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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 1
THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP
LEARNING OBJECTIVES
1. To introduce the concept of entrepreneurship and its historical development.
2. To explain the entrepreneurial decision process.
3. To identify the basic types of start-up ventures.
4. To explain the role of entrepreneurship in economic development.
5. To discuss the ethics and racial responsibility of entrepreneurs.
NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP
The term entrepreneur comes from the French and translates "between-taker" or "go-between."
Earliest Period
In this period the money person (forerunner of the capitalist) entered into a contract with the go-between
to sell his goods. While the capitalist was a passive risk bearer, the merchant bore all the physical and
emotional risks.
Middle Ages
In this age the term entrepreneur was used to describe both an actor and a person who managed large
production projects. In such large production projects, this person did not take any risks, managing the
project with the resources provided. A typical entrepreneur was the cleric who managed architectural
projects.
17th Century
In the 17th century the entrepreneur was a person who entered into a contract with the government to
perform a service
Richard Cantillon, a noted economist of the 1700s, developed theories of the entrepreneur and is
regarded as the founder of the term. He viewed the entrepreneur as a risk taker who "buy[s] at certain
price and sell[s] at an uncertain price, therefore operating at a risk."
18th Century
In the 18th century the person with capital was differentiated from the one who needed capital. In other
words, entrepreneur was distinguished from the capital provider.
Many of the inventions developed during this time as was the case with the inventions of Eli Whitney and
Thomas Edison were unable to finance invention themselves. Both were capital users (entrepreneurs), not
capital providers (venture capitalists.) Whitney used expropriated crown property. Edison raised capital
from private sources.
A venture capitalist is a professional money manager who makes risk investments from a pool of equity
capital to obtain a high rate of return on investments.
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Entrepreneurship ­ MGT602
VU
19th and 20th Centuries
In the late 19th and early 20th centuries, entrepreneurs were viewed mostly from an economic
perspective. The entrepreneur "contributes his own initiative, skill and ingenuity in planning, organizing
and administering the enterprise, assuming the chance of loss and gain."
Andrew Carnegie is one of the best examples of this definition, building the American steel industry on of
the wonders of industrial world, primarily through his competitiveness rather than creativity.
In the middle of the 20th century, the notion of an entrepreneur as an innovator was established.
Innovation, the act of introducing something new, is one of the most difficult tasks for the entrepreneur.
Edward Harriman and John Pierpont Morgan are examples of this type of entrepreneur. Edward
reorganized the Ontario and southern railroad through the northern pacific trust and john developed his
large banking house by reorganizing and financing the nation's industries.
This ability to innovate is an instinct that distinguishes human beings from other creatures and can be
observed throughout history.
DEFINITION OF ENTREPRENEUR
The concept of entrepreneurship from a personal perspective has been explored in this century. This
exploration is reflected in the following three definitions of an entrepreneur:
In almost all definitions of entrepreneurship, there is agreement that we are talking about a kind of
behavior that includes:
1. . Initiative taking.
2. The organizing and reorganizing or social/economic mechanisms to turn resources and situations to
practical account.
3. .The acceptance of risk or failure.
To an economist, an entrepreneur is one who brings resources, labor, materials, and other assets into
combinations that make their value greater than before, and one who introduces changes, innovations,
and a new order.
To a psychologist, such a person is typically driven by certain forces- the need to obtain something, to
experiment, to accomplish or perhaps to escape the authority of others.
Entrepreneurship is the dynamic process of creating incremental wealth. Our definition of entrepreneurship
involves four aspects:
1. Entrepreneurship involves the creation process.
2. It requires the devotion of the necessary time and effort.
3. It involves assuming the necessary risks.
4. The rewards of being an entrepreneur are independence, personal satisfaction, and monetary reward.
For the person who actually starts his or her own business there is a high failure rate due to poor sales,
intense competition, lack of capital or lack of managerial ability.
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Entrepreneurship ­ MGT602
VU
THE ENTREPRENEURIAL DECISION PROCESS
(Deciding to become an entrepreneur by leaving present activity)
Many individuals have difficulty bringing their ideas to the market and creating new venture. Yet
entrepreneurship and the actual entrepreneurial decisions have resulted in several million new businesses
being started throughout the world. Although no one knows the exact number in the United States.
Indeed, millions of ventures are formed despite recession, inflation, high interest rates, and lack of
infrastructure, economic uncertainty and the high probability of failure
The entrepreneurial decision process entails a movement from something to something-- a movement
from a present life style to forming a new enterprise.
To leave a present live-style to create something new comes from a negative force--disruption. Many
companies are formed by people who have retired, moved, or been fired. Another cause of disruption is
completing an educational degree.
The decision to start a new company occurs when an individual perceives that forming a new enterprise is
both desirable and possible.
KEY TERMS
Breakthrough innovations
A new product with some technological change
Business ethics
The study of behavior and morals in a business situation
Desirability of new venture formation
Aspects of a situation that make it desirable to start a new company.
Entrepreneur
Individual who takes risks and starts something new
Entrepreneur as an innovator
An individual developing something unique
Entrepreneurial decision process
Deciding to become an entrepreneur by leaving present activity
Entrepreneurship
Process of creating something new and assuming the risks and rewards
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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