Chapter 7

7-1

Chapter
7
Entrepreneurship
McGraw-Hill/Irwin
Management, 7/e
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

7-3
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.

7-4
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

7-5
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
7-6

7-7
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
7-8

7-9
What does it take to Succeed?
Innovation and creativity
They possess knowledge and skills in
Management
Business
Networking

7-10
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

7-11
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

7-12
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

7-13
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

7-14
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
7-15

Business Plan
7-16

7-17
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

7-18
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
7-19

7-20
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

7-21
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

7-22
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

7-23
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

7-24
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.

7-25
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.

7-26
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

7-27
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

7-28
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

7-29
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

7-30
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