.)
Entrepreneurship
The third method for bridging the gap between the science and the marketplace is via entrepreneurship.
Many entrepreneurs have difficult time bridging this gap and creating new ventures. They may often lack
managerial skills, marketing capabilities, or financial resources. They frequently do not know how to
interface with banks, suppliers, customers, and distributors. Yet, entrepreneurship is the most effective
method for bridging the gap and creating new enterprises, these activities affect an areas economy by
building the economic base and providing jobs.
ENTREPRENEURIAL CAREERS AND EDUCATION
Since 1985 there has been an increased interest in entrepreneurial careers fostered by factors such as
increased media coverage of entrepreneurs and employment shifts.
A conceptual model for understanding entrepreneurial careers views the career stages as interacting with
other stages and events in the individual's life, the life-cycle approach. This approach conceptualizes
entrepreneurial careers in nine categories.
1.
Educational environment
2.
The individual's personality
3.
Childhood family environment
4.
Employment history
5.
Adult development history
6.
Adult family/non-work history
7.
Current work situation
8.
The individual's current perspective
9.
The current family situation
Although there exist a common perception that entrepreneur are less educated than the general
population however studies have found entrepreneurs overall and female entrepreneurs in particular, are
far more educated than the general population. However, this education sometimes does not develop the
specific skills needed in the venture, especially for women entrepreneurs.
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Entrepreneurship ­ MGT602
VU
Childhood influences have been explored, particularly in terms of values and the individual's personality
The traits most frequently researched are the need for achievement, locus of control, risk-taking, and
gender identity..
The research on the childhood family environment of the entrepreneur has had more definite results.
Entrepreneurs tend to have self-employed fathers, and many also have entrepreneurial mothers. The
family plays an important role in establishing the desirability of entrepreneurship as a career.
Employment history also has an impact on entrepreneur careers in both positive and a negative sense.
Entrepreneurs tend to have a higher probability of success when the venture created is in their field of
experience. Negative displacement (such as dissatisfaction with various aspects of ones job) also
encourages entrepreneurship.
Although no definite research has been done on the adult development history of entrepreneurs, it
appears to also affect entrepreneur's careers. One's development history has somewhat more of an impact
on women, since they tend to start businesses at a later stage in life.
There is a lack of data on adult family/non-work history and the available data adds little understanding
towards entrepreneurial career development.
Entrepreneurs are known for their strong work values, their long workdays, and their dominant
management style. They tend to fall in love with the organization and will sacrifice almost anything in
order for it to survive.
While in college, few future entrepreneurs realize that they will pursue entrepreneurship as their major life
goal. Relatively few individuals will start a business immediately after graduation. Entrepreneurship
education is a fast growing area in colleges and universities. While the courses vary by university, there is a
great commonality, especially in the initial few courses.
The skills required by entrepreneurs can be classified in to three main areas:
1. Technical skills involve such things as writing, listening, oral presentations, coaching, and technical
know-how.
2. Business management skills include those areas involved in starting, developing and managing any
enterprise.
3. Personal entrepreneurial skills differentiate an entrepreneur from a manager and include inner control
(discipline), risk taking, innovativeness, persistence, visionary leadership, and being change oriented.
These skills and objectives form the basis of the modular approach to an entrepreneurship curriculum.
Today entrepreneurs are recognizing the need to learn some of the "science" of management in an MBA
program in order to grow their businesses effectively in the global environment.
ETHICS AND SOCIAL RESPONSIBILITY OF ENTREPRENEURS
The entrepreneur must establish a balance between ethical exigencies, economic expediency, and social
responsibility. A managers attitudes concerning corporate responsibility tend to be supportive of laws and
professional codes of ethics. Entrepreneurs have few reference persons, role models, and developed
internal ethics codes. Entrepreneurs are sensitive to peers pressure and social norms in the community as
well as pressures from their companies.
While ethics refers to the "study of whatever is right and good for humans," business ethics concerns
itself with the investigation of business practices in light of human values. The word "ethics" stems from
the Greek ęthos, meaning custom and usage.
Development of Our Ethical Concepts
Socrates, Plato, and Aristotle provide the earliest writings dealing with ethical conceptions; earlier writings
involving moral codes can be found in both Judaism and Hinduism.
American attitudes on ethics result from three principle influences: Judeo-Christian heritage, a belief in
individualism and opportunities based on ability rather than social status.
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Entrepreneurship ­ MGT602
VU
Research on business ethics can be broken down into four broad classifications:
1. Pedagogically-oriented inquiry
2. Theory-building without empirical testing
3. Empirical research, measuring the attitudes and ethical beliefs of students and academic faculty
4. Empirical research within business environments
THE FUTURE OF ENTREPRENEURSHIP
In spite of the differences in definition of entrepreneurship, there are common aspects such as risk taking,
creativity, independence, and rewards. Entrepreneurship is currently being embraced by educational
institutions, governments, societies, and corporations. Schools are increasing their emphasis on
entrepreneurship in terms of courses and academic research. In Europe many universities have started
programs in entrepreneurship.
There has also been an increase in academic research, endowed chairs and centers of entrepreneurial
activity. Governments have also promoted the growth of entrepreneurship. Individuals are encouraged to
form new businesses and provided tax incentives, roads, and a communications system to facilitate this
creative process. Some state governments are developing strategies for fostering entrepreneurial activity.
The venture capital industry has benefited from lowering of capital gains tax rates and more relaxed rules
regarding pension fund investment.
Society's support of entrepreneurship is critical in providing motivation and public support. The media
has played a powerful role in developing public support. Media coverage uplifts the image of the
entrepreneur and growth companies. Articles have appeared in newspapers such as New York Times, The
Wall Street Journal, and the Washington Post. Business magazines such as Barrons, Business Week, Forbes, and
Fortune have provided coverage. Magazines such as Black Enterprise, Entrepreneur, Inc., and Venture focus on
issues of the entrepreneurial process. Television on both a national and local level has highlighted
entrepreneurship.
Large companies will continue to have a special interest in Entrepreneurship in the future. The largest 15
companies account for over 20 percent of the total U.S. research and development. Other companies will
create more new businesses through Entrepreneurship.
KEY TERMS
Product-evolution process
Process for developing and commercializing an innovation
Risk taking
Taking calculated chances in creating and running a venture.
Technological innovation
A new product with significant technological advancement
Technology transfer
Commercializing the technology in the laboratories into new products
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Table of Contents:
  1. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR
  2. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation
  3. ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR
  4. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS
  5. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…)
  6. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):CLIMATE FOR ENTREPRENEURSHIP
  7. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):PROBLEMS AND SUCCESSFUL EFFORTS
  8. THE INDIVIDUAL ENTREPRENEUR:ENTREPRENEURIAL BACKGROUND AND CHARACTERISTICS
  9. THE INDIVIDUAL ENTREPRENEUR (continued…):Personal Values, Work History, MOTIVATION
  10. THE INDIVIDUAL ENTREPRENEUR (continued…):ROLE MODELS AND SUPPORT SYSTEMS
  11. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES:INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES, Minority interests
  12. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT
  13. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):BARRIERS TO INTERNATIONAL TRADE
  14. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):ENTREPRENEURIAL PARTNERING
  15. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):SOURCES OF NEW IDEAS
  16. CREATIVITY AND THE BUSINESS IDEA:METHODS OF GENERATING NEW IDEAS, CREATIVE PROBLEM SOLVING
  17. CREATIVITY AND THE BUSINESS IDEA:PRODUCT PLANNING AND DEVELOPMENT PROCESS
  18. LEGAL ISSUES FOR THE ENTREPRENEUR:NEED FOR A LAWYER, PATENTS
  19. LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING
  20. LEGAL ISSUES FOR THE ENTREPRENEURS:PRODUCT SAFETY AND LIABILITY, INSURANCE
  21. CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN
  22. CREATING AND STARTING THE VENTURE (Continued….):WRITING THE BUSINESS PLAN
  23. CREATING AND STARTING THE VENTURE (Continued….):
  24. CREATING AND STARTING THE VENTURE (Continued….):WHY SOME BUSINESS PLANS FAIL, MARKETING PLAN
  25. THE MARKETING PLAN:MARKET RESEARCH FOR THE NEW VENTURE
  26. THE MARKETING MIX:STEPS IN PREPARING THE MARKETING PLAN
  27. THE ORGANIZATIONAL PLAN:DEVELOPING THE MANAGEMENT TEAM, LEGAL FORMS OF BUSINESS
  28. THE ORGANIZATIONAL PLAN (Continued….)
  29. THE ORGANIZATIONAL PLAN (Continued….):THE LIMITED LIABILITY COMPANY
  30. THE FINANCIAL PLAN:OPERATING AND CAPITAL BUDGETS
  31. THE FINANCIAL PLAN (Continued….):PRO FORMA INCOME STATEMENTS, PRO FORMA CASH FLOW
  32. PRO FORMA SOURCES AND USES OF FUNDS:PERSONAL FUNDS, FAMILY AND FRIENDS
  33. PRO FORMA SOURCES AND USES OF FUNDS:COMMERCIAL BANKS
  34. BANK LENDING DECISIONS:SMALL BUSINESS ADMINISTRATION LOANS
  35. SOURCES OF CAPITAL:GOVERNMENT GRANTS
  36. SOURCES OF CAPITAL:PRIVATE PLACEMENT, BOOTSTRAP FINANCING
  37. CAPITAL SOURCES IN PAKISTAN:PROVINCIAL LEVEL INSTITUTIONS, FINANCIAL INSTITUTIONS
  38. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  39. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  40. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  41. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  42. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  43. NEW VENTURE EXPANSION STRATEGIES AND ISSUES:JOINT VENTURES, ACQUISITIONS
  44. NEW VENTURE EXPANSION STRATEGIES AND ISSUES (Continued….):DETERMINING THE PRICE FOR AN ACQUISITION
  45. ENTREPRENEURSHIP & PAKISTAN:GENDER DEVELOPMENT STATUS WOMAN AS AN ENTREPRENEUR IN PAKISTAN