Chapter 7

my.rose.edu

Chapter 7

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Chapter

7

Entrepreneurship

McGraw-Hill/Irwin

Management, 7/e

Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.


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Learning Objectives

After studying Chapter 7, You will know:

Why people become entrepreneurs, and what it

takes, personally.

How to assess opportunities to start new

companies.

Common causes of success and failure.

Common management challenges.

How to increase your chances of success,

including good business planning.

How to foster intrapreneurship and an

entrepreneurial orientation in large companies.


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Entrepreneurship

Entrepreneurship occurs when an

enterprising individual pursues a lucrative

opportunity

Entrepreneurs initiate and build organizations

Entrepreneurship involves creating new

systems, resources, or processes to produce

new goods or services and/or serve new

markets


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Entrepreneurship vs. Small Business

Small Businesses have fewer than 100

employees, are independently owned and

operated, thy are not dominant in their field

and are not characterized by many innovative

practices

Entrepreneurial ventures are new businesses

that have growth and high profitability as

their primary objectives


Myths about Entrepreneurship

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Why Become an Entrepreneur

Entrepreneurs start their own firms because

of:

The challenge

The profit potential

Roadblocks at big corporations

Frustration by bureaucracy or other features

of corporate life

The enormous satisfaction they hope lies

ahead


Why Become an Entrepreneur

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What does it take to Succeed?

Innovation and creativity

They possess knowledge and skills in

Management

Business

Networking


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What Business Should You Start?

Entrepreneurs generally look for two things when

starting a business

The idea itself

An Opportunity

Other Opportunities include

Franchises

Financial services

Heal services and health-related things

Travel

Education


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The Next Frontier

Space – Burt Rutan has

started the first private

business to launch

people into space

The Internet is a

seemingly limitless

frontier

Side streets – these are

unexpected opportunities

that appear as you begin

down a road and learn

from trial and error


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What Does it Take, Personally?

There is no single personality type that will

predict entrepreneurial success

Common characteristics include:

Commitment and determination

Leadership skills

Opportunity obsession

Tolerance of risk, ambiguity, and uncertainty

Creativity, self-reliance, and ability to adapt

Motivation to excel


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Success and Failure

Start up companies have at least two major

liabilities

Newness

Smallness

Factors that influence success and failure are:

Risk

Economic environment

Management related hazards

Initial public stock offerings


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Increasing Your Chances of Success

Start by conducting an opportunity analysis

A description of the product or service, an

assessment of the opportunity and the

entrepreneur

Create a business plan

This is a formal planning step that focuses on

the entire venture and describes all the

elements involved in starting it


Opportunity Analysis

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Business Plan

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Increasing Your Chances of Success

Crucial to the success of the organization are

many non-financial resources

Legitimacy – People’s judgments of a

company’s acceptance, appropriateness, and

desirability, generally stemming, from

company goals and methods that are

consistent with societal values

Networks

Management teams

Advisory Boards

Partners


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Intrapreneurship

Large corporations are more than passive

bystanders in the entrepreneurial explosion

Established companies try to find and pursue

new and profitable ideas – to do so they need

entrepreneurs


Intrapreneurship

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Building Support for Your Idea

Start by clearing the investment with your

boss – formally get approval to pursue the

idea

Recruit cheerleaders – people who will

support the idea prior to formal approval

Be prepared to horse trade – promise payoffs

in return for support, time, money and other

resources

Expect to get the blessing – this usually

involves a formal presentation


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Building Intrapreneurship

Two common approaches used to stimulate

intrapreneurial activity are

Skunk works – a project team designated to

produce a new, innovative product

Bootlegging – Informal work on projects, other

than those officially assigned, of employees’

own choosing and initiative


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Management Challenges

Organizations that encourage

intrapreneurship face risks

The effort can fail

Over reliance on a single project

Efforts are spread over too many projects

The hazards are also related to scale

One large project is a threat

Too many under funded projects are a threat

as well


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Entrepreneurial Orientation

This is the tendency of an organization to

identify and capitalize successfully on

opportunities to launch new ventures by

entering new or established markets with new

or existing goods or services

Determined by five tendencies

Allowing independent action

Innovation

Taking risks

Being proactive

Being competitively aggressive


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Looking Ahead

Chapter 8 Organizational Structure

How differentiation and integration influence an

organization’s structure.

How authority operates.

The roles of the board of directors and the chief executive

officer.

How span of control affects structure and managerial

effectiveness.

Why effective delegation is important.

The difference between centralized and decentralized

organizations.

The different ways organizations can be structured.

The unique challenges of the matrix organization.

The nature of important integrative mechanisms.


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The Idea

Many great organizations

have been built based on

the founder’s desire to

build a great organization

rather than to offer a

particular product

Return

After a job in corporate design turned out to be unsatisfying, Jennifer Velande

found a creative outlet for herself—designing handbags. Soon, with the help

of her friend Robin Newberry, Jennifer turned this “hobby” into a unique

business concept. 1154 Lill now gives customers the opportunity to design

their own original handbags.


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The Opportunity

Entrepreneurs spot, create, and exploit

opportunities in a variety of ways

To spot opportunities, entrepreneurs think

carefully about events and trends as they unfold

Technological discoveries

Demographic changes

Lifestyle and taste changes

Economic dislocations

Calamities

Government initiatives and rule changes

Return


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Risk

A fundamental problem

with most entrepreneurs is

they are unrealistic about

the market demands or

unrealistic about the costs

of meeting those demands

Mel Gibson (pictured right)

risked $25 million of his

own money to film The

Passion of the Christ, an

idea he believed in.

Return


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Economic Environment

Money is a critical resource

for all new businesses

Entrepreneurs must have the

foresight and talent to

survive when the

environment becomes more

hostile

Business incubators are one

way to prepare for the

unexpected; these are

protected environments for

new, small business; they

offer benefits such as low

Return rents and shared costs


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Initial Public Stock Offerings

IPO’s offer a way to raise

capital through the sales of

federally registered and

underwritten shares of the

company

Advantages include raising

more capital, reducing debt

and enhancing net worth

Disadvantages include the

expense, time, and effort

involved; along with the

tendency to become more

interested in the stock price

and capital gains

Return


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Management-Related Hazards

You might not enjoy it

Survival is difficult

Growth creates

challenges

It’s hard to delegate

Misuse of funds

Poor controls

Death

Return

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