Enterprise - Entrepreneurship and Innovation - Concepts, Contexts and Commercialization (PDFDrive)

Enterprise:
Entrepreneurship and
Innovation
To Sylvia, Catherine and Jonathan
– Robin
To Andrew, Ian and bouncebackability

– Sue
Enterprise:
Entrepreneurship
and Innovation
Concepts, Contexts and
Commercialization
Robin Lowe and Sue Marriott
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Conten
ts
Introduction xvi
Part I Concepts 1
Chapter 1 What is enterprise and where do we find it? 3
Learning objectives 3
Introduction 3
The evolving conceptual perspectives of entrepreneurship 4
The physiocrats 5
The Austrian School 6
Risk taking 6
Entrepreneurship as a multifaceted activity 8
The social dimension to entrepreneurship 8
Some definitions of entrepreneurship 10
Narrow definitions of entrepreneurship 10
Broader definitions 11
Focusing on skills or attitudes 11
The characteristics of individual enterprise 12
Self-managed or -employed 13
Knowledge and learning 13
The family connection 14
Personality drivers 14
Life circumstances 15
Perceptions of risk 16
The cultural dimension 16
The continuum of enterprise 17
Organizational enterprise 18
Innovation 18
Creative destruction or incremental change 19
vi Contents
Contexts – where do we find enterprise? 21

Size of businesses 21
Creating jobs and turnover 22
The types of organizations 22
The myths of entrepreneurship 25
Individual propensity to entrepreneurship 26
Developing an enterprise culture 28
Government support for enterprise 28
Cause and effect of intervention 29
Learning the lessons 30
Summary 32
Chapter questions 32
Case study 33
References and further reading 34
Chapter 2 What entrepreneurs are like, and what they do 37

Introduction 37
What entrepreneurs are like 38
The ‘entrepreneurial personality’ 39
Nurture rather than nature 42
Early life experiences 43
Motivations of entrepreneurs 44
What entrepreneurs do 47
Entrepreneurs as managers 47
The entrepreneur–administrator continuum 49
Entrepreneurial actions 51
Entrepreneurial capacity 54
Dimensions of entrepreneurial capacity 54
Developing entrepreneurial capacity 57
Process 58
Summary 60
Case study 61
Chapter 3 Innovation and its management 63

Introduction 63
The nature and role of market-based innovation 64
Innovation and creativity 65
The alternative categories of innovation 70
Content vii
s
Technology and step changes 71
Technological discontinuities 72
Incremental and architectural innovation 74
Innovation throughout the life cycle 76
Industry breakpoints 79
Marketing and operational breakpoints 79
The categories of innovation and commercialization challenges 79
Continuous innovations 80
Dynamically continuous innovations 81
Creative destruction and the internal organizational challenges 81
The innovation process 84
Technology push, market pull 85
The innovation models 86
The management of innovation 88
Developing an appropriate innovation stance 88
The key innovation process steps 90
The lessons of success in the innovation process 92
Reasons for failure in innovation 94
The challenges in managing innovation 95
Summary 97
Case study 99
Chapter 4 Learning, decision-making and leadership 102

Introduction 102
The nature of individual learning and enterprise 104
Skills, knowledge and attitudes 105
Intuition and luck 106
The alternative education approaches 107
Lateral leaders 109
The link with professional development 109
Personal reflection 110
The process of reflection 110
Making choices 112
Overcoming the fear of failure 112
Critical incidents 113
Leadership and learning capability 113
Vision as a driving force for learning 114
Innovative climate 114
Alternative leadership styles 115
Entrepreneurial organizational learning 117
The learning organization 117
Decision-making in entrepreneurial organizations 119
Dealing with ambiguity in decision-making 120
Learning capability and entrepreneurial strategy 123
Single- and double-loop learning 123
Signal and 3R learning 124
3R learning and innovation 126
The learning spiral 128
Summary 128
Case study 129
Part I Integrated personal development activity 132
Part II Contexts 139

Chapter 5 The personal enterprise environment 141
Introduction 141
Female entrepreneurship 142
Typologies 142
Hidden entrepreneurial activity 144
Facts and figures 144
Perceived barriers 145
Policy issues 148
Ethnic minority entrepreneurship 149
Facts and figures 150
Push and pull factors 150
Dislocation and hardship 151
Geographical concentration 151
Policy issues 153
Family businesses 153
Definitions 153
Incidence 154
Insularity 154
Conflicting priorities 155
Communication 155
Succession 156
Support needs 159
Young entrepreneurs and grey entrepreneurs 159
Young entrepreneurs 159
Grey entrepreneurs 160
Self-perceptions 161
Readiness for self-employment 161
Self-perceived effective capacity 162
Culture 165
Degree of fit 166
The support infrastructure 167
Personal support networks 167
The know-how and know-who of social networks 167
Supporting enterprising people 168
Public sector support 169
Employer support 171
Categorizing entrepreneurs 172
Summary 173
Case study 174
Chapter 6 The enterprise environment and the

entrepreneurial response 177
Introduction 177
The entrepreneurial environment 178
The business environment 178
The entrepreneurial organizational environment 180
The nature of macro environmental changes and the
entrepreneurial strategic response 181
Changes in the macro environment 181
The nature of the strategic response of entrepreneurial
organizations to macro environmental changes 182
The nature of micro environmental changes and the
entrepreneurial strategic response 190
Changing customer behaviour 190
Competition and its changing nature 193
Sector changes 196
The public sector environment 196
Other not-for-profit environments 198
Strategic response 199
Market approaches, competitive advantage and capability 200
The changing nature of competitive advantage 200
Approaches to the market 202
Market approaches in not-for-profit sectors 204
Market approaches through the Internet 205
The failure of entrepreneurial organizations 207
Summary 208
Case study 209
Chapter 7 The social, public and not-for-profit context 212

Introduction 212
Economic and social motives 213
Corporate social responsibility 215
What is corporate social responsibility (CSR)? 215
Drivers of CSR 215
CSR as an innovative response 215
Ethical standards of managers and entrepreneurs 217
Social and community enterprise 217
What are social enterprises? 217
The nature of social and community enterprise 219
Trends 220
Potential problems faced by social enterprises 222
The voluntary and community sector 225
The nature and role of the voluntary and community sector 225
Engaging in the delivery of public sector services 226
Lessons from the not-for-profit sector 227
Tensions between social and economic imperatives
in not-for-profit entrepreneurship 231
Business approach and the political process 231
Individual and community 231
Short-term deliverables and long-term sustainability 232
Public sector 232
Bureaucracy and conservatism 233
Drivers of innovation 233
Individual enterprise in public life 234
Comparisons between social and economic entrepreneurship 235
Innovation 235
Risk-bearing 235
Spotting and acting on opportunities 236
Bridging between sectors, fields and resources 236
Leadership 236
Characteristics of social and economic entrepreneurs 236
Summary 239
Case study 240
Chapter 8 Multicultural entrepreneurship 242

Introduction 242
The characteristics and impact of entrepreneurship
in different cultures 243
The prevalence of entrepreneurship in different countries 244
Culture and attitudes to entrepreneurship, risk and failure 245
The role of entrepreneurship in economic development 254
Aid or business support 254
Political change and infrastructure development 255
Low- and high-displacement companies 256
Export markets and cash crops 256
The multiplier effect 257
Small-firm support or infrastructure development 257
The infrastructure and availability of resources 258
The challenges of entrepreneurship in emerging markets 259
The opportunity 259
The informal economy 260
The practical difficulties faced by entrepreneurs in
less-developed countries 262
The nature and development of international entrepreneurship 270
The impact of globalization 270
Exporting 271
Niche marketing 272
Alternative patterns of international development strategies 272
E-commerce 273
Summary 274
Case study 275
Part II Integrated personal development activity 278

xii Content
s
Part III Commercialization 283
Chapter 9 Opportunity identification and solution development 285
Introduction 285
The identification of opportunities 287
Sources of innovation 287
Looking for opportunities in the market 288
Creating customer value 290
The triggers to the creation of new business 292
Generating new ideas 294
The vital role of information 295
Using someone else’s ideas 295
Observation in a familiar area 296
Removing unnecessary features 297
Do better what the employer does 297
Exploiting structural changes in sectors and large organizations 299
Subsegmentation of markets 299
Sectors with particular potential for entrepreneurs 300
Organization structure opportunities 300
Creativity and thinking techniques 301
Creating innovation solutions: products, services and processes 306
Customer benefits 306
Innovation throughout the total offer 307
Moments of truth 309
Design 309
New service innovation 310
New service offerings 310
Retailing 311
New process innovation 312
New market innovation 312
Checking on the organization’s capability to deliver the
opportunity 313
Summary 314
Case study 315
Chapter 10 Enterprise planning and risk management 318

Introduction 318
The developmental stages of the business 319
Creating a sustainable business model 323
Defining the business model 323
Factors affecting the design of the business model 325
Value chain contribution 331
The value chain and business model and risk 334
The purpose and benefits of business planning 334
Some arguments against formal planning 335
The benefits of strategy development and planning 336
The planning process 337
Planning and the business plan 340
The components of the plan 341
Writing the plan 342
Feasibility study and risk 343
The business case and feasibility assessment 343
External plans to obtain start up investment 346
The plan for business management 348
Summary 350
Case study 351
Help with business planning 353
Chapter 11 Getting started: creating the organization, obtaining

resources and reaching break-even 355
Introduction 356
Forming the organization 357
Alternative ownership models 358
Ownership situations 360
Management buy-out and buy-in ownership 361
models
Legal protection for the organization and its stakeholders 363
Intellectual property 363
Premises 365
Obtaining the necessary finance 368
Personal and informal finance 368
External funds 369
Problems of financing the business 372
Building and leading the team 374
Marketing and sales 375
The nature and role of marketing in a new venture 375
Marketing and selling the products and services 376
The extended organization 377
Getting to break-even 378
Achieving break-even 380
The start up barriers 386
Summary 386
Case study 387
Chapter 12 Enterprise strategies and fast growth 390

Introduction 390
Strategy in entrepreneurial firms 391
The purpose and characteristics of strategy 392
Strategic approaches at different stages in the lifetime
of an organization 395
The nature of strategy development in entrepreneurial
organizations and the implications for decision-making 397
Strategies for start up 399
Start up capability 400
Step change and incremental change strategies 402
The barriers to growth and turnaround strategies 403
The barriers to growth 403
The reasons why start up strategies might no longer be appropriate 406
Strategies to achieve consolidation of the gains made and
the development of the management team 408
The indicators of poor performance and the concerns of
stakeholders 409
Turnaround strategies to deal with underperformance
and taking difficult decisions 410
Fast growth, niche strategies and service 411
Niche strategies 412
Fast growth strategies 415
The importance of service 418
Comparing strategies for entrepreneurial and bureaucratic
organizations 418
Sustaining and building competitive advantage 419
Sources of competitive advantage 420
Building competitive advantage 421
Competitive advantage through adding stakeholder value 421
Competitive advantage through learning 423
Summary 425
Case study 426
Suggested further reading on generic strategy development and
evaluation 427
Part III Integrated personal development activity 429
Index 437
Introducti
on
Enterprise is the art – or science – of not standing still. Whether you
are reading this as an individual or as a manager with organizational
responsibilities you are faced with a stark choice. You can accept being
carried along ‘with the flow’ and risk being flattened by the
juggernaut of change or you can try to take charge – or at least
influence – your own or your organization’s destiny through being
enterprising. Enterprise embraces many diverse themes including:
■ entrepreneurship, starting up your own company and becom-

ing self-employed;
■ intrapreneurship, being an entrepreneur in an existing
organization;
■ being innovative in exploiting personal and organization
opportunities, by adopting a particular approach to work,
study or life in general; and
■ being enterprising and becoming more independent and
self- reliant throughout life, by gaining the necessary
knowledge, skills and attitudes.
In today’s competitive environment enterprising organizations must

innovate in order to establish themselves, survive and grow. The tradi-
tional view of innovation, expressed by the majority of business text-
books is that strategies must be developed, and processes and systems
established to encourage the generation of new or improved
products, services, processes and ideas necessary for organizational
growth and development. But it is the motivated, skilled and
knowledgeable individual owners, managers and staff that are the
innovators. They have the choice of whether to be innovative or not
and must be encouraged if the organization is to succeed.
Introducti xvii
on
The traditional view of entrepreneurship is that there are a small
number of exceptional people, such as Bill Gates, Richard Branson and
James Dyson, who are the charismatic individuals who successfully
commercialize new ideas, manage their own organizations and are
incapable of working for anyone else.
In practice, however, many people are entrepreneurial and
succeed in implementing new ideas. They can be found in virtually
every type of organization and in every aspect of life. They aim to be
self-reliant and keen to pursue their goals using the organization for
which they work as their vehicle. These people will seek to be
innovative, wherever they work and, if an organization does not allow
them to be entrepreneurial, they will move on.
Entrepreneurs and innovators are creative in diverse areas, such as
design, science, technology, the arts and organizational development
and they work for many different types of organizations. Commercial
success comes from innovations that are embedded within a
product, service, process or an idea that fulfils the market
requirements by providing value for customers, whether they be
consumers, clients or patients, and maintains the organization’s
viability. This is market innovation but it is not confined to ‘for
profit innovation’. There are social entrepreneurs, too, that add
value in the ‘not-for-profit’ sector by embracing new techniques and
challenging the way things have always been done.
In this book we focus on enterprising behaviour, and on those
individuals who make a difference, whether as entrepreneurs, as
employees, as volunteers, or as active members of the communities
in which they live. Irrespective of context, they introduce new
perspectives, and have the self-confidence to back their judgement
with action.
Skills, knowledge, attitudes and techniques

New products and services must be developed and delivered to fulfil
the new needs and desires of ever-more demanding customers and
clients. New processes must be developed in order for organizations to
more cost- effectively deliver their offer to customers and clients. The
pace of change is accelerating as competitors copy new ideas and
make alternatives to existing products and services available more
quickly. As a result organizations grow if they have the right formula
but decline more quickly if they do not. Hence there is more
uncertainty in employment and so individuals must gain the skills of
self-reliance, enterprise and entrepreneurship in order to survive and
progress throughout their career.
The consequence of this is an increasing interest in how entrepre-
neurs, with their apparently special skills, knowledge and attitudes, are
able to identify new opportunities, have the motivation to obtain the
necessary resources and knowledge to exploit their ideas and make
them commercial successes. By identifying, understanding and acquir-
ing the entrepreneur’s skills, attitudes and knowledge, and the tech-
niques needed to generate new business and, if necessary, create a new
organization it is possible to learn how to become more
innovative, self-reliant, and opportunistic.
The key, however, is not simply to study the highest-profile, most suc-
cessful entrepreneurs because their unique set of skills and circum-
stances may not be reproducible. Instead, by considering a broader
range of situations, more modest levels of innovation and entrepre-
neurial achievement, entrepreneurship characteristics can be identi-
fied, acquired and applied to many situations: new starts; small and
large firms; private, public and not-for-profit sectors. Associated with
the introduction of new products, services and processes and new busi-
ness start-ups, there is a high failure rate. By obtaining a better under-
standing of the entrepreneurial processes and gaining the relevant
skills it seems reasonable to assume that better success rates can be
achieved.
For large organizations the need for entrepreneurship and an
understanding of the processes of innovation are just as great. Over
a period of time large firms often become complacent and rely on
their existing successful strategies, products and services. As
competition increases they need to respond to the new demands of their
customers and clients by harnessing the innovative capability of their
staff to offer new products and services that their customers and
clients will value. However, many fail to do this quickly enough, and
reach a crisis point where the organization needs an
entrepreneurial leader to turn it around.
The increasing emphasis on enterprise has spilled over into the
public and not-for-profit sectors over the last two decades. Contracting
out and public–private sector partnerships are two examples of this.
Although time has proven that the private sector has not been particu-
larly effective in tackling the public or social agenda, enterprise has
remained a strong value in both, and is evident in the current trend
to encourage the participation of the voluntary and community sectors
in supporting the delivery of public sector services. This presents
new challenges, and demands different capabilities if the
opportunities are to be effectively exploited.
The target audience
Enterprise: Entrepreneurship and Innovation aims to meet the needs of stu-
dents and practitioners who wish to study enterprise, entrepreneur-
ship and innovation in different contexts. It is primarily targeted at
undergraduates and masters students taking a module in entrepre-
neurship and innovation who are interested in how
entrepreneurship can be applied to new business starts, large private
sector businesses, and public sector and social enterprises. Many
students who are interested in entrepreneurship, and ultimately
wish to run their own business, are often not ready to start their
own business immediately but need to learn the dynamics of
innovative business and management first. Many basic mistakes can
be avoided by reflecting upon and, thus, learning the lessons of
entrepreneurship in different contexts.
Many practitioners consider the options of self-employment, while
others work in the area of business support policy or delivery or are
consultants in a wide range of business situations and, for them, a
more comprehensive conceptual underpinning is needed to prepare
them for developing solutions in many different scenarios. In fact
many practising managers try self-employment at some point in
their career but return to employment to pursue their innovative
approach to management. Others give up ‘conventional
management’ positions for the challenge of starting up or running
a social enterprise, not for their own personal benefit but rather
for the good of the community.
This book discusses the factors that should be taken into account
when starting up a new business, but this is not the primary focus
of the book. In fact there are already many good practical guides to
‘How to start a new business’. Therefore, a key aspect of this book
is the emphasis on the learning and decision-making processes of
entrepreneurs. Through encouraging students to practise
enterprising skills, and to reflect on their learning, the hope and
expectation is that they will gain the experience and self-confidence
to believe that they can be more enterprising themselves. As a
consequence, they will be able to realize their potential in
whichever way they feel is right for them.
Outline of the book
The following is an outline of the book.

Chapter Chapter title
Part I Concepts
1 What is enterprise and where do we find it?
2 What entrepreneurs are like, and what they do
3 Innovation and its management
4 Learning, decision-making and leadership
Part II Contexts
5 The personal enterprise environment
6 The enterprise environment and the entrepreneurial response
7 The social, public and not-for-profit context
8 Multicultural entrepreneurship
Part III Commercialization
9 Opportunity identification and solution development
10 Enterprise planning and risk management
11 Getting started: creating the organization, obtaining resources and
reaching break-even
12 Enterprise strategies and fast growth
How to study using this book

The aim of the book is to provide readers with an accessible and
read- able introduction to the various dimensions of
entrepreneurship and market innovation.
It has a clear structure that is easy for the reader to follow.
Part I Concepts
Part I of the book is concerned with the concepts of enterprise,
entrepreneurship and innovation and we begin by introducing the
topics. We start by discussing the characteristics of entrepreneurship
and particularly the skills, knowledge and attitudes that define the
way that entrepreneurs behave, explaining that it is not our intention
to describe entrepreneurs as an elite species but rather the most
visible tip of an iceberg of innovative and creative people.
Many people are innovative and we suggest that there is an entrepre-
neurial continuum with the ‘archetypal’ entrepreneurs at one
extreme
and, at the other, the ‘followers’ who show few of the characteristics
of entrepreneurship. It is useful to study the characteristics of
‘archetypal entrepreneurs’ so that it is possible for the reader to
understand what they are like and compare their own motivations
and capabilities. We explain what entrepreneurs do and explore how
they work to identify and exploit opportunities. Of particular interest
is how entrepreneurs address the key challenges, such as the
management of risk.
We then go on to discuss the nature and role of innovation and
how it can be managed within the organization, including some of
the lessons of good practice as well as some of the reasons for the
failure of innovation. For large organizations initiating and managing
innovation can be particularly problematic and, often, such firms
develop very bureaucratic cultures that stifle ideas.
In the final chapter of Part I we discuss the alternative approaches to
learning and emphasize the importance of learning in developing
a more entrepreneurial and innovative approach. Sustainable innov-
ation depends on effective learning processes being embedded in the
strategic decision-making processes of organizations. This means that
there is a need to foster a climate in which creativity can flourish,
and where individuals can experiment and learn. We suggest that
building learning capability is crucial to entrepreneurial success. We
conclude that it is possible to build entrepreneurial capacity through
reflective practice at both individual and organizational level.
Part II Contexts
Right from the start we have emphasized that entrepreneurship occurs
in many different contexts, and in this second part of the book
we explore how enterprise appears in many facets of life, in the
context of the individual and the organization, in small and large
businesses, and in the commercial and ‘not-for-profit’ sectors.
Individual entrepreneurs experience different challenges, depending
upon their own set of circumstances and we set out to understand
some of the difficulties they face and how they overcome them.
We start with the entrepreneur’s personal circumstances and sup-
port environment and consider the challenges facing female, ethnic
minority, and young and older entrepreneurs. We then go on to
explore the nature of the broader market environment and the
entrepreneurial response to the changes that take place.
In the chapter on social and community enterprise in the not-for-
profit sector we focus on its role in social and economic
regeneration.
xxii Introducti
on
Often social and community enterprise fills the gap in supply of services
and frequently operates at the interface between the public and
private sectors and this frequently sets different challenges for
entrepreneurs.
We finish Part II by exploring what we consider to be a significant
facet of entrepreneurship – the nature of multicultural entrepreneur-
ship. We look at this from the perspective of the success of ethnic
minorities in developed economies, international exploitation of
innovation and also the problems of the informal economy and
the significant influence of entrepreneurs in economic
regeneration in different economies, but particularly in emerging
markets.
Part III Commercialization

In Part III, we focus on the elements of the commercialization
process starting with the various ways in which opportunities are
identified and solutions are developed, going on to planning the
venture, gathering the necessary resources and finally discussing the
strategies that are needed to ensure the start up venture becomes a
sustainable organization.
We start by discussing the specific approaches to identifying market
opportunities and ensuring that they might be feasible projects to pur-
sue in the competitive market. To do this it is necessary to develop an
offering that will appeal to customers.
We then go on to explore the role and benefits of planning at the
different stages in the development of the organization and assessing
the feasibility of the initial idea. Of particular importance is
developing a viable business model and sustainable supply chain
position.
Having identified an innovative project the entrepreneur must
gather the resources and other support necessary to establish the idea
as a sustainable product, service or process. This includes forming and
legally protecting the organization, securing finance and a team
to deliver the proposition, and finding customers that will generate
the necessary revenue.
While establishing one innovative idea provides a sound basis for
a new business it rarely guarantees a long-term, sustainable future for
the business and, therefore, in this chapter we discuss the strategies
that will ensure survival and lead to growth. Of particular interest is
to identify the strategies and tactics of those organizations that achieve
fast growth.
Chapters
Introducti xxii
Before the introduction to each chapter the learning objectives fori
on
the chapter are set out and these should provide the focus for the
study of
the topic. A strong emphasis has been placed upon the practical appli-
cation of the concepts, frameworks and academic research in order
to enable the reader to appreciate the key lessons. To help to
reinforce the learning and encourage the reader to explore the issues
more fully the chapters contain a number of additional aids to
learning.
Enterprise in Action
The Enterprise in Action boxes provide examples of the practical
application of the concepts of enterprise, entrepreneurship and
innovation. The aim has been for the settings for these illustrations to
be as diverse as possible, on the basis of business sector, and size and
type of organization and its market situation as well as different
geographies and cultures, to try to help the reader consider the
situations described from alternative perspectives. They often
highlight the decisions made at a critical time that ultimately prove to
be crucial for successful entrepreneurship or innovation. We have
not attempted to tell the ‘life stories’ of successful entrepreneurs but,
rather, identify decisions at critical moments that offer lessons for
students and practitioners. However, many of the examples provided
are worthy of further investigation by the reader using online
information, or newspaper or library sources.
Spotlights
The Spotlights that have been provided are intended to reinforce a

key issue or learning point that has been presented within the chapter.
The questions provided should help to encourage further discussion
or information search.
Pause and Reflect
Many of the situations that occur in the Enterprise in Action examples

do not have a clear-cut solution. Often it is necessary for the entrepre-
neur or innovator to pause and reflect on the information they have
available before making their decision. The Pause and Reflect boxes
are included within the chapter to emphasize the point that there
are few simple and straightforward decisions. Organizations and
entrepreneurs often face difficult situations that require a decision.
However, they often fail to fully consider the various factors and so
reach a lower quality decision, and therefore these boxes aim to
encourage the reader to pause and reflect upon the deeper and
broader implications of the individual scenarios, which is often
necessary in ‘real life’.
Case studies
The 12 case studies provide the opportunity for the reader to carry
out more comprehensive analysis of the key chapter topics. These
short cases provide only limited information on the scenario in
question and, where possible, readers should supplement the
information provided using appropriate online and library sources in
order to complete the tasks. The reader should start with the
questions that have been supplied in order to help guide the analysis
or discussion. Thereafter, however, the reader should think more
broadly around the issues raised and decide whether these are indeed
the right questions to ask and answer.
Key words
Key words are listed at the end of the chapter and highlighted in the text.
Chapter summary
A bullet point chapter summary is provided at the end of the chapter.
Chapter questions
Five questions are provided at the end of the chapter to reinforce the
chapter learning.
Integrated personal development activities

After each part of the book we have included an integrative personal
development activity that provides a basis for readers to reflect on
the learning of the chapters and develop a personal development
strategy to increase their ability to become more entrepreneurial and
improve their ability to manage market innovation.
Essentially the chapters provide knowledge about the skills, attitudes
and techniques that are central to the processes of entrepreneurship
and market innovation and so the activities focus on how the reader
might apply that knowledge to their own context by analysing what
is needed to succeed in their own situation, reflecting on their own
skills, attitudes and techniques and identifying the steps that might
lead to improvement in their own personal performance.
We address this in three stages. At the end of Part I we focus
on entrepreneurial characteristics, skills, motivations and actions.
We
emphasize the need to learn from the examples of entrepreneurs
from a range of other contexts. At the end of Part II we focus on the
skills, attitudes and techniques associated with the process of market
innovation and its strategic and operational management. At the
end of Part III the focus is on the development of a new start up
business or turning around an established company.
In practice, long-term organizational success requires an effective
combination of all enterprise skills, attitudes and techniques. It is
unlikely that any one person can be effective in all of these areas and so
having a grasp of one’s own capabilities is an essential starting point in
building a high performance team, from members with complementary
attributes.
Web support
An accompanying website (www.textbooks.elsevier.com) is provided
for this textbook to enable students and lecturers to access
additional resources in order to explore the subject further. A full set
of Powerpoint slides is provided plus exercises, and suggestions for the
use in class of the case studies and other illustrations. Students can
access further learning resources to build up their knowledge of
innovation situations using the hotlinks to useful websites that will
add further depth and bring up to date the case studies and
illustrations. Support is also provided that will enable students to
assess and reflect on their own skills and attitudes to
entrepreneurship and innovation through the provision of exercises
and links to appropriate websites.
Acknowledge
ments
In writing a book that brings together a diverse range of situations,
challenges and actions under the umbrella of entrepreneurship and
innovation we have drawn not only on our own experiences and the
literature but on our encounters with a large number of enterprising
people. We would like to thank our colleagues at Sheffield
Hallam University, at other universities and in many businesses for
their
Ourformal and are
students informal contributions
a constant source of over the years.
inspiration by sharing with us
their learning experiences and their creative ideas for innovation and
new business starts. This has helped us to develop the pedagogical elem-
ents of the book that are explained in the Introduction.
We have drawn extensively on the knowledge and experience of
the owners and managers from organizations that we have worked
with, who have provided insights and examples of the many
dimensions of enterprise.
We are particularly indebted to Maggie Smith and the team at
Elsevier in supporting us in presenting a broader view of entrepre-
neurship and innovation.
Robin Lowe
Sue Marriott
P A R T
I
Conce
pts
The words enterprise and entrepreneurship appear so frequently in
newspapers, radio and TV programmes, and everyday conversation
that we pay very little attention to what the words actually mean.
The academic literature helps us very little in coming to a clear
understanding of the concepts, as there are so many different
definitions/perspectives, and they carry both positive and negative
connotations.
It is surprising perhaps that ‘enterprise’ is the word associated with
the very largest firms – multinational enterprises, and at the same
time is associated with individual endeavour; an enterprising
individual might not be associated with any organization at all. The
UK government, for example, has an initiative to encourage
enterprise in schoolchildren. Individual enterprise is almost always
seen positively as relating to individual creativity and pursuit of
opportunity, innovation and development backed up by the
individual’s determination to succeed. However, when applied to a
large organization, the word ‘enterprise’ is by no means always
used positively. Often it is associated with a large, lumber- ing and
rather bureaucratic organization.
Perhaps all enterprises should be enterprising but unfortunately
they are often not, and this brings us to the fundamental idea that runs
right through this book. Large and small enterprises are not
spontaneously enterprising. They need enterprising people,
individually or collectively to be innovative, creative and capable of
developing and successfully exploiting new and exciting
opportunities. This applies whether the firm is a commercial
enterprise or operating in the public, voluntary or community
sectors.
Part I of this book focuses on enterprise concepts. Chapter 1
introduces enterprise in its broadest sense, exploring how conceptual
perspectives have developed over time, comparing definitions, and
beginning to identify the contexts in which it emerges (this latter
aspect being explored in much greater depth in Part II). Chapter 2
looks at the individuals
2 Concept Part I
s
themselves – what entrepreneurs are like and what they do. We consider
what it is that distinguishes them from managers in general, what their
motivations are, and where we tend to find them. The concepts
introduced here relate to entrepreneurial personality,
characteristics, and behaviour, and consider how far ‘received wisdom’
is accurate in helping policy makers to ‘pick winners’. In Chapter 3 we
shift our focus from the individual to the organization, and consider
the sources of innovation in organizations and the process through
which advantage is created. Finally, in Chapter 4 we bring
individuals and organizations together again, looking at how
organizations can develop their innovative capacity through learning
and leadership.
C H A P T E R
1
What is
enterprise and
where do we
find it?
Learning objectives
By the end of this chapter the reader will be able to:
■ appreciate the different conceptual perspectives on entrepre-
neurship and innovation;
■ compare narrow and broad definitions, and evaluate their
usefulness and purpose;
■ understand the relationship between individual and organiza-
tional enterprise;
■ recognize the different contexts in which enterprise skills
and behaviours arise;
■ assess whether initiatives to support the development of an
‘enterprise culture’ have the impact they intend.
Introduction
Over time, there have been a variety of writers who have offered
views on what enterprise means and the role that entrepreneurs play in
economic and, more recently, social regeneration. They have
highlighted examples of how individuals, and the organizations that
they establish, have contributed to the prosperity of communities,
regions, and nations. Whether you see these elusive characters that we
call entrepreneurs as saints or as villains, it is difficult to argue that
they make no difference
4 Concept Part I
s
to the world in which we live. Many governments see them as
vital in growing economies, and seek to encourage more
enterprise and innovation at all levels in society. This means that
they would like to see individuals and organizations being able to
achieve their full potential, and contribute as much as they can to
society in general. By ‘organizations’ we do not just mean businesses –
we mean any group of people that come together with a shared purpose.
This can be as simple as your local gardening group or as complicated
as a multinational firm. It can be private sector, but it can also be
public sector, or not- for-profit.
Our view is that defining enterprise just as something that happens
within businesses would be a very narrow way to approach the subject.
Individuals can be enterprising in how they live their lives and those
that are enterprising create and pursue more opportunities for them-
selves and, perhaps, get more enjoyment out of life. Unfortunately,
not all enterprising people are successful, however they choose to
measure success. Success to some means social standing or self-esteem,
while to others it might mean artistic excellence; to some it might
mean financial gain, while for others it might mean more time at
home with their family. Enterprising behaviour inevitably includes
taking risks, and where there is risk there can also be failure. Not
many people write about failure, but maybe they should. Enterprising
people often see failure as an opportunity to learn – it tells them
something that helps them do things differently next time.
In this first chapter we will explore what we mean by enterprise
for both individuals and organizations (whatever their size or sector),
and where it can be found. Is enterprise really the prerogative of
small and medium-sized businesses, or is it found more broadly? We
will consider the various approaches to entrepreneurship and
innovation that have evolved over time, and how innovative
organizations rely on individual enterprise to maintain their
competitive edge. We then go on to consider issues of enterprise
policy: why might governments want to encourage a more
enterprising culture, how might they go about it if they did, and
what might the implications of intervention be?
The evolving conceptual perspectives of entrepreneurship
Over time, various authors have taken different perspectives on entre-

preneurs and their role in the economy. Some focus on their
contribution to economic change, some on their creativity and
innovation, some
on the way they organize the factors of production, or resources,
to add value, and some on their propensity for risk and its
consummate reward. Deakins and Freel (2003: 3–10) offer a useful
analysis of these, which is briefly summarized below.
The physiocrats
Theories of entrepreneurship had their origins in economics. Cantillon
and Say belonged to a French school of thought known as the ‘physio-
crats’. Cantillon saw entrepreneurs as having a key role in economic
development by virtue of their having individual property rights as cap-
italists. He saw entrepreneurs as the key group, the other two that
he recognized being landowners and workers. However, should we
take it for granted that the entrepreneur is always the capitalist? We see
entrepreneurs acting within a social and community context where
they own little tangible capital but nevertheless add value in terms of
social and economic regeneration. Also, in today’s knowledge-based
businesses, the distinction between who holds the capital and who
does the work is less clear cut than it was, for example, during the
Industrial Revolution. Where the capitalist owned the factory and the
machines and the workers were employed by them to produce physical
products the distinction between capitalist entrepreneur and worker
was obvious. By way of contrast, if we consider a small company
involved in research and development, the premises may be rented and
the capital is the skills and expertise of the company as a whole, not
only of the founder. In this case, the intangible capital belongs to
each of the workers as the expertise is personal to them, although they
may achieve synergy from working collaboratively. As a team of
professional people, they may have equal status and run the
company on more democratic lines, making it difficult to distinguish
one individual as the leader (although it is common to identify senior
partners, as, for example, in accounting firms). Each of them may act
in an entrepreneurial way, and the distinction between entrepreneur,
capitalist, and worker becomes somewhat more complicated to
make.
Cantillon saw the entrepreneur as someone who consciously makes
decisions about resource allocation, in that they choose to pay a cer-
tain price for a product to resell it at an uncertain price,
consequently also bearing the risks of enterprise.
Cantillon did not believe that entrepreneurs must be innovators.
Although they are expected to estimate demand for a product or ser-
vice they do not have to be the ones who first create it.
Say also saw the entrepreneur as a catalyst for economic
development, viewing their role as one of bringing together the
different factors of production, moving resources from less to
more productive areas. He did differentiate between the
entrepreneur and the capitalist, separating the profits of the
entrepreneur from the profits of capital. He did not see risk or
uncertainty as a central issue, or as a force for change.
The Austrian School

Some of these views were developed by the Austrian School. Kirzner
did not feel that ownership was a necessary condition of
entrepreneurship. Wherever disequilibrium exists in a market there
will be frustrated buyers or sellers who are willing to accept or pay
higher or lower prices. The entrepreneur, being alert to an opportunity
for profitable exchange, can facilitate the deal. The market has
imperfect knowledge, and anybody can be in a position where they
know something that others do not. They do not necessarily have to
own anything in order to make a profit. There is an element of
creativity in making the match, however.
Schumpeter did not agree that anyone can perform the function.
He sees the entrepreneur as someone special, an innovator, who brings
something new to the process. Entrepreneurs change things, and chal-
lenge constraints suggesting greater proactivity, but they are not entre-
preneurial all of the time. Such activity gets mixed up with other kinds
of non-entrepreneurial activity, for example, ‘management’.
Risk taking
Schumpeter is adamant that entrepreneurs are not risk bearers unless
they fund themselves. If someone else invests in a business, then
they carry some of the burden of risk. At certain times, the element
of risk is less than at others; for example, if the economy is relatively
stable it is easier to predict what might happen in the future. Being
first in a market carries more risk than being second or third, and
entrepreneurs who are successful innovators are a rare and
talented breed, in Schumpeter’s opinion.
Other writers agree that entrepreneurs are risk takers, although
some, like Knight, qualify this by saying that the risks they take are cal-
culated. Knight also distinguishes between risk and uncertainty. When
we do not know how things will turn out, we have to take risks.
Some types of risk can be calculated and, indeed, insurance companies
make a business out of it. But not all of the risk can be covered in this
way and we cannot always calculate with any degree of precision the
odds of many events occurring. Entrepreneurs are willing to go the
extra mile and accept the risk of the uninsurable element but expect
profit to be their reward for bearing this uncertainty. But of course,
risk does not always result in profit and sometimes can result in
serious loss. Wickham (2004: 13) refers to this as a ‘market for
risk’. Many people are risk averse and are not prepared to take
uncalculated risks but are willing to pay a price which allows an
element of profit to the entrepreneur who has borne the risk on their
behalf.
Enterprise in Action 1.1

What risk?
Martin Whealey, age 53, and Fred Deakin, age 40, worked for a company who decided
to change their product focus, and as a result they had either to find a new job or to buy
out the failing manufacturing company. They took the biggest gamble of their working lives,
setting up Stetfield Separators, which produces a range of equipment for the environmental
market to treat oily waste and rainwater run-off at sites such as power stations, rail yards, and
transport and storage depots.
They bought out the design rights, sales leads and enquiries, investing their own money
and taking an overdraft from HSBC. They say the most nerve wracking part was turning the
order book into sales and convincing people of their credibility as a company. Because of
the sale negotiations, there had been a six week gap in work, and picking up work after the gap
and keeping customers on their side was a tense process. The work is low volume and high
value, so losing a lead was critical. Repeat business is low, and so maintaining a stream of new
customers is vital.
They are pleased that the export side of the business is healthy, with a recent £49 600 sale to
China, and just 11 months after starting up forecast turnover has doubled to £470 000. They
have improved cash-flow control, and focused on developing good relationships with the
key suppliers who carry out most of their manufacturing. With the support of their families,
they are now (cautiously!) optimistic about the future.
Adapted from: Maisha Frost, ‘Gamble pays off’, The Express, 10 August 2005
Question: What risks did Whealey and Deakin actually take?
As we said earlier, not all risk is financial. Even where the investor is
separate from the entrepreneur and therefore sharing the financial
risk, they may not be sharing the same degree of personal risk. For
example, the stigma of failure may be felt much more keenly by the
entrepreneur as they may feel that their personal credibility is on the
line. It may be argued that a manager becomes an entrepreneur
when they are willing to stand up and be counted. Taking personal
responsibility means accepting that their judgement is liable to
error but they must still assume responsibility for its correctness. To
be more right than wrong in making critical decisions requires
knowledge, judgement, foresight and competence. Some managers
might be performing activities that we generally attribute to
entrepreneurs so can we argue that entrepreneurship has some
connection with superior management ability? We might
hypothesize that entrepreneurs can be found anywhere, so
organizations could be described as pools of potential entrepreneurs.
These potential entrepreneurs may choose to remain employed, but
if they feel they can achieve more, and fulfil their potential through
self-employment, they might take that opportunity.
Entrepreneurship as a multifaceted activity

Casson tries to bring some of these issues together, seeing entrepre-
neurship as a multifaceted activity. Entrepreneurs have different skills;
they coordinate scarce resources, make judgements and decisions and
take risks. He looks at issues of supply and demand. Some
economies seem to encourage entrepreneurship more than others,
and he gives consideration to how far this is attributable to a
predisposition towards enterprise and environmental circumstances.
He sees change going hand-in-hand with entrepreneurship as it
provides opportunities and choices for the entrepreneur as to which
they will pursue.
The social dimension to entrepreneurship

Although we can clearly see that entrepreneurs operate in an
economic context, they also operate in a social one. They do make
the economic system more competitive but they also drive changes
in the structure of society – they enrich life, challenging the status
quo, and changing perceptions.
For some entrepreneurs, the motive is primarily social; for
example, Trevor Baylis (Handy 1999: 70) invented a clockwork radio,
which is the only way in which health information and education can
be spread in many parts of Africa. We see examples every day of the
achievements of enterprising people in all walks of life. Kirby (2003: 29)
suggests that the Beatles were cultural entrepreneurs; it could be
similarly argued
that Live 8 is an example of Bob Geldof’s entrepreneurial ability.
Julia Middleton (Handy 1999: 180) set up Common Purpose in 1988
(she held the view that by bringing key decision-makers within cities
together, they could be educated and encouraged to collaborate in
the regeneration of the areas in which they live and work). There
are other people who are less well known, but who make a significant
difference in their local communities by their dedication, hard work
and determination. We can all think of such people: the person who
single-handedly keeps the local brass brand solvent; the person who
campaigns for community facilities, etc.
The balance between the economic, cultural or social motive, and
its ultimate impact, varies. It would be naïve, however, to assume
that economic impact is all that we should look for today. Indeed,
the popular press is quick to use the word entrepreneur negatively to
describe the individual who has got rich quickly by using unethical
business methods to defraud his or her customers.
This suggests that, over time, and in different circumstances, our
understanding of the role played by entrepreneurs can change. If
we accept that entrepreneurs play a social as well as an economic role
and that managers can sometimes perform entrepreneurial activities,
this has consequences for how we define entrepreneurship and
innovation.
Pause and Reflect 1.1

Reviving National Savings
Alan Cook is 51, lives in Milton Keynes, worked for the Prudential for 30 years working his way up to be their
number 2, and took a 30 per cent pay cut almost three years ago to become chief executive of National
Savings, an organization seen to be something of a dinosaur in the Financial Services industry. Despite what
seems like a pretty uneventful employment background, he has turned the organization around. Today 23
million Britons invest £27 billion in Premium Bonds, compared to £5 bn in 1995. Total savings at National
Savings have increased by £6 bn to £69 bn in just over 2 years.
How did he do this? He admits that there were external forces that supported the turnaround. The stock
market was weak, and corporate scandals eroded the public’s faith in business, making National Savings seem
like a port in a storm, with its watertight Treasury Guarantees. This is something that their competitors
complain about, as the protected status skews the market in their view. Cook doesn’t accept this criticism,
pointing out that only 5 of his 12 products enjoy tax-free status and that their interest rates are lower as a
consequence of that. Without tax-free status it would be almost impossible to operate premium bonds.
Financial products are quite complicated, and savers are also growing tired of being lured by higher rates
only to find that a month after they move their money the rate comes down again.
Over the last two years Cook has introduced direct debits for the public to build up savings, and swipe cards
to access them, doing away with 13 million of those familiar little blue savings books in the process. He has
just launched an advertising campaign with Alan Sugar to publicize a second million-pound prize for premium
bonds.
There are plans for new longer-term savings products and a deal with a leading supermarket that will enable cus-
tomers to buy their premium bonds and index-linked savings certificates when they are doing their shopping.
Although there were fears that its market would be undermined by the National Lottery, the opposite seems to
be the case, as customers seem to be influenced more by the frequency of winning than by the amounts they win.
Cook does express some concern about the public’s increasing interest in gambling, but says that they spend
their money on other luxuries like expensive holidays too. He would like to encourage them to save rather than
spend, so that they can provide for their future.
With two years left on his five-year contract, his career prospects certainly haven’t suffered from the move; a
top job in financial services or the running of a government agency may well be likely at the end of Cook’s
contract.
Adapted from: Nick Mathiason, ‘The man who saved Premium Bonds’, The Observer, 14 August 2005
Questions: Would you describe Cook as an entrepreneur? Why/Why not?
Some definitions of entrepreneurship

Although the literature recognizes the importance of entrepreneurs,
it provides such a broad range of definitions that it becomes difficult
to pin down what the term actually means. The word
entrepreneurship derives from the French entreprendre, which translates
literally as ‘between taker’, or ‘go-between’, the verb meaning ‘to
undertake’. This implies that it is action based – not something that
we just think about or the- orize about, but something that has
meaning in what is actually done in practice.
There are both narrow and broad definitions.
Narrow definitions of entrepreneurship

For some people, the word entrepreneur is defined quite narrowly,
meaning the same as ‘capitalist employer’ or ‘business
owner/manager’. Others see it as a phenomenon of small businesses
rather than large ones, of the private sector rather than the public,
social or not-for-profit sectors. Some see entrepreneurship in terms of
business creation and development, and there are many textbooks on
the subject that focus almost entirely on how ideas are generated,
business plans written, resources acquired and business concepts
brought to realization. Some writers argue that ‘true’ entrepreneurship
exists only where there is potential for high growth, and many public
sector support programmes reinforce this view, prioritiz- ing scarce
resources in such sectors where, they argue, the potential return is
greater.
Broader definitions
Other writers take a broader view, still focusing on organizations,
but recognizing that people can be creative and innovative as employees
as well as in a self-employed capacity. These people are labelled
‘intrapreneurs’, and organizations that wish to remain competitive in
fast-moving or complex and competitive environments need to
nurture such individuals and harness their creative capacity in order
to achieve sustainable competitive advantage.
How we define the term sets the parameters for our
understanding of the concept and has implications for the way
society sees entrepreneurship, and for the way policy makers and
businesses themselves relate to it. For example, Wickham (2004: 3)
argues that ‘entrepreneurs are just managers who make entrepreneurial
decisions’. This would imply that entrepreneurs are not born, but
made. If we agree with this definition we might then accept that it is
possible to learn the skill of entrepreneurial decision-making. Within
organizations, if we want to adopt a more innovative culture, we
could perhaps encourage our managers to learn to be more creative
and to be less risk averse in their day-to-day decision-making. Policy
makers might choose to look at the way we educate our children in
schools to encourage more autonomy and self- reliance. However, if
we believed the opposite, and defined the entrepreneur in terms of
personality characteristics, our actions would be different. In
organizations we might choose not to invest in skills development but
recruit certain personality types. Rather than investing in skills
development, public sector training might then concentrate on
picking out individuals with potential, and investing in their ideas or
matching them with investors.
Focusing on skills or attitudes

Lord Young, in his role as UK Secretary of State for Employment
in 1993 said that enterprise was about ‘Get up and go – not sitting
back and accepting it. Think positive and things can happen; think
negative and nothing happens. It’s a mental attitude’. Almost a decade
later, the Davies Review (2002) defined ‘enterprise capability’
broadly as ‘the capacity to handle uncertainty and respond
positively to change, to create and implement new ideas and ways of
doing things, to make reasonable risk/reward assessments and act
upon them in one’s personal and working life’.
Enterprise
Entrepreneurship Innovation
Figure 1.1 Organizational enterprise

Individual enterprise
Enterprise:
entrepreneurship
and innovation.
Our view is that the term should be broadly defined. To

understand how innovation and entrepreneurship can impact on
organizations, communities, and economies, we do need to look at
people themselves and ask a number of questions:
■ Why is it that some people appear to be more

enterprising than others?
■ What is different about them as people, their
experiences, their motivations, their circumstances?
But this is only part of the equation.
■ People do not always choose to act in entrepreneurial ways

despite being enterprising people, so what prevents them
from expressing their creativity, from following their
hunches, from taking a little bit more risk, from developing
enterprise skills?
■ Do some cultures and some environments inhibit
enterprise, and why?
Organizations are simply vehicles for the creativity and enthusiasm
of individuals, the context in which enterprising behaviour finds
expression. If we are to describe an organization as enterprising,
it needs both entrepreneurship (individual enterprise) and
innovation (organizational enterprise) (Figure 1.1).
The characteristics of individual enterprise

We have seen that enterprising people are often labelled ‘entrepre-
neurs’. If they behave in enterprising ways within the organizations
that employ them, they are labelled ‘intrapreneurs’. Often a business
is the personification of the entrepreneur; for example, it is
difficult to think about Virgin without Richard Branson popping
into your thoughts.
Self-managed or -employed
If we are looking to encourage people to be more enterprising, these
labels may not always be helpful. Perceptions of ‘entrepreneurs’
differ from one culture to another. Stereotypical images
sometimes lead people to disassociate themselves from the concept,
feeling that perhaps the idea of creating wealth is inappropriate to
them; or perhaps they link it to the idea that to be entrepreneurial
means running your own business, which seems too great a risk.
Being an employee does not debar you from being enterprising.
Ask any teacher who has helped to turn around a school
described as ‘failing’. The growing interest in social
entrepreneurship, and the idea that enterprise can be directed towards
generating social capital rather than economic capital might give
encouragement to those who are motivated more by ‘making a
difference’ than by accruing personal wealth and achieving
independence from the organization.
It is easy to exclude yourself from this band of enterprising people
– the truth is that many of us are more enterprising than we realize, and
that this ‘spark’ lies dormant in many of us, just waiting for the oppor-
tunity to show itself.
Knowledge and learning

Entrepreneurs have a personal store of knowledge of an area of
activity – the business, the people, the customers, the competition –
and they apply it to a new situation. As they make decisions they learn,
build on their existing knowledge and recognize its value, identify
gaps in that knowledge and fill them. They adapt, and make the
changes that are necessary to pursue an opportunity in a single-
minded way.
Learning is a central aspect of entrepreneurship but learning
comes in many guises, largely because individuals learn in different
ways. It is not all about formal learning although theory and
knowledge have their place. However, entrepreneurs are often
action-oriented and learn by doing. They analyse and decide, reflect
and revise, and consider
what went right/wrong. They retain detailed knowledge of subjects
that are important and store the lessons of good and bad practice for
future reference.
If learning is so important, this begs the question of whether the edu-
cation system encourages individuals to be enterprising. The
statistics do not really help, although there is evidence to suggest
that people who have degrees, for example, tend to be less likely to
fail in business than those who do not; successful entrepreneurs
come from all educational levels, following different educational
experiences (SBS, 2003). There are some unexpected findings, for
example, a higher than expected number of entrepreneurs have
dyslexia.
The family connection

Looking back through history, in pre-industrial societies family and
working life were highly integrated; the separation of the two is a fairly
recent phenomenon. According to the BDO Centre for Family
Businesses (2005) up to 76 per cent of UK businesses are family
owned. Furthermore, it is, perhaps, only natural that having built a
business one would want to ‘pass it on’ and so retain the accumulated
wealth in the family. But one of the most difficult issues faced by such
firms is that of succession. There is an old, probably true, adage which
says ‘clogs to clogs in three generations’. Around four out of five family
businesses are managed by the first generation. Only 15 per cent ever
reach the third generation of family management. This might
suggest that having an entrepreneurial family background does not
predispose the offspring to being entrepreneurial. However, there is
evidence to suggest the opposite (SBS, 2003); whether it is genetic,
or because you are exposed to certain attitudes and experiences early
in life, because you have role models, or because you make useful
contacts, coming from an enterprising family does help and
encourage people to become an entrepreneur. Perhaps the
conclusion to be reached from this is: beware of working for the
family business!
Personality drivers
Our personalities predispose us to see things in certain ways. Gareth
Morgan (1997) talks about ‘psychic prisons’ and how people and
organizations can become trapped in favoured ways of thinking.
Some of us
are more optimistic than others and see opportunities where others
see only problems. Our personal history and experiences lead us to
expect certain things to happen as a result of something else, and so we
narrow our perspective and sometimes fail to see the bigger picture,
the chance that things will turn out differently next time. If you have
never experienced being involved in a business, for example, your
perceptions of what it would actually be like may be quite wrong (it
may be too rosy, or too gloomy, a perspective!). If we are to nurture
the spark of enterprise within us, we need to challenge our
preconceptions.
Life circumstances
The current life circumstances of individuals might also influence
their willingness to be more enterprising. When a person is young
and without responsibilities the risks may seem less than when they
have a family to look after and a mortgage to pay, or if they have aged
parents to take care of. Responsibilities can make the individual feel
as if they have less freedom to start a business, diversify into new
markets, or take on more staff. In Enterprise in Action 1.2, being
made redundant might have made the decision to set up easier, as the
responsibility for the decision to give up paid employment was made
for Gemma, and the redundancy payment meant that she was able to
fund the start-up independently.
, and herself, from their savings and the redundancy money because they did not want the added stress of repaying loa
Perceptions of risk
The self-esteem and status of an employed person is often linked to
their job and the perks it provides, e.g. the expensive company car, pri-
vate healthcare or first class train travel. It may appear to be too much
of a risk to give up steady income, promotion prospects or the retire-
ment package.
There are also professional risks. People from specialist
professions may find that the more generic management
approach of running their own business means that they fail to
keep up with developments in their profession, and might no longer
be able to compete with their peers should they later wish to return
to their former occupation.
Sometimes it comes down to confidence in an ability to analyse or
‘sense’ the environment. The individual must decide whether he or
she is the sort of person who will trust their intuition, and have
confidence in their own assessment of trends, the market and customer
needs.
The cultural dimension

These issues vary from culture to culture. Some cultures appear to
be more naturally predisposed towards enterprise than others.
Some writers argue that dislocation and hardship can lead to
enterprise. The very experience of surviving in a new and hostile
environment requires certain qualities. Certainly it would appear
that in troubled times, some minority groups have had little to lose
and much to gain from enterprise, leading in some cases to the
global organizations of today. Prior to the growth of interest in the
small business sector in the 1980s, there had been little
recognition of the role that women played in enterprise, either as
business owners in their own right or as contribu- tors to family-owned
firms. As women have engaged more in the labour market in
general, there has also been a growth in the numbers of women
entering self-employment. For many it can be a positive lifestyle choice
allowing the flexibility to balance responsibilities; for others it is a
reaction against the inability to make progress in employment when
they realize that their nose is pressed right up to the glass ceiling. They
may well be tempted by an alternative way of living that provides more
control over their own destiny and rewards that are more
appropriate
to their contribution to the organization.
Recently, there has been much interest in ‘grey entrepreneurs’. As
their family responsibilities diminish, and with experience in
management
and knowledge of the market, many people are tempted to ‘retire’
early and set up on their own.
Although creative people are often said to be driven by the need to
‘make a difference’, for many, being seen as ‘different’ is the last
thing they want. We can only imagine what a society that consisted
wholly of stereotypical entrepreneurs would be like. But if you are so
inclined, it could be you at some point in time, in some
circumstances. Many successful entrepreneurs never imagined
they could attain to where they have reached. There are many ways
to be entrepreneurial and, as we discuss in this book they do not all
involve featuring on television programmes. The chosen way will
never be absolutely right and there is likely to be a defining moment
when it is necessary to choose to take the risk. The years after the
decision will involve many obstacles but the rewards are there for those
who have the courage.
The continuum of enterprise

Rather than categorizing people as entrepreneurial or not, it may be
more useful to think in terms of a continuum of enterprise (Figure 1.2).
Wherever they sit on that continuum, there is a role to be played. But
if the road to economic and social prosperity depends on more
individuals becoming more enterprising, people need to be
encouraged to
Necessity Conventional Creative Opportunist Serial
mployment through circumstances. Ekes out a living but would prefer to be employed. It may be for a brief period of time; circumstances req
s with conventional products and ideas to meet lifestyle needs
limits of personal or professional values, e.g. artistic entrepreneurs, social entrepreneurs
rsues growth to support personal status needs, e.g. financial success, social impact
ons, developing new products/services, seeks rapid growth, however defined
Figure 1.2
Continuum of entrepreneurial activity.
consider whether they might be able to improve their chances of
realizing their personal or professional aspirations in life by
developing certain skills or attributes, or by actively seeking out
opportunities to practise and develop enterprise skills.
Furthermore, in an increasingly competitive and over supplied
world, organizations must differentiate their offerings from those of
the competitors and become more enterprising if they are to survive
and grow. To do this they must become more innovative, but if
organizations are to be more innovative, they have to be able to
harness the potential for individuals to be more enterprising on
their behalf.
Organizational enterprise
At the heart of enterprise is the identification and exploitation of
opportunities that will benefit the stakeholders of the organization.
Stakeholders are all those individuals, groups and organizations that
have an interest in what the organization does, and includes the
partners, owners, managers, staff, trades union, customers,
competitors, suppliers, government and community in general.
Innovation
Many organizations are initially established as a result of some kind
of innovation whether the initial idea is new to the world or a rather
more mundane efficiency improvement. To ensure survival and
maintain growth the organization must continue to exploit new
opportunities too. Few organizations are able to remain the same
for very long. The reason for this is that most organizations must
constantly adapt to the ever changing external business environment
and market situation. Most organizations must strive to do things
differently and better in order to differentiate their offer from those
of the competitors in the minds of the customers and clients. In this
way they can gain competitive advantage and so maintain the loyalty
and support of their stakeholders. This is essential for survival and
growth. For example, technology constantly develops, legislation
changes and community interests evolve. Market dynamics change as
consumer demands and expectations alter, often as the result of new
fashions; new competitors come into the market; or existing
competitors become more aggressive. The organization itself learns
from its collective experience of success and failure and develops
good practice in the management of its processes and systems.
Opportunities constantly emerge from the changes but it is the organi-
zation’s speed in identifying them and its effectiveness in exploiting
them that is critical for success.
In defining innovation, it is not surprising that new technology
and new products are often the first things that spring to mind. It is
natural to think about invention as a key aspect of innovation.
But invention is only part of the process – these ideas need to be com-
mercialized if they are to achieve impact. The Sinclair C5 is a
good example of how an invention can fail to find a market. A highly
economical, powered vehicle met its technological design
specification fully but was perceived by potential customers to be too
near to the ground and dangerous on busy roads. On the other hand
the Sony Walkman tapped into a latent demand for mobile personal
entertainment.
Innovation can be driven by technological advancement, referred
to as science push, or it can be market pull, a response to the
changing demands from customers and consumers or the changing
bases of competition within markets.
It is also about new processes and new ways of doing things that may
not be obvious to customers but add significant value in delivering the
services and products that our (increasingly sophisticated) customers
require, e.g. online banking, or the no-frills airlines. So innovation is
not just about high-technology firms, and high-tech does not always
mean high growth. Innovation is broader than just technological
advancements; it is a process of creating, experimenting,
transforming not only what is offered but the way in which it is offered
– the business model. Successful innovators are not foolhardy. They
are in many ways conservative. They are not
focused on risk, but on opportunity and its potential for exploitation.
Although some innovations do arise from a flash of genius, the
successful ones tend to be born of a conscious, purposeful
search for opportunity which involves taking a hard look at customer
preferences, the way the industry currently competes, and the way a
business is configured. Sometimes the new ideas, the new
opportunities start small, but some are ultimately transformational.
Creative destruction or incremental change

Schumpeter (1934) identified five principal sources of what he
referred to as ‘creative destruction’ that often underpin innovation:
■ introduction of a new good (or a significant improvement in
the quality of an existing good);
■ introduction of a new method of production (i.e. innovation
in processes);
■ the opening of a new market (in particular an export market
in a new territory);
■ the ‘conquest of a new source of supply of raw materials
or half-manufactured goods’;
■ the creation of a new type of industrial organization (i.e. an
administrative innovation).
Although the quantum leaps are the ones that often have immediate sig-
nificance and impact, it is sometimes the smaller adjustments that rein-
force changes in attitudes and behaviour. It is important not to dismiss
incremental innovation, or fall into the trap of restricting our
discussion of the context in which innovation arises as being the
prerogative of the private sector. For example, governments can be
innovators and also facilitators of innovation. Government-sponsored
research may lead to industry innovations, but there also may be
innovation in the process of governance itself.
Although a significant innovation is possible, and in line with
customer needs, commercial considerations sometimes inhibit its
exploitation. An example of this can be seen in Enterprise in Action
1.3, where an opportunity has not been fully exploited because it may
undermine the existing business of a number of stakeholders.

Rokr – innovation (or not!)
Apple undeniably exploited online music extremely successfully with the iPod, transforming
expectations of the way the industry competed as it linked to the first legal online music busi-
ness (iTunes). The possibility of combining this technology with a mobile phone opened up
numerous possibilities for further exploitation of the concept. So why might the Rokr
(a mobile phone designed by Motorola with an iPod inside) fail to live up to its hype?
It seems to be quite a good phone, having reasonable battery life, a camera,
Bluetooth, speaker and voice dialling, but it isn’t unique in that. The music player works like
an iPod, but without the clickwheel, so maybe it doesn’t score as high on user-friendliness
as it could. Its memory card is configured to act like an iPod shuffle, but it can only hold a
hundred songs.
It could have exploited the synergies between the technologies. There is no technological
reason why it shouldn’t hold a thousand songs, but that might undermine existing iPod sales.
It would be possible to download iTunes tracks from the Internet direct to the phone,
but instead you have to download to a computer and get songs from the music library just as
iPod works now. It would be possible to use songs stored on the phone as ringtones, except that
the mobile operator’s very profitable trade in ringtones would be hit.
Apple scored a winner in exploiting online music, but its assets (tangible and intangible) are now so valuable tha
Question: What are the critical success factors for an innovative new product?
In summary, innovation is, we argue, the process by which

opportunities are identified and exploited. These opportunities are
often radical, and potentially disruptive. The key elements in
developing successful innovation are:
■ creativity that challenges the taken-for-granted assumptions
and unsettles the status quo;
■ entrepreneurial capability that will drive the commercializa-
tion of the idea;
■ management of the process, the staff and other resources,
both from within and outside the organization;
■ the motivation and ambition of the individuals to identify
and exploit the opportunities.
Contexts – where do we find enterprise?

Much of the literature refers to the economic role of entrepreneurs.
In creating wealth, they add value, providing employment and
contributing through taxation to the provision of social benefits.
But this is a restricted view given that, by our broader definition,
there are some entrepreneurs whose motives are more social than
economic.
The received wisdom is that we need more entrepreneurs to
lead the economy, and more enterprise to liven up all industry. Small
firms create economic development, and there is an implicit
assumption of a positive connection between jobs and
entrepreneurship. But do the facts bear this out?
Size of businesses
According to the Small Business Service (statistics published 25/8/05),
there were 4.3 million private business enterprises in the UK at the
start of 2004. These enterprises employed an estimated 22 million
people, and had an estimated combined annual turnover of £2400 bil-
lion. Almost all of these enterprises (99.3 per cent) were small (0 to
49 employees). Only 26 000 (0.6 per cent) were medium-sized (50 to
249 employees) and 6000 (0.1 per cent) were large (250 or more
employees).
Creating jobs and turnover

Small and medium-sized enterprises (SMEs) together accounted for
more than half of the employment (58.5 per cent) and turnover (51.3
per cent) in the UK. Small enterprises alone (0 to 49 employees)
accounted for 46.8 per cent of employment and 37 per cent of
turnover.
But, very few businesses actually employ many people. The
number of businesses with no employees at all was 3.1 million,
equivalent to 72.8 per cent of all enterprises. They had an estimated
combined turnover of £190 billion. The number of businesses with
employees was 1.2 million. They had an estimated combined
turnover of £2160 billion.
The pattern in the UK is broadly typical of that of most developed
countries. In countries that previously had a command economy there
often remains an over-representation of large organizations and in
underdeveloped countries there are often even larger numbers of
small businesses.
The types of organizations

Small and medium-sized enterprises (SMEs)
Smaller entrepreneurial businesses have been seen as the source of
new ideas and are considered to be particularly effective in exploiting
new market opportunities. In order to defend their competitive pos-
ition they increasingly have to operate in global niche markets.
Rather than categorizing by size it is useful to use innovativeness and
potential for growth as criteria.
Marginal/lifestyle firms
The vast majority of SMEs only provide a basic income for the family
and it is often lower in terms of £/hour than is possible from
employment. It is not the basis of dreams!
Attractive small company
There is a group of organizations with stable inputs and revenues
and the potential to provide significant salaries, perks and a flexible
lifestyle for the owners. Professional services, such as accountants and
legal and medical services, fall into this category. Their innovations are
often limited to what is necessary to maintain a competitive position.
High growth potential firms

There are a limited number of organizations that have the potential
for rapid growth of sales and profits to become a large corporation.
They may be start-ups or established companies. The really fast-
growing firms, often referred to as hypergrowth firms, tend to focus
on being unique, with the vast majority of them exploiting a niche
market that they can defend, with products or services that are
perceived to be ‘leading edge’ by customers. They compete in areas
that require speed, flexibility and customer service. They diversify
into related products and adjacent markets, often leaving the
industry before the window of opportunity closes.

Grippling with growth
Success doesn’t always have to be about trying to be big; many small firms turn their size
to commercial advantage. Small firms can be more flexible, closer to their customers, and have a
more personal relationship with their staff. Their employees are often more motivated,
because it is easier for them to see how their contribution makes a difference in the company.
They often thrive on doing things differently.
Hugh Facey is Chairman and Founder of Gripple, a Sheffield-based engineering firm. The
company was formed in 1988, and was based on a new invention for joining and tensioning
wire and rope. It has sold over 130 m units worldwide, and its products are now available in
over 50 countries. Doing things differently is embedded in the business model. There are no
job descriptions, and no personnel department or planning department. Hugh says that every-
body knows what they need to do, and job descriptions inhibit people from doing anything
else. Most of the 150 employees own shares in the company. They own 38 per cent of
Gripple and 48 per cent of its sister company, Loadhog. They invest in the shares
themselves – they aren’t given them, although the company will lend them up to £10 000 (at
commercial rates of interest) to buy shares, which they repay from their monthly salary.
There is a target of between 20 and 25 per cent of turnover coming from new products
which have been launched in the previous three years. Gripple only ever manufactures
products that it can patent. To do this it invests 7 per cent of turnover in product development
every year. Gripple acknowledges that, being small, it can’t do everything itself and so it
works with research partners such as
specialist engineering teams at Sheffield’s two universities, Cardiff University for rapid prototyping and Cambri
Growth means a company might run the risk of losing flexibility, and get more set in its ways. The challenge is t
Adapted from: Gareth Chadwick, ‘Small in size but big in profits and innovation’,
Independent on Sunday, 24 July 2005
Question: What initiates innovation in a small firm?
Large organizations
There are arguments as to the relative importance of these different cat-
egories of organizations to the economy. Beck and Demirguc-Kunt
(2004) question the widely held belief that SMEs are the drivers of
economic growth, and point out that large enterprises may exploit
economies of scale and more easily secure the resources to support
the research and development that underpins innovation.
Economies go through phases. The largest firms always have the
power and influence to change markets and are the drivers of global
trade. Many however are:
■ not growing organically but by acquisition;

■ focusing on core business;
■ outsourcing components and services.
Although this effects a change in the structure of the economy,

the large organizations are still in a position to influence innovation
and entrepreneurial activity through their trading networks,
particularly their supply chains.
Public sector organizations
Public sector organizations are not immune from the effects of chang-
ing environmental circumstances, and also need enterprising people
working within them if they are to meet stakeholder expectations.
Despite periodic restructuring the public sector organizations
continue to grow and offer employment to large proportions of
the working population. Closer public scrutiny on efficiency and
accountability have driven innovation in the delivery of many
public services,
leading to closer working with both the private and not-for-profit
sectors.
The public sector also plays a role in encouraging innovation
through intervention, for example grants to support innovation and
research; funding to encourage technology transfer; or advice and
guidance for potential start-up businesses.
Spotlight 1.1
Taking risks in the public sector

Although the need for accountability is ever-present, the past few years have seen a shift in the way that
public sector participants do business. From being risk-averse, they are now beginning to talk of the value of
risk in offering creative solutions as they try to deliver more efficient and effective services.
The PFI (private finance initiative) programme is one example of this trend. This involves creating direct part-
nerships with the private sector to build capital projects such as hospitals. The hospital (or other capital project)
is then leased back to a public authority such as a health trust or a council. The government sees this as a way
to accelerate capital developments, but the initiative has aroused controversy, as there have been some high-pro-
file failures. For example, this summer the government abandoned a project for a new hospital in Paddington
before building had even started, having already spent £14 m on lawyers, consultants and architects. The pro-
jected cost had risen from £360 m to £1.1 billion.
Successes include the Highways Agencies contract for the recent A1–M1 link road. The Audit
Commission praised this contract for encouraging innovation, as contractors were allowed to develop
alternative techniques which did not necessarily conform to standard specifications, so long as they delivered
to certain standards, for example that they designed the road in a way that would cut the need for future
maintenance.
Adapted from: Gareth Huw Davies, ‘Public sector goes more boldly’,
Sunday Times, 4 September 2005
Question: The public sector has to accept some level of risk if it is to meet the modernization agenda. How
might the expectations of all stakeholders be managed in this new environment?
The myths of entrepreneurship

It is important to remember that although high-growth firms sound
like the epitome of entrepreneurship, they are comparatively rare.
Although there is much talk, particularly in terms of public policy, of
the need to encourage more of these types of firm, they are not suffi-
cient in themselves. And despite sometimes being very profitable, they
often do not provide very many jobs. A healthy economy needs
innovative organizations in all sectors, and of all sizes. Roure (1997)
drew our attention to the myths and realities of entrepreneurship,
which are summarized in Table1.1.
Table 1.1
Myths of entrepreneurship
Myth Reality
SMEs are the job creators Only some SMEs create jobs and
are high growth
New companies are the source of High job growth comes in old and
employment new companies
Growing firms come from new and Dynamic companies come from
high-growth sectors all sectors
Entrepreneurs of growing companies Dynamic entrepreneurs come from
are young and well educated all ages and education levels
Growing companies are built by an Built by teams with a
energetic and self-sufficient entrepreneur professional management
approach
Target large and growing markets Target sectors where they can be
leaders or strong challengers
Target domestic markets that they Often use exports to learn and
can dominate grow
Growing companies use low-cost Compete with high quality
strategies to compete products and superior service
Growing companies rely primarily Rely primarily on recruiting,
on unique technology training and developing
people
Growing companies use sophisticated Predominantly self-funded
sources of finance with assistance from bank
loans
Adapted from Juan Roure, Ten myths about entrepreneurship. In: Birley and Muzyka
(2000), Mastering Entrepreneurship. Harlow: Pearson
Individual propensity to entrepreneurship

In terms of individual propensity to entrepreneurship, the Small
Business Service (SBS) Household Survey of Entrepreneurship 2003
shows that:
■ almost a quarter of adults in England are either already
involved in entrepreneurial activity (13 per cent) or thinking
about it (11 per cent);
■ men are twice as likely as women to be involved in entrepre-
neurial activity or to be thinking about it;
■ while young people are more likely to be thinking about
starting their own enterprise they are less likely to be
entrepreneurs than older people;
■ ethnic minority groups are more likely to be considering start-
ing a business but there are low levels of actual entrepreneur-
ial activity among the black population;
■ there is a north–south divide in the UK, with participation rates
being higher in London, the South-West, East of England
(all 15 per cent), and the South-East (14 per cent), than
in the North-West (11 per cent), the West Midlands (10 per
cent) and the North-East (9 per cent);
■ those with a higher degree or degree are more likely than
average to be entrepreneurs (15 per cent compared to 13
per cent);
■ only 5 per cent of those who rent from local authorities and
housing associations are engaged in entrepreneurial activity
compared to 15 per cent of those who own or are buying
their own properties.
But although the statistics show where active entrepreneurs are cur-
rently found, they say nothing about future potential. If it is believed
that there is a need to encourage entrepreneurial activity at both
individual and organizational level, then it is necessary to explore
individual and organizational barriers to enterprise, and consider
how we might actually develop a more enterprising culture.

Getting a Flying Start
Flying Start is a government-sponsored initiative which brings together recent graduates so
that they can test out their business ideas, get some business advice, and develop commercial-
ization strategies with mentors. The idea is to get them to focus on who needs their
product, rather than its features. The mentors also benefit, as they get a chance to see the
good ideas early, and can choose to invest.
It will also begin to test whether government initiatives in this area are cost-effective.
More entrepreneurship does lead to more economic growth, but there is no firm evidence of
the degree to which one generates the other. Some free-marketeers argue that government
inter- ference actually stifles entrepreneurship.
The events organizer, Ian Robertson, has entrepreneurial experience himself. He founded
a distance learning company called Vektor in 1989, which became a joint venture with Sony in
2001, and has a turnover of £9 m. When questioned as to whether graduates are an appropri-
ate group to encourage to set up their own business, Robertson said ‘Why should they work for
a couple of years first? Does seeing how a bureaucracy works help you? It might dull your
entrepreneurial senses’. He also points out that the average age of the founders of Google,
Microsoft, and Yahoo when they started was 24.
Shaid Luqman graduated from Manchester University in 1991, already owning 24
houses. He would persuade banks to lend him most of the purchase price, then barter the
vendors
down at the last minute, effectively meaning that the banks were financing the whole purchase. He then rented t
Adapted from: Guy Dennis, ‘The wealth creation college’, Sunday Telegraph, 24 July 2005
Question: The success of the initiative will come down to whether it has attracted the right people, with the righ
Developing an enterprise culture

The British government is committed to making the UK the best
place in the world to set up and grow a new business (SBS, 2004).
Although recognizing that it is the dynamism of individual
entrepreneurs that drives small business success, the government
believes it can help to stimulate enterprise and overcome barriers
to growth. A range of measures are proposed, including addressing
the perceived bureaucracy of the regulatory framework and
supporting better access to finance. However, it also recognizes
that policy needs to address a broader range of issues than merely
those specific to businesses that are trying to start up or trying to
grow.
Government support for enterprise

Governments have, over time, taken many different approaches in
attempting to embody the spirit and ideals of enterprise. The
Davies Review (2002) talks about the role of education in developing
an enterprise culture, for example including enterprise projects in
schools and developing a more positive view of business in
careers advice. Government recognizes the part that it needs to play in
supporting enterprise not only in education but across all
departments. For example, there is an interest now in public–private
partnerships and how the two sectors can work together in stimulating
enterprise in the health service. In terms of public procurement, the
government is looking to the voluntary and community sector
(often referred to as the ‘third sector’) to deliver more services,
valuing its flexibility and responsiveness to local needs. In recognizing
the need for innovation, links between universities, research
institutions and business are encouraged to support technology transfer
and encourage spin-outs. Training programmes are offered free of
charge to individuals looking to start a business, and business advisers
are available to assist with business planning and a wide range of
other practical issues relating to setting up a business. The range of
interven- tions can be seen by referring to the websites of some of the
key business support agencies such as the Small Business Service and
the local Business Links, the Regional Development Agencies,
Chambers of Commerce, and Local Enterprise Agencies.

Growing the next generation of entrepreneurs
The Learning and Skills Council are providing funding for Enterprise Advisers, who are work-
ing with schools to encourage young people to develop business skills, including innovation
and risk management. All 15- and 16-year-olds will be entitled to five days of ‘enterprise activity’.
At Holywells High School in Ipswich, groups of 10 students were asked to form companies,
each student playing a specific role, e.g. managing director, accountant, marketing manager,
or business adviser to the group. The first task they were given was to create 50 origami ducks
and ship them over to France to sell. The process involved them in many of the practical skills
involved in running a business, including designing a logo, sourcing and costing supplies,
making the ducks, costing the shipping to France, organizing the distribution and so on.
The intention was to encourage the young people to use their imagination and initiative
and develop enterprise skills, not only to encourage more of them to consider setting up a
business later in life, but to allow them to be better placed to compete in the world of work.
The project helps them to learn about the world around them and how business impacts upon
their lives, and equips them with skills, such as teamworking and resourcefulness, which
employers value. Also, having fewer preconceived ideas, the young people can offer ideas
that adults may not think of, which is a resource that businesses could profitably tap into.
Source: adapted from ‘Pupils taught to be enterprising’, BBC News Online, 17 November 2004
Question: What specific skills, attitude, and knowledge can students gain in this type of
programme?
Cause and effect of intervention

There are arguments that support government intervention of this kind,
i.e. that where free market principles leave gaps in provision it is valid
for government to ‘level the playing field’. Others argue that
intervention can lead to dependency, and that adversity can often be the
spur for innovation and creativity. Sometimes this might arise from
unexpected sources. For example, the UK pharmaceutical industry is
highly regulated and yet it is notably more innovative than less
regulated national competitors, such as the French. It could be argued
that by not providing the industry with an easy life, government
regulation has, in fact, acted as a catalyst.
It is difficult to prove the case one way or the other, as, for
example, if the number of start-ups improve in an area it would be
difficult to prove that this had been caused by a specific initiative (say,
for example, a training programme) or environmental factors that
would have occurred in any event (for example an upturn in the
economy or an inward investor creating supply chain opportunities).
Opinions have changed with time. In the 1970s the route to
competitiveness was seen in terms of large companies who could
secure economies of scale; in the 1980s small firms became the focus of
attention, being seen as more flexible and responsive. This view still
predom- inates although it is clear that small businesses do not have a
monopoly on enterprise and many of them are lifestyle firms.
In looking for the cause and effect linkages it is possible to see indica-
tors, but to some degree governments also have to take risks and take a
leap of faith in investing in initiatives, in the hope that the desired
impact will indeed result. Unfortunately the greater degree of
accountability that we expect from public sector agencies as opposed
to private sector organizations makes this type of ‘risk-taking’ more
difficult for those with the responsibility of negotiating the contracts, but
it may be necessary in order to foster greater innovation and creativity
in the economy in general.
Learning the lessons

There are undoubtedly lessons to be learned. There are lessons that can
be drawn from international comparisons, helping the analysis of
how the context in which entrepreneurial activity takes place can
influence the likelihood that it will do so. Changing attitudes to risk at
an individual level may have a knock-on effect. The Household Survey
of Entreprene- urship (2003) suggests that attitudes to risk have
become more negative, that a dependency culture is being created
and that people are more fearful of debt than they were in 2002. It
will be interesting to see whether this affects levels of entrepreneurial
activity over time.
Patterns of ethnic minority involvement in enterprise, for example,
might offer us insight into best practice where it is flourishing as well as
identifying the barriers that need to be overcome if greater success is to
be achieved. As well as generic approaches (e.g. changes in the
education system, or fiscal or legislative changes that apply across the
board) intervention is sometimes targeted. For example, funding is
often given to support under-represented groups such as women, or
specific sectors that are perceived to have growth potential such as
high-technology firms. These are driven by laudable objectives –
encouraging diversity in
the former and encouraging structural change in the economy to
improve competitiveness in the latter – but again these assume that
there are causal links between such intervention and the desired
outcome. One would think that in a fully fledged enterprise culture
the role of government would be minimalist, but history suggests that
governments do continue to intervene in various ways, and
economic and political commentators continue to argue about
whether there is adequate return on the investments made. One
of the central issues of debate is whether it is indeed possible to
‘pick winners’ and whether it is individuals who are more likely to
be entrepreneurial, the type of business that is most likely to grow
and create wealth, sectors that can drive economic prosperity, or
cities/regions that can act as catalysts for regeneration, as discussed in
Pause and Reflect 1.2.

Diamonds are an economy’s best friend
In South Africa, the African National Congress are intent on reversing the inequalities of the apartheid era, and
that includes addressing the racially skewed economy. There is much talk of socialism, but rather than banishing
capitalism there is much support for a market-based system, with social responsibilities taken very seriously.
Legislation has been introduced to oblige large firms to recruit black employees, procure goods from suppliers
with a sizeable black workforce, and sell off equity stakes to black businesses in an attempt to spread wealth
more widely.
Nicky Oppenheimer is the head of De Beers, who control half of the world’s diamond supply. The company
will comply with this rule, selling off at least 15 per cent of their equity to black economic empowerment
groups, saying that in the South African context this is fair, although it may not be thought so in a different
context.
He and his family have always held liberal views, and are more popular than most with the new black elite.
They are at the heart of what could be described as a unique and bold experiment in South Africa. De Beers and
ministers talk about the urgent need for investment in training and education, and policies designed to
encourage black entrepreneurs to set up their own businesses.
However, there are tensions. De Beers are involved in discussions about how the company can help to boost
employment (40 per cent of the population is out of work), but at the same time, several of De Beers mines are
running at a loss, and job cuts seem unavoidable. South Africa’s President wants De Beers to give more business
to indigenous manufacturers who cut and polish the rough diamonds that the company extracts, and although
Oppenheimer is sympathetic in principle he is concerned that this will add to costs and consequently prices,
making them less competitive in world markets.
Demand for diamonds is high, and growing rapidly in India and China. Early in 2005, De Beers announced
after- tax profits of $500 million. The family get $180 million as 40 per cent shareholders, the other shareholders
being Anglo-American (a gold-mining colossus) and the Botswana government. De Beers stress that they have
been long-standing supporters of corporate social responsibility, opening orphanages, maintaining hospitals and
offering free AIDS treatment to workers who are HIV positive. However, it has been in their interests to do so,
and now the ministers would like De Beers to do more to help close the gap between rich and poor.
Adapted from: Richard Wackman, ‘King of the Diamond Dealers’, The Observer, 6 February 2005
Question: Evaluate the advantages and disadvantages of this policy in terms of developing enterprise in the
South African economy.
Summary
■ Perspectives on entrepreneurship have changed over time,
and are influenced by context.
■ There is no single definition, but personal qualities and
attributes such as intuition, insight, inspiration, ingenuity,
innovation, flair, boldness, courage, daring, drive,
determination, resilience and passion often arise.
■ Motivations do not have to be economic; many
entrepreneurs are driven by social and aesthetic goals as
well as, or indeed instead of, economic ones.
■ If we are to describe an organization as enterprising, it
needs both entrepreneurship (individual enterprise) and
innovation (organizational enterprise).
■ Innovation is a process by which opportunities are identified
and exploited and it requires the commitment of
enterprising people.
■ Much of the received wisdom about where we find enterpris-
ing companies and enterprising people turns out to be
myth. Enterprise arises wherever you look for it. You can be
enterprising in:
large firms as well as small firms;
lifestyle and fast growth organizations;
public, voluntary and community sector organizations as
well as the private sector;
economies; and
communities.
■ There is a willingness from governments to stimulate an
enterprise culture, but there is little empirical evidence to
prove whether such investment actually generates the impact
it intends.
Chapter questions
1. How would you define entrepreneurship? Does it matter
that we have a definition? Why/Why not?
2. Do you think that entrepreneurs are calculated risk-takers?
Give examples to illustrate your views.
3. What factors influence the decision to become self-employed?
4. Is a region’s low level of enterprise due to a lack of
entrepreneurs or an inappropriate or inadequate support
infrastructure?
5. Argue the case for and against public sector support being
given to people wanting to start up their own business.
Case study
Podcasting
A podcast is a recorded broadcast that can be downloaded, usually for free, from the Internet to a
portable device such as an MP3 player or an iPod. Podcasting arrived in the Autumn of 2004, and
was first used by amateur radio enthusiasts. Podcasts are inexpensive to produce as all you need is a
computer, a microphone, and the necessary (free) software.
The concept was very quickly adopted by conventional radio companies, such as Virgin Radio
and the BBC. They want to appeal to the younger audience, who take their music around with them.
From a customer point of view the appeal is obvious – for example, you can listen to the main inter-
view from the Today programme anytime, anywhere.
Skipping ads
We have all been irritated by our favourite TV programmes being interrupted by adverts, and taken
pleasure in fast-forwarding the video through them, or skipping through them with Sky+. Now we
have the opportunity to do the same with commercial radio. This means that the advertising indus-
try is needing to take a long hard look at the way it operates. For a start, its audience becomes frag-
mented – local radio promotes local services, which might not be quite so interesting if you are
listening on holiday in the Algarve.
Copyright issues
The podcast is stripped of the news, weather and travel information that might date it. Unfortunately
for Virgin, for copyright reasons, they have to take the music out too. Despite this, the Pete and
Geoff show is one of the most popular podcasts in Britain, with 85 000 downloads a month. James
Cridland, the head of new media strategic development at Virgin Radio, believes that the appeal lies
in the entertaining and wry observations on the world, and sees podcasts as a great marketing tool,
which will mean that many people who would not otherwise have listened to Virgin Radio will now
give it a try. They have also been able to sell advertising specifically for the podcast, which go out at
the start of the programme. Apparently customers are not fast-forwarding through them.
Developing the software

Podcast development was interesting. The original software was written by ‘the Podfather’, Adam
Curry. By his own admission it wasn’t very good. He made the first podcast in August 2004, and
used it to get help in improving the iPodder programme – people began to improve his code, and to
build iPodders of their own. These all contributed to the public domain and as a consequence the
original programme was developed and improved. People developed a liking for making their own
radio, and a community was born.
Democratizing radio
Hundreds of amateur talk shows sprang up, first in America and then in Britain, about everything
from pig-rearing to spoof celebrity interviews. Colleges are using podcasting to make lectures avail-
able to students, and a vicar in Surrey is podcasting his sermons.
Enter Apple
In June 2005, Apple added 3000 podcasts to its iTunes music downloading site, and within two days
customers had subscribed to more than 1 million pod casts. That number is now more than 5000, and
Apple are publishing a chart which shows the 100 most popular downloads. Although the talk was
about democratizing radio, in fact the traditional media companies feature strongly. In the last week
in July, the BBC had 8 in the top 10, with the Chris Moyles show at No. 1. Virgin, LBC, CNN,
Newsweek, and the Wall Street Journal are all in the top 100. However, it is an ideal way of reaching
a minority audience anywhere in the world.
Challenges
Apple has certainly upped the ante in the competition. One of the challenges will be to sort out the
digital rights issue, so allowing music to be legally included in the podcasts, and allowing artists and
record companies to be paid. One approach could be to replicate the model used by iTunes, limiting
the number of times that songs in a podcast can be played, or to render the podcast itself unplayable
after a certain time. But the industry will be more receptive this time around, and the various stake-
holders are trying to find a business model that will work fairly for everyone.
Adapted from: Paul Durman ‘Will podcasts kill the radio ads?’, The Sunday
Times, 7 August 2005 and Catherine Elsworth, ‘Homemade Internet
broadcasts pull the plug on mainstream radio’, Daily Telegraph, 30 July
2005
Questions
1. Analyse the threats and opportunities for enterprise that podcasting presents for either:
(a) Local commercial radio;
(b) The BBC; or
(c) Higher Education.
References and further reading

Beck T. and Demirguc-Kunt A. (2004) SMEs, Growth and Poverty: Do pro-
SME Policies Work? Public Policy for the Private Sector. The World
Bank Group, Note no. 268, February.
Birley S. and Muzyka D.F. (2000) Mastering Entrepreneurship. Harlow:
Pearson.
Davies H. (2002) The Howard Davies Review of Enterprise and the Economy
in Education. Norwich: HMSO.
Deakins D. and Freel M. (2003) Entrepreneurship and Small Firms, 3rd edn.
Maidenhead: McGraw-Hill Education.
Drucker P.F. (1985/1994) Innovation and Entrepreneurship: Practice and
Principles, 2nd edn. (revised). Oxford: Butterworth-Heinemann.
Government Action Plan for Small Business: Making the UK the best place
in the world to start and grow a business (2004). DTI Small
Business Service, HMSO.
Handy C. (1999) The New Alchemists. London: Hutchinson.
Household Survey of Entrepreneurship (2003) The Small Business Service,
HMSO.
Kirby D.A. (2003) Entrepreneurship. Maidenhead: McGraw-Hill Education.
Morgan G. (1997) Images of Organization. London: Sage.
Roure J. (1997) Ten myths about entrepreneurship. In: S. Birley and
D.F. Muzyka (2000), Mastering Entrepreneurship. Harlow: Financial Times
Prentice Hall.
Schumpeter J. (1934) The Theory of Economic Development. Cambridge MA:
Harvard University Press.
Small Business Service (2004) A Government Action Plan for Small Business:
Making the UK the best place in the world to start and grow a business.
DTI Jan 2004. www.sbs.gov.uk
Small Business Service (2005) Small and Medium-sized Enterprises: Statistics for
the UK, 2004, September.
Wickham P.A. (2004) Strategic Entrepreneurship, 3rd edn. Harlow: Pearson
Education.
Useful websites
http://www.bdo.co.uk/
http://www.businesslink.gov.uk
http://www.chamberonline.co.uk
http://www.dfes.gov.uk
http://www.dti.gov.uk
http://www.englandsrdas.com
http://www.nfea.com
http://www.pybt.org.uk
http://www.sbs.gov.uk
http://www.sfedi.co.uk
http://www.socialenterprise.org.uk
Key words
catalyst for economic development economic, cultural or social motive
continuum of enterprise enterprise capability
creative destruction enterprise culture
entrepreneurship learn by doing
government intervention multifaceted activity
high-growth firms narrow and broad definitions
incremental innovation not-for-profit sectors
innovation private business enterprises
intrapreneurs public sector organizations
C H A P T E R
2
What
entrepreneurs
are like, and
what they do
Learning objectives
■ evaluate the concepts and theories of what entrepreneurs are
like and what they do;
■ recognize how personal circumstances can affect an individ-
ual’s motivation to become an entrepreneur;
■ analyse how entrepreneurial behaviour is distinguishable
from managerial behaviour;
■ understand how entrepreneurial capacity can be developed;
■ evaluate the value of building entrepreneurial capacity in
organizations and in the economy.
Introduction
In this chapter we will consider the characteristics, traits, skills and
actions of entrepreneurs – what they are like, where their talents lie,
and how they act. Of course, there has been a lot of academic research
over the years into these elusive individuals, trying to find a personality
type that fits the entrepreneur, and looking at how their
behaviour differs from that of owners and managers in a more
general sense.
We begin by discussing aspects of the entrepreneurial personality,
exploring whether a common personality type does exist and the
utility
38 Concept Part I
s
of trying to categorize entrepreneurs in this way. One presumes that if
only this genetic prototype could be found then it would be easy to
pick out the winners, invest in them and train those with some of the
characteristics to become clones, thus transforming our economies
and our communities. The fact that it has not yet been possible to do
this suggests, perhaps, that, in reality, things are a little more
complicated.
As individualism is implicit in the nature of entrepreneurs, perhaps it
would be a mistake to try to categorize them so simplistically. These
‘special’ people are not a homogeneous group. The question must
be posed as to whether there are in fact a number of ‘types’ of
entrepreneur, and, if there are, then maybe some might be likely to
be more successful in some contexts than in others given that in the
last chapter it was suggested that enterprising people can be found
in all walks of life.
Although it is recognized that some people are exceptionally
creative and contribute significantly to the economy through their
entrepreneurial talent, it does not mean that people who do not
conform to this stereotype are never creative, that they are unlikely to
have good ideas, or will probably never be successful in business. We
move on to consider issues of nature versus nurture, considering
whether the definition of who is and is not entrepreneurial means that
some individuals can never be enterprising. We suggest that it is not an
either/or situation at all, and that many people have the potential to
be enterprising hidden somewhere within them.
Given our suggestion that most people have the potential to behave
in more enterprising ways, we conclude by exploring how we might
nurture and develop entrepreneurial capacity. In Chapter 1 we
suggested that innovative organizations rely on enterprising individuals.
By impli- cation, it would seem to be advantageous if such
organizations could encourage individuals to acquire entrepreneurial
skills, and/or improve them. If this is possible, then, in reflecting on
their own attitudes and skills, individuals might choose to adapt their
behaviour, which in turn might have a positive impact not only on the
organizations in which they work, but on their own lives, and the
communities in which they live.
What entrepreneurs are like

The stereotypical image of the entrepreneur is of the flamboyant
extrovert, a spontaneous individual who acts intuitively, inspiring and
motivating others to help them realize their ambitions and bring their
business ideas to fruition. It is easy to see entrepreneurs as
Chapter 2 What entrepreneurs are like, and what they 39
do
somehow different from the rest of the community, as ‘special’, because
of the charisma that
their success seems to bestow upon them. They are often held up as role
models, people to admire, and others are encouraged to aspire to
be more like them. But it must be questioned whether this image is a
true reflection of the truly innovative and creative entrepreneur or
whether it is the stuff of myth and legend. Other people appear to
display the same traits and characteristics as entrepreneurs but have
failed in business. Indeed many successful entrepreneurs fail before
going on to spectacular success. Moreover, it is interesting to
consider whether or not there is there a non-entrepreneurial
personality profile.
Hindsight is an exact science, and when we see a successful
individual it is, perhaps, only natural to home in on their exuberant
personality, their drive and enthusiasm, their persistence against all
odds, and to believe that these traits led to their success. But maybe
there are other, equally successful, entrepreneurs who go about their
business more quietly, being less extrovert, more humble
individuals. Collins (2001) would certainly draw our attention to the
truly great company leaders who triumph through ‘a paradoxical
mixture of personal humility and professional will’, often after life-
changing experiences.
Carter and Jones Evans (2000: 134) summarize the historical
development of thinking about the psychology of the
entrepreneur. They explain that research first considered whether it
was possible to define a personality profile of the entrepreneur, and
that this led to attempts to define what an entrepreneur really is and
what they actually do. As thinking evolved, it became apparent that
entrepreneurs act at different stages in business development and the
focus of research then shifted to looking at how different personality
traits correlated with organizational performance at these stages.
Despite the research, trait theory proved an unreliable predictor, and so
interest moved to the motivations of entrepreneurs and why some
people choose entrepreneurship while others do not.
Despite the difficulties, some commonalities exist, and these may be
of use in understanding how individual enterprise can be nurtured,
and how this might be harnessed by organizations who wish to pursue
more innovative strategies.
The ‘entrepreneurial personality’

McLelland (1961) identified a ‘need for achievement’ as a key driving
force in the personality of entrepreneurs. They are able to see and
act on opportunities, they are assertive; and they demonstrate
commitment to others.
They also have a high locus of control and believe that they
can influence events rather than passively accepting what fate
bestows upon them. Consequently they behave in a proactive way,
taking initiative. The downside of this is that because they feel that
they are able to achieve success and to a significant degree influence
their own destiny, they may actually view their chances of success too
optimistically. There is a fine balance between obtaining the
maximum impact from the resources available and trying to achieve
the impossible. This probably explains the high risk of failure.
Meredith, Nelson, and Neck (1982) agree, suggesting that
entrepreneurs exhibit five core traits:
■ self-confidence
■ risk-taking activity
■ flexibility
■ need for achievement
■ strong desire to be independent.
Bolton and Thomson (2003) in discussing the action factors that dis-
tinguish entrepreneurs, refer to their creativity and innovation, their
determination in the face of adversity, their networking abilities, and
their ability to manage risk. Handy (1999) summarizes
entrepreneurial characteristics under the headings of dedication,
doggedness and difference, comparing them to Francis Galton’s
belief (in the mid- nineteenth century) that three things were
necessary for great achievement: ‘ability, zeal and a capacity for hard
work’.
Critics of the personality trait approach might say that it is too static
as entrepreneurship is such a dynamic concept. There are a
significant number of traits that appear to have relevance, but research
has failed to find any conclusive answers as to whether they are all
necessary; whether some are more important to entrepreneurial success;
or whether the relative importance of different traits might change
according to context- ual circumstances (e.g. whether the business
is newly established or mature; whether it consists of an
entrepreneurial team or whether the entrepreneur has social support
or not).
Critics also offer the view that rather than being fixed, some
entrepreneurial characteristics might be learned, and that the
environment in which we live can shape our perspective on life and so
the entrepreneurial characteristics of individuals are changed
according to the situation.
Questions might also be asked about the purpose in being able to
identify a particular entrepreneurial personality given that it is
unlikely, at least for some time to come, that entrepreneurs will be
bred genetically with the required traits.
When is support not support?
Speaking at an Investment Fair, Jon Moulton, a leading venture capitalist, criticized the nature
of support given to start-ups, saying that ‘the negative side of support is that support can sup-
port that which should not be supported’. He told his audience that, from a venture capital-
ist’s point of view, fewer than one in three of the businesses present would secure investment.
Having invested in 50 early-stage technology companies personally, he ought to have more
idea than most about the types of business that are likely to succeed.
He criticized the targets culture, as linking public funding to volume targets was, in his opin-
ion, relatively unlikely to create good companies. He feels that the country needs fewer,
better and bigger companies to be put together rather than chasing citation counts and spin-
outs.
Every year the agencies have to meet targets set by the DTI, which include the number of
new businesses and jobs created. A spokesperson for the Regional Development Agencies
explained that while the targets weren’t perfect, they were obliged to meet them, and that it
is important that funding decisions about small companies are made in a rigorous way.
Despite the criticism, 90 000 people found secure employment with RDA support.
Adapted from: Richard Tyler, ‘Start-ups have too much help’, The Daily Telegraph,
22 November 2004
Question: What should be the criteria for deciding what types of businesses should be
supported?
Perhaps the utility in this approach lies more in identifying the

non- entrepreneurial personality, to avoid wasting resources on them
and to enable resources to be targeted where the potential for impact
is greatest. Following this line of thinking, deciding to exclude certain
personality types in this way might ignore considerable latent
entrepreneurial potential in individuals. We have already seen that
entrepreneurs are not a homogeneous group; they come from very
different backgrounds and have very different capabilities. Some
entrepreneurial characteristics are apparent in very young people. Steve
Perez (see the case study at the end of this chapter) was using Bunsen
burners at school to provide snacks for his friends, but in some people
the talent does not emerge until much later in life. Other people are
always entrepreneurial, moving from one business idea to another
whereas others have just one entrepreneurial moment. There are
many examples of experienced managers running large departments,
who would not describe themselves as having entrepreneurial
characteristics, who do set up a business, perhaps following
redundancy, and then manage it in much the same way as before.
If it were simply an issue of personality, then entrepreneurship would
have to be defined very narrowly. The trait approach seems to be too
simplistic to explain all aspects of entrepreneurial behaviour in its
broader definition, and so it becomes necessary to consider what
other factors might have impact.

Heading for the City Rich List?
Damon Buffini, 43, is a managing partner of Permira, a London-based private equity firm that
buys companies such as Homebase with cash and borrowed funds, improves the effectiveness
of their business model, and sells them on at a profit. He also runs a restaurant business with
his wife and sister.
He was brought up in a two-up, two-down house in Leicester, and was educated at a boys’
grammar school in the city. His father was a black American serviceman who was never part of
the family. One of his former teachers said that this made him stand out, but did not hold him
back. He was popular, and an excellent athlete and scholar, always willing to question theories
and debate issues. When told how well her son was doing, his mother would always ask how he
could do better. The grammar school took their football team to play Fitzwilliam College,
Cambridge, so that the boys could see what they might aspire to. Damon did end up
studying law at Cambridge, graduating in 1984. A fellow student described his
contemporaries as the first generation of Thatcher’s children – they talked about the usual
student things but also about business and
what they aspired to in life.
Buffini became a management consultant at LEK, getting a £1000 signing bonus and a
70-hour-a-week workload. In 1986 he used an LEK scholarship to study at Harvard, where he
was exposed to American-style capitalism. On returning home, he took a job at Schroder
Ventures, and rose as a clients’ man. When Schroder’s parent company chose to sell off its pri-
vate equity operation, a management group led by Buffini bought it, and the rest, as they
say, is history. His net worth is around £18 m, and when future bonuses come on stream his
peers believe that he will cross the £40 m threshold necessary to make the City Rich List.
Despite his success, he shuns publicity. How long he can maintain his low profile remains to be
seen.
Adapted from: Peter Koenig, ‘Young, gifted and black’, Sunday Times, 10 July 2005
Questions: Which of the typical personality traits of an entrepreneur do you think
Buffini exhibits? Are there any other factors in his profile that you feel may have driven
him towards an entrepreneurial career?
Nurture rather than nature

As well as the genetic cocktail, it is a fact that the family provides
children with role models and certain perspectives on life through the
socializa- tion process in their formative years. Young children are
naturally inquisitive, but the education system often seems to knock
this out of some individuals whereas others flourish within it or in
spite of it.
Schools, as institutions, are the first organizations that children are
exposed to after the family. During adolescence, an individual’s sense
of identity is shaped into the way they view the world and the
expectations they have of the role they will play in it. There are a
variety of influences in this process. Some of these are fairly obvious, for
example, the contributions of peers and the education system.
Sometimes there are less obvious influences, such as critical
incidents (positive or negative) that happen and fundamentally shift
the individual’s perspective on life.
It is worth also considering whether social development has a role to
play in the making of entrepreneurs, and whether it comes down to
nurture rather than nature. The predisposition of an individual to
be entrepreneurial, in terms of their personality, appears to be
significant, but is unlikely to be all-important if looked at in isolation
from other factors and experiences. It is likely that the issue is more
complex, depending upon the balance and relationship between
these internal factors and external circumstances.
Early life experiences

Kets de Vries (1977) writes about the dark side of
entrepreneurship, suggesting that entrepreneurs have often had a
harsh experience of early life, many being part of fatherless families.
He argues that childhood experiences and family backgrounds
characterized by deprivation and hardship lead to low self-esteem,
insecurity, and a repressed desire for control that ultimately leads to
rebellion. This makes it difficult for these individuals to ‘fit in’, and so
they are often categorized as deviants, social misfits, and
nonconformists. He suggests that entrepreneurial success is often
followed by personal crises. There are examples that support this,
but many entrepreneurs come from happy and stable backgrounds
and so contradict the theory. But in highlighting that there can be
negative attributes and experiences in the background of the
entrepreneur, perhaps de Vries helps to explain them as human
beings, with anxieties and failures just like the rest of the community.
Schumpeter talks about negative experiences in terms of social mar-
ginality. For many people self-employment is the only way that they can
achieve social distinction. If people feel marginalized, they may not
be able to see any route to success within ‘the system’. Similarly,
where people feel trapped in their employment situation they may feel
less anx- ious about setting up on their own, and more willing to take a
risk given that they may feel they have little to lose. Life circumstances
can influence the entrepreneur’s thinking and motivations. Setting up
and managing
an entrepreneurial venture is a complex task. While many people
realize that running their own business is a career option, few actually
do it. To understand entrepreneurs, therefore, it is necessary to
understand what factors motivate them to actually take that step.
Motivations of entrepreneurs
It is often assumed that profit is the motivator for entrepreneurs, but
this would be a dangerous assumption. We have seen that
entrepreneurs have a need for achievement, and while one
entrepreneur might measure success in terms of profit, another might
measure it in terms of fulfilling their ambitions. Achievement means
different things to different people. Indeed, for many entrepreneurs,
becoming rich may not be the end in itself but rather the means by
which the entrepreneur can demonstrate that they have achieved
success by establishing a sustainable organization. For many, their
motivations are a complex set of inter- related values and drivers, as
illustrated in Enterprise in Action 2.3.

Stephen Beetham – reviving Liverpool
Stephen Beetham was born into a religious sect on the south coast. His father left the sect
when Stephen was 7, and Stephen’s parents were divorced. He ran away at the age of 16 to join
his dad in Liverpool. Once you left the sect you were cut off and told you were a
failure. Stephen says he has been told that maybe this is what gave him his drive to succeed.
He started his career as a gardener/handyman in the family firm. He then moved on to
property development, renovating a house in Wavertree, Liverpool, and selling it at a profit.
It wasn’t to be the last time that he made money in the property market. Beetham
Organization now has fixed asset investments in 32 different companies, and Stephen (now
30) is ranked seventh on the Sunday Times Young Rich List.
He has come a long way from the day when he was told he ‘must be mad’ when he
wanted to convert a former polytechnic library into luxury flats in the heart of Liverpool’s
business quarter, but the Walton House development was a success. He had done his
homework. There hadn’t been much interest in ‘City Living’ in the 1990s, but the trend was
well anticipated.
His next project was a bit more ambitious – he needed £8 m to renovate Wilberforce
House, an old Sixties-type building that had formerly housed the council’s planning
department. Eighty-five banks refused to back him on the basis that the scheme was in
Liverpool, before the Anglo-Irish Bank and its strong connections with the city’s Irish contingent
said yes. ‘Beetham Plaza’ is now one of the most sought after addresses in Liverpool, and is
home to a restaurant owned by celebrity chef, Paul Heathcote.
His street credibility was improving somewhat by now, although he was still only in his mid-
twenties. He then paid what was thought to be a very high price for the site of the
former St Paul’s Eye Hospital in Old Hall Street. The £60 m development now known as
‘Beetham Tower’ has changed Liverpool’s skyline. It includes a residential tower, which
Beetham owns, a 4-star Radisson Hotel and an office block. The latter two are jointly owned
in a 50:50 partnership with the family that once owned the Ethel Austin store chain.
The going price for a top-floor penthouse is around £1.2 m. Planning permission has also been
approved for a second 40-storey tower nearby. His faith in Liverpool has made a huge
difference to the face of the city, and has also made him a millionaire several times over.
Stephen is now developing his brand elsewhere. The company is building a £150 m tower in
Manchester city centre and something similar in Birmingham. However, its most ambitious
proposal to date is a £500 m, 68-storey residential tower planned for Central London, at the
site of the former Sainsbury’s headquarters near Blackfriars Bridge.
Sue Marriott, various public sources
Question: What do you feel might have motivated Stephen Beetham in his drive for entrepre-
neurial success?
Some people are always entrepreneurial, but some give this up after
a certain period of time; others choose to be so later in life after
pursuing other options. Having the motivation does not
necessarily mean that action will follow. Some are sequential
entrepreneurs – they only run one business at a time but they may
well run many in succession (e.g. James Dyson, who had a ball–
wheelbarrow business before moving on to cyclone vacuum
cleaners) whereas others have one venture and then never repeat
the experience. Some are portfolio entrepreneurs who run several
businesses simultaneously, e.g. Richard Branson. It is possible to
categorize portfolio entrepreneurs into three types:
1. defensive serial entrepreneurs who move on because of
forced exits from previous enterprises (not necessarily failures);
2. opportunist serial entrepreneurs who see opportunities for
gain even if an enterprise is only on a short-term basis; and
3. group-creating serial entrepreneurs – where creating a
number of businesses (either from scratch or by acquisition)
is fundamental to the strategy they are pursuing. They can do
this by organic growth or by making deals – acquisitions and
mergers.
Irrespective of what type of entrepreneur they eventually become, in tak-
ing that first step an individual will be making a significant and possibly
life-changing decision. They will consider what they would hope to
achieve, what the likelihood is that they can achieve it, what risks
they will need to take, and how comfortable they are with the level of
risk that
they perceive exists. It sounds like a simple cost–benefit calculation, but
of course it is not. There are often many variables to consider, and
likely outcomes can be difficult to predict. The ‘tipping point’ for each
individual is different, as what can seem like two identical situations
might result in different choices.

Terence Conran
When Terence Conran was 12, convalescing from a burst appendix, he made dolls’ house furniture which he
sold in the local shop. Never having much patience with schools and courses, he briefly worked with an architect
designing furniture and textiles, before making his own furniture in the basement of Ballet Rambert. Needing to
make more money, he and a friend set up a soup kitchen, fitted out with his own furniture. He saw a need for a
‘place where people like us could eat cheaply’.
In 1964, owing to being disillusioned with retailers who refused to buy his furniture or to sell it with any con-
fidence or imagination, he set up Habitat. Its success led to him achieving millionaire status, building an inter-
national chain of Habitat and Conran stores over the next 20 years.
He then began collecting other people’s shops and chains – Mothercare, Richards, Heals, and BHS. Habitat/
Mothercare embarked on a joint publishing venture with Octopus Books under the name Conran Octopus. The
company produced books about interior design, cookery, gardening, crafts and decorative arts. Habitat/Mothercare
merged with British Home Stores to create a new parent company, Storehouse plc, of which Terence became chair-
man and chief executive. He believed that he could apply his design flair to revive these ailing brands and to
some degree it worked but his natural leanings were as a creator rather than a manager. After installing a chief
executive and a chairman at Storehouse to replace his dual role he went back to the world he was familiar with. It
seems that his natural inclination was for entrepreneurial activity, finding the more routine aspects of his role at
Storehouse less inspiring.
He has turned Butlers Wharf into a mixed development of eateries, residences, businesses and the arts, and
established a charitable foundation which set up the Boilerhouse Project, a gallery and resource for students,
designers and the public to stimulate design awareness and discussion, at the Victoria and Albert Museum. In
1987 this became the Design Museum at Butlers Wharf.
He still has a range of stores throughout the world including London, Tokyo and New York; and is renowned
for his restaurants, 12 in London alone. In 2000, in a joint venture with Wyndham International, he established
the Great Eastern Hotel. Conran Restaurants is responsible for the management and running of the four restau-
rants and three bars within the hotel.
Throughout his life he has been able to mix creative design and business flair, enthused by his interest in
people and how they live, his instincts and ambitions still as strong as they were 40 years ago.
Adapted from: Handy C. (1999) The New Alchemists, Hutchinson: London; and various public sources
Question: Using the categorization suggested by Wright et al., discuss which type of entrepreneur you feel that
Terence Conran is. In doing this, consider whether you would come to different conclusions regarding the vari-
ous stages in his entrepreneurial career.
Although the decision to become an entrepreneur is an

individual and personal one, it is possible to see some
commonalities in the ‘push and pull’ factors that influence the
personal decision to choose self- employment, which are summarized
in Table 2.1.
Table 2.1
Push and pull factors
Push factors Pull factors

Limitations on financial rewards Working for oneself
Job insecurity Financial rewards
Job competition Work-life balance
Career limitations Sense of achievement
Lack of opportunity for innovation Freedom to innovate
Lack of recognition and being a misfit Gaining social standing
Dissatisfaction with bosses Flexibility
Again, the interrelationship between personality traits and life cir-

cumstances is evident. If trait theory is valid, we would be able to iden-
tify potential entrepreneurs, but as we pointed out in our
introduction we still find this notoriously difficult to do. If the
behavioural approach is valid, we might be able to help people to
learn to be more entrepreneurial. Timmons (1994) tries to form a
view as to which traits are innate and which can be learned, drawing
our attention to the fact that some of these traits are actually
management skills. This begs the question of what actually
distinguishes entrepreneurs from others, especially as many of
these traits appear to be shared by any successful manager. One
suggestion could be that being able to deal well with failure is an
important attribute. So if behaviours are important, perhaps we
should explore what it is that entrepreneurs actually do. If we can
identify what it is that entrepreneurs do differently from ‘regular’
managers, then it might help us in understanding how to
develop both individual and organizational entrepreneurial capacity.
What entrepreneurs do
Entrepreneurs as managers
Wickham (2004: 8–10) says that ‘we recognize entrepreneurs, in the
first instance, by what they do, the tasks they undertake’. He suggests
that entrepreneurs are simply managers who manage in an
entrepreneurial way. They actively pursue opportunity and drive
change to create new
value, take the strategic view, and learn as they go. In summarizing the
tasks they perform, he suggests that entrepreneurs:
■ own organizations (although ownership issues can be blurred
by outside investment, managers with shares in businesses
and community enterprise);
■ found new organizations (but they can also turn around or
develop existing ones);
■ bring innovations to market (whether these are new
products or services, or new processes);
■ identify market opportunities (actively seeking them out);
■ apply expertise;
■ provide leadership;
■ accept risk.
It is often difficult to differentiate the actions of entrepreneurs from
those of managers in general. After all, any responsible manager will
scan the environment with an eye to opportunities for growth; all of
them apply expertise and provide leadership. Some own shares in
the organizations that employ them. Moreover, simply bringing an
idea to market is not enough as the process of entrepreneurship is
only complete if customers have been identified and won over to
create a sustainable new organization. Many of these activities
could be described as managerial. So what is it that makes someone
an entrepreneur as opposed to a good manager?
Spotlight 2.1
Owen Promotions
Michael Owen is best known for his football skills, but accounts filed at Companies House reveal that his firm,
Owen Promotions, had £1.3 million in the bank at the end of the 2004 season. In the past, he has signed lucra-
tive endorsements for companies such as Persil and Burton, and he has also agreed on a £15 m deal with
Umbro, the sports-kit maker. The company is the main receptacle for his ‘show-business earnings’ and produces
his official calendar.
Owen is just one of many famous footballers to use their ‘celebrity’ to advantage in the commercial world.
David and Victoria Beckham exploit their fame both individually and collectively. It isn’t a new phenomenon –
Gary Lineker is well known for promoting Walker’s crisps.
Success on the field obviously helps in creating opportunity in the business world. A good performance in
the World Cup in Germany in 2006 will no doubt be a platform for further earnings potential.
Source: various public sources
Question: Is Michael Owen a good manager or an entrepreneur?

Often it is about scale as, for example, an organization may have
systems for monitoring trends in the environment and changing
customer preferences and a planning cycle that forces a
management team to consider the implications for the company, but
an entrepreneur will be actively doing this, actually seeking out
opportunities. They champion their projects, trying to engage the
enthusiasm and commitment of others, stimulating and motivating
people to become involved. They act as ambassadors for the cause at
every opportunity, continually convincing a broad range of
stakeholders (investors and customers in particular) of the value of
the venture, and then maintaining their support so that the
organization can prosper and grow.
The entrepreneur–administrator continuum

Stevenson (2000) says that ‘entrepreneurship is an approach to
management that we define as the pursuit of opportunity without
regard to resources currently controlled ’.
Stevenson explains that at one extreme is the ‘promoter’, who feels
confident of his or her ability to seize an opportunity regardless of
the resources under current control. At the opposite extreme is the
‘trustee’, who emphasizes the efficient utilization of existing
resources. While the promoter and the trustee define the end points
of this spectrum, there is a range of managerial behaviour that lies
between them. Entre- preneurial management is not an extreme
example, but rather a range of behaviour that consistently falls at
one end of the spectrum.
He considers six critical dimensions of business practice, discussing
the difference between administrative and entrepreneurial manage-
ment. These are:
■ strategic orientation
■ commitment to opportunity
■ commitment of resources
■ control of resources
■ management structure
■ reward philosophy.
Different contexts might pull an organization towards the entrepre-

neurial or administrative end of the spectrum. The approach
Stevenson describes is applicable to both entrepreneurs and
intrapreneurs, in small or large organizations. He concludes that it is a
cohesive pattern of managerial behaviour. If we accept his argument
that it is about patterns of
behaviour that range from one end of a scale to the other, this
implies choice. Individuals might choose to behave differently,
developing more entrepreneurial behaviour patterns. They are unlikely
to move to the other extreme of the spectrum, but if all managers
moved a little in that direction, the cumulative impact could be
substantial.
Enterprise in Action 2.4 addresses the issue of where on the con-
tinuum franchising might be placed. Franchises arise in a variety of sec-
tors. The established company offers a brand, a reputation, sometimes
management training and/or support. In return franchisees have to
agree to prescribed procedures for running the business, invest
some of their own money at the outset, and pay a percentage of
profits to the parent company. They still bear the responsibility of
running their own business, but are sometimes frustrated in the long
run by the strings attached to the franchise agreement. It can,
however, offer a sort of halfway house between running their own
business and working for someone else. As with any business, it is
important to research the proposition thoroughly and be very clear
about the terms and conditions on offer.

Entrepreneurship and franchising
Fred De Luca borrowed 1000 dollars from a family friend when he was 17 to open a
sandwich store in Connecticut. He opened four more, with varying degrees of success,
before deciding to franchise the operation that we now know as Subway. In some ways
the ill fortunes of another famous franchise, McDonalds, offered opportunities for
businesses like Subway that appeared to present a healthier eating option to customers.
Unlike many franchisers, Subway uses ‘development agents’ who buy the right to a geo-
graphical territory and have to find enough sites and franchisees to meet their contractual
quotas. De Luca feels that this offers them more flexibility and opportunities for innovation
than many franchise agreements do. Subway also takes a relatively high royalty from its fran-
chises rather than demanding large initial investments. The practicalities of this mean that
it is in the agents’ and Subway’s interests to open as many shops in an area as they can to maxi-
mize the likelihood of hitting targets. If demand falls, the franchisees take the first hit and,
if they have to sell up, their stores can be resold to new franchisees for more upfront fees.
While to some degree having a good presence in an area reinforces the brand and image and
can help sales at some point, the volume becomes counterproductive in that they undercut
each other’s market.
The relatively low upfront costs tend to tempt people who are not particularly confident
about taking the risks of a new venture. Many are also of limited means, or recent immigrants,
who simply do not have access to much capital. Subway also allows UK franchisees more
independence by allowing them to form purchasing consortiums to find the best price for supplies, and it doe
Adapted from: Lucy Mangen, The Guardian, July 18 2005; and other public sources
Question: Using Stevenson’s continuum, explain the comparative positions of De Luca, a development agent,
Entrepreneurial actions
Bolton and Thomson (2003: 213–219) suggest that there are 10 key
action factors that characterize entrepreneurs. First and foremost,
entrepreneurs make a significant difference. They are able to do this
because they:
■ are creative and innovative;
■ spot and exploit opportunities;
■ find the resources required to exploit opportunities;
■ are good networkers;
■ are determined in the face of adversity;
■ handle risk;
■ have control of business;
■ put the customer first;
■ create capital (which can be aesthetic or social as well as
economic).
They show the connectivity between these factors within two process
models. Entrepreneurs do not have to be equally good at all of these
activities; for example, they do not have to be an inventor, but
instead can successfully commercialize someone else’s idea but still
be an innovator.
er, with three sites in Scotland, one in Wales, and six in England. John has worked hard for his success, and explains th
y harsh winter, which meant no one
was interested in buying fences. It was a question of survival, and John knew he had to come up with somethi
Question: How does John Scott compare with regard to Bolton and Thomson’s 10 action factors?
Some argue that pure entrepreneurial activities are only intermittent

– they end when the firm has been created and then only arise from
time to time thereafter. This would mean that entrepreneurs as
individuals would have to perform non-entrepreneurial activities
between these times. Dynamic market conditions might heighten
the need to be constantly alert to new opportunities, but there may be
lengthy periods of quite routine activity. Some can handle this but
others cannot and move on to other entrepreneurial tasks rather than
engage in these routine activities. Perhaps it could be said that
entrepreneurs manage change, because they do not leave the world in
the same state in which they found it. They bring people, money and
resources together to build new organizations or to change existing
ones. The value that they add is more about the difference that they
make than the results of their activities. Managers tend to maintain the
status quo, sustain an established organization and maintain its market
position. This is important in itself as it is essential to the effective
running of many organizations, but it is not primarily about driving
change, which distinguishes the entrepreneur. Of course the effective
entrepreneur also recognizes when it is appropriate not to embark
on a venture, but this is a conscious choice, a decision taken,
rather than a way of behaving.
To summarize, entrepreneurs have a personal vision, which they use
to transform a disparate group of stakeholders into the people who
will act to realize this vision in practice. Achieving this means
communicating with stakeholders; developing the culture; building
expertise; gaining credibility; and creating the environment in which
success can happen. This all implies a steep learning curve because,
at the outset, there is a need to learn about suppliers, customers and
markets; as the organization grows entrepreneurs need to learn
about delegation,
teamwork, leadership, managing people, and managing cash flow
and other resources. They need to develop a business model that
supports their ambitions and establishes appropriate systems and
processes. As crises occur, they need to solve problems. They need
to make decisions, think laterally, and take risks. Some of this is
down to innate ability, but they acquire the skills, knowledge and
experience which will continually improve their effectiveness.
Given their vitality and their insight they are valuable assets to
any organization. But they can become bored with the routines of
business management and, if they choose to move on to new things,
the organization must try to fill the gap, to harness and retain some of
that entrepreneurial capability, and to build capacity, so that it can
maintain its competitive edge.

Andrew Ritchie: Time to get on his bike?
Andrew Ritchie, 58, has devoted the last 30 years of his life to building the best portable bicycle in the world.
He has worked tremendously hard, never married, and never had a family. For years he had no income at all,
thoroughly obsessed with his project.
Brompton Bicycle is one of only two volume manufacturers still making bikes in Britain. Over the life of the
company Brompton has made almost 100 000 folding bikes, and aims to produce 14 000 in the coming year. It
started off with a conversation his stockbroker father had with an Australian trying to raise money for Bickerton,
a British company which made the first genuinely portable bike. He thought his son might be interested in the
product and so engineered a meeting. Ritchie thought the design was in need of improvement, started sketching
out further designs, and became besotted.
He persuaded 10 friends to part with £100 each so that he could build a prototype. It worked, but Ritchie wasn’t
satisfied. Prototypes 2 and 3 followed, with Ritchie doing all the work from the bedroom in his flat. He tried to
license the design to a large manufacturer like Raleigh but no one was really interested. However, he did
persuade 30 people to order bikes and pay in advance, which gave him a little working capital. Speculating to
accumulate, he built 50 with the help of one employee who was doing the brazing, hoping to be able to sell the
rest. It took him 18 months to build them, but they did all sell.
He then tried to get investment backing, but his timing was poor (the industry was in decline) and he didn’t
exactly have the type of personality that would impress the venture capitalists, so that didn’t get very far. He did
manage to persuade Julian Vereker (of Naim, a hi-fi maker) to guarantee an overdraft of £40 000, and his father
and friends came to the rescue again, putting in roughly £50 000 in equity.
Production got under way in 1988, but one thing after another went wrong. Everything, that is, except sales,
because whatever was made was sold right from the start. The company now exports 60 per cent of what it
makes, the biggest sales going to Holland, unsurprisingly.
Ritchie says that in many ways he is glad that he was unsuccessful in securing investment because the fact
that he had private backing allowed him to be a perfectionist. He feels that a large company might have wanted
him to compromise. He still manufactures in London, too, although rent and rates are higher. Manufacturing
abroad might be cheaper, but there would be uncertainties like rates of exchange and so on to consider. Ritchie
offers bespoke bikes, reckoning that with different colour-combinations, handlebars, gears, lighting, etc. there
are around 13 billion permutations that he could build tomorrow.
Brompton are hugely successful, but now Ritchie wants to reap the rewards of all his hard work. He wants to
travel, play tennis, garden, and enjoy his life a little more.
Adapted from: Ben Laurence, ‘The bicycle that turned into folding money’, The Observer, 7 August 2005
Question: What would you advise Andrew Ritchie to do at Brompton to create more space in his personal life?
Entrepreneurial capacity
As we outlined in Chapter 1, entrepreneurship depends on both
individual and organizational enterprise. Entrepreneurial capacity
will, therefore, be a function of both individual and organizational
capacity. We have seen that entrepreneurs play an important role
in driving organizations forward, but they cannot do this alone. Not
only do they draw on the skills and experience of other individuals;
they need to establish and embed behaviour patterns and processes
that support continual innovation and enterprise. There are a
number of dimensions of entrepreneurial capacity which merit
consideration.
Dimensions of entrepreneurial capacity

Entrepreneurial management of information
Cognitive psychology looks at how people see the world; how they
process information and how this affects the way they make
decisions. We are all bombarded with information continually, and it
would be impossible to consider all that is available to us every time
we made a decision. We develop ‘rules of thumb’ based on our
experiences to date and filter the information to help us to make sense
of it. In this way our experiences can begin to colour the way we
interpret events and situations. This does allow us to speed up the
decision-making process, but it can also allow us to fall into habits that
limit our understanding of the issues, and make it less likely that we will
challenge our preconceptions. Baron and Shane (2005: 56) refer to
research that shows that the more experience people have in a given
field, the more likely they are to identify opportunities in it. In
exploring why this may be the case, they consider issues of memory,
schemas and prototypes, and limita-
tions on capacity to process information.
Memory: We do not only remember facts, but we remember
processes (referred to as procedural memory). An entrepreneur’s
ability to recognize an opportunity is a decision-making process, but
over time it
becomes automatic, and so the entrepreneur cannot really describe
the full complexity of the process that they go through.
Schemas and prototypes: The information retained in the memory is
only part of the story. New information also needs to be interpreted
and then integrated into the information already stored in the
memory. Schemas are cognitive frameworks that represent our
knowledge and assumptions about the world, and prototypes are
abstract idealized categorizations, such as the mental image we hold of
what a gym is like. These can both help and hinder creativity and
opportunity recognition as we described earlier. Limited capacity to
process information: The memory may have unlimited capacity to store
information but processing capability (working memory) is limited.
To use a computer analogy the hard disk is vast but RAM is limited.
This means that for most people their ability to create something
new is limited, because there is a bottleneck in the process of making
sense of new information in the context of our existing memory.
Because of this the brain takes short cuts, especially in times of stress
when large amounts of information have to be processed quickly; for
example when important decisions have to be made on incomplete
information or to short timescales, which can lead to mistakes. In
taking short cuts, the likelihood of error increases. These situations
are faced commonly by entrepreneurs, and it could be argued that as a
consequence of this their decision-making is more susceptible to such
error. Baron and Shane further argue that other biases may creep into
the way entrepreneurs process information in making decisions, in that
they may have a tendency to view desired outcomes more
optimistically; that they more readily recognize information that
confirms their current beliefs; and that they believe that
fate is under their control to a greater extent than it actually is.
Despite many studies that have considered how cognitive approaches
might affect our ability to spot opportunities and to assess the risk
in exploiting them, there are no firm conclusions as to whether
entrepreneurs process data differently from the general population
in making decisions, although intuitively it seems probable that
they are less likely to be fettered by habits of thinking given their
ability to ‘think outside the box’!
Entrepreneurial decision-making
We have seen that entrepreneurs tend to be good networkers, and

that they recognize the limitations of their own knowledge and
exploit that of others (their staff, friends, advisers, etc). They
accumulate as much detailed, relevant information as they can for
themselves, often from their network, before forming a view and
taking action.
Casson (2003: 34) believes that the judgement of entrepreneurs
differs from that of other people, as they believe that without their
intervention wrong decisions will be made or resources will be allocated
less efficiently. The entrepreneur intervenes (in many ways) in order
to exploit their superior judgement, to take advantage of the
opportunity that exists for better coordination. This need to intervene
might partly be due to a need for control, or partly be about self-belief;
it may be a lack of trust in the ability of others which leads the
entrepreneur to be unwilling to delegate, or it might be that an
opportunity has been spotted to combine things in a different way
which adds value.
It is our view that the way in which entrepreneurs make decisions
might be a critical distinguishing factor. Their skill in decision-making
might in part be because of their characteristics (for example, they
are more willing to focus on a few key decisions and the implications,
seek more innovative solutions or novel approaches, take a risk and go
with gut feel) or it may be due to skills and experience (they learn
from decisions they have made previously and adapt according to
new contexts more readily than the average manager).
Learning
Entrepreneurs tend to be action learners. They reflect on what they
do, analyse what went well or less well, and adapt their behaviour to
reflect their new understanding.
For an organization to build entrepreneurial capacity, it needs to
encourage learning, and its application, at all levels. If it is accepted
that personality is only part of the equation, this would suggest that
experience and skills also have some part to play in entrepreneurship.
nt hired the Boston Consulting Group (BCG) to explain what had happened and to advise the British motorcycle manufa
Honda’s story was a little different, suggesting a more experimental approach, learning
as they went along. Their managers said that, in reality, they had just wanted to see if they could
sell something in the American market. They needed a currency allocation from the
Ministry of Finance, who were sceptical; after 5 months the Ministry eventually gave the go-
ahead but would only allow them to commit a fraction of the investment they wanted to
make.
They knew their products were good, but not significantly better than those of the
European manufacturers, and they had more confidence in the 250 cc and 305 cc machines.
They debated how they should approach the market, and decided (without any compelling
criteria for the rationale) to take four products in equal proportions: the 50 cc Supercub,
and the 125 cc, 250 cc and 305 cc machines (although the dollar value of the bigger bikes was
greater).
Having to start small, they chose more familiar territory, starting off in Los Angeles
where there was a large second- and third-generation Japanese community, a climate that
suited motorbikes, and a growing population. They were very short of money, and the three
managers shared a small apartment, two of them sleeping on the floor. They made mistakes, as
the motorcycle business was seasonal and the season had just ended. Learning from their
experience of distributorships in Japan, they went direct to retailers, advertised in the
trade magazine for dealers and by Spring they had 40 signed up.
Then their reputation was dealt a severe blow – their machines were leaking oil and the
clutches were failing. In the USA, motorcycles are driven faster and further than they are in
Japan. They had to send the motorcycles to the testing lab in Japan, an expense they could ill
afford on the tight budget allowed them. It took a month to sort the problem out.
So far, they had not paid much attention to the smaller bikes as they seemed out of place in
the US market where everything was bigger and more luxurious. They were using them them-
selves, however, and they were attracting a lot of attention. One day, a buyer from Sears
paid them a call. With the larger bikes breaking down, despite their anxiety that pushing the
smaller bikes might damage their reputation, they really had no choice but to let the 50 cc
bikes move.
In reality, the strategy seems to have been more emergent than planned, and firmly
grounded in a willingness to learn, quickly!
Adapted from: Backing into a brilliant strategy. In: H. Mintzberg, B. Ahlstrand and
J. Lampel (2005), Strategy Bites Back, Harlow: Pearson Education Ltd
Question: What lessons can be learned from Honda’s experience?
Developing entrepreneurial capacity

If the characteristics and behaviour that are considered crucial in staff
of enterprising organizations are identified, it is possible to recruit,
develop, and retain the people with those characteristics, and those
who display those behaviours may be willing to learn how to behave in
a more enterprising way.
Casson (2003: 31) looks at how scarce certain qualities are, and to
what extent these skills can be procured through a delegate. If
the intention is to buy the skill in (whether through employing
someone
or outsourcing), it is necessary to be able to screen for that skill, and so
it is necessary to establish whether such screening is actually possible.
The alternative to buying the skill in is to develop the skills
internally, in which case it is important to know whether their
enhancement or development is possible. If neither option is possible, it
might be essential for the entrepreneur to have the skill.
If the entrepreneur does choose to delegate some tasks, he or she
will then need to have delegation skills, and probably organizational
skills too. If the entrepreneur does not have these skills, the question is
whether they can be enhanced by training, to enable the
entrepreneur to delegate effectively and ensure that tasks are
undertaken effectively. But then the danger is that in spending time
delegating and organizing, the entrepreneur is distracted and might
lose innovation capability as a consequence. For a one-person
company, delegation skills are not essential but as the company
grows at some point they do become essential, and the choice does
have to be made.
So the task of building entrepreneurial capacity becomes
complicated, and has implications for the way in which the
organization operates.
Process
First it is necessary to identify which skills or qualities are essential. In
the example given in Table 2.2, Casson’s qualities have been used as a
starting point, but you might prefer to develop your own. The
framework offered in Table 2.2 is not meant to be definitive, and the
assessment is somewhat subjective, but it does offer a starting point in
assessing current capacity, and making plans for developing it within
an organization.
Having identified the qualities that are deemed essential, the next
step is to assess the extent to which these are held within the
organization.
Where there are gaps in skills that are deemed essential, it is neces-
sary to fill them, either through buying them in or developing
them internally, for example through training. With existing staff, the
behaviour they exhibit in their working lives might seem to evidence
some skills (indicated by a tick in the ‘Observable over time’ column)
although it might be difficult to screen for these in recruiting
someone (indicated by a tick in the ‘Difficult to screen for’ column).
Where a quality is essential, rare, difficult to screen for, and cannot
be enhanced through training, it is necessary to find someone
unique, possibly that elusive individual we have been referring to as
the entrepreneur. But the good news is that, according to Casson,
many of the qualities are screenable and are capable of development.
This suggests that it is possible to build entrepreneurial capacity.
Table 2.2
Assessment of current entrepreneurial capacity (adapted from Casson, 2003)
Quality Essential Rare Difficult to Observable Capable of

screen for over time development
Foresight √ √ √ √ √
Imagination √ √ √
Communication √ √ √
Self-knowledge √ √ √ √
Autonomy √ √ √ √ √
Search skills √ √ √ √
Analytical ability √ √ √ √
Networking skills √ √ √
Manage risk √ √ √
Delegation √ √ √ √
Organizational skills √ √ √ √
Industry √ √ √
knowledge/expertise
However, if a skill is essential, scarce and difficult to screen for, then

even if it were capable of enhancement it would mean that it would
be necessary for people to identify the need to develop this for
themselves, and to alert the organization to any support that they
need in doing this. This suggests that some form of individual
reflection would need to be built into any process that the
organization adopts. It also implies that the organization would
have to rely on the individual’s ability to reflect on their own
capabilities and on their willingness to take responsibility for their
own development.
Ideally, the process of reflection should extend to peers and
colleagues, as individuals are not always able to identify their own
strengths and weaknesses objectively. For example, it can become
apparent to others that someone is less able to analyse issues in depth
than another individual (in student assignments this becomes
immediately apparent!). Giving feedback to that individual might
help them to recognize that they have a developmental need and to
take up an opportunity to enhance their skills.
We suggest that this ability to reflect is a crucial part of the entre-
preneur’s learning processes, and again may be a distinguishing fea-
ture of success. We explore this further in Chapter 4.
Summary
■ We might draw the conclusion that there is not any such thing
as a typical entrepreneur, that it is impossible to put these
people in boxes and label them, and that each one is
unique. However, some characteristics seem more common,
and predispose individuals to entrepreneurial behaviour.
■ There is a complex interrelationship between genetics and
environment that makes it difficult to predict where entre-
preneurship will flourish.
■ The decision to become an entrepreneur is a personal
one, but is affected by life experiences and circumstances, and
the favourability of the environment.
■ Some people have one entrepreneurial moment and others
have many in succession. It is not necessary to behave in
an entrepreneurial way throughout life; it is possible to
opt in and out.
■ Entrepreneurship is a style of management, and entrepreneur-
ial behaviour occurs to varying degrees along a spectrum.
■ Many entrepreneurial skills and attributes can be
developed, making it possible to develop entrepreneurial
capacity within organizations.
Chapter questions
1. Are entrepreneurs born or can they be made? Justify your
view by making reference to examples of success and/or
failure of entrepreneurs.
2. What are the key personality traits and characteristics of
entrepreneurs? Explain which of these you feel can be
acquired through learning, giving examples.
3. Your organization is to offer a prize for ‘Entrepreneur of
the Year’. What criteria would you use to select the winner,
and why?
4. Imagine you are leaving your full-time managerial position
to set up a business of your own. How might your successes
and failures as a manager help you in becoming a
successful entrepreneur?
5. If you were employed by the Regional Development Agency
to encourage entrepreneurship in your region, how
would you choose which start-up businesses to offer support
to?
Case study
Steve Perez
Steve Perez grew up helping out in his father’s restaurant, peeling potatoes, washing dishes, collect-
ing glasses and stocktaking. His enterprising nature was evident from his schooldays, when he made
good use of the Bunsen burners in the school labs by cooking steak sandwiches, which he sold to his
classmates!
Steve was 19 when his father died, and the family were left with very little when the business had
to be sold. It took Steve some time to recover and get his own career back on track, eventually set-
tling into a career with Tetley’s. He hoped to become an area manager, but when he was told that his
chances were poor as he didn’t have a degree, frustration set in and he left without having another
job to go to. He had noticed the popularity of beers like Grolsch, Budweiser, and Becks. He had a
£600 van, and decided to buy these beers and sell them into the local pubs and off-licences. Steve
built the turnover to £10 million before cross-border shopping began in the early 1990s. There was a
lot of ‘cheap booze’ on the market, and Steve had cash-flow problems. He told the bank and they
called in the receivers, who asked for the keys of his car, and Steve walked home.
He barely held on to his home, having used it as security on some of his business loans. Not one to
give up, he did a deal with some friendly suppliers, who were willing to give him some credit. He
had a little warehouse, and four people who had worked for him in the previous company who were
willing to work without wages until he could afford to pay them.
Alcopops had had a bad press, and there was a lot of bankrupt stock on the market. He made a bit
of money buying and selling it, but this didn’t have long-term prospects. The ready-to-drink (RTD)
products were very pricey, so Steve decided to develop a product of his own that would compete on
quality with the brand leaders, and shake up the market a bit. He noticed that people were mixing
Vodka with Red Bull, went to the flavour companies and told them he wanted something like that.
There was a need for a serious adult brand.
GBL launched VK (Vodka Kick) in 1999 with a few posters and no marketing budget. Steve and
his staff delivered the product themselves, trying to build some distribution and to get some people
drinking VK. Customers liked it, and before long there were problems in producing it in sufficient
quantities.
Simplicity was the key – a short, catchy name, unrelated to the alcohol content, and innovative
packaging and design. ‘You need something simple. On a Friday night in a packed bar, when you’re
shouting at the barman, you don’t want something with more than two syllables.’
GBL has gone from strength to strength. The export market has grown significantly, and the com-
pany’s continuing success has made expansion into larger premises possible. Steve said ‘We never
really expected all this. We came up with the right product at the right time. Success in business is
made up of one-third skill, one-third hard work, and one-third luck.’
Sue Marriott (various public sources)
Questions:
1. With reference to appropriate concepts and theory, evaluate the extent to which Steve’s success
derives from his personality, his skills, or his luck.
2. What could he do next?
Baron R.A. and Shane S.A. (2005) Entrepreneurship: A Process Perspective.
Mason OH: Thomson South-Western.
Birley S. and Muzyka D.F. (2000) Mastering Entrepreneurship. Harlow: Pearson.
Bolton B. and Thompson J. (2003) The Entrepreneur In Focus: Achieve Your
Potential.
London: Thomson.
Carter S. and Jones-Evans D. (2000) Enterprise and Small Business: Principles,
Practice and Policy. Harlow: Pearson.
Casson M. (2003) The Entrepreneur – An Economic Theory, 2nd edn. Cheltenham
UK: Edward Elgar Publishing Inc.
Collins J. (2001) Level 5 leadership – the triumph of humility and fierce
resolve. Harvard Business Review, January, pp. 67–76.
Handy C. (1999) The New Alchemists. Hutchinson: London.
Hisrich R.D. and Peters M.P. (2002) Entrepreneurship, International edn.
New York: McGraw-Hill.
Kets de Vries M. (1977) The entrepreneurial personality: a person at the cross-
roads. Journal of Management Studies 14: 34–57.
McLelland D.C. (1961) The Achieving Society. New Jersey: Van Nostrand.
Meredith G.G., Nelson R.E. and Neck P.A. (1982) The Practice of
Entrepreneurship.
Geneva: International Labour Office.
Stevenson H. (1997) The six dimensions of entrepreneurship. In: S. Birley and
D.F. Muzyka (2000), Mastering Entrepreneurship. Harlow: Financial Times
Prentice Hall.
Timmons J.A. (1994) New Venture Creation: Entrepreneurship for the 21st Century,
4th edn. Illinois: Irwin.
Wickham P.A. (2004) Strategic Entrepreneurship, 3rd edn. Harlow: Pearson
Education.
Key words
action factors nurture rather than nature
actions of entrepreneurs personality trait approach
capacity to process information portfolio entrepreneurs
dark side of entrepreneurship push and pull factors
decision-making process reflection
entrepreneurial behaviour patterns sequential entrepreneurs
entrepreneurial capacity tipping point
entrepreneurial management traits and characteristics
motivations
C H A P T E R
3
Innovation
and its
management
Learning objectives
■ identify the nature of innovation and appreciate its role

in entrepreneurial activity;
■ evaluate the stakeholder benefits that result from the
opportunities identified and exploited;
■ understand the categories and dimensions of innovation
and the features of the innovation process;
■ understand innovation and the market breakpoints that often
provide the spur to new developments;
■ compare the alternative innovation stances;
■ understand the critical success factors in innovation and
the reasons for failure.
Introduction
Innovation is the process by which the opportunities that have been
identified through individual and organizational creativity are
exploited. We have emphasized earlier that innovation and
entrepreneurship must co-exist for individuals and organizations to
be considered to be enterprising. Innovation is an essential element
in enterprise by creating new
64 Concept Part I
s
business activity, in generating growth and ensuring survival for an
existing business.
It seems quite natural for organizations to want to do things better
and differently in order to gain a competitive edge over
competitors and, in most organizations (albeit to different
degrees) there is the ambition to seek out and exploit new
opportunities with the aim of improving overall performance
throughout the business. However, it must be remembered that
innovation does not occur spontaneously. Organizational
innovation is driven by creative and enterprising individuals.
In this chapter, therefore, we begin by discussing the nature and
role of innovation, its impact in different types of organizations and
the benefits it creates for a wide range of stakeholders. For example,
the recipients of the organization’s offering, its customers, consumers,
clients, etc., expect to receive periodic improvements in the benefits
they obtain. The organization must address this expectation through
a comprehensive range of developments throughout the functions
of the business. While the organization might have good intentions
and aim to develop many new, successful ideas in practice, there are
many challenges to overcome before a new idea becomes
commercially successful and so we address some reasons for the
failure of innovation.
Innovation is best coordinated through an effectively managed
process and we discuss how this can be used to achieve efficient control
and continual improvement through learning good practice from the
organization’s collective experiences.
Innovation takes many forms and we particularly distinguish
between the major-step-change innovations that generate considerable
improvement in the added value for the various stakeholders of the
organization by doing things differently, and the smaller-scale incre-
mental developments that are concerned with doing better what is
already being done.
Finally, we consider the alternative competitive stances that
organizations might adopt and the implementation strategies that
might be used to realize their objectives.
The nature and role of market-based innovation

It is appropriate to begin the discussion with some comments on def-
initions of innovation and creativity.
Innovation and creativity
Many definitions of innovation have been offered, and some examples
are given in Figure 3.1.
From reading through many definitions it is clear that choosing
an appropriate definition of innovation seems to depend on the pers-
pective being taken. Given the approach of this textbook to take
a broad view of enterprise we favour an inclusive definition of
innovation, embracing the exploitation of ideas in profit and
non-profit organizations.
Creativity also has many different definitions depending on the
context. For our purposes we consider it to be the generation of ideas,
usually as a result of individual or small-team endeavour which will
add value for organizations and/or their stakeholders. The ideas
may not even be new but could simply be applied to a new situation.
Within the heading of innovations we take a market-based
perspective of innovation that underpins entrepreneurship:
■ Invention is not essential. The popular misconception is

that innovation is the same as invention but the common
view of writers in the field is that innovation does not
necessarily involve invention. Indeed, Bolton and
Thompson (2003), in the ‘envision’ stage of their
entrepreneur process model note that the inventor need
not be the opportunity spotter, nor the project champion
who takes the idea forward to commercialization.
w ideas (Innovation Unit, Department of Trade and Industry UK, 2004)
s, the means by which they exploit change as an opportunity for a different business or service. It is capable of being presented as a discipli
rough acts of innovation. They approach innovation in its broadest sense including both new technologies and new ways of doing things (P
se into widely used practice (Tidd, Bessant and Pavitt, 2005: 66)
Figure 3.1
Some definitions of
innovation.
■ It is not just about having ideas. Many people have ideas
but do not have the desire, the vision and/or the know-how
to be able to commercialize them.
■ Every function of the organization can contribute to innov-
ation by adding value for stakeholders.
■ Technology and non-technological developments are included.
■ Both step change and incremental improvements are valu-
able in improving organizational performance.
Wickham (2004) points out that it is the opportunity that is
ultimately most important, not the innovation itself.
While our emphasis is on the entrepreneur or the innovator that
profitably exploits the ideas, it is difficult to conceive of innovation
without some creative input, whether that is in inventing a new product
or in seeing new and better ways of doing things. By profitable
exploitation, we do not only mean making money. In the public sector
it can mean designing a new initiative, or finding a more economical
way of delivering a service. The UK, for example, has long
recognized that it has a successful record of scientific and
technological invention but is lagging behind in exploitation,
innovation and setting up new businesses (DTI, 2003). According to
the Global Entrepreneurship Monitor (GEM) Report 2000, the UK
is lagging behind its competitors in certain respects. In particular,
the level of new business start-ups is significantly behind countries
such as the USA, Australia and Canada, and the entrepreneurial
culture – particularly the tendency to identify and exploit busi-
ness opportunities – is not well developed.
The UK government has sought to foster better links between
research establishments, including universities, and industry in the
hope of bringing more innovation to market (Innovation Report
Online Update, DTI, UK, Feb 2005). They have also sought to forge
partnerships between the public and the private sector, with the
avowed intention of bringing greater commercial awareness to the
delivery of public services, which could be described as innovation in
process. In practice there has always been evidence of considerable
creativity in the public sector, but this has been accelerated by best-
value delivery and outsourcing programmes so common in the 1980s.
Adding value through innovation
Before discussing the various categories of innovation and processes in

detail it is useful to consider how customers and organizations might
benefit from innovation.
Customer benefits from innovation
If opportunities are successfully exploited, the recipients (consumers,
customers, clients, etc.) of the organization’s products, services,
processes and ideas should receive additional value that will
ultimately provide greater satisfaction than before, through the
combination of tangible and intangible benefits that they receive from
the new offering.
Innovation might increase the tangible benefits of the product or
service that appeal to the recipients’ senses, in the form of better
value; perhaps a product with a larger range of functions, better
durability, or better design, is easier to use or is lower priced than the
competition for a similar specification.
The intangible benefits take the form of a better designed or
functioning product or service, efficient customer service, a better
experience, and a feeling of greater satisfaction or enjoyment from
the purchasing and usage process. The value of intangible benefits
becomes obvious as products that appear to be physically the same may
be perceived differently by customers if they carry a well known
brand or are supplied by a company with a positive reputation. The
customers may be prepared to pay a premium price or remain loyal to
the supplier if they perceive that the brand offers extra intangible
value. For example:
■ a shirt made from the same material to the same specification

in the same factory might be sold at a higher price if it
carries a fashion label;
■ customers are prepared to pay a higher price for a car with
a VW badge rather than a Skoda badge, despite much of the
engineering being to the same specification;
■ Fairtrade products are differentiated from competitor prod-
ucts on the basis of using ethical business practices. It is diffi-
cult for individual consumers to assess the actual tangible
benefits to farmers and so the appeal may be a ‘feel good’
factor for consumers who believe in the principles and
trust the Fairtrade brand to deliver them.
Increasingly, other aspects of the purchasing and usage process are

assessed and valued by customers, including the disposal of the
item after it is no longer useful. For them there are many other
improved benefits that an organization can offer: for example, by
providing an effective service for customers that solves problems,
removes ‘hassle’ from their lives, and offers greater convenience and
accessibility, a ‘fun’ experience or simply the pleasure of being served
by caring, interested and helpful staff. While on the face of it offering
high levels of service
may not seem as innovative as a technological product innovation it still
requires creative management and delivery and the impact is equally
important and often more difficult to achieve consistently in practice.
For example, the success of many high-tech products is just as depend-
ent on creative branding, distribution or advertising as it is upon the
features of the product, as shown in Enterprise in Action 3.1.

Steve Jobs creating a lifestyle
Apple Computers has always been the underdog in an industry dominated by giants but
the genius of Steve Jobs, its founder and chief executive, is that he has managed to make
what is essentially a rather boring technical product a lifestyle choice, for teens to technology
geeks to business executives.
This has been achieved by not just including leading-edge technology in its Macs, Powerbooks
and iPods, but by creating desirable products through design, innovative retail strategies
and grassroots market appeal. Jobs has been particularly effective in leveraging limited
marketing budgets to gain maximum publicity, often through partnerships, such as those with
Volkswagen and Pepsi.
In 2004 Apple took steps with the introduction of the $99 iPod Shuffle and $499 Mac
mini to extend its appeal to an audience that has not so far been able to afford its products.
Apple’s weakness, as with many entrepreneurial organizations, is closely linked to the per-
sonality of its entrepreneurial CEO. Jobs is passionate, often not politically correct and has
not always selected the best team of executives to make the best of Apple’s ideas.
Adapted from: A. Cuneo, Marketer of the year Apple, AdAge.com and Apple unveils
low-cost ‘Mac mini’, BBC Online, 11 January 2003
Question: How can an entrepreneur with limited resources create intangible benefits for
customers?
Providing these benefits requires the organization to configure its busi-

ness model in a way that delivers them more effectively and
efficiently than can the competitors. This requires establishing strong
links across a range of functions. For example, it does not only
require financial resources for R&D, but it needs appropriately
skilled staff to be recruited and trained, it needs marketing to
analyse changing customer needs, and it needs operations to
deliver efficiently.
Organization benefits from innovation

Success for most organizations is determined by the degree of customer
satisfaction that is delivered, but clearly this must not be ‘at any
cost’
and so central to innovation is the concept of exchange and
providing customer benefits in a way that the supplier organization can
sustain.
In a private sector business the benefit for the owners of the
organization might be in the form of increased wealth, which comes
from the development of more profitable products and more efficient
use of assets. For public or not-for-profit organizations the benefit
will be in the form of being more effective (securing more impact for
the same investment) or more efficient deployment of resources
(lowering the cost of delivery without lowering quality or reducing
outputs). For example, in an NHS Trust, innovation in systems
might lead to more patients being treated per hospital bed.
In healthcare, innovations are frequently at the public–private sector
interface, where innovations are often the result of cooperation
between individuals from public and private sector organizations.
Martina Rieder in Enterprise in Action 3.2 has designed and patented a
new skin contact adhesive and a high-tech gel that soaks up excess
moisture. It has the potential to ensure that ileostomy and urostomy
bags remain secure and dry for longer, thus reducing costs, and
increasing customer comfort.

The UK’s most enterprising student improves patient dignity
Martina Rieder, a student at the University of Sussex, was on a summer placement with
Welland Medical Limited, who specialize in ileostomy and urostomy bags (used to remove
waste from a patient’s body after small-intestine and bladder surgery respectively). The 8-week
placement was part of the Shell Technology Enterprise Programme (STEP) and she received
an award as the UK’s most enterprising student for her work.
She knew nothing about the use of the bags when she started but careful research, coupled
with empathy for the wearers and a determination to improve the patients’ comfort and dig-
nity gave her the idea for a new patient-friendly product – a gel seal to stop leakages
between the bag and the stoma (the artificial opening in the body), which is now being
patented.
The problem was that the bags had to be connected through the stoma. There have
always been problems with leakage of urine, which causes the patients considerable skin
discomfort, and frequent problems with the failure of bags and seals, making it necessary to
change them very frequently.
Staff and patients were impressed by Martina, who took time to listen and then develop
a solution. For her part, Martina was shocked that no one had done anything before to
overcome these patient problems.
Adapted from: J. Elliott, ‘Giving bladder op patients their dignity back’,
BBC News Online, 15 October 2004
Question: What are the success factors that an innovator should focus on?
Other stakeholders, such as the community at large, can benefit
from an organization’s innovation. For example, there would be
community benefits from an organization developing a novel energy-
saving policy. While the policy might also help to improve the
organization’s image and reputation among its consumers it may not
necessarily reduce energy costs or otherwise improve product
performance.
The alternative categories of innovation

Accepting the broader view of innovation that covers the dimensions
of invention – technological and non-technological, and step change
and incremental innovation, we now turn to the alternative categoriza-
tions of innovation that have been proposed.
The starting point is the four categories (the 4 Ps of innovation)
identified by Utterback (1994), which describe the space in which
the innovation takes place.
Product innovation: changes in the products and services the
organization offers; for example, M&S sell a small portion of
pre-prepared Brussels sprouts in a microwaveable bag.
Process innovation: changes in the way products and services
are created and delivered; for example, online banking and
betting. Position innovation: changes in the context in which
products and services are introduced. For example, it was
originally thought that older people would want to buy cars
specially designed for easy access, economy, and high levels of
safety, and with equipment to cope with increasing disability.
In practice an increasing number of older people appear to
be buying high- performance sports cars to relive their youth!
Paradigm innovation: Changes in the underlying mental
models which frame what the organization does, as shown
in Spotlight 3.1.
Spotlight 3.1
derived from their principal customer British Coal. By 1990 the coal mine closure programme was accelerating and SMP we
In 1990 they reformulated their strategy and company structure. First, they redefined their business from coal mi
The reasons for the success of SMP were:
clear top-management vision of the company they wished to build;
the tenacity and resilience of the entrepreneurial CEO in driving the company in this new direction;
identifying two niche target markets, railways and construction, wherein they could compete;
being small and lacking experience they used alliances with partners to grow the business;
they focused on quality processes throughout the organization.
Source: Isobel Doole, Sheffield Hallam University
Question: What are the barriers likely to be for a paradigm innovation?
An alternative characterization of new products was proposed by Booz,

Allen and Hamilton (1982) who suggested that the key criteria were
newness of the product to the company and newness of the product to
the marketplace. Based upon research in the 1980s in the USA they
concluded that the prevalence of products in the categories was as
shown in Figure 3.2.
New-to-the-world products that create a totally new market; 10 per cent

New product lines that enable the company to compete in a new product category; 20 per cent
Additions to existing product lines; 26 per cent Improvements and revisions to existing products; 26 per cent
Repositionings of existing products to appeal to a new customer segment; 7 per cent
Cost reductions to provide similar performance at lower cost; 11 per cent
Source: Booz, Allen and Hamilton (1982)
Figure 3.2
Categories of new
products.
Technology and step changes

Technology is not an essential element of innovation but it often plays
a key role in facilitating change. Tidd, Bessant and Pavitt (2005)
explain that the eighteenth-century economist Joseph Schumpeter
suggested that entrepreneurs use technological innovation to get
strategic advantage and for a while this allows them to make a lot of
money (monopoly
profits). This step change or discontinuous innovation, according to
Schumpeter, involves creative destruction. Step change innovation can
be thought of as doing things differently. It usually follows a period
of market stability and the innovation will cause substantial
disruption. There is likely to be considerably greater uncertainty
and unpredictability in the technical success, customer acceptance
and competitor response. However, other entrepreneurs will imitate
this and, as a result, other innovations (incremental innovations) will
emerge, resulting in many new ideas that chip away at the
‘monopoly profits’ until equilibrium is reached and the process starts
all over again.
Technological discontinuities
Foster (1986) illustrated the ‘S’ curve of the technology life cycle, as
shown in Figure 3.3. This plots investment in product development
and performance improvement perceived by the customer.
Investment in product, service and process development results in
a stream of small performance improvements that add customer value.
However, at the top of the ‘S’ curve, when the mature phase of the
life cycle has been reached, even for quite large research and
development investment made there is little further improvement in
performance. For example, analogue TVs reached this point and
even substantial additional investment could not achieve further
small improvements in customer satisfaction. As digital TVs have
become affordable, so the demand for the old products has declined
quickly. This pattern follows a similar breakpoint and progression
from black and white to colour televisions. You might speculate what
the next breakpoint could
Performance
‘S’ curve
Figure 3.3
Efforts and funds invested
R&D effort and
discontinuity.
be; for example, it might be a totally new level of interactivity or
3D imagery.
The vicious circle of technology evolution
Technology evolution drives change within an industry sector but also

provides the means for entrepreneurs to respond to change and
build competitive advantage, as shown in Figure 3.4. Entrepreneurs
are able to adapt and apply ‘pure’ science and technological
inventions to create new commercial solutions in the form of new
products, services and processes.
The entrepreneurial organizations that successfully embrace a
new technology and find a practical application, for example by
creating a new product, service or a new route to market will gain a
new source of competitive advantage. This usually results in new
standards being set for the industry sector and leads to competitors
having also to meet these standards if they wish to compete in the
market in the future. All competitors in the sector then embrace the
new technology. Consequently, the innovator firms have to find a
new innovation or technological advance that allows them to get
ahead of the competition again.
This cycle of technological development in the sector leads to cre-
ative new ideas, not just in the products and services of the ‘for profits’
sector. For example, it is just as important for a charity to use the latest
communications methods to compete in fund-raising, as shown in
Pause and Reflect 3.1.
New technology
Competitors follow with me-too Practical applications applied
Change of industry standards Firm embraces new technology
New customer expectations set Firm develops new competitive advantage
Figure 3.4
Technology and
competitive
advantage.
Charity innovation at Oxfam
The constant challenge for charities is to overcome donor fatigue, and the dilemma is which route to
customers will deliver the most benefit. Oxfam is challenging the traditional ways of operating charities. For
example, e-mail will soon overtake traditional mail in terms of communications expenditure. Now Oxfam is
using the latest information and communications technology to target different groups for different purposes.
Students tend to make good activists, young adults have money to donate and older people are willing to work
as volunteers.
Oxfam’s new approach is obtaining very high response rates. For example its campaign to persuade Nestle to
drop its calls for debt repayment from Ethiopia involved asking people to e-mail the CEO of Nestle. Seventy to
eighty per cent of the people contacted e-mailed the CEO and the debt was cancelled.
By tracking website navigation Oxfam is able to obtain information about the interests, commitment and
willingness of people to donate and it has changed its targets for communication as a result. It has been
better able to integrate its communications to maximize its impact in collecting donations. Now Oxfam has
launched video e-mails using newsreel type footage to complement TV ads and news items. It has described
the response to its appeal for donations for Sudan as phenomenal.
Adapted from:‘Treating them differently’, Marketing Direct, February 2005
Question: Are there any restrictions to innovation in the not-for-profit sector?
Incremental and architectural innovation

So far our discussion has focused on step change innovation, driven by
technology but, as we said earlier, innovation is more broadly based.
Step change innovation
Step change innovation occurs not just because of technology changes

but as a result of groundbreaking, creative ideas throughout the organ-
ization, and this is addressed in greater detail later in this chapter and
in Chapter 9.
Incremental innovation
Incremental innovation covers all the small-scale improvements that

occur on a daily basis throughout the organization. Toyota, for
example, has claimed that its quality improvement programmes
generated over 60 000 improvements in one year.
Incremental innovation also involves considering all the
technological alternatives, and in necessity invention, shown in Pause
and Reflect 3.2 and Enterprise in Action 3.4, old technology can be
applied to solve current problems, sometimes being integrated with
new technology too.
Grassroots innovation
There are many necessity inventors around the world who are developing low-technology solutions to solve day-
to-day problems. In Gujarat, India, Mansukhbhai Jagani has developed a field cultivator, which was developed
by replacing the rear wheel of an Enfield Bullett motorcycle. Whereas a tractor costs $6000, the modification
costs
$450. He has also developed a seed and fertilizer dispenser and a bicycle-mounted sprayer.
Arvindbhai Patel developed a natural water cooler, invented when his wife applied a water-soaked cloth to his
forehead when he had a fever. It consists of a 10-foot copper pipe wrapped in a wet cloth that carries water to a
container. The water is chilled in the process. Another inventor added a lever to the pulley used for drawing
water from wells. It stops the bucket from falling back when the pulley operator stops to catch a breath.
The problem for individual inventors of this type is a lack of funds to develop the ideas into marketable prod-
ucts. To solve this, in the 1980s Anil Gupta set up the Honey Bee Network to create a database of grassroots
technology innovations and traditional knowledge, which now has 51 000 ideas. The Grassroots innovation
Augmentation Network was set up by Gupta in 1997 to identify promising ideas, do market research, and pre-
pare business plans to attract the necessary financial support.
Adapted from: S. Sinha, ‘Successes in rural inventions’, BBC News Online, 8 July 2005
Question: What do you consider to be the main challenges for low-technology inventors?
Architectural innovation
Tushman and Anderson (2004: 6) explain that architectural innov-

ation are the changes in the subsystems and linking mechanisms
that are necessary to obtain the best benefit from minor
technological changes. Honda adjusted its business model to
market small motorcycles by selling through bicycle shops in the
USA rather than motorcycle dealerships. In the 1990s IBM failed to
respond to the implications of disk drive technology moving from use
in mainframe computers to PCs. Competitors were faster at seeing
the opportunity, made the architectural change to their businesses
and took a high market share, with the result that IBM suffered
considerable losses.
Tushman and Anderson (2004: 92) suggest that the best firms are
‘ambidextrous’ and can effectively manage incremental innovation,
architectural innovation and technological discontinuities. They are
continually learning and acquiring detailed knowledge of specific
technologies, markets, customers or competitors, reflecting on the
combined areas of knowledge, re-evaluating the new knowledge
against the background of the current situation, and reformulating the
organization’s mix of activities to exploit the new opportunities.
Innovation can therefore be understood as a knowledge-based
process. For small-scale incremental innovations the level of uncer-
tainty, for example, in the expected technical success and customer
acceptance of the new offer is likely to be low. Step change
innovations involve greater uncertainty but if the organization has
experience, expertise, a track record of innovation and adopts a
learning approach, it is likely to be able to predict the outcome of
projects with a higher degree of certainty.
Innovation throughout the life cycle

As we have suggested earlier in this chapter, customers expect continual
improvements in the overall product or service offer throughout its
lifetime in order to maintain their interest and loyalty to the
organization.
Life cycle
The fundamental principle of the product life cycle is that most
brands, ideas, products, services, processes and technology follow a
life cycle similar to that shown in Figure 3.5. The life cycle follows
the stages of introduction, growth, maturity and finally, decline, as new
brands, products, services, processes or technology replace existing
offerings.
The life cycle concept suggests that businesses should be constantly
innovating to ensure that new introductions are ready when replace-
ments are needed, to further ensure a constant and growing revenue
stream. It might be that products and services need to be revitalized
to
Performance
Maturity
Decline
Growth
Introduction
Figure 3.5
The life cycle of Time
products,
technology.
extend their life or replaced when they have become obsolete. For
some sectors, such as high technology, it is possible for experts to accur-
ately predict when a product will have reached the decline phase of
its life and will be replaced by a new product, because they know that
new scientific or technological inventions are already in the pipeline.
You might consider how long you think it will be before your mobile
phone, TV, and audio and video recording equipment will need to be
replaced as new, better designed, more functional, possibly cheaper
replacements become available. You may not be able to guess
which supplier will be the innovator or what the technology base will
be, but you just know that a replacement will be available in the next
two to three years. Fashions and fads appear in not-for-profit sectors
too. For example, in many countries the main political parties
appear to be increasingly adopting the middle ground. The policies
of rival parties are becoming increasingly indistinguishable,
offering voters little real choice. Accordingly, innovative new parties
formed by entrepreneurial politicians do have the opportunity to
make an initial impact on bored voters. However, many of these are
short-lived ‘fads’ often linked to the
short-lived popularity of one issue or a particular personality.
For mature markets it is often difficult to predict when a product will
start to decline. Coca-Cola, Kellogg’s Corn Flakes and Heinz baked
beans seem likely to continue in the mature phase of the life cycle
for some years yet and replacements are not yet obvious. It is
perhaps unlikely but not impossible that consumer taste or dietary
advice will change so much that a replacement will be needed.
Consumption patterns of various foods have changed dramatically as
new diets, such as Atkins and GI, gain and lose favour.
The innovation response to different

life cycle situations
The strategic response to different life cycle situations is through innov-
ation in different aspects of the organization’s operation and market-
ing. Clearly the introduction stage of a product life cycle involves
a ‘break through’ innovation and a product, service or process that
is entirely new to the market. Small- scale innovations that create
incremental improvements to the product, service or process
maintain the organization’s competitive position through the growth
phase and into the mature phases of the life cycle. These
innovations might include ‘new improved’ versions, brand and line
extensions, or lower-cost versions that maintain the customer’s
interest and loyalty.
When a market reaches maturity and is on the point of
decline, either more significant innovations are required to revive
the product or to create an entirely new offer to the market.
Sometimes architectural innovations enable organizations to break
into an adjacent market or target a new customer segment; for
example, supplying home users rather than business users of office
equipment may not require different technology but may require
product or business model adaptations.
It is important to re-emphasize at this point that it is not always
product and service innovations that are essential in a new offering. As
we shall see later, a new offer can emerge following the adoption of a
new method of communication, ordering and payment system, pricing
strategy or distribution channel. To maintain growth and to extend
the life cycle it is necessary to introduce a stream of small-scale
innovations in every function of the business that will help to improve
efficiency, lower cost and add customer value through improved
features and benefits. The stage of the life cycle that a product has
reached may be different in different markets and this requires
adaptations, as Enterprise in Action 3.3 shows.

Turning back the technology
As in many other less developed countries the electricity supply in Vietnam is unreliable
and the lights often go out. For patients on life-support machines on an intensive-care
ward in a Vietnamese hospital, however, the consequences can be much more serious.
Roger Eltringham, a consultant anaesthetist at Gloucester Royal Hospital in the UK,
developed a ventilator in his spare time to supply oxygen that copes with electricity failure. It is
already saving lives in Africa, parts of Asia and Eastern Europe. When working in the developing
world he realized that the sophisticated machinery used in the developed world required back-
up and could not cope with the local conditions, so he set about developing a new product
to solve the problem.
Eltringham’s machine costs £15 000 compared with £40 000 for a traditional machine and
50 machines have already been sold. It can be used without electricity, has a 14-hour
oxygen supply rather than 1 hour 40 minutes in the more sophisticated products and has
lower running costs than the conventional machines have.
The only problem is that some hospitals want the most sophisticated machines so they can
be regarded as being ‘leading edge’. They have to be persuaded that a less
sophisticated machine is more suited to their situation.
Adapted from: J. Elliott, ‘My machine is saving lives globally’,
BBC News Online, 28 May 2005
Question: Where does the stimulus for innovations come from in developing countries?
Industry breakpoints
The step changes in life cycles that result from the ‘new to the world’
introductions are referred to by Strebel (1996) as industry breakpoints
after which the industry ‘will never be the same again’. Strebel
identified two types of breakpoints that have the effect of significantly
increasing either customer value for money or organizational
performance through cost reduction:
Divergent breakpoints – associated with sharply increasing the
variety of competitive offerings resulting in increased value
for the customer; and
Convergent breakpoints – the result of improvements in the
systems and processes used for the delivery of the offerings,
leading to lower delivered costs.
Industry breakpoints occur because of either a technological
innovation, based upon invention, or a marketing or operational
breakthrough, that may only partially be influenced by technology
developments. For example, online travel agents made it easier for
travellers to use their own ingenuity to save money on travel and
create exciting holiday packages, through carrying out their own
research.
Marketing and operational breakpoints

Over the last few years many industry breakpoints have been the result
of technological or scientific research, which it might be concluded
are the main drivers of change. However, industry breakpoints are also
created through entrepreneurial creativity by using a mix of
existing and new business models, supporting technology and new
designs, marketing and business processes. One of the most
significant breakthroughs in the mobile phone sector came as a result
of innovations in payment methods, as we discuss in the case study at
the end of the chapter. eBay and Betfair have used the Internet to
develop new ways of auctioning products and gambling.
The categories of innovation and commercialization challenges
It is easy for entrepreneurial organizations to fall into the trap of

assuming that the benefits of new innovative products and services,
which are so obvious to the innovator, will also be obvious to cus-
tomers. However, customers are rarely as involved or as interested in
the new product or service introduction as is the innovator. They
may be still relatively happy with the existing product and see no
real reason to change and would not be prepared to go out of their
way to do so. Rarely do customers form a queue at the door to
buy unproven products or services! Innovations change the pattern of
customer buying and usage and, even when the benefits,
improvements and additional customer value appear to be obvious,
the supplier must still market and sell the product effectively.
Equally, organizations can fall into the trap of believing that the
organization is flexible and can easily accommodate new
developments without disruption of operational efficiency.
Alternatively, some believe that an innovation is superior and
command a premium price, and that these factors will offset inef-
ficiencies in its operation.
Robertson (1967) identified three categories of innovations accord-
ing to the disruption they cause to customers’ buying and usage pat-
terns and thus the amount of customer education and promotion that
might be needed. The suggestion is that the more disruption, even if
the result is greater benefit to customers, the more education and per-
suasion is needed. The problem is that providing high levels of cus-
tomer education can be very expensive and sometimes beyond the
means of some smaller organizations that have limited resources
and limited capability in many business functions.
Continuous innovations
Continuous innovations to the product require little change to
the purchase and consumption behaviour in customers. For
example, the introduction of fluoride in water, additives in food, and
new chemicals in fertilizers or the use of CFC-free refrigerants in
refrigerators would appear to have no significant effect on the
purchase process or use of the product at least so far as the
consumer is concerned.
Consumers are becoming more knowledgeable and demanding
however, and, with pressure groups raising questions, they are more
likely to question certain types of continuous innovations. The intro-
duction of genetically modified (GM) foods has raised fears in
consumers’ minds and made them reluctant to purchase the
products without greater proof of their safety.
Dynamically continuous innovations
Dynamically continuous innovations have a more disruptive effect
on the way that the products and services are used. For example, the
introduction of the DVD recorder required some changes in
routine to ensure that it is used effectively but it operates in a very
similar way to previous recording formats. If the innovation is
dynamically continuous it can be difficult to explain to customers the
advantages compared to existing products or services, especially if the
price is much higher.
Discontinuous innovations have a highly disruptive effect upon
usage and purchasing patterns and these innovations require a high
level of marketing to explain the benefits and to educate consumers
about how the product should be used. Microwave ovens had a signifi-
cant effect on customer lifestyles but it was necessary to explain to cus-
tomers that the invention was safe; that there were convenience
benefits; and that a change in cooking methodology was possible. MP3
players for music downloaded from the Internet have a more disrup-
tive effect on purchasing and usage behaviour of customers as they
require different customer skills and knowledge.
The more disruptive the innovation is to customers’ normal
purchasing, consumption, and disposal patterns the greater the
investment that is needed to educate these customers in respect of
why they need the innovation, how they will benefit from it and how
they should use it (and not use it). In the early days of microwave
ovens, for example, suppliers omitted to tell consumers that they
were unsuitable for drying cats after they had been out in the rain,
with disastrous consequences!
Creative destruction and the internal organizational challenges
As well as posing new challenges for marketing, discontinuous

innovations and, slightly less so, dynamically continuous innovations,
cause disruption to the internal operations of an organization. If the
innovation is disruptive it might require a radical change in the
firm’s management processes such as manufacturing, distribution
and marketing. It might even need a complete re-invention of the
firm’s business model and practices. One example of this is the
introduction of digital photography, as shown in Enterprise in Action
3.4, which has not only had a huge effect on the major film and
camera manufacturers but
also on smaller organizations, including for example, those involved
in film processing.

Disruption in the photography industry caused by discontinuous innovation
A digital camera can fall into both discontinuous and dynamically continuous categories. If
a digital camera is used to take pictures and the memory card is then taken to a photographic
shop for processing it has little effect on use and purchasing and could be categorized
as a dynamically continuous innovation. If a digital camera is used by the customer in
conjunction with a computer or special printer for processing, this is considered
discontinuous.
As well as changing customer purchasing and usage behaviour the companies involved have
suffered considerable change to their operations over a very short time period. Kodak, for
example, had to shed 25 000 jobs in two years as digital sales replaced film-based sales. In the
second quarter of 2005 it made a loss of $146 m following a loss of $136 m for the year before.
To show the rate of change, its digital sales rose in the second quarter by 43 per cent.
While there is probably little that could be done to avoid this problem, film processing
companies seem largely to have failed to seize the opportunity to retain business following the
industry breakpoint caused by the introduction of digital cameras. They either took their
customers for granted and assumed that they would continue to bring in memory cards for
processing or believed that all customers would print their own photographs and so their
business would have no future. They failed to explain to their customers that their services
extended to digital photography and that there were benefits in having digital images
professionally printed.
Adapted from: ‘Kodak to slash 10,000 extra jobs’, BBC News Online, 20 July 2005
Question: What can the entrepreneurial organization do to avoid the risks of disruption to
its established business?
Disruptive technology
Christensen (1997) introduced the concept of disruptive technology.

In the ‘S’ curve the performance of a new technology is usually
inferior to that of the old technology. Often, because the new
technology appears to be creating a new market, it is not taken
sufficiently seriously by the existing players in the established
market. For example, the first mobile phones were cumbersome and
performed much worse than fixed line phones. By the time the
fixed line players started to become interested in the new market,
the new entrepreneurial mobile phone suppliers were already strong
competitors.
Christensen suggests that contrary to popular belief large firms
are aware of new disruptive technologies but their customers are
resistant
to change and continue pressing for improvements in existing prod-
ucts and would react adversely to being offered a product that was
based on a radical technological change.
Creative destruction
As a result of these discontinuities industries are characterized by cre-

ative destruction, or waves of new firm creation and failures, often
referred to as ‘shake outs’. Less entrepreneurial organizations find it
difficult to switch resources to new opportunities and, instead, con-
tinue to invest heavily in existing products, and become committed
to and dependent on them, even when they are in decline. Baron
and Shane (2005) point out that firms are reluctant to cannibalize
sales and this would explain for example, why Barnes and Noble
were slow to move into online book sales, losing out to Amazon.
Because such firms have considerable assets tied to a particular
process they may be reluctant to change to a new technology or
process and unwilling to aggressively seek a replacement that might
require huge investment in new development and marketing to
support it.
Tushman and Anderson (2004: 39), contrary to the opinion that
revo- lutions usually arise outwith an industry, suggest that at the point
of discontinuity the leaders in an industry will only become the losers
as a result of creative destruction if the innovation is competence
destroying, wiping out their considerable investments in soon-to-be
obsolete skills and technology and eliminating the barriers to entry.
Baron and Shane (2005) explain that the newcomer should spot
and prepare to exploit those opportunities that result from
breakpoints when they are at an advantage, and the established firms
have no particular advantage. Dyson introduced new technology to
create innovative household cleaning products, the low-cost airlines
competed with major airlines, and online retailers such as Amazon
challenged traditional retailing processes.
It is also important to reconfirm that at a breakpoint the bright idea,
alone, does not lead automatically to commercial success. As we
have seen, suppliers of a profitable existing product often defend the
present, predictable revenue stream, rather than turn
enthusiastically to a more risky, less predictable income stream from
the replacement product. Even when they do introduce a new
product, such organizations often introduce it without real
commitment and fail to convince customers to change. By contrast a
newcomer to the market is likely to be totally dependent on the sales of
the new product and will be fully committed to its success.
However, if the newcomer does not have the
entrepreneurial, business and marketing skills and the necessary com-
mercial relationships the introduction may not succeed.
An example of a competence destroying innovation is given by
Drucker (2001), who comments that none of the giants of the
electronic industry, such as GE (USA), Siemens and Philips
(Europe) and Toshiba (Japan), who rushed into computers in the 1950s,
were successful. By contrast there are plenty of large firms that are
innovative, such as Johnson & Johnson in healthcare and 3M in a
variety of sectors. He comments that it is not about size but about
attitude; it does not come naturally but must be worked at.
The innovation process

Over many years a number of researchers have studied innovation
performance and concluded that the most successful organizations
have developed innovation processes in order to address a number
of challenges:
■ the need for market and technological scanning to obtain

early information about new opportunities and
developments;
■ the high cost and the need to manage finance and other
resource issues;
■ the uncertainty and unpredictability of the outcomes in trying
to do things differently or better;
■ the need to coordinate the contributions of various depart-
ments (such as research and development, operations, mar-
keting and finance);
■ the need to get the time of the launch of the new product
right;
■ the need to plan to allow staff the time away from their day-to-
day responsibilities and the scope to carry out developments.
The value of developing a process of innovation is that if it can be

defined it can be used to overcome the commercial challenges by
anticipating the potential problems, and managing and controlling
the various contributions to the process. Moreover, by reflecting on
the successes and failures, learning from the experience thereof and
continually improving them, the success rates of the new
developments will increase. In practice various models of the innovation
process have been developed over the years and it is to this that we
now turn.
Technology push, market pull
An early concept in the evolution of the process drew a
distinction between technology push and market pull as the
different drivers of innovation.
Technology push
Often, high-technology science- and engineering-based firms pursue sci-
entific exploration unhampered by the consideration of specific
customer and market requirements. For example, small bioscience
companies carry out chemistry research in the expectation of
eventually producing a chemical compound that might ultimately
become a commercially exploitable drug. In the early stages of
development the therapeutic outcomes and actual customer benefits
cannot be precisely predicted.
Market pull
In some organizations the innovation is focused solely on meeting care-

fully defined customer needs. For example, a company supplying super-
markets with own-label products relies on the supermarket to
forecast consumer demand. It will carry out only the development
work that is necessary to satisfy the needs of the supermarket,
defined in terms of a precise product specification and maximum price
it is prepared to pay. These stances might be considered to be at the
opposite ends of a continuum. Most organizations adopt a stance in
between these extremes and include elements of technology push and
market pull. For example, in the past, pharmaceutical companies
adopted the technology push stance but in more recent times they
have increasingly focused on specific therapeutic areas in order to
exploit a reputation for excellence in one area of therapy gained over
time, for example, in cancer or anti-
ulcer treatments.
Part of the reason for this is that with increasing competition a
deeper understanding of patient need and response is required
and more support activity may need to be provided. For example, an
innovative pharmaceutical product designed to combat obesity might
perform satisfactorily only if patients are prepared to change their
lifestyle. The success of the product for the company is therefore
dependent on providing support programmes that will help to achieve
this.
Equally, suppliers of own-label products to supermarkets can
increase the value of their offering by proposing technological
innovations which
might create a superior product to the branded product that is sup-
posedly being ‘copied’.
It can be argued that while the positions at the extremes of the
continuum can provide a sustainable position for an organization they
are potentially risky too. For example, unhampered exploration may
never lead to a saleable product offer and meeting market needs may
never allow the organization to create a competitive edge and
charge premium prices.
The innovation models

Booz, Allen and Hamilton (1982) produced the best known model of
new product development (illustrated in Figure 3.6) and this provides
the basis for the evolution of the innovation process. There are a num-
ber of key features of this model:
■ It involves a systematic, linear process involving a number
of stages, with decision points at each stage.
■ For each stage (e.g. idea generation, setting criteria for
screening, etc.), it is necessary to develop a set of operating
principles, and apply the appropriate tools and techniques
for choosing the option to pursue.
Market information NPD process Integration of process contributions
Market gap or opportunity identification Marketing

Technology management
Idea generation Screening
R&D strategy
Understanding
Initial concept
consumer
testing
needs
Business
and wants
case analysis Development stage Testing and validation Full product launch
Business policy
Production & operations management
Ease of communication of benefits Engineering
Design
Testing channel support Innovation management
Predicting competitor NPD and response
Adapted from : Griffin (2003)
Figure 3.6
New product development process.
■ It is desirable to undertake the lower-cost activities such as
carrying out the concept and business analysis that involve
staff time only and not additional resources, very early in the
process, in order to eliminate likely failures as quickly as
possible, so incurring low levels of unproductive expense.
Failures late in the innovation process can be very
expensive.
■ Delay the most expensive activities, such as prototyping a prod-
uct until there is a strong likelihood of commercialization.
■ The model separates technology push and market pull in
order to ensure that the customer demand is defined
separately from the technological analysis.
■ It is necessary to break up the overall process into a series
of clearly defined tasks so that the activities, roles and
responsibilities in the process can be managed and
controlled.
There are, however, a number of problems that arise when imple-
menting these basic models including:
■ the problem of separation of activities along functional lines
within the organization, as this often leads to conflict between,
for example, research and development, marketing,
operations and finance. A balance has to be struck between
the benefits of functional specialization against cross-function
synergy in solving problems;
■ in more bureaucratic organizations the delays caused by
the linear approach and the need for decisions at various
stages – this can extend the time it takes to get the
innovation to market with the danger that the launch
might be delayed, so allowing competitors first-mover
advantage;
■ the process possibly being too cumbersome for incremental
changes that are better managed and controlled with a ‘light
touch’;
■ the process overly focusing on internal activities and not
adequately including external contributions from partners to
the development process.
Rothwell (1992: 102) has identified the newer developments of
the process which enhance the basic model by addressing some of
these weaknesses. These models include:
■ parallel activity, which addresses the problem of an
extended time to market. For example, the screening of the
alternative designs of the final product appearance, the
concept testing and the business case analysis can progress in
parallel with the
preparation of the launch plan where an organization must
launch a new product into the market at a specific time;
■ integration of the functional responsibilities and activities –
this is facilitated by setting up cross-function project teams to
take joint responsibility for progressing the innovation;
■ recognition of the role and specialist contributions of
outside organizations, such as suppliers, customers and
advisers (specialist design, research, marketing
consultancies, etc.), and the collaborations with partners, who
can contribute complementary skills and expertise;
■ use of systems, particularly IT based, to facilitate the
integration of the contributions, networking and information
sharing and to support internal product and service concept
evaluation.
The management of innovation

Having discussed the features and evolution of the innovation process
models, we now turn to the management of the process within an
organization. The starting point is to develop an innovation strategy as
a subset of the business strategy and, particularly, for the organization
to adopt an appropriate innovation stance.
Developing an appropriate innovation stance

Developing an appropriate attitude and stance to innovation ensures
that a consistent approach to decision-making is adopted by the man-
agers and staff in the organization. The organization’s approach
must achieve an appropriate balance between:
■ market context, customer demand, innovation opportunities
and competition within the sector;
■ the organization’s growth ambitions;
■ the organization’s available resources;
■ the organization’s own creativity and entrepreneurial capability.
The alternative stances are:
Pioneers spot market gaps, track market and technology
changes and aim to be the first to introduce new products and
services, and make process improvements.
Second-in organizations watch the pioneers and follow their
lead, learning from any mistakes they make in order to
improve on the first products and process improvements that
are introduced to the market.
Imitators copy the products and service innovations with me-too
products that are lower priced and usually offer customers
value for money. This category includes supermarket own-label
products.
Defensive organizations tend to watch but largely ignore the
innovations going on and pursue their own path, usually in
sectors that are changing little. They become involved in
innovations only when it is absolutely necessary.

distributor of environmentally friendly recycled textile insulation material.
ning new concepts, such as a solar powered barbecue, a hovercraft and a remote control plane. With innovation the bene
While larger firms would be expected to have a clearly defined stance

on innovation and a well-funded innovation strategy with medium-
to long-term timescales, it might be supposed that this is not necessary
for start-up and early-stage firms. However, in practice it is critical.
Smaller organizations must adopt a consistent stance as innovation
is geared to survival and growth and must be focused on commercial
success. Innovation in smaller firms is constrained by limited resources
and, for example, time to market can be critical, so the R&D work
should be rarely open-ended. Moreover, the failure of a critical new
product, service or process, or spending more on innovation than
the organization can afford can result in bankruptcy. However, as
shown in Pause and Reflect 3.3, it is often the motivation of individuals
that leads to success.
The key innovation process steps
The key steps of the innovation process are:
■ using the information available to signal the opportunities
for the organization;
■ considering the alternative strategic options and choosing
a way forward that will encourage and support innovation;
■ developing an implementation plan to efficiently manage the
process.
Later in this book we deal in detail with these steps including the
different contexts, and the practical application of the concepts of
innovation. Here we focus on the process management issues.
Searching for the trigger signals
As we will discuss later, deep reflection of the key information

indicators is likely to be of greater benefit than superficial analysis
of large quantities of information in producing the trigger signals
that initiate the innovation process. Equally it is worthwhile considering
many ideas at an early stage rather than prematurely deciding on one
or two ideas to take forward. It is also useful to envisage an innovation
‘funnel’, which is wide at one end to accept many early ideas and narrow
at the other as the ideas that are close to commercialization emerge,
having successfully completed the various stages of the innovation
process.
Selecting from the strategic options
By the very nature of innovation there are many different directions

that the organization could take. In making decisions about which
options to pursue it is necessary to determine a set of criteria
against which the decisions should be made.
Assessing the strategic options in innovation
In developing a strategy for innovation it is essential that it fits with

the corporate strategy of the organization and some of the key
issues to ensure the acceptability, feasibility or suitability ( Johnson,
Scholes and Whittington, 2005) of the innovation strategy. The
organization will decide which of these elements the innovation
must fit. For example,
a finance-driven organization may only be concerned with risk and
return, whereas a production-oriented organization may only
encourage innovations that result in new products it can produce.
Fit with business strategy

Overall the innovation strategy should reflect the vision and objectives
of the organization, support the development of the generic strategy
(focus, differentiation and cost) and reinforce the competitive stance
and market approach discussed. The competitive stance of some firms
is closely associated with innovation. Enterprise in Action 1.4
showed that Gripple have the objective of 20–25 per cent of turnover
coming from products that have been launched in the previous three
years.
The innovation strategy should not only enable customer value
(e.g. benefits and problem solution) and organization value (e.g.
return on investment) to be extracted from the existing resources
and capabilities, but it should facilitate the creation of assets and
resources that will be useful in the future. For example, building a
reputation for solving the customers’ own problems can be used to
generate new business.
Portfolio management
Having set the parameters for innovation by ensuring its fit with the
business, and marketing and operations strategy, a strategic approach
must be taken to manage the range of innovation activities. A
portfolio of activities might include:
■ work on breakthrough innovations that will cause a step

change in the market and the organization’s performance;
■ incremental innovations of products and services to keep
them ‘fresh’ in customers’ minds;
■ a continuing programme of process improvement;
■ some limited curiosity research undertaken by individual
members of staff to explore entirely new ideas.
It is vital that staff time and financial resources devoted to these activ-
ities is balanced with other responsibilities and that the benefit to stake-
holders is periodically assessed.
Without a portfolio management strategy there is a danger of:
■ poor screening of ideas, so taking on too many new projects

and spreading the available resources too thinly to complete
a project in a reasonable timescale;
■ failure to kill off failing projects early enough, particularly
the boss’s ‘pet projects’, thus limiting the time and resources
available for more promising projects;
■ lack of focus and strategic direction resulting in wasted
marketing and operations costs;
■ failure to monitor, evaluate and learn good practice in man-
aging the innovation process and the failure to improve the
success rate of new projects.
Implementation
The implementation stage of the innovation strategy is concerned

with managing and supporting the innovation process. A number of
studies highlight the following essential elements of effective
innovation process implementation. For example, Griffin (1998)
suggests that the best companies:
■ had better success rates with 80 per cent vs 53 per cent for the
rest of firms studied, so concluding that practice and
repeating the process improves success rates;
■ reduced the time to market for new products by 30 per cent
in five years;
■ had higher revenue contributions from new products – 50
per cent vs 25 per cent for the rest;
■ used a version of the innovation process;
■ had a specific strategy;
■ had multifunctional teams;
■ were using more market research to become more
customer- driven and engineering tools to automate
design and prototyping.
The lessons of success in the innovation process
Despite employing well-qualified staff and operating a highly resourced

research and development department, some of the largest, well-
established organizations find it difficult to develop an effective
innovation process that routinely commercializes new innovations. By
contrast others appear to repeatedly and successfully introduce new
developments. It is useful for entrepreneurial organizations to learn
these lessons of success and avoid making the same mistakes as the
failures. In looking
at the critical success factors in innovation, identified in a number of
innovation studies, Tidd, Bessant and Pavitt (2005: 87) suggest that,
while there is considerable variation in innovation across different sec-
tors, the following conclusions can be reached.
■ Innovation needs to be regarded and managed as a process

rather than as a single event or series of events.
■ The outcomes of the process can be improved by good
management.
■ Success routines can be learned over time through the experi-
ence of repeating the process steps and will result, for example,
in launching new products faster and more reliably.
■ Effective integration of the contributions to the process is
an essential ingredient.
In support of these steps the following are essential.
■ A system of data-gathering supported by analysis – this will

provide the trigger to a new product development project.
■ The project should have a strategic fit with the firm’s capabil-
ities, resources and strategies, as discussed earlier.
■ Continual monitoring and management of the project.
■ Decisions are needed periodically to decide when the project
should be continued, be terminated or be accelerated
through the allocation of substantial additional funds.
■ The new product launch programme must be a success and
thorough and detailed planning is needed to ensure this.
■ Periodic reviews of the innovation process, activities and man-
agement should be carried out in order to maximize the
organization’s learning.
■ The whole innovation management process must be system-
atic and not ad hoc.
The following dangers apply.
■ An organization that over-focuses on leading-edge techno-

logical R&D may fail to place sufficient emphasis on
meeting customers’ more functional, technically less
demanding needs. This can be particularly the case for smaller
firms that are managed by staff with a strong technical
background, who find R&D challenges more interesting than
the commercialization challenge of meeting customer needs
in a competitive environment.
■ Some firms are dismissive of ideas and innovations generated
outside the firm and adopt a ‘not invented here’ approach.
■ In some organizations innovation is the responsibility of one
particular department. In this case they may miss out on
the innovative capacity of the organization as a whole.
■ The concept of ‘the boss knows best’ often results in the
ideas of senior managers being progressed, even when they
are not appropriate, and other staff being unwilling to
contribute ideas as they will be considered worthless or
unimportant by comparison.
■ Some organizations devote the majority of resources to
breakthrough rather than incremental innovation. Some
firms expect the innovators, like magicians, to produce a
rabbit out of the hat to get the firm out of trouble or
suddenly improve its fortunes. If this breakthrough fails to
materialize there is no fall-back position.
■ Taking a narrow view of the strategic objectives of
innovation might mean that spin-off opportunities and
opportunities that result from mistakes are not exploited.
■ Some firms fail to recognize the benefit of collaborative
innovation and networking between different
organizations.
Reasons for failure in innovation

Many large organizations believe that it is controlling and getting the
most out of the resources that they own that is the best route to
success, effectively maximizing their return on investment. The
danger, of course, is that too much effort can be spent on trying to
obtain a return from the existing assets, which may now be obsolete
(doing better what we do now – even though it might not be what the
market wants), and too little effort spent on pursuing opportunities
to generate returns in the future which might involve doing things
differently.
As Figure 3.7 shows, doing things differently might be in direct con-
flict with many of the objectives of the organization – to control
resources by using tried and tested methods. The result is a risk-averse
approach, in which innovation is limited by the organization’s man-
agement approach and rigid processes, and by the limited ambitions of
the managers, who may be concerned at the effect an innovation fail-
ure might have on their future careers. While recognizing the import-
ance of innovation, large organizations live off past successes and
use their huge resources to insulate themselves from immediate
market pressures, often by acquiring competitors or fast-growing
entrepreneurial companies. Many public sector organizations use the
excuse of
Organizational goals Organizational behaviour
Achieve improved performance Do things in new ways
Conflict
Figure 3.7
Innovation and Control resources Tried & Tested methods
organizational
conflict.
‘political pressures’ to justify their failure to develop creative

solutions to problems and fall back on simply fulfilling their
responsibilities for delivering routine services in the same old way. In
both cases, however, the risk of doing something and it not working
can be greater than the risk of doing nothing. Smaller
organizations often realize that they have to innovate merely to
survive, so the risk of doing nothing is far greater than the risk of
getting an innovation wrong.
The challenges in managing innovation

Whether the organization is large or small there are a number of
practical challenges in generating new products, services and
processes and in managing innovation generally, including:
■ picking the winners from the many ideas that might be
suggested;
■ developing appropriate organizations, structures or teams
capable of effectively exploiting new ideas;
■ developing stimulating climates in the organization to
encourage innovation and avoid a ‘blame’ culture;
■ accessing finance and deciding how much to spend;
■ deciding when to terminate projects;
■ meeting timescales during the process and being first to market;
■ handling the interface between the business functions and
departments and handling the conflict that sometimes arises;
■ working out how to cope with uncertain technologies and
unpredictable outcomes;
■ deciding when to employ external technological and
business expertise and learning how to manage it;
■ communicating internally and externally the strategies and
support available and the successes achieved;
■ ensuring that top management are committed to and
lead innovation as a corporate-wide task;
■ giving individuals more responsibility for new product
development.
In entrepreneurial organizations gaining commitment is usually not
a problem but persuading the entrepreneur to ‘let go’ and involve
others can be more difficult.
In larger organizations Drucker (2001: 138) comments on:
■ the importance of structure and cites a number of firms, such
as Johnson & Johnson and 3M, who set up new business units
to exploit innovation. This is illustrated in Spotlight 3.2;
■ the importance of having a high focus for the innovative busi-
ness unit to enable support and fast decision-making from the
top executives;
■ keeping the new venture away from the burdens that it is
not able to carry.
and explains that organizations should avoid:
■ mixing entrepreneurship and management;
■ innovations that cause the organization to diversify its
activities too much; and
■ buying in entrepreneurial companies, because this usually
does not work.
Spotlight 3.2
The different structures for innovation

One dilemma for large organizations is how to structure to maximize their innovation activity. There are a num-
ber of different approaches in the food and drink manufacturing sector, as listed below.
■ The Brand marketing manager is responsible for new product development in Kraft, Unilever, Bestfoods
and Procter & Gamble.
■ An innovation team reports to the marketing director, in McVities, Diageo and Nestle.
■ An innovation team reports to the board in Coca-Cola Great Britain.
■ Some global companies, such as Unilever, hand responsibility to one country. For example, the UK handles
Lynx deodorants, while France handles the shampoo sector, including Sunsilk.
■ Skunkworks: Some firms follow the Drucker view and set up totally separate units, such as Unilever
Ventures, physically outside the other offices in order to maximize independence and creativity.
Adapted from: Murphy C., ‘Innovation masterminds’, Marketing, 15 May

2003
Question: What are the arguments for and against having a totally separate innovation business?
The successful innovators recognize the critical importance of effect-
ive marketing and operations management, including:
■ gaining deep insights into user needs, expectations and
attitudes, recognizing multiple levels of customers such as
wholesalers, retailers and consumers and different roles
and expectations in the purchasing and usage decisions of
the technical specifier, quality controller, user, financial
controller, order approver;
■ carrying out more thorough development and design work
in order to meet these needs and expectations;
■ the ability to effectively launch new products, services or
processes, to provide effective after-sales servicing and to
generate repeat purchasing through effective marketing
communication, pricing and distribution;
■ protecting the newly launched product or service using patents
and/or other aggressive marketing behaviour;
■ focusing on targeting and capitalizing upon high margin
markets.
Successful innovators also recognize the importance of building
alliances and collaborations with outside partners, which can work well
if carried out in a planned and structured way. Collaborations can
be problematic, however, if there are unclear objectives, lack of
shared understanding of complementary expertise and roles, a
failure to monitor performance and suspicion about the other
party’s motives. Collaborations are risky but can be more rewarding
if the organizations involved contribute complementary expertise.
Ultimately, success in innovation is the result of having staff with the
generic and specific skills and abilities of innovation, and managers,
who are capable of getting the best out of the available resources
and the entrepreneurial abilities to ensure that the ideas are
exploited. The skills that are needed for managing innovation have
been identified by Tidd, Bessant and Pavitt (2005) and are listed in
Figure 3.8.
Summary
■ Innovations can be valuable in all areas of activity and success
is dependent on matching the innovation to the context
in which it is exploited.
■ Innovation is a corporate-wide activity involving all the
functions of the business and includes technological and
non- technological ideas that offer customers significant
benefits.
Recognizing the environmental triggers of change Aligning the innovation with the business strategy
Acquiring the knowledge assets to fill gaps in the organization’s resources Generating knowledge in-house
Choosing the most suitable company response to the opportunity Executing the company projects that will deliver a so
Implementing the necessary changes in the company to ensure the success of the
project
Learning through evaluation and reflection in order to make improvements to the innovation process
Developing the organization by embedding the structures, processes and underlying culture
Adapted from: Tidd J., Bessant J. and Pavitt K. (2005: 84) Managing Innovation, 3rd edn. John Wiley.
Figure 3.8
Core abilities in
managing innovation.
■ New innovations can cause significant disruption for the cus-

tomer purchasing and usage patterns and for the organization’s
operations and this must be recognized in the innovation
strategy.
■ Effective and efficient management of innovation is
improved by following a process and ‘practising’ innovation.
■ Organizations must decide what innovation stance to adopt
and ensure that it fits with their situation and objectives.
■ Critical to an organization’s approach to innovation is a cul-
ture in which there is:
a fundamental and sustained commitment to innovation
a willingness to accept risks
an ability and willingness to commit resources
a degree of flexibility
top management commitment.
Chapter questions
1. Explain the concepts of technical discontinuities and industry
breakpoints. Using examples from one sector explain how
the opportunities that result from them can be exploited by
an entrepreneurial organization.
2. Choose an organization that you consider to be very innova-
tive. How has it achieved success so far and how can this be
maintained in the future?
3. With a track record of successful entrepreneurship you
have taken over responsibility for an organization that has a
poor
record of innovation. Explain the issues you would expect to
have to resolve and the key actions that you would take
to achieve a more innovative culture within the company.
4. As a speaker at a conference of managers of small- and
medium- sized organizations from both public and private
sectors, you have been asked to give a talk entitled
‘Innovation in the small organization’. Prepare the slides for
your talk and include notes that refer to the important
concepts you wish the delegates to remember and examples
to illustrate the points you make.
5. As a newly appointed town centre manager in a run-down
region of the country explain the steps you would take to
begin the process of regeneration.
Case study
Mobile breakthroughs
The mobile-phone industry provides an excellent example of innovation and illustrates many of its
concepts. The industry has given the opportunity for many entrepreneurial organizations to achieve
spectacular growth over the period since the introduction of the first mobile phone. It is a little more
than a decade ago that phones became truly mobile. Old films show the early mobile phone as a con-
traption the size of a brick used only by the most powerful business executives. In the early days
phones were simply used for talking and it seemed that it was only business executives that needed
to be constantly in touch. A key development was having a phone in the car.
Today the mobile phone is a multifunction essential gadget that is capable of delivering almost
every communication need or a universal must-have accessory, and which is a target for many
thieves.
In the early days of mobile phones Jorma Ollila was the chief executive of a small diversified Finnish
con- glomerate. He had a vision to make Nokia the world’s leading maker of mobile phones. Nokia was
one of the fastest growing companies of the decade and in 2003 shipped 160 million handsets, more
than twice that shipped by Motorola, the next largest competitor. Nokia, like other hardware and
software manufacturers, used the latest technology to develop and manufacture miniaturized
multifunction products.
As the products became fashion items for young adults and teenagers, design was critical and
Nokia lost market share substantially in 2004 after it failed to develop a clam shell design, which
swept the market. Technology and design breakthroughs continue as the 3G phones enable Internet
access and the transfer of photographs, audio and video clips. The functionality of these phones is
being enhanced as the communications technology is being combined with better photographic and
screen technology and integration with mobile audio devices, such as the iPod.
Having swept through the developed countries, market development in emerging markets such as
India and China is now key. But, as the market matures, the barriers to entry are falling and in these
emerging markets entrepreneurs are developing competitive products offering high value for specific
customer segments.
The breakthroughs in the industry have not been restricted to new technology and design. The
growth of service providers, such as Vodafone, has been phenomenal too. Vodafone’s growth has
been driven by effective marketing and recruitment of customers, using a myriad of different con-
tracts and partnerships with mobile-phone suppliers that enabled them to give away phones within
the service contract as the bait to hook high-call revenue. Competition between service providers
increased as new entrants offered ‘free minutes’.
A significant breakthrough was achieved by ‘Pay-as-you-go’, which challenged some industry
assumptions. In a similar way to other utilities, the customers of fixed-line suppliers had contracts,
paid a monthly rental charge for the line and then paid for calls on top. Prepayment for mobile phones
enabled customers to have more control over their expenditure and so led to the mobile
phone becoming a children’s and teenagers’ ‘must-have’.
Perhaps one of the most surprising breakthroughs, because its success was not predicted, has
been texting. It was never imagined that this technology would be embraced so enthusiastically by
teenagers, who often even prefer to text rather than talk to their friend standing next to them. For
some customers the criteria for choosing a mobile phone is not the design or multifunctionality
but the speed at which they are able to text.
At the same time as these major breakthroughs there has been a continual stream of small-scale
innovations in every aspect of the sector.
Source: Robin Lowe from various public sources
Questions
1. Use the concepts discussed in the chapter to explain the nature of innovation in the
mobile- phone sector. Among other concepts, you might include, for example, some
explanation of technological discontinuity and non-technological breakpoints, life cycles,
alliances and innovation stances.
2. Why in general have the entrepreneurial organizations, such as Vodafone and Nokia, been
more successful in the mobile market than the former state-owned telecommunications
businesses?
3. What do you expect to be the next breakpoint in the sector? Justify your answer from
your reflections on customer demands, competition and environmental changes, such as
technological developments.

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Key words
adding value new product development
architectural innovation organization benefits
creative destruction paradigm innovation
creativity position innovation
disruptive technology process innovation
incremental innovation product innovation
industry breakpoints product life cycle
innovation step change innovation
innovation process tangible benefits
intangible benefits technological discontinuities
managing innovation
C H A P T E R
4
Learning,
decision-
making and
leadership
Learning objectives
■ explain how thought processes affect individual learning
and decision-making;
■ understand how organizations can harness individual
learning capabilities for competitive advantage;
■ understand how entrepreneurial organizations manage the
tensions and ambiguity in maintaining core business whilst
investing in innovation;
■ identify the characteristics of successful learning organizations;
■ evaluate the role that the development of a robust learning
capability has in the successful identification and
implementation of entrepreneurial strategies.
Introduction
Although the literature has produced a considerable body of theory
and practice relating to the subject of learning organizations, a lot less
attention has been paid to understanding the role of learning in the
process of entrepreneurship, particularly in small organizations. It
seems that the capacity for entrepreneurs to learn from their
experiences is a fundamental behaviour that is crucial to their ability
to succeed. They learn
Chapter 4 Learning, decision-making and 10
leadership 3
from all aspects of their experiences, such as their networks, the
problems they face and resolve, and (critically) from their
mistakes. The focus for their learning is the decisions they make.
Throughout this book we discuss the fact that most successful organ-
izations have developed the capability to make incremental changes
to their products, services and processes, but relatively few manage to
make the really crucial step-changes that transform the way markets
operate. We have suggested that the ability to make breakthrough
innovations (in products or in processes) in part or in whole may be
attributable to the way organizations (as collectives of individuals) learn
from events that sur- round them and the choices they make.
Transformational learning is a rare phenomenon. It is unusual to find
people eagerly challenging long held beliefs and assumptions and
behaving in radically different ways. Commonly, what happens is
that a few adjustments to behaviour are made, almost in a tokenistic
way, and much goes on the way it always did. While the inertia, power
and market influence of large bureaucratic organizations mean they
can ‘muddle through’ in this way, entrepreneurial organizations cannot
survive without innovation and critical decisions. To understand why it
is that entrepreneurial organizations seem to be able to sift the
signals from the environment, synthesize the conflicting messages,
make a decision and take action more quickly than their
competitors, it is necessary to explore a number of issues.
First, we will consider how individuals differ in their approaches
to learning, how their individual creativity can be developed, and how
the habits of thinking can affect the way in which decisions are made.
Speci- fically we consider whether entrepreneurs apply their learning
differently from other managers when making choices.
We then move on to look at organizations and how they can
remain competitive whilst encouraging innovation. To innovate, an
organization needs to be outward looking by focusing on changes in
its market and in the environment in order to anticipate and plan for
the future. But it also has to focus on maintaining profitability,
managing products out that are no longer needed, and unlearning
business practices that are no longer appropriate, developing
internal capability and capacity to succeed when the future is
uncertain. This suggests some degree of ‘navel-gazing’. One of the
difficulties presented by investing in innovation is the tension
between resourcing this development activity and maintaining the
core business. The effective management of these tensions is critical
for entrepreneurial organizations.
This leads on to the role of leadership in entrepreneurial organiza-
tions. After taking all the decisions and carrying out the tasks
during the start-up phase, the entrepreneur faces the challenges of
10 Concept Part I
4 s
delegating
tasks and decision-making to the management team. Moreover, the
implementation of entrepreneurial strategies requires the entrepre-
neur and other strategic leaders to provide an environment in which
the abilities of the creative thinkers in the organization are able
to flourish. The team must also be ‘managed’ in a way that
maximizes their contribution to the effectiveness of the organization.
Isolated innovations may not transform the culture of the
organization, but sustaining innovation over time depends upon
the ability to develop and sustain learning capability. We discuss the
values necessary to maintain the commitment to learning and
innovation and why it is that some organizations can harness the
knowledge and creativity of their employees, gaining their
commitment, and exploiting this to secure competitive advantage
whereas others fail to develop an effective learning organization.
Finally, we explore the links between organizational learning and
the successful implementation of entrepreneurial strategies in the
longer term by considering how important learning capability is to
entrepreneurial success, and how organizations can permanently
embed learning in their strategic thinking.
The nature of individual learning and enterprise
The starting point in considering the relationship between learning

and enterprise, entrepreneurship and innovation is to define what
the differences are in the skills, knowledge and attitudes that are
needed to be considered enterprising compared with the everyday
skills, knowledge, and attitudes that all managers have.
Entrepreneurship and innovation are, ultimately, about enterprising
people behaving in enterprising ways and so if this difference can
be defined, it might be possible to help more people to learn how to
become more enterprising. For this reason we return to education.
Earlier we alluded to the fact that the UK government are pursuing
policies that are designed to encourage enterprise in schools. The
Office for Standards in Education (Ofsted) suggests that enterprise
is ‘the ability to handle uncertainty and respond positively to change,
to create and implement new ideas and new ways of doing things, to
make reasonable risk/reward assessments and act upon them in a
variety of contexts, both personal and work’.
This definition suggests that enterprise might be something that is
skills-based. It is certainly something to do with action and doing
things. We have suggested that the way entrepreneurs and intrapre-
neurs process information and use it in making decisions, and the way
they reflect on their knowledge and actions may be crucial in distin-
guishing them from managers in general. In this chapter we will look
at learning in both an individual and an organizational context, and
the role it plays in the successful implementation of entrepreneurial
strategies.
Skills, knowledge and attitudes

Bolton and Thompson (2003: 74) argue that entrepreneurship is a
function not only of temperament or talent but of technique.
Talents are natural abilities, things that people are born with, and
temperament reflects their needs and drives. Using the analogy of a
crystal, Bolton and Thompson argue that talent and temperament
make the entrepreneur what he or she is. Temperament has to be
managed if the most is to be made of talent. If we identify people with
the right talents and temperament, we can improve their
techniques to add value; returning to the crystal analogy, the
craftsman’s techniques transform a rough diamond into a very valuable
one. With entrepreneurs Bolton and Thompson suggest that even
with exceptional talent, inappropriate temperament can be their
downfall. Conversely, the right temperament can compensate for
lesser talent. Technique can be the vital link between the two. Bolton
and Thompson liken this to a sports coach, who can not only impart the
techniques that develop talent, but helps the athlete to manage tem-
perament. However, they remind us that talent and temperament should
be enhanced by technique rather than diminished; they see a danger
in concentrating on technique at the expense of spontaneity and
creativity. Too great a focus on technique can lead to the
entrepreneur relying less on instinct; it is important to accept that
mistakes will occur and that they can be learning experiences.
In our view, people may be born with a certain temperament but
they do not have to behave in accordance with it on every occasion.
They can, as Bolton and Thompson suggest, learn to manage their
temperament. This ‘managed temperament’ is what we refer to as
attitude.
We also believe that, although entrepreneurs do exhibit certain
talents, there are many individuals who have talents that lie dormant,
unexplored and unrecognized. Talent is part of the story, but life
opportunity and experience dictate whether it is ever uncovered.
Talent has to be recognized if it is to be put to use. If an
individual’s education or life experience does not afford them an
opportunity to uncover and practise that
talent, it will wither on the vine. If Beethoven had never encountered
a piano, would his musical talent have been recognized? As such, we
believe that knowledge and experience should not be overlooked.
Knowledge encompasses not only the natural talents that an
entrepreneur has, but the experience and understanding that they have
acquired. This combination gives them a unique resource to draw on at
any particular moment in time.
The third element is skills. We have considered the talents, experi-
ence, temperament and preferred behaviour of entrepreneurs, but if
they cannot employ these successfully to achieve a desired outcome
then all is in vain. If they perceive an opportunity through their
knowledge and understanding of an industry, have the desire to
turn that into a commercial proposition, but have no negotiating
skills or are unable to assemble resources, it is unlikely that they
will be able to exploit it successfully. At the point of entrepreneurial
choice, it is the combination of their knowledge, attitude and skills
that determines the action actually taken.
Intuition and luck

Coulter (2003: 91) emphasizes the value of intuition on generating
ideas, where we subconsciously make decisions based on our
accumulated knowledge and experiences. It is often referred to as gut
feeling and can be a powerful source of ideas, when used
appropriately. The most successful entrepreneurs also often comment
that they were lucky in having the right idea at the right time. The
truth is that structured idea generation combined with intuition is
probably the successful approach to idea generation and, undoubtedly,
leads to lucky breaks too.
In practice, it is the balance between these and intuition that defines
entrepreneurial and innovative capability. The question is how much
of this can be learned, and how effectively the skills can be transferred
to different contexts (see Enterprise in Action 4.1).
years with an old push mower. Unable to afford a new mower, she walked into the corporate offices of a dealership an
and offering to mention the company in her fliers. The general manager was a little
taken aback, but she presented her case well, she ‘could talk the talk’. If she can get
insurance they are going to reward her initiative by giving her one.
Rossman said that she would never have had the nerve to do it if it hadn’t been for an after-
school business programme that she had been involved in. She and a group of friends had set
up and run a bookmark business. They had to form a company, seek out funding, develop and
produce a product and sell it, liquidating their assets six weeks later with the profits going
to charity. Representatives from local businesses acted as mentors to the various groups of
students. They made magnetic bookmarks for 18 cents and sold them for $2.00. Expecting to
sell 500, they actually ended up making a profit of more than $1300 dollars on over 1100 sales.
She said that she had learned that ‘it’s not hard to approach the owner of a business. All you
need is the courage to talk to them, and if they say no, then oh, well. But if they say yes it’s
a good thing you asked’.
Adapted from: Scott Brooks, ‘Junior business leaders achieve success’,
The Union Leader (Manchester NH), 30 May 2005
Questions: Which aspects of Alicia’s skills, knowledge, and attitude were critical? Is this true of
all entrepreneurial actions?
The alternative education approaches

Enterprise in Action 4.1 highlights the relationship between learned
skills, attitudes, and knowledge. It also draws our attention to how
important the education system can be in fostering talent.
The education system that most of us have grown up with teaches
logical, deductive thinking, and those who flourish within it become
very well practised at the art. By contrast, few are really exposed to
lateral thinking, a term that was introduced by Edward De Bono. It
describes an alternative approach to problems, coming at them from
a different angle. In De Bono’s opinion, schools need to do a better
job at teaching thinking skills (see Spotlight 4.1).
Spotlight 4.1
is more like a machine that recognizes patterns and moves from one pattern to the next rather unpredictably. He also su
written in a very logical way, but the substance of them was born from experimentation and based on
hunches, imagination and often accidents and luck.
He argues that education has been too much concerned with reactive thinking. It has been about informa-
tion and right or wrong answers, and so analysis, critical thinking and logical deduction have been emphasized
at the expense of perceptual skills. Many people in education and business have relied on analysis not only to
solve problems, but to generate ideas, but this does not fit with the way the brain works. The mind can only
see what it is prepared to see, and to a large degree this is shaped by what has gone before. When there is a
scientific breakthrough we often realize that much of the data we needed to make that breakthrough had
been available for a long time, but we had been blind to it because we were trapped in the habits of our old
way of thinking. These paradigm shifts are vital to creativity and innovation, and yet we seem willing to leave
them to chance.
Critical thinking is insufficient to bring about true creative thinking also, because it can focus on one
element that we feel is not quite right and ignore the rest. This also can lead us to believe that if we cannot
see faults we cannot improve. De Bono reminds us that the opposite of ‘why’ is ‘po’ – looking forward to what
might be, which is only partly based on what currently is. We need to be able to perceive better alternatives,
different futures. Education then ceases to be a question of ‘Have I got this right?’ but a process of
exploration – ‘I can think about this’.
He feels that thinking can be improved by attention and practice just as other skills can. The brain naturally
seeks to form patterns and to use them, not to cut across them, and so creativity is not a natural process. We
can use a number of techniques to help us to challenge our preferred patterns of thinking – for example, his
six thinking hats approach, which puts different contexts around an issue, asking people to adopt a different
mindset in each case. Once we accept that truth is not objective but subjective, based on perception and
emotion, we can challenge our prejudices, our habits of thinking, and become more prepared to see new
concepts. He suggests that it might be useful to ‘learn backwards’, working from the known to the unknown
rather than the other way around.
Adapted from: De Bono E. (1991) I am Right. You are Wrong. Penguin: London
Question: What aspects of this approach are relevant for entrepreneurs?
The government is concerned to encourage enterprise in

education, and concurs with the findings of the Davies Review of
Enterprise in the Economy and Education (Feb 2002) that effort to
build a deeper and wider enterprise culture must begin in schools.
Although extra funding has been made available, and some
excellent initiatives are being piloted, one has to wonder whether
these ‘add-ons’ are sufficient, or whether a more radical rethink of
the way we educate our young people is required if we are serious
about stimulating enterprise.
One initiative which appears to be having some impact on the way
children learn has been piloted in Sheffield (see Enterprise in Action
4.2). This appears to be successful in developing a more autonomous
approach to learning.
The 4 Rs
Mosborough Primary School in Sheffield has been participating in a project called ‘Building
Learning Power’ which is based on the work of Professor Guy Claxton. The project is based
on the premise that children will become better learners if they develop the following:
Resilience : knowing how to stick with things and work through difficulties. This includes being
able to become absorbed in learning, to manage distractions, to notice patterns and details in
experience, and to persevere in the face of difficulties.
Resourcefulness: being able to learn in different ways, and to use internal and external resources.
This includes being able to ask questions, see connections between things, using your imagina-
tion, call up reasoning skills to think methodically and examine arguments, and draw on the full
range of resources in the wider world.
Reflectiveness: being ready and willing to plan, take stock, and draw on your experiences as a
learner in order to get the best out of yourself. This includes thinking about where you are
going and how you are going to get there, being flexible, distilling the essential features of
what you are learning, and knowing how you learn.
Reciprocity: being ready and willing to learn alone or with other people. This means knowing
when it is best to learn on your own or with others, knowing how to collaborate,
understanding how to listen to others, and constructively imitating other people’s methods
and values.
Sue Marriott: various public sources
Question: When is the right time to build enterprise skills?
Lateral leaders
Michalski (2005) characterizes lateral and vertical leaders, the lateral
leader having some similarities with the people we are describing as
entrepreneurs. He describes them as inspiring others, leading from
alongside, encouraging constructive dissent, rewarding risk-taking,
sharing prestige, being focused on the creativity and innovation of the
team in reaching goals, and looking for ideas from anywhere. He says
that ‘Today’s president, CEO or managing director needs to be a
disruptive influence, having the imagination, vision and courage to
lead the organization to new territory’.
The link with professional development

Much of this has resonance with the principles of reflective practice,
required by many professional bodies as part of their commitment to
encouraging continuing professional and personal development.
They see the need to continue to challenge the tried and tested
methods, rules and regulations to see if these are still as relevant today
as they were when they were first established, probably many years ago.
Professional development should focus on encouraging their
members, both organizations and individuals, not just to do things
more efficiently, but more effectively.
Personal reflection
The principles of reflective practice are to encourage individuals
to think about their thinking, and to bring their assumptions out into
the open so that they (and possibly their peers) can scrutinize and
where appropriate, challenge these assumptions. Unfortunately the
worst part of ignorance is that people do not realize that they suffer
from it; they often are unaware of the consequences of their actions
and do not realize the impact that their patterns of behaviour are
having unless this is brought to their attention. We have already
talked about how the brain filters information, and how people can
become trapped into habits of thinking. Reflective practice
encourages individuals to explore and test the validity of their
perceptions.
The process of reflection

Many people engage in reflection, but much of it happens uncon-
sciously. It is a very personal process, looking at experiences, analysing
what went well or not so well, and taking the learning from this forward
to improve the process next time around. It encourages individuals
to recognize the role they played in events, and consider how the
outcome of events may have been changed by alterations in
their own actions, attitudes or behaviour.
Formalizing the process: This is a process of consciously reviewing not
only what actually happened, but why it happened, and of exploring
the feelings that emerged and why those feelings were
engendered; the similarities to or differences from other experiences
(in similar or in different contexts); what the consequences of
choosing different behaviours might have been; what the
implications are for future action; and (importantly) how a better
outcome could be secured next time around.
Alone or with peers: Sometimes it is appropriate to go through the process
alone, but often individuals can be over- or under-critical or focus on
the wrong issues. Often it helps to have someone to help to probe
the issues, to challenge preconceptions about self, behaviour, and
actions, and to pose the ‘what if ?’ questions.
Taking time: One of the important aspects of reflection is that it intro-
duces a slight time lag. This might not seem to be a good thing in busi-
ness, but perhaps this interval in which time is taken (albeit briefly) to
challenge assumptions before hastening to action, is just the interlude
needed for creativity to flourish. A pause for reflection can prevent
us from premature action. There is a difference between this
‘pause for thought’ and inertia, which would lead to stagnation as
opposed to innovation.
Experimentation: Reflection can be part of action-centred learning,
with the idea of breaking down a complex activity into a series of
tasks and then reflecting on each separately. A key part of this is
experimentation, in which there is a deliberate attempt to try
something different in order to get a better result. Experimentation
involves reflecting on the situation and deciding what could be
tried differently, however small, doing it and then learning from the
experience as Enterprise in Action 4.3 shows.

Learning through experimentation
The salesman for an entrepreneurial business visited the buyer of its major customer, a
national retail pharmacy chain, every month and had a good and successful relationship.
Every three months, however, there was a formal meeting, which he had to attend with his
boss, the owner of the entrepreneurial organization, the buyer, and the purchasing director.
The salesman dreaded these meetings because the purchasing director would berate him
for an hour detailing everything that was wrong with the company, its products, the way they did
business and, particularly, how he failed as a salesman. It was all part of the game to put
the supplier at a disadvantage in price negotiations as the director knew how valuable the
business was. For the salesman it was very embarrassing as his boss expected him to be able to
manage the customer better. He faced the problem of how to get the relationship with the
director on the same footing as he had with the buyer.
Attending an interpersonal skills training course, the salesman discussed this with the
trainer, who explained that it is easier to verbally attack someone who is sitting at the
opposite side of a table than someone who is sitting alongside. The salesman and his boss had
always sat on one side of the table, while the buyer and the purchasing director sat on the
other side.
When they were shown into the room for the next meeting the salesman and his boss sat on
opposite sides of the table, so that the purchasing director had to sit next to the salesman and
would be less able to verbally attack at such close range. At this meeting the problems were discussed and resol
Source : Robin Lowe
Question: Do you carry out experiments of this nature and learn from them?
In terms of survival and growth of the business, given the

importance of the customer, the relationship with the purchasing
director could be critical. This experiment and seemingly insignificant
innovation could have been a critical event for the organization.
Making choices
In making choices, at first there are many options and it is not unusual
to feel unsure as to which is the most appropriate action to take. The
desire to find new ideas leads to a state of tension when they do
not spring forward immediately. Often, ideas surface in periods of
reflection, as with Archimedes and his Eureka moment in the bath,
when the subconscious mind can synthesize information. The process is
one where previous experience is not rendered irrelevant, but is only
allowed to inform rather than shape current thinking. It is only
human to want to fill the void with something certain, some
knowledge that enables action to be taken, relieves the tension, and
restores a more comfortable state of mind. This temptation needs to
be resisted in order to give ideas the time to surface.
Overcoming the fear of failure

Entrepreneurs learn from their experience and this, of necessity,
requires them to take action. There is a danger in lengthy
procrastin- ation; perfect information will never be available.
Entrepreneurs recognize when they have ‘good enough’
information; they rely on their own judgement and are willing to be
accountable for it. They accept that this might mean that they will
sometimes fail, but they do not let that fear stop them. If many
ideas are brought forward, it is inevitable that some will fail.
However, it is also more likely that one will be transformational! They
see failure as a point for reflection and learning.
Critical incidents
Critical incidents are another opportunity for learning that entrepre-
neurs often quote as being fundamental on their route to success. Some
event may occur, either in their business or personal life, that
causes them to take stock and reflect. This need not be a major life
event, but it is a critical one as it changes perspectives. For Dee
Dawson (see Enterprise in Action 9.3) the critical event was the
loss of her husband’s lucrative business; Richard Branson reputedly
decided that airlines might be a useful business proposition when
his flight to the Virgin Islands was cancelled and he made a small
profit by hiring a plane and selling tickets to the other passengers. This
introduces a different perspective to their thinking which sometimes
is the catalyst to new ideas, which can then be exploited
commercially.
Leadership and learning capability

If we accept that creativity and innovation are unique resources that
must be exploited effectively to develop entrepreneurial success, we
must consider the extent to which leaders and managers encourage
the cooperation and collaboration that are essential to support creative
capability in organizations.
In practice some entrepreneurs find it difficult to delegate and wish
to take every decision themselves. These entrepreneurs equate
leadership with managing detail, and often pride themselves as being
‘hands-on’, with apparent disregard for the fact that this can
demotivate the people that work alongside them. Such involvement
may well be necessary in a start-up situation but may become a
liability as the organization grows. It becomes very difficult to be
involved in the minutiae of everyday operations in fast-moving
competitive markets. As the organization becomes more complex,
decision-making becomes paralysed unless the entrepreneur accepts
that there is a need for delegation. Richard Branson is an example of
how important delegation can be in large entrepreneurial
organizations. It would be impossible for him to be involved in all of
his many businesses, and although he retains strict control over the
Virgin brand itself, the businesses are allowed the autonomy they
need to flourish.
Those who front organizations typically pursue their own vision and
their own interpretations of the opportunities in the environment
but, also, to a greater or lesser extent, they are able to create a
climate in which the skills and ideas of those who work for the
organization can
flourish, maybe even generating the very capabilities which could be
the source of competitive advantage.
Vision as a driving force for learning

Senge (1990) describes the circumstances in which vision can be a driv-
ing force for learning within organizations. He argues that vision is a
state that is desired because of its intrinsic worth rather than its relative
worth, and that it should not be confused with competition. It is a multi-
faceted concept, includes personal desires and reflects personal values.
But many people feel uncomfortable discussing their visions because
‘real life’ is often far removed from the vision they hold dear. Senge
sees this gap as the source of creative energy and calls it creative
tension – if individuals hold true to their vision, they move reality
towards it. How- ever, some people do the opposite. Because they are
uncomfortable with the emotional tension, they resolve it by diluting
the vision. They convince themselves that it was rather idealistic
anyway and that the current situation is not so bad after all. Within
organizations this can lead to compromising goals and aspirations;
rather than be the one who points out things are not going well, it is
easier to pretend that things are fine and redefine the standard by
which success is judged. Given that mobilizing people in support of a
clear vision is one thing that characterizes entrepreneurs, then again
they have a head start in innovation and in using vision positively to
enhance the learning capability of the organization. Shared visions
emerge from personal visions and they can be the source of
commitment, energizing and enthusing whole companies. After this
energization, these individuals will want to move things on, and will
become frustrated if they cannot do so.
Innovative climate
Individual learning has intrinsic value, but sustainable innovation in
organizations depends on them being able to exploit the knowledge,
imagination, and creativity of the people who work within them, and
to do so effectively over time. Some organizations seem to be able to
stifle enterprise extremely effectively. Effective leaders of innovative
organizations create an environment in which individual learning can
flourish, and systems and processes embed learning as an integral
part of the strategic thinking process.
Alternative leadership styles
We have already seen that ‘typical’ entrepreneurs like to retain
control, and find it difficult to delegate, which may suggest a tendency
towards an autocratic style of leadership. On the other hand, they are
good networkers, and communicators, and they sweat their assets
(which includes their staff) and this may suggest that they would
recognize the benefits of a more consultative leadership style.
The idea of leadership implies that there is a combination of skills
and personal qualities that allow some people to draw exemplary
performance out of their employees better than others can in similar
situations. But there are two parties to this relationship, the
leaders and the led. There are no leaders without followers. As a
consequence, the needs of those who are led also need to be taken
into consideration. If an organization has deliberately employed
innovative and enterprising people, it would seem incongruent to
expect them to be content to follow orders unquestioningly, for
example. This has implications for leadership styles.
Collins (2001) conducted a five-year study of companies that were
able to sustain great performance. The outcome of that research was
that he now questions the general assumption that transforming com-
panies from good to great requires larger-than-life leaders, such as
Iacocca at Chrysler and Welch at General Electric.
In the past, charisma and vision may have been sufficient. In
some small organizations this may still be the case. But in the more
successful entrepreneurial organizations, the required style of
leadership is different.
Organizations are driven more by the needs of customers, and
there is a need for managers and employees to cooperate to meet
these increasingly sophisticated demands. Teamwork becomes
crucial, and the contributions of people at all levels in the
organization must be recognized, and rewarded.
Managers function more as performance and career ‘coaches’ than
as judges of performance, and leadership does not take place in a hier-
archical framework, but in a more ‘collegiate’ framework. The
philosophy underlying leadership is that the future of the organization
is jointly determined, and that ‘empowerment’ of individuals is very
important.
Collins (2001) found, contrary to his expectations, that the com-
panies which did move from good to great performance and
sustained it for 15 years or more invariably had what he describes
as a Level-5 leader in charge (see Pause and Reflect 4.1). This was
true irrespective
of whether the company was in crisis or steady state, or of which sector
it operated in. In addition, the absence of Level-5 leadership also
showed up consistently across the companies included for comparison.

Learning to lead?
■ Level 5 – builds enduring greatness through a paradoxical combination of personal humility plus profes-
sional will.
■ Level 4 – effective leader; catalyses commitment to and vigorous pursuit of a clear and compelling vision.
■ Level 3 – competent manager; organizes people and resources towards the effective and efficient pursuit of
predetermined objectives.
■ Level 2 – contributing team member; works effectively with others to achieve group objectives.
■ Level 1 – highly capable individual; makes productive contribution through talent, knowledge, skills and
good work-habits.
Level-5 leaders tend to apportion credit for success to factors outside of themselves; they are humble in assess-
ing their achievements. When things go less well, they accept the responsibility themselves. They seem to subju-
gate their own needs to that of the business, and concern themselves with protecting its longevity beyond their
tenure. Some people are more focused on what they get out of leading a successful company – fame, power,
adu- lation, etc. – rather than on what they contribute.
Adapted from: Collins J. (2001) ‘Level 5 leadership: the triumph of humility and fierce
resolve’,
Harvard Business Review, January
Question: Identify a successful entrepreneur, and consider their leadership abilities through reference to
Collins’ categorization. Do you think it is possible to learn to be a Level-5 leader?
The irony is that the charisma and personal ambition that is needed to
make a good Level-4 leader (and a good entrepreneur!) is somewhat
at odds with the personal humility needed to achieve Level 5. It
might be appropriate to consider the relatively small number of
entrepreneurs who continue to head up successful organizations
over long periods of time, and how far this is due to their
reluctance or inability to be a Level-5 leader. Many move on after
the initial challenge of start-up, turnaround, or period of rapid
growth.
Although leadership style was a distinguishing feature of these very
successful companies, it was not the only one. There was a
symbiotic relationship between leadership and other factors which,
in combination, made the difference. These other factors
included a focus on getting the right people on board, a faith that
despite current realities all would come good in the end, consistent
effort, focus, discipline, and a paradoxical relationship with
technology (i.e. an aversion to
jumping on the latest bandwagon, but a pioneering attitude towards
technology that was closely related to the achievement of the
core objectives). This implies that the critical factor in sustaining an
innovative edge is achieving a fit between the entrepreneurial
personality and the business model to exploit opportunities consistently
over time. We will return to this discussion in later chapters, in
considering the implementation of entrepreneurial strategies.
Entrepreneurial organizational learning

Having discussed some dimensions of individual learning, we now turn
to organizational learning. We suggest that the link between individual
learning and organizational learning is more critical in entrepreneur-
ial organizations, because, usually, the entrepreneur or entrepreneur-
ial team has such a strong role in influencing how the
organization operates, and particularly how knowledge is acquired
and applied, how decisions are made, and how ambiguity is
managed. To understand how individual learning can be harnessed
and exploited for competitive advantage within the entrepreneurial
organization, we first need to understand what a learning
organization is.
The learning organization

It is useful to begin with larger organizations in considering the
learning organization. Senge (1990: 2) describes learning
organizations as ‘organizations where people continually expand their
capacity to create the results they truly desire, where new and
expansive patterns of thinking are nurtured, where collective
aspiration is set free, and where people are continually learning
how to learn together’. But organizations can only learn if individuals
learn. He argues (1990: 4) that ‘learning organizations are possible
because, deep down, we are all learners. No-one has to teach an
infant how to learn’.
Huber (1991) suggests that effective learning organizations are
skilled in five main activities:
1. congenital learning – which is based on prior experience,

either internally or inherited; e.g. a new CEO would have
their own way of viewing the world.
2. experiential learning – choices that we make colour our per-
ceptions of how events will turn out – things that worked, or
did not work in the past influence our thinking in the
present (although Senge [1990] reminds us that the nature
of employment is such that we rarely stay with an
organization long enough to see the consequences of our
strategic decisions, and so we may be deluding ourselves to
talk of learning from direct experience).
3. vicarious learning – learning through someone else’s experi-
ence. Organizations may do this through networks or others
within an industry; this type of learning is particularly
useful when a company has little relevant experience.
4. grafting – where organizations learn by grafting
knowledge from the relationships they have established, e.g.
supply chain partners. The greater the level of trust and
interaction, the greater the opportunities for the partners
to learn from and with each other. However, the
effectiveness of the process depends largely on consensus in
terms of what is acceptable to share and how it is to be used.
5. searching – scanning the internal and external environment
for information that enables an organization to identify
trends – opportunities and threats, and adapt accordingly.
But, even if organizations acquire information in all of these ways,

the important thing is how it is used. Learning in itself is not enough
unless it leads to inappropriate behaviour being changed, and
changed ‘for the better’. There is a tendency for people to learn
anyway despite organizational priorities – the fundamental question is
do they learn what the organization wants them to learn? Appropriate
mechanisms for learning may exist, but the content of that learning
may be inappropriate. An away day may be an appropriate mechanism
to communicate and consult on strategy but after the event the
participants often come away muttering that everything was so vague
and riddled with platitudes that nothing was actually communicated, or
that so much was open to interpretation that it meant nothing,
thereby rationalizing their decision to go back to work and carry on
exactly as before.
There is a difference between the learning organization per se, and
developing organizational learning capability. Learning organizations
need to use their capability to develop and sustain competitive
advantage – this can only be done if knowledge exists, is recognized
as valuable to an organization, and can be transferred to
appropriate and relevant contexts, and if the organization can do all
this better than its competitors. Arguably, this is the core competence
that distinguishes entrepreneurial organizations.
Decision-making in entrepreneurial organizations
Decision-making is central to the operation of the organization. Deci-
sions are influenced by knowledge, context, management style and cul-
ture. It is therefore pertinent to explore the role that decision-making
takes in entrepreneurial organizations.
It would seem to be common sense that organizations that
encourage learning and anticipate trends would be better placed to
minimize emergent threats and exploit weaknesses. Neither would it
be surprising that such organizations, in anticipating the future, may
have (even subconsciously) begun to consider how they might best
meet those challenges. However, any company that involves itself in
strategic planning would be familiar with the concepts of environmental
scanning and analysis, generating options and evaluating these,
making choices and implementing the changes decided upon. It is
useful to see how this apparently objective process differs in
entrepreneurial organizations.
Three approaches to decision-making

To do this, we will first look at three approaches to decision-making
suggested by Mintzberg and Westley (2001).
Thinking first According to Mintzberg and Westley (2001) there are
limitations to ‘thinking first’ as a way of making decisions. ‘Thinking
first’ is defined as a rational process of define, diagnose, design
and decide. But, they say, in practice this rational approach is less
common than might be expected, and that in reality the process is less
clear cut, messier, and involves much that is beyond conscious thought.
They suggest that there are two other approaches to making choices:
‘seeing first’ and ‘doing first’.
Seeing first involves insight and the courage to recognize it.
‘Deep knowledge, usually developed over years, is followed by
incubation, during which the unconscious mind mulls over the
issue. Then with luck (as with Archimedes in the bathtub), there is
that flash of illumination’. Doing first is the realm of the pragmatist,
who just gets on with it and learn as they go. The pragmatist
experiments, where possible, so that he or she can learn. Although
individuals may have a preferred approach to making decisions, all
three approaches can be present to some degree, and each has its
strengths and weaknesses. Mintzberg and Westley conclude that there
are advantages in combining the three approaches. We might
speculate that an entrepreneurial organization would have an
advantage here, in that the entrepreneur’s vision and often the
predilection towards action-learning balances out the traditional
decision- making processes common in many organizations.
For example, large bureaucratic organizations (administratively man-
aged) use rigid strategic planning and monitoring and control
systems to reinforce rationality, justification, resource control and so
on. This is counterproductive to innovation, for example budgets are
allocated as far as 12–18 months ahead, so there is no flexibility in
resource decisions should an unexpected opportunity or threat arise
after the annual planning round is completed.
Dealing with ambiguity in decision-making

Much research has already been conducted into the difficulties that
many organizations face when trying to combine incremental
development in an existing business while searching for
breakthrough innovations. Innovation requires change, and change
can be disruptive. We have suggested that both step change and
incremental innovation are based on continuous learning, but also
that this might well entail a reorientation or even a complete
reinvention of the organization’s business model and processes.
O’Reilly and Tushman (2004: 75) suggest that successful innovation
while maintaining the performance of the core business requires
organizations to be ‘ambidextrous’. They argue that ‘the companies
who are successful at both exploiting the present and exploring the
future … separate their new, exploratory units from their traditional
exploitative ones, allowing for different processes, structures and
cultures; at the same time, they maintain tight links at the senior
executive level’. They suggest that this allows for cross-fertilization while
preventing cross-contamination, as expertise and knowledge can be
shared but energy is not diverted from the core business and the
incremental improvements that are essential to competitiveness.
Drucker (2001: 139) also suggests that, because entrepreneurial
organizations need their systems and processes to reinforce the culture
of innovation, in order to be successful ‘the new’ has to be kept
separate from ‘the old’: ‘The new project is an infant and will remain
one for the fore- seeable future, and infants belong in the nursery. The
“adults”, that is, the executives in charge of existing businesses or
products, will have neither time nor understanding for the infant
project. They cannot afford to be bothered’. This is not to infer that
‘the new’ is less important, quite the contrary. It needs to be high up
the corporate agenda, and to be able to pull on the resources it needs
to be effective. But unless it has a special
locus, and it is a clearly defined responsibility, it runs the risk of being
neglected.

Skunkworks
In the 1970s it was common for innovation to be handled in research and development
departments, and as a consequence new product development ran the risk of being product
rather than customer focused. The 1980s saw a trend for marketing departments to take
responsibility, the danger in this being that the focus can then become too related to
building the brand and gaining shelf space which might lead to a disproportionate
emphasis on short- term product adaptations.
Cross-functional teams have been tried as a way of securing the collaboration needed
and balancing functional interests, but the danger in this approach is that the logistics
involved may lead to excessive bureaucracy which slows the process down.
Some companies set up ‘skunkworks’ as totally discrete units from the ‘parent’ company to
maximize creativity. Unilever set up Unilever Ventures as a way of encouraging employees, sci-
entists and entrepreneurs to work together on product innovation by giving one-off
payments or the opportunity to work with brand teams, etc. GlaxoSmithKline set up the
futures group, its first product being Plenty, a juice drink. They launched it under a new
brand, The Ealing Juice Company, but had given considerable thought to whether they should
do this or launch under the GSK brand.
Adapted from: Murphy C., ‘Innovation masterminds’, Marketing, 15 May 2003
Questions: What are the advantages and disadvantages of using the ‘skunkworks’ model for
new product development? What implications does this have for building creative capacity
in organizations?
De Geus (1988) sees strategy as an art that can be managed by acceler-

ating the learning process. He argues that the mind cannot see
things that it has not experienced before and quotes a story of British
explorers who take a tribal chief to see the technological wonders of
Singapore. The chief reportedly saw only one thing of relevance – a
market vendor pushing a cart laden with bananas. This had
resonance with him – his tribe carried bananas on their backs. He
had missed all the other signals. Perhaps companies do the same –
only taking heed of things that have some degree of resonance with
their own experience. De Geus argues that decision-taking is
learning, but that the natural learning process is slow. We need to
somehow speed it up. The learning process involves receiving signals,
embedding them in our existing ways of seeing things (our theories of
how the world is), drawing conclusions and
then acting upon them. Anticipating future scenarios and their
potential impact is only part of the story. If we move from the realm
of the possible to the realm of the problem, and ask the question
‘When this happens, what would we do?’, we complete the cycle.
In this way he says that we create memories of the future as well as
those we hold of the past – we have had a little practice in a range of
potential scenarios. It is difficult to live with the ambiguities of the
future, and such ambiguity can be uncomfortable, because it feels
fraught with risk. If we take this approach, some scenarios will feel
more familiar when they emerge; we can relate to them, at least in part.
We can build capacity for anticipating options, and we also link the
signals we see to potential action, allowing us to ‘see’ opportunity
beyond the blinkers of our own experience. If techniques like this
have impact in companies, then perhaps it does become possible to
‘manage’ innovation in the sense that it can be developed and
facilitated.

Knowledge transfer
As universities prepare their strategies for income generation in anticipation of the introduction of top-up fees, they
are once again paying attention to technology transfer and business-education links. The Lambert report into the
links between higher education and commerce has set challenges for the sector, and survival for many will
depend on the generation of ‘third stream’ income from commercialization, reflecting, to some degree, the US
model.
In the late 1990s, Cambridge University provided the model. Lambert highlights both the achievements and
the failures. The University asserted its intellectual leadership in the sector, and the region benefited from the
creation of 5000 jobs per year, GDP rising by 6.3 per cent per year compared with the national average of 3.4
per cent. However, critics say that this was achieved despite the University. Although the knowledge was
valuable as a resource, the University’s governance left much to be desired. Confusing policy on intellectual
property and its failure to adopt a businesslike approach were said to dampen progress and were far from the
entrepreneurial approach required. In addition, the local economy overheated creating problems in transport,
services, housing and so on.
The high-tech cluster that developed around the University has struggled since the dot-com bubble burst but,
paradoxically, the University has used the downturn to improve its links with industry. There is now a well
respected technology transfer office, and the University is active in working alongside local partnerships such as
the Greater Cambridgeshire Partnership. It is also collaborating with the Massachusetts Institute of Technology
(MIT), backed by £65 m of taxpayers’ money, to explore ways in which better links with industry can be
developed. One idea that has resulted from this is Knowledge Integration Communities (KICs). Groups are set
up with the aim of developing a specific technology transfer product, drawing on students, graduates, academics,
other universities, companies, suppliers, government agencies, etc.
The problem in the past has been that although research goes well, development does less well. The ideas are
generated, but commercial success is elusive. Cambridge University now has a reasonable support infrastructure
(venture capitalists, legal expertise, etc.) but it has taken 30 years of development to get to that point.
Adapted from: Kelly J., ‘Spin out doctors’, The Guardian, 2 March 2004
Question: How can the links between universities and businesses facilitate the transfer of knowledge, to the
commercial benefit of both?
Learning capability and entrepreneurial strategy
When we talk about strategic management we almost intuitively link

the concept with that of gaining and maintaining competitive advan-
tage. Students of strategic management and strategic marketing man-
agement will be familiar with the views of Michael Porter and Hamel
and Prahalad. Porter (1985) argues that the key to success lies in effect-
ive positioning within the industry, and how well the company can
defend itself against competitive forces or manipulate them to
improve its competitive advantage.
Hamel and Prahalad (1994) argue the resource-based view, in which
the organization is able to develop a distinctive competence, which
allows it to outperform its competitors. This approach suggests greater
proactivity, being more to do with exploiting capability to succeed in a
variety of environments, rather than ensuring alignment between the
organization’s strategic capability and the environment in which the
firm operates.
Single- and double-loop learning

Argyris and Schon (1978) introduced the concept of single- and
double- loop learning. The underlying principles are that in the
former, we learn within our existing frames of reference, whereas in
the latter we challenge the underlying assumptions that we make.
Similarly Senge (1990) talks of adaptive and generative learning. In
the positioning view, we might need to reconsider the bases of
competition in an industry, as the no-frills airlines have done. In the
resource based view we might need to recognize how our
competences can be stretched to meet the needs of new markets or
sectors that we have not explored before.
Doole and Lowe (2005) suggest that these approaches are only
par- tial explanations of how success is sustained. Certain skills will
be needed, and in sustaining competitive advantage over time there
must be a dynamic learning process within the organization, through
which it decides how best to maintain its competitive advantage. If
the speed of learning lags behind the pace of change in a market the
inference is that this learning deficiency would be likely to lead to
an eroding position in the market and strategic drift. They argue
(2005: 33) that: ‘A firm’s long term strategy tends to be incrementally
built as a firm undergoes the process of reflecting on its experiences
and responding to the challenges faced. If firms are to build this
capability two types of
learning activity are important, the learning necessary to signal critical
developments and trends, and the learning necessary to reflect, re-
evaluate and respond ’.
Signal and 3R learning

Signal learning involves the environmental scanning process – having
systems in place to monitor trends and to include the information in
strategic decision-making. The organization gains knowledge about
the environment in which it operates and can adjust its strategies
accordingly to maintain its position. It would be dangerous to
assume that all organizations do this well, or even do this at all.
Although some organizations do not have formal systems in place, they
are learning in an ad hoc way. The danger is that as people leave the
organization vital knowledge and experience can be lost.
For entrepreneurial organizations in the early days this gives them a
competitive edge as the entrepreneur is the fixed centre of the busi-
ness. However, as the organization grows, signal learning is in itself
insufficient, as success increasingly depends on effective learning
throughout the organization (see Spotlight 4.2).
Doole and Lowe (2005: 36) go on to argue that 3R learning (reflect,
re-evaluate and respond) occurs in anticipation of, or in response to,
critical events occurring in a firm’s markets. It is this second type of
learning that organizations who successfully reinvent themselves
undergo in reflecting on the demise of traditional markets, e.g. Dell,
Ryanair, and Skoda. An example of such reflection is given in
Enterprise in Action 4.5.
Spotlight 4.2
ly in my life.
ment for senior crew on our client’s ships. It was quite hilarious to see the expression on the faces of Senior Captains com
Over the years, along with my education, I learned a lot about computer programming and helped
computerize the office functions. Due to that background in technical computer education it becomes much
easier for me to now understand the digital economy as I can also visualize what is actually happening in the
“back-end.”
About five years ago we entered into the IT-enabled services business with a foray into transcription services
for firms/individuals in the USA in 1997. Transcription started with a boom in India, but because most
organizations did not know what they were getting into at the start, many shut down again equally quickly.
However we had, quite rightly, invested in good training and so our company was one of the few that survived
through a bad patch when many USA companies were pulling back from India due to complaints of poor
quality.
Now we are quite a big company hiring almost 400 people in-house and partnering with and providing work
to numerous vendors within India. The first five years of setting up the business was very hard work – dealing
with manpower shortage, training, bad infrastructure in India in terms of Internet and power facilities, less work
due to the USA market not having too much trust in Indian companies etc. Luckily we had not lost any of the
work we already had; it was only the expansion that was taking time, so we coped.
Things drastically changed in about 2003 when through a lot of Internet marketing and personal visits, we
acquired a very big contract for transcription and also full-text data conversion services for a library in a uni-
versity in the USA. Then expansion was very rapid and now we are a very successful transcription, data conver-
sion and other IT-enabled service providing organization in India. We plan to grow in the IT-enabled area
offering other specialized services like high quality CAD/CAM conversions for architects, digitization of road
maps and industrial design, back office accounting and more.
At this time we have more lower level staff than management. However we do need to structure the company
better to run it more professionally. It is always better that someone from the family learns some management
techniques before getting any other professionals. I had decided to do a management course outside India about
three years ago, but at that time it was just not possible to leave the business on its own. The Internet has really
made e-management a reality and now I only have to monitor the business online. After working for three years
towards making time to do my MBA, I have managed to make e-management work for me and so have the time
and the opportunity to do an MBA. Already I feel that this MBA is contributing to my knowledge in this area
and I hope to also make a dent in the UK market for providing IT-enabled services from India after my MBA is
completed.’
Source: Bijali (Nikki) Pradhan
Question: How have the combination of signal and 3R learning, and experiential and formal learning
contributed to Nikki and the family firm building competitive advantage?
s. Broadband Internet access means that content can be easily downloaded, having the potential to make the television
If we follow the thinking of this scenario, we can see a shift in power between the supplier and customer in rela
Will the television industry be less complacent than the record companies were? Pluthero worries that the broa
Product placement may be one way to replace lost revenue, but Pluthero would like to see broadcasters create
Adapted from: Robinson J., ‘TV’s nice and cosy, but could soon die’, The Observer,
18 September 2005
Question: What learning processes would you recommend to organizations in this sector to ensure that they a
This takes the learning process one step further as it challenges the
implicit assumptions that are made about markets, likely responses
from competitors, customer needs, etc. In challenging traditional ways
of thinking, reflective practice is developed – the new concepts
are considered and, where appropriate, built into strategic thinking.
3R learning and innovation

From time to time many organizations experience periods of rapid,
and sometimes discontinuous, change. During such times the learning
curve is very steep, and only those organizations that can learn
rapidly and effectively are able to maintain their competitive
advantage. However, this means that the organization also has to be
flexible enough to reconfigure its business model to exploit the
emerging opportunities, or avoid the potential crises. Individual
learning is necessary but insufficient as the knowledge has to be
shared so that strategic thinking is re-evaluated, and so that it can be
transferred to different contexts.
Doole and Lowe (2005: 38) subsequently conclude that ‘3R
learning is a central component of building a culture of innovation
and creativity in an organization’ and (2005: 39) that ‘a company that
is committed to 3R learning can enhance its innovative capability in the
following ways:
■ It is more likely to have developed the internal competence
to build and market a technological breakthrough.
■ It has the knowledge and the ability to understand and antici-
pate latent needs in potential customers and so has the ability
to spot opportunities created by emerging market demand.
■ An organization committed to 3R learning is likely to have a
greater innovation capability than its competitors and be much
more prepared to learn from its failures as well as its
successes’.
Wang and Ahmed (2003) suggest that companies may be able to
develop this type of learning activity by:
■ questioning existing products, services, processes and systems
and examining how they strategically contribute to the future
marketplace;
■ learning how to discard things they have done previously in
order to create the capacity to make step changes or
even quantum leaps. This is what is referred to as
organizational un-learning;
■ creating new knowledge through radical changes. The devel-
opment of an innovative capacity is developed through a
continuous process of knowledge creation and not necessarily
the simple accumulation and retention of existing
knowledge.

Rethinking lending
If you are self-employed or work freelance, borrowing money can be a problem as you may
not seem sufficiently creditworthy. Zopa (Zone of Possible Agreement) has been set up
to get around this problem by allowing borrowers and lenders to bypass the high street banks in
what is described as a ‘lending and borrowing exchange’.
Zopa is an online membership organization which matches people who want to borrow
with people who want to lend, and makes its money by charging borrowers 1 per cent of
their loan as a fee.
James Alexander, and his colleagues David Nicholson and Richard Duvall, have experience
in the industry, having been involved in the launch of Egg and Smile, both online services.
They secured investment from two private equity firms, and now have 26 000 members. Loans
range from £2000 to £5000.
Returns for lenders are around 7.6 per cent. Some see it as lending to family
members or a community. Others are pure entrepreneurial investors who understand risk
and portfolio diversification, lending to Zopa alongside other investments. They have no
protection against default, although any borrowers who fail to pay will be pursued through the
usual channels and get a black mark on their credit rating. Zopa says there are 20 countries
showing an interest in franchises, the most important one being the USA, although there are
regulatory difficulties to overcome there.
Borrowers can find rates of 5.9 per cent, and see Zopa as a cost-effective way of borrowing over shorter periods.
Adapted from: Paul Davies, ‘Lending exchange that bypasses high street banks attracts interest’,
The Financial Times, 22 August 2005
Questions: Do you think Zopa will successfully challenge the taken-for-granted assumptions in the way this ind
The learning spiral

Doole and Lowe (2005: 41) describe the learning process as a learn-
ing spiral. Knowledge is acquired through signal learning, but is then
reflected upon. This enhanced understanding would lead to a
strategic decision being made which would realign the firm with the
changes in the environment. The lessons learned from doing this
would then be fed back into the decision-making process. In doing this,
the organization would incorporate a re-evaluation of its strategic
thinking as to how it can respond as it strategically realigns to
further build its competitive advantage. The learning generated
from this success would enhance further strategy development and
lead to a step change in the level of aspirations, enabling a more
creative and innovative strategy and a more complex network of
relationships to be developed ... and so the process continues.
Learning becomes central in sustaining entrepreneurial success.
Traditional strategy formulation does involve environmental scanning
and analysis, and some anticipation of future scenarios, but there is
a difference in scale within entrepreneurial organizations which
develop this as a core competence, giving them sustainable competitive
advantage. The more entrepreneurial organizations embed the
learning process into their strategic decision-making processes, and
reflect it consistently in their business model. We return to this in Part
III.
Summary
■ Building learning capability is crucial to sustainable entrepre-
neurial success.
■ Effective organizational learning depends upon effective
individual learning, and both depend on reflective practice.
■ In organizations, effective learning processes incorporate
reflection, re-evaluation and response.
■ In individuals, effective learning processes are characterized
by resilience, resourcefulness, reflectiveness, and reciprocity.
■ It is possible to develop the learning capability of both
organizations and individuals, and consequently improve
their innovative and entrepreneurial capacity.
Chapter questions
1. What is your preferred learning style? What implications does
this have for your personal capability to be an effective
manager of an entrepreneurial organization?
2. Analyse the extent to which learning capability is a
prerequisite for the development and implementation of
effective entrepreneurial strategies.
3. To what extent do you agree with De Bono that schools
need to teach thinking skills if we are to encourage the
development of an enterprise culture?
4. Are entrepreneurial decisions made by the heart or the
head? Analyse the role of intuition and gut-feel in
entrepreneurial decision-making.
5. Argue for and against the view that entrepreneurs are more
capable leaders than ‘ordinary’ managers.
ations. Experiencing difficulties in recruiting staff and in team management issues, Phill concluded that ther
frenzied recruitment activity in an effort to offer the support promised to clients. This saw the
employment of 12 IT experts over a nine-month period, whose primary role was to support client
systems both on-site and remotely. The organization’s recruitment, financial structure and operational
systems were put under severe strain – although this was never apparent to clients.
The events of 9/11 had a dramatic impact on the company, as clients sought stability and consoli-
dation as opposed to innovation. A ‘batten down the hatches’ approach was prevalent, fuelled by the
virtual collapse of staff movement owing to uncertainty and stability in the jobs market.
Additionally, potential clients were not willing to commit to changes such as outsourced resources
while the world recovered from the attacks.
WellData found this period very difficult, with falling client numbers and a newly appointed
workforce of highly paid staff. This led inevitably to redundancy and a battle to convince existing
clients to hang on. To further compound these issues the company bankers were unhappy about
borrowing in view of the low asset value of such a service-based enterprise and general world
uncertainty.
The company has weathered the storm, recruited staff again, and is now financially secure with a
solid customer base. Phill has recognized the importance of strategy in matching internal resources
to external opportunities and is now an extremely competent entrepreneur.
The general understanding of world events and their effects on business (large or small); a strong
financial grasp; the importance of putting the right people in the right place at the right time; the cre-
ation of appropriate structures and systems; and the need for vision and planning have been valuable
lessons. Phill now feels that he has the blueprint for success and understands his role is to provide
direction and stewardship for this vessel through whatever storms may prevail – working on the
business and not in it is the secret. Phill says ‘I have just completed the most expensive MBA
(Masters of Business Administration) known to man – but I’ve enjoyed it. What’s next?’
Source: Jim Kent
Questions
1. What were the critical incidents that provided learning opportunities for Phill in his first entre-
preneurial venture?
2. Analyse the advantages and disadvantages of a theory-based approach to learning (such as an
MBA) as against the experiential route that Phill adopted.
3. If he had completed an MBA, would that prior knowledge have helped in avoiding the downturn
in his business? Why?

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Key words
approaches to decision-making lateral leader
creative tension lateral thinking
critical incidents leadership
developing organizational learning 3R learning
capability learning organization
enterprise in education learning spiral
environment in which individual reflective practice
learning can flourish signal learning
intuition skills, knowledge and attitudes
Integrated
personal
development
activity
Introduction
In Part I of this book we have introduced a variety of concepts
relating to entrepreneurship and innovation. We have discussed the
personality traits and characteristics that theorists have identified
as typical of entrepreneurs, and also considered whether entrepreneurs
can be dis- tinguished by their actions. We have also suggested that
entrepreneurs may approach learning and decision-making in a
different way, and that the choices they make are a key aspect of their
learning processes, even when they have made mistakes. We have
argued that learning capability is a prerequisite of sustainable
entrepreneurial success, and that reflective practice is a critical aspect
in developing both individual and organizational learning capability.
Most people interact with organizations in some way or another at
some point in their lives, whether they choose to engage in economic
activity or not. Their career paths will differ – some will at some
point become entrepreneurs, but most people will be employed by
others, in a waged or voluntary capacity. In reading Part I of this book
and in carrying out the tasks included within the four chapters, the
reader will have developed a greater awareness of the personality traits,
skills, and attitudes exhibited by ‘typical’ entrepreneurs in a range of
contexts (for example, as an intrapreneur within an existing
organization; as an economic entrepreneur; or in a social enterprise).
They may, informally, have begun to consider where they sit on the
entrepreneur–administrator continuum, and make decisions about
whether that position is one that they are comfortable with
considering their own personality, values, and ambitions at this
moment in time. In beginning to consider their own skills
leadership 3
and abilities in the context of their aspirations, and challenging some
of the things that they may have taken for granted about themselves,
readers are taking the first steps towards reflective practice. This
integrated learning activity is designed to provide a framework for the
reader to use in developing their skills as a reflective practitioner.
The task for the reader is to:
1. Consider their own aspirations, not only in terms of their
career and academic ambitions, but in terms of their personal
lives. For example, the reader may conclude that they have the
skills and ability to succeed as an entrepreneur, and the
required knowledge of the industry to capitalize on their
ideas, but be unwilling to commit the time needed to
establish the venture because they prefer to focus on the
needs of their family.
2. Then, the reader is challenged to assess their own skills, know-
ledge and attitudes and compare them to those needed to
successfully reach their chosen goals.
3. Finally, the reader must identify and then prioritize some
key areas for development. These may relate to the
acquisition of knowledge (for example, industry data or a
new area of theory); skills (for example, negotiation or
delegation skills); or attitudes (for example, determination
in overcoming obstacles or being prepared to make a
contribution in discussions).
Learning objectives
By the end of this section the reader will be able to:
■ assess their own knowledge, attitudes and skills against those
of a ‘typical’ entrepreneur;
■ reflect on how their personal knowledge, skills and attitudes
may impact upon their ability to achieve their personal, career
or academic aspirations;
■ develop an action plan to address areas that may limit their
ability to achieve their potential.
Getting started – a framework for reflection

Step 1: Determining your aspirations and ambitions
To help you in carrying out this task we have made some
suggestions for areas that you might like to consider.
What do you hope to achieve academically? What degree
classifica- tion do you hope for? Do you want to continue in
higher education now, or in the future? Do you want to achieve
some professional or vocational qualification?
What personal ambitions do you have? For example, are you hoping
to run a marathon? Become a volunteer for the Prince’s Trust? Win a
Business Planning Competition?
What career ambitions do you have? What type of job do you want to
do? What sector do you want to work in? What type of business?
Do you feel that you would like to run a business of your own
at some point in the future? When would you ideally like to do this?
What are your reasons for timing it this way?
If you don’t feel that self-employment is for you, would you prefer
to work in an organization whose culture supports innovation, or not?
Do you prefer more routine and predictability in your day-to-day
activities, or do you find variety stimulating? Would you be more
comfortable operating at the administrative or entrepreneurial end of
the spectrum of managerial behaviour?
Then there are issues of context. Whether you choose employment
or self-employment, would you be more comfortable working in a
private, public, or voluntary sector context? Would you prefer to
work in a small or large business? Do you hope to focus on a specific
industry?
Step 2: Assessing your own knowledge, skills

and attitudes
Complete the questionnaire ‘How enterprising are you?’ on page 137.
Look at your responses to the questions. Where you have ticked the
‘V’ column you fit the entrepreneurial profile most closely. Where
you have ticked the ‘N’ box, you would need to work on
developing the particular skill, knowledge or attitude. Where you
have ticked the ‘S’ box you might reflect on the circumstances or
context in which you
do/do not fit the profile and why.
This questionnaire is offered as indicative guidance only. If you
refer back to the concepts introduced in Chapter 2, there may be
other personality traits, characteristics or behaviours that you would
like to add to the list. Similarly, in considering the various concepts that
you have been introduced to in Part I of this book, you may conclude
that some are less helpful or relevant than others, and choose not to
apply them.
Step 3: Reflection in the light of personal aspirations
and ambitions
In Chapter 4 we defined our understanding of knowledge, skills and
attitudes.
We described these as:
Knowledge – the experience and understanding that an individual has
acquired, as well as facts and theoretical knowledge.
Attitude – managed temperament. You may have certain personality
traits and have learned certain ways of behaving, but you have a choice
as to whether you behave ‘true-to-type’ or modify your behaviour
to secure different outcomes.
Skills – individuals may have appropriate knowledge and attitudes, but
be unable to use these to their best advantage because they lack specific
skills, for example negotiation or delegation skills.
Refer back to the self-assessment that you have completed in step 2,
and analyse your own strengths and weaknesses in terms of your know-
ledge, skills and attitudes.
Consider the personal aspirations and ambitions that you identified
in step 1. Think about an individual who has succeeded in achieving
similar ambitions to those that you have. Consider what characteristics
and attitudes they exhibit, and the knowledge and skills that they have.
How do you compare to that profile? How ambitious are you, what
personal motivations drive you? How much does it matter to you that
you realize your goals?
It would be helpful to refer to the concepts introduced in Part I to
help you in this process. Each individual will be different, but there are
some general pointers given below to get you started.
You may not wish to become an entrepreneur, but do you
consider yourself to be enterprising? Would you want to be more
enterprising than you currently are? In what way? (It may help to refer
to Stevenson’s typology in Chapter 2).
If you aspire to lead others, or to be a manager, do you think you
have the skills and characteristics to be able to manage creative people?
(It may help to refer to the section on Leadership in Chapter 4).
What is your preferred approach to learning? Do you accept
limitations or do you challenge assumptions? (It may help to refer to
Chapter 4 – the section on Signal and 3R learning, or the 4 Rs
framework piloted by Mosborough Primary school may be relevant).
Step 4: The action plan
In order to be successful, what do you feel are the priorities for your
personal development? There is no point in having 15 or 20
action points; try to focus on a small number of key areas that really
matter to you personally.
You will need to think about how you might improve on your
weaker areas, and how you can make the most of the things that you
are good at. It may be appropriate to work on your strengths and
weaknesses alone, but it is important to recognize when other
people can help you. For example, some people may have valuable
knowledge that they can share with you, or they may be able to put
you in touch with people who
might offer you work experience.
You will need to consider timescales. How soon do you need to
acquire the knowledge or skills, or modify your attitude? Is this feas-
ible? If not, then does this mean that you have to rethink your
objectives, or can you still achieve them by rethinking the way you
go about your personal development?
You will need to set targets, and monitor your progress. This
will mean defining exactly how you will know that you have been
successful, and taking time to reflect on the process, either alone or
with others.
Then you need to commit to taking action. We have suggested a
format for action planning that you may wish to use, but it is
important that it is meaningful to you, and so you may adapt it to
suit your personal circumstances.
How enterprising are you?

The personality traits and characteristics of entrepreneurs may be a
contributory factor in entrepreneurial, or intrapreneurial, success.
Certainly many investors look beyond the business idea and the
business plan, assessing the likelihood of the individual having the
drive, skills and confidence to run a business successfully. Equally,
innovative companies look for employees who display ambition, have
ideas, and are prepared to work hard to achieve their goals.
Where do you fit on the scale of entrepreneurial capability? Read
the statements below, decide the degree to which each characteristic
on the list most accurately describes you, and tick the relevant box.
V = very much like me; S = Somewhat like me; N = Not like me at all.
leadership
A ‘typical’ entrepreneur: V S N
Is independent, self-confident, and takes the initiative
Entrepreneurs are self-starters, they are prepared to put their money where their mouth is
and have the courage to act on their convictions
Is decisive
Entrepreneurs tend to take decisions quickly, and are willing to rely on instinct,
appreciating that they will never have perfect information.
Needs to achieve
Entrepreneurs are less likely to be motivated by money than by the desire to make a
difference – to do what they know is right and to prove to others that they were!
Has vision, and can persuade others of its value
Building on the need to achieve, entrepreneurs know exactly where they want to be
and are able to communicate that vision effectively to others, persuading them to
commit to the venture
Is dedicated, dogged and determined
Entrepreneurs work hard, often longer hours than those who are employed. They will
give all that it takes to make their idea work, often at the expense of family life and
friendships
Can take criticism and rejection
Entrepreneurs bounce back; they are not easily discouraged.
Is creative and innovative
Entrepreneurs see opportunities where others see problems; they come up with
ideas – not only for products or services but for better ways of doing things
Is prepared to take calculated risks
Entrepreneurs are not foolhardy, but they have a greater tolerance for risk – both
financial and personal.
Sees how the pieces fit together
Entrepreneurs see the bigger picture – how all aspects of the venture combine to
add value for the customer/end user
Networks successfully with others
Entrepreneurs learn from others, and make contacts that they can draw on to help
them achieve their objectives
Knows their personal strengths and weaknesses, and builds
effective teams
Many ventures fail because entrepreneurs find delegation difficult. The more
successful ones recognize their weaknesses, and build teams of people around
them whose skills are complementary to their own.
Find the resources to make things happen
Entrepreneurs are not constrained by the resources they have, or don’t have. They will
actively seek out what is needed – and this includes people as well as money.
Like to have control
Entrepreneurs like to know what is happening in their ventures. They need to know what
customers want, where the money is being spent, where the business model is not
functioning quite the way it should.
Come from a small business background
Entrepreneurs who have a small business background have a better chance of success –
perhaps because they have seen first-hand what it takes and are better prepared.
Have developed expertise from experience or education Entrepreneurs who
have some knowledge of the sector they are entering into, either through
experience or education, have a better chance of success
13
8
C
on
Action plan ce
pt
Area for development How might I do this? Who might help me? When will I have How will I know that I
achieved this? have achieved this?
Pa
rt
I
P A R T
II
Conte
xts
Having introduced in Part I some of the fundamental concepts of
enterprise, entrepreneurship and innovation and the learning
processes that support these activities, in the second part of the book
we turn to the contexts in which they occur, and the environmental
factors that can inhibit enterprising behaviour. The first two chapters
look at the environmental factors that support or hinder individual
and organizational enterprise. The final two chapters specifically
explore the social and multicultural contexts in which
entrepreneurship and innovation thrive and the lessons that can be
learned from them. They consider how learning can be transferred
from one context to another in order to improve our knowledge and
understanding of the concepts.
We start in Chapter 5 by discussing how the individual’s decision to
become an entrepreneur is affected by the environment. This
includes the barriers that individuals perceive as inhibiting their
choice, the personal and professional support available to them, their
life circumstances and their tolerance for risk.
In Chapter 6 we consider the enterprise environment that
determines how an organization competes in its sector and discuss the
nature of the macro environment and micro environment, focusing on
how organizations connect with customers. We also discuss how
entrepreneurial organizations and innovators from all sectors
respond to the rapidly changing environment.
In Chapter 7 we move on to exploring the different contexts in
which innovation and entrepreneurship are exhibited, recognizing
that the motives of entrepreneurs are not always profit-related.
Enterprising people flourish in the public and not-for-profit sectors
also, making equally significant contributions in terms of the
performance of the organizations they work within, and in the broader
community. The literature in this area is less well established, but it is
a growing field of study, and an increasing number of creative people
are making a difference
14 Context Part II
0 s
in social and community enterprises, public–private partnerships, quan-
gos, local and central government and other public sector agencies.
In Chapter 8 we conclude this section by taking an international
perspective. Entrepreneurship and innovation seem to thrive more
readily in some cultures than others and the nature and role of
entrepreneurship varies according to the different stages of
development of a country. Moreover, the pattern of
internationalization of entrepreneurial organizations is influenced by
the different cultural contexts in which an organization operates.
The integrated personal development activity will enable the
reader to explore an issue/concept in two different contexts, reflecting
on what can be learned from comparing and contrasting different
approaches/ concepts, and how that can develop their understanding
and skills.
C H A P T E R
5
The personal
enterprise
environment
Learning objectives
■ identify the personal factors that influence entrepreneurial
activity in a range of different contexts;
■ understand how self-perceptions can influence the decision
to engage in entrepreneurial activity;
■ identify the categories of personal risk involved in pursuing
an entrepreneurial career;
■ analyse how culture can affect the rates of entrepreneurship;
■ analyse how access to personal, public and private sector sup-
port can facilitate entrepreneurial activity.
Introduction
We have seen that entrepreneurs are a heterogeneous group of
individuals, and that the ventures they engage in are equally diverse.
We have discussed the different degrees to which people exhibit
entrepreneurial characteristics and the extent to which they exhibit
entrepreneurial behaviour. We have suggested that encouraging
enterprising behaviour is possible, that people can learn to be more
enterprising, and that if they did so there would be a positive impact
on both social and economic well-being. In this chapter we move on
to consider the various
14 Context Part II
2 s
barriers that individuals might encounter in engaging in
entrepreneurial activity, and how they may be supported in
overcoming these. In doing so we will consider a number of personal
contexts (female entrepreneurship, ethnic minority entrepreneurship,
and family businesses). We will identify some of the perceived barriers
and difficulties that these groups face, and explore the issues that
are pertinent to their specific circumstances. We will also consider
timing, perceived risk, and culture, and how these factors can
influence the individual’s decision to engage in entrepreneurial
activity. Ultimately this choice is a personal one, and is very significant
in the lives of the people concerned. The right type of support at the
critical moment can be significant. For this reason we conclude by
considering the nature of the support available (both public and
private sector) and the extent to which it helps in overcoming the
barriers to enterprise.
Female entrepreneurship
Although women entrepreneurs have become a significant economic
force in the UK, and rates of activity are catching up with those of
men, the literature on female entrepreneurship is still relatively
underdeveloped. When we look at studies into entrepreneurship there
still appears to be a male bias in terms of the sample chosen and the
examples given. Even when studies are conducted specifically on
female entrepreneurs there is often a tendency to interpret the data
in terms of male models, constructs and standards.
Typologies
Goffee and Scase (1985) classified women entrepreneurs into four
types, based upon two factors: their attachment to entrepreneurial
ideals and their willingness to accept conventional gender roles.
Conventionals
This group are committed to both entrepreneurial ideals and conven-

tional gender roles. In the main, they are working-class women with
fragmented work histories forced into self-employment by economic
necessity.
Innovators
Innovators are committed to entrepreneurial ideals but not to

conventional gender roles. They tend to be professional women who
choose self-employment as a solution to restricted career prospects.
Domestic entrepreneurs
This group have little attachment to entrepreneurial ideals but are
strongly committed to conventional gender roles. They tend to fit
their business duties around their family responsibilities.
Radical entrepreneurs
This group hold little attachment to either factor. They are frequently
involved in collective ventures, political in nature, and aim to
promote women’s interests.
Carter and Cannon (1992) identified five types of women
entrepreneurs:
1. Drifters: usually young, choosing self-employment as a route

out of unemployment.
2. Young achievers: usually well-educated, and with aspirations
and limited business experience but enhanced knowledge
through training.
3. Achievers: similar to the above in terms of attitudes and values
but generally older and with relevant work experience.
4. Returners: choosing self-employment as a way back to work
after a career break.
5. Traditionalists: typically older women (over 45) who had
worked in family-owned and managed businesses.
Typologies like these offer some insight into the motivations and aspir-
ations of female entrepreneurs but are limited in their utility as women
entrepreneurs are just as diverse a group of people as are entrepreneurs
in general. Additionally, societal norms in respect of gender issues have
altered significantly over the last 20 years and so studies become
quickly outdated.
Hidden entrepreneurial activity
The most recent statistics from the Global Entrepreneurship Monitor
(GEM) report on Female Entrepreneurship (2004) give us some up-
to- date facts and figures, but it is worth remembering that much
female entrepreneurial activity lies hidden. For example many
businesses that are registered as male-owned, in reality are co-
managed by a spouse, partner, or other family member whose
contribution is significant and yet not formally acknowledged.
Facts and figures

According to the 2004 Global Entrepreneurship Monitor (GEM):
■ on average, men are 50 per cent more active in

entrepreneurship than women. This varies from country to
country, the gap being widest in France, Greece, Hong Kong
and Spain. It is stat- istically insignificant in Ecuador,
Finland, Hungary, Japan, South Africa and the United States;
■ many more women than men are involved in
entrepreneurial activity because of the lack of alternative job
opportunities;
■ women tend to be more affected by their local
environmental conditions than are men;
■ women who are employed and know other entrepreneurs
are most likely to set up their own businesses;
■ in low and middle-income countries, the peak years for
women to become engaged in entrepreneurial activity are
between the ages of 25 and 34. In high-income countries it is
35 to 44;
■ in high-income countries, women with post-secondary educa-
tion are more likely to start a business;
■ businesses started by women tend to:
use less capital than those started by men, and (as with
men) these women tend to provide most of this
themselves (65 per cent of it approximately)
be smaller, and less expensive to operate
have slower growth in the early stages (possibly by design)
be in established markets and operate with known
technology.
In the UK around 130 000 women decided to set up their own business
in 2003, a rise of 10 000 year on year. The government wants to increase
the percentage of small firms owned by women from its current level
of 14 per cent to 20 per cent within two years (SBS, 2003).
Perceived barriers
Lack of credibility
Historically there has been a tendency in society to believe that women
are less serious about business than are men. This may be because
of social stereotyping, and making the assumption that women will
prioritize family over business. It may also, in part, be the result
of there being more social pressure on women to balance the
needs of their family and their business.
Lack of experience and knowledge
The fact that some women choose to take time out to cover domestic
responsibilities such as caring for young children does disadvantage
them. During their career break they do not gain recent experience,
usually lose opportunities to build up capital, and are not making con-
tacts in the sectors in which they will potentially be able to operate
in business.
As there is a tendency to choose business areas which pose least
obstacles, this lack of up-to-date experience, capital and contacts does
affect the choice of sector that a woman might move into. It may lead
them to choose stereotypically female sectors (such as those related to
caring, health and children) not really as a positive choice, but because
it makes sense given the practicalities of the situation.
Access to funds for start up
We have already seen that businesses started by women tend to require

less capital than those started by men. It is difficult to ascertain whether
this is because the finance is more difficult to raise as the business case
is not so strong, or whether women entrepreneurs choose not to
approach banks or choose not to run the risk of borrowing money.
If finance is more difficult to raise for women entrepreneurs, it
could be the result of ‘traditional’ attitudes prevailing among the
support infrastructure organizations such as banks and business
support
agencies. Although gender-based discrimination may be one cause,
it might also be a perfectly rational phenomenon based on the fact
that women presenting to banks do indeed have less experience of
the sector and less experience of management, which would
make them a higher risk. If the latter is the case, then we should
now be beginning to see a shift in the pattern, given the changing
sociocultural trends – for example, the fact that greater numbers of
women have chosen to continue to work after having families.

Pick of the bunch
When Karen Anne Jones walked away from her violent partner she had only the clothes she
was wearing, her three-year-old son, his pram and a bag of dirty washing. She had been work-
ing in a flower shop for six years, but felt undervalued, her self-esteem at rock bottom.
She worked for a couple of other florists and learned some new techniques, but she had
always felt that she might like to own her own business. Her home had been repossessed,
though, and this meant she had a low credit rating and was unable to obtain bank funding.
Then someone recommended the Prince’s Trust. She showed them her business plan
and in January 1998 she was awarded a £3500 loan and £1500 grant, and set up Pick of the
Bunch. Every bit of her money was invested in stock, and she knew that if she didn’t sell
flowers she’d be finished within a month. She took £800 the first week; then it was Valentine’s
Day, and Mother’s day a month later. Everyone helped – her dad was making the deliveries,
and her mum was making the tea and keeping the place tidy. People were queuing outside
the shop,
and her reputation grew.
Now she deals with seven of the nine funeral directors in Darwen and Blackburn,
wedding venues, churches, schools and lots of industrial businesses in the area. She has
two full-time and two part-time employees. The shop is small, so she never has enough room,
but Karen still feels that there’s potential for growth in the business.
She keeps in touch with her mentor from the Prince’s Trust, who had not only offered
business advice, but given encouragement when she was low on motivation.
Each setback she encountered in the early days of the business made her stronger and more
determined to succeed. Her tip is to stay positive, go forward and don’t look back. She says
‘If you don’t jump in with both feet then you’d stand on the edge forever. I’m glad I did!’
Adapted from: http://www.princes-trust.org.uk, accessed 1 October 2005
Question: Analyse how critical the different types of support were in helping Karen to over-
come the barriers she faced in setting up her business.
Different perspectives
Schaper and Volery (2004: 398) suggest that women have motivations
different from those men have for starting a business (women often
stating that personal goals are as important as business goals). If this is
the case, it may also be true that, having different aspirations in
business, women may choose different criteria for measuring success,
such as self-fulfilment, or goal attainment. Certainly in the UK the
government tends to judge business success in external
quantitative terms such as profit, turnover, or numbers of employees
rather than qualitative internal criteria that may more accurately
reflect the way women entrepreneurs are measuring their own
success.
According to the GEM (2004) survey women entrepreneurs prefer
to operate smaller businesses, which they believe may reflect their pref-
erences in terms of management style. Women tend to forge strong
personal ties in managing people, whereas men do not. The
survey suggests that women prefer to operate egalitarian coalitions,
whereas men operate hierarchical ones. This makes for different
‘natural’ structures for monitoring and control of the business,
women relying less on incentives and monitoring systems. Larger
businesses need more formal management structures, which men
are more comfortable with.
Self-belief
GEM (2004) suggests that having strong positive perceptions about

their own abilities and the local economic environment is
particularly crucial for women in making the decision to engage in
entrepreneurial activity. Issues like subjective perceptions about one’s
own skills, the likelihood of failure, and the existence of opportunities
are all crucial to the decision to start a new business. In middle- and
high-income countries, most women believe they do not have the
skills required to run their own business, whereas the opposite is
true in low-income countries. Of course, the perceived level of ability
may differ from reality, but it is a critical issue.

n, where you would expect women to have knowledge, skills and expertise, although the customer base is predominantly f
In some sectors, such as pharmaceuticals, there might be an argument for there being an absence of female tal-
ent to promote from, but that is hardly supportable in retail, where the shop floor workers are predominantly
women and there is plenty of talent in middle management.
Jacqueline Gold (of Ann Summers and Knickerbox) has been chosen as the ‘Number One Inspirational
Businesswoman’ by Barclays Bank and Handbag.com. She believes that women who succeed in retail tend to be
ones who have had a good idea and set up their own business. She thinks role models are crucially important,
and hopes that her own story can inspire others to have belief in their own ability to succeed. If she can do it,
without any formal business training, they can too.
She remembers hearing a speech from a man who headed up a make-up company talking about understanding
women and their needs, and yet not having any women on his board. ‘They were selling make-up and it was all
men!’ she says. Although she takes a ‘run by women for women stance’, she does not support positive action,
insisting that she employs people who are right for the job. ‘Women are so underestimated. A lot of men are
intimidated by successful women. Maybe that’s why women are suppressed in the hierarchy.’
Adapted from:‘Never top of the shop’ by Sarah Ryle, The Observer, 7 August 2005
Question: What are the advantages and disadvantages of using positive action initiatives to encourage under-
represented groups to participate in entrepreneurial activity?
Policy issues
Some initiatives have been specifically targeted at women, and there
are arguments both for and against such segmentation. On the one
hand it allows confidence to be built up, and for some cultures
women would not join any network that included both sexes. It is
argued that women network differently from men, and so all-
female networks might be an appropriate response. On the other
hand, the business world requires that women interact and compete
with men, and so it could be argued that reinforcing female patterns
of interaction does nothing to help them achieve success.
In a speech to the World Bank on Women’s Enterprise (2005)
Martin Wyn Griffith (CEO) argued that ‘A pound invested in develop-
ing women’s enterprise provides a greater return on investment than a
pound invested in developing male owned enterprise’ because:
■ women are more likely to be innovative than men in their
approach to business development and new ideas;
■ women are, on average, more qualified than men. Around a
quarter of self-employed women (24 per cent) have a degree
or equivalent, compared with the lower level of 18 per cent
of self-employed men. Research shows that more highly
qualified entrepreneurs grow their business at a faster rate;
and
■ women are more likely to move from unemployment to self-
employment; around one in five women come into self-
employment from unemployment compared to around one
in
15 for men. So, on entering self-employment from
unemployment, women make a more immediate
contribution to GDP in that we see less economic
displacement.
According to the GEM (2004) report on Women’s Entrepreneurship,
schemes that provide role models, and networking opportunities, have
had significant results in promoting female entrepreneurship.
In the UK, the Small Business Service are working in conjunction with
‘Prowess’ (a membership network of quality business support
providers) to promote entrepreneurship as a viable option for women.
The campaign includes:
■ encouraging more role models to come forward;
■ setting up a new enterprise panel of successful female
entrepreneurs to look at the options for a Women’s
Business Council to champion female entrepreneurship;
■ launching a regional tour with leading businesswomen from
across the country to accelerate the Women’s Enterprise Plan
in each region;
■ initiating an action plan to help women gain access to finance.
Government intervention is, however, fraught with difficulty because
of the complexity of the interrelationships. For example, if the
government chose to provide free or subsidized childcare to support
working parents, it could have a negative effect on female
entrepreneurship because a current ‘push’ factor is the ability to
work more flexibly around the needs of children.
Rates of participation will continue to improve, possibly catching up
with rates for men, as women’s participation in the economy in
general expands. The need for intervention to address issues of
representation is declining as a consequence.
Increased participation may offer an opportunity in policy terms to
consider a different perspective on how to create, manage and grow
new ventures, based around more participative, democratic and
consultative approaches to business management. This is not to
suggest that such approaches are always the most appropriate to use,
but there may be lessons of good practice that would be useful more
generally in business.
Ethnic minority entrepreneurship

There are, of course, many ethnic minority groups in the UK, all with
their own entrepreneurial characteristics. Policy has tended to focus
upon supporting ethnic minority entrepreneurs to integrate into
the mainstream, often being focused on neighbourhood renewal
for
disadvantaged communities, although we should beware of ‘stereotyp-
ing’ these groups, as it is important to recognize the diversity of suc-
cessful ethnic minority entrepreneurs across all sectors.
Facts and figures

People in employment from Pakistani and Chinese groups are more
likely to be self-employed than those in other ethnic groups in Great
Britain. In 2002/03, around one quarter (23 per cent) of Pakistanis
in employment were self-employed, as were around one fifth (18
per cent) of Chinese people. This compared with fewer than one
in ten black people (http://www.statistics.gov.uk).
Ethnic groups are more likely to be thinking about starting a
business than the country as a whole. It is unfortunate that this
may be because of discrimination as 38 per cent of non-white business
owners say they have experienced discrimination of which 90 per
cent was racially motivated (SBS 2003).
Push and pull factors

Basu and Goswami (1999) identified a range of push and pull factors
influencing ethnic minority entrepreneurship, which are
summarized in Table 5.1.
Table 5.1
Push and pull factors influencing ethnic minority entrepreneurship
Pull factors Push factors

Independence Lack of salaried employment
Financial improvement Underpaid work
Higher social status Discrimination in labour market
Greater personal control Redundancy
Best use of expertise
Previous experience
Identification of growth market potential
Niche market
Source: Basu and Goswami (1999) South American entrepreneurship in Great Britain;
factors influencing growth. International Journal of Entrepreneurial Behaviour and Research
5(5).
These factors might also apply to other groups, notably women.
The conclusion that could be drawn from this is that ultimately it is a
combination of personal and environmental circumstances that
influences the decision to engage in entrepreneurial activity at any
specific point in time.
Dislocation and hardship

Ethnic immigrants have played a significant role in economic develop-
ment in the UK. Deakins and Freel (2003) explain how these
ethnic groups have demonstrated a willingness to accept new
practices and have brought in skills that have facilitated economic
development. They say that this continues in the modern economy,
for example in the case of Asian entrepreneurs who were the first to
challenge our cultural norms by opening retail outlets on Sundays.
Perhaps the very experience of surviving in a difficult and
sometimes hostile environment requires certain qualities which
might be relevant to entrepreneurship such as resilience and
determination.
Schaper and Volery (2004) describe the experience of the
ethnic Chinese experience of entrepreneurship in the Pacific Rim.
They say that organizations owned by ethnic Chinese families make
up 70 per cent of the private business sector in Singapore, Malaysia,
Thailand, Indonesia and the Philippines and are rising influences in
Australia, New Zealand and Vietnam. Most Chinese ethnics left the
mainland with very little, and had to face discrimination and
prejudice.
Sharing language, culture and ethnicity gave them a sense of
com- munality upon which a base of mutual trust developed. In an area
where formal business agreements were difficult to enforce, family
offered the most security. Networking and trust are well known
characteristics of Chinese culture. The emphasis on tradition and
Confucian roots served the Chinese family well against a host of
economic policies implemented by the host governments. Greater
collectivism, centralized control and clear vertical order helped them
to achieve massive growth. The strong work ethic and thriftiness
helped them to accumulate wealth quickly.
Geographical concentration
The location of ethnic minority businesses tends to reflect ethnic
settle- ment patterns in a country. In the UK, these businesses
are often
located in the inner city where physical dilapidation, the depressed
economy, and low spending power can constrain business perform-
ance. These are often the very same aspects that have led other
businesses to leave the market. For example, it is very difficult
for a business to achieve growth if it operates in a sector that is
characterized by low entry costs and high levels of competition,
and relies on the co-ethnic market in a depressed area. Holistic
support strategies are needed, to include improving access to
broader markets and finance to exploit these, and developing a
broader range of contacts through networking initiatives that include
mainstream businesses.

Andrew Ramroop
Andrew Ramroop came to London from Trinidad in 1970, and was totally overwhelmed by
the crowds of people, but having left with such enthusiasm he felt he could not go back
however much he disliked the city. Against the odds, he learned to flourish in a new country,
thousands of miles from his home. By 1988 he had become the first black business owner on
Savile Row. In the early days he encountered prejudice, being turned down for many
jobs on Savile Row, as he did not present the required front-of-shop image. In 1974, he
started work for
Maurice Sedwell on Savile Row, after studying at the London College of Fashion.
In the early days, Mr Ramroop was confined to making alterations, but little by little Mr
Sedwell encouraged him to come to the forefront of the business. The big break came when a
client personally asked for Mr Ramroop to oversee the entire fitting. His reputation grew by
personal rec- ommendation and at one point he was dressing half-a-dozen cabinet ministers.
Famously, he also designed the cashmere jacket worn by Princess Diana in her Panorama
interview.
During those years, Mr Sedwell sold Mr Ramroop shares in the business, until he had accu-
mulated 45 per cent. In 1988, when Mr Ramroop wanted to leave to set up his own
business, he sold him a further 45 per cent in the business and persuaded him to stay.
Eight years after taking over the business, Mr Ramroop expanded the premises from 500 to
3000 square feet. But he had problems borrowing money from banks to invest in the business,
even though he had made profits every year. Even the bank, which Maurice Sedwell
had banked with since 1938, wouldn’t help. In the end, his clients lent him the money,
which he has since repaid.
‘They had the confidence in what I did, and had the confidence in me that I could do the
business’, Mr Ramroop said. He believes that his ethnic background provided him with the
extra spur to do well, and claims further that ‘what has been perceived as a disadvantage is an
advantage. I have been forced to try harder than someone else’.
Adapted from: news.bbc.co.uk, ‘Workplace success’, by Emma Clark, accessed
1 October 2005
Question: Would Mr Ramroop have been so successful if he had not faced setbacks owing to
the prejudices of others?
Policy issues
The Small Business Service acknowledge that there are many entrepre-
neurial people in Black and Minority Ethnic (BME) businesses and
that we can learn a great deal from their experiences. However, in
looking at the range of initiatives that target this sector the focus
tends to be on tackling barriers for underrepresented BME groups.
The Ethnic Minority Business Forum (EMBF) was set up in July 2000
to advise ministers on appropriate support for ethnic minority
businesses, and to consult with such businesses in order to
accurately represent their views. The forum itself, and the communities
it consults with, have expressed concern about the fact that ethnic
minority businesses are less likely to use Business Link’s support
services than other businesses. They suggest that diversity training for
BL advisers may help.
Although we have not addressed generational issues in ethnic
minority enterprise, younger people have different aspirations from
their parents. Policy will need to be more flexible, and more closely
targeted at the specific needs of individual ethnic minority
entrepreneurs and their businesses.
Family businesses
While a family business shares many of the problems that any business
would, there are some unique aspects that are brought into sharp
focus by the complexity of personal family relationships. While the
individual circumstances of each and every family enterprise will be
unique, these businesses often do face similar challenges.
Definitions
If we chose to adopt the broadest view, a family firm could be defined
as any organization in which more than one member of a family
is involved, or any organization that defines itself as a family business.
Westhead and Storey (1997) argue that a family firm should meet at
least three of the following four criteria:
■ has undergone an intergenerational transition;
■ has more than 50 per cent of the shares held by the family;
■ has more than 50 per cent of family members involved in day-
to-day management;
■ speaks of itself as a family firm.
Barclays Bank in their 2002 report on family businesses say that for a
firm to be defined as a true family business, the family should hold a
majority of the company’s shares, and in the case of a public company,
an individual family group must hold at least 25 per cent of the
voting shares.
BDO Stoy Hayward similarly highlight ownership, management par-
ticipation, and longevity in their definition:
■ a single family holds more than 50 per cent of the voting

shares;
■ supplies a significant proportion of the company’s senior man-
agement, and is effectively controlling the business;
■ more than one generation is involved in the business;
and most importantly;
■ the family regards the business as a family business.
Incidence
According to the BDO Stoy Hayward Centre for Family Businesses
(http://www.bdo.co.uk/) up to 76 per cent of UK businesses are family-
owned. Only 30 per cent of family businesses survive to the second
generation and 15 per cent to the third, which highlights succession
planning as one of the key issues for family businesses. Grant Thornton
conduct an annual report on Family Businesses across Europe, and they
also consistently highlight planning and succession issues as crucial.
Insularity
Family businesses can become quite insular in their approach, and
bringing ‘outsiders’ into a firm is useful in that it offers an
opportunity to introduce some fresh ideas and challenge some
taken-for-granted assumptions. But doing this introduces some
problems also. For example, should shares be made available to
non-family members? This has implications for the way reward and
remuneration packages are constructed.
Taking ‘outsiders’ for the top jobs in a family business can put them
in an impossible position. Expectations are often unrealistically
high; they are unlikely to be able to produce the sort of magic that
will be the key to an instant turnaround of fortunes if a business
has been
stagnating for a number of years, for example. It is also quite easy to
unwittingly upset family sensitivities, although the fact that they are not
aware of such sensitivities can be advantageous as their thinking is not
constrained by the politics and they can often do what is not
possible for family members.
Conflicting priorities
Personal relationships within families can impact upon the effective-
ness of the business. For example, should the MD of a small firm
put their personal feelings aside when faced with the choice of
promoting their offspring over a non-family employee? The
rational approach would be to choose the most able candidate, but
irrespective of which candidate succeeds, interpersonal tensions arise.
The son or daughter of the MD would face scrutiny of their
performance, having to prove their capability, if they were chosen,
and if they were not chosen the inevitable injuries to pride would
(however temporarily) affect the relationship with the parent.
Issues like this are commonplace; they are not isolated occurrences.
The ongoing psychological stress might also affect the ability of
the owner to manage effectively.
Communication
Communication is often informal in families, but, as with any business,
relying on informal communication can leave some people feeling
that they are excluded or that they do not have an equal opportunity
to express their views. Some members of the family, for example,
might not actually work in the business but feel that they have a
stake in it. In such circumstances there is an issue in relation to the
level of influence that is appropriate in making decisions about the
future of the organization.
Another common problem is the ‘Sunday lunch decision-making’
syndrome, where the family decides on what should be done outside
the office (at the family Sunday lunch). The outsider, not having
been invited to this informal gathering, is informed of what is going
to happen on Monday morning! The opposite can also be true,
when family disagreements take place ‘on the shop floor’ in front
of staff, and sometimes (even worse) in front of customers.
Early experience of enterprise
The SBS 2003 Household Survey states that having an entrepreneur as

a parent significantly increases the likelihood of an individual setting
up their own business. Thirty-four per cent of ‘doers’ have a parent
who is or has been an entrepreneur compared with about a quarter
(26 per cent) of the general population. However, doers do not
seem to have been influenced by any other relationship. They are
not significantly more likely to have siblings or friends who have
been or are entrepreneurs.
This might partly be genetic, but early exposure to small
business seems to socialize children to be enterprising. Role
models are very important as influencers and, in addition, the
offspring of business owners often have ample opportunity to practise
their skills by working in the family firm in the evenings, at weekends
and during holidays. Perhaps, having seen business management at
first hand, children are also able to absorb learning informally.
Succession
We would like to think that families are harmonious entities but this is
not always true. There can be intergenerational differences in values,
aspirations, and opinions as to how the business should be
managed. For example, Lachlan Murdoch (who has long been
regarded as his father’s successor) recently resigned from the
News Corp media empire, reportedly following a number of
arguments with his father. His sister, Elisabeth, stepped down from
Sky five years ago to set up her own television production company.
Rupert Murdoch has made no secret of his wish for one of his children
to take over the reins, but now only his younger son, James, remains in
the family business. Similarly, the Pathak family were drawn into
lengthy and acrimonious legal arguments when Anila Shastri and
Chitralekha Mehta claimed that they were owed a share of the
business empire founded by their father more than 40 years ago.
Mrs Pathak said she and her husband, who died in 1997, never
intended their daughters to own shares in the company. When the
daughters married they became the full responsibility of their
husbands. However, the daughters argued that they were the victims
of a Hindu culture in which male inheritance is still customary and
women are treated unequally.
Although the founders of the business might want to pass on the
baton to the next generation, it does not necessarily follow that such an
inheritance would be welcome. On the other hand the desire to
inherit might be strong, but there are doubts in the current
management about the successor’s competence to run the
organization effectively.
Sometimes, the need to plan for succession is not recognized, or is
not recognized in time. Planning for succession needs to begin well
in advance (see example in Enterprise in Action 5.3). For example, if
the plan is to sell the business, the timing of that sale might be
crucial in terms of the general state of the market or the
performance of the business.

Glenmorangie
Glenmorangie is not just any old whisky. It is a single malt made at the Tain distillery in Ross-
shire, where, so the legend goes, the 16 ‘men of Tain’ still hold the secrets of the distillation
process that gives the whisky its characteristic flavour.
The MacDonald clan founded Glenmorangie in 1893, and hold just over 50 per cent of
the voting shares and a third of the value of the company. The decision to sell had not been a
sudden one. Although he had four daughters, two of whom work for the firm, David was
the last of the family who wanted an executive role with Glenmorangie. He had retired as
chairman a decade ago, and, at the age of 71, had to decide how the family wealth should
be passed on.
Paul Neep had been chief executive for the last seven years. Under his stewardship
Glenmorangie had been marketed as an upmarket brand for the discerning whisky drinker,
and shares were approaching all-time-high levels. City investors tend not to like family share-
holdings. It made sense to sell.
When the sale is complete, the 25 or so family members will be worth around £100 m.
Although David MacDonald could have been portrayed as betraying Scotland’s whisky heritage,
he has been treated with understanding. An employee said ‘If I had the chance of £100 m in
the bank, I’d sell too’.
Adapted from: Frank Kane, ‘A neat scotch – at £300m’, The Observer, 12 September 2004
Questions: Why is it important to plan for succession in a family firm? How might this differ
from succession arrangements in a non-family firm?
BDO Stoy Hayward highlight a range of practical options for the

founder, each of which bring their own advantages and disadvantages.
They suggest that the founder can choose to:
■ appoint a family member;
■ appoint a caretaker manager;
■ appoint a professional manager;
■ liquidate the business;
■ sell, in whole or in part;
■ do nothing.
They point out that this decision will be influenced by:
■ the availability of suitable family or non-family successors;

■ the family’s requirements from the business (for example
whether funds need to be brought out of the business to
support the founder in their retirement);
■ the personal and corporate tax implications of the various
options;
■ the health and size of the business;
■ the business environment at the time of succession.
The Small Business Service commissioned research into the

Business Support and Policy implications of SME Ownership and
Succession, which was published by the UCE Knowledge
Management Centre in April 2002. This research concluded that the
businesses most vulnerable to succession failure were where they:
■ had lifestyle and personal, rather than strategic, goals;

■ were performing poorly;
■ were dependent upon the owner for day-to-day management;
■ had no natural family or internal successor; or
■ were ignoring the need to make arrangements for succession.
Part of the problem in planning succession is the former leader

themselves. After spending so much of their life in a business,
some entrepreneurs find it hard to accept that it is time to let
go. Others are looking forward to taking the money and enjoying
life. In Figure 5.1 some stereotypical alternatives are identified, each
having different consequences for the businesses they leave (or fail
to leave) behind!
y don’t go easily. It takes a revolt or they die!

retire for a short time but then return to save the business. The ambassador – these people go gracefully, often serve as mentors to others
reneur – they start again somewhere else.
y take great holidays or play golf, finally indulging themselves.
merfield and Spence, Family Business Review 2(4), Winter, 1989

Figure 5.1
What does the
former leader do?
Support needs
Barclays (2002) found that when family businesses were asked
what additional help they would like from the government, tax relief
on succession was mentioned most frequently – one in four
family business owners want support in this area. Provision of
loans, grants and subsidies, better advice and reduced business
rates were also highlighted.
Young entrepreneurs and grey entrepreneurs

Young entrepreneurs
Although there are many examples of successful young
entrepreneurs, there are specific barriers that might hinder them in
setting up in business, for example:
■ lack of credibility;
■ lack of experience and knowledge;
■ lack of a network of contacts;
■ lack of access to funds for start up.
The Prince’s Trust is a UK charity that helps young people to realize

their potential. In 2004 it helped 12 793 young entrepreneurs through
its start up programme (www.princes-trust.org.uk). It offers a range
of support including business advice, and small grants and loans to
young people between the ages of 18 and 30 who are unemployed
or work less than 16 hours per week (see Enterprise in Action 5.1).
t had been a year before they actually went on stage, wanting to get things right first. Lyrics had been a bit of a problem
They didn’t contrive things – their agent advised them to take a different approach to
promotion, telling them to have confidence; if they were good enough, the industry would
find them. They decided to give away demos at the gigs they played, and also put their music on
the web. When they played the Boardwalk in Sheffield, the entire crowd were singing along
to When the Sun Goes Down, which was a song that hadn’t even been released.
Alex sings in a distinctive South Yorkshire accent about real life, things like fights
outside nightclubs and odes to girls that got away. The band doesn’t just play, they perform.
Zane Lowe played the band’s Bet You Look Good On The Dance Floor on his Radio 1
show back in November 2004 and they pick new fans up everywhere they go. The one single
that they did release was a limited edition, and is now quite a collector’s piece available
through eBay! Recently, having oversold a concert, they put on a second gig and offered
extra tickets to the first people who returned their originals. Again there is a good market
on eBay. Word of mouth has spread in a way that the industry simply cannot keep up with.
It looks like their agent knew what he was talking about.
Sue Marriott and various public sources
Question: How might Arctic Monkeys’ enterprising approach be compromised as their fame
spreads?
Grey entrepreneurs
In the year to September 2003, Office for National Statistics (ONS)
figures show that the largest increase in self-employment came
from older entrepreneurs. For full-time male entrepreneurs the group
with the largest increase (86 000) were those aged 35–49, and a
further 30 000 were aged 50–64. For part-time entrepreneurs these
figures were 21 000 in the 50–64 age bracket and 9000 for age 65 and
over. A similar pattern exists for women. Numbers of full-time self-
employed women increased by 16 000 in the 35–49 age group and by 17
000 for those aged 50–59. Part-time women entrepreneur numbers
grew by 18 000 in the 35–49 age group.
These people have often had considerable experience in their
careers. Their motivations vary. Some are frustrated by the lack of
opportunity and recognition within their employment; others are cre-
ative and innovative and leave employment or take early retirement
to exploit opportunities. They have the advantage of specialist
expertise, industry knowledge and contacts that they have developed
over time. Many also have considerable knowledge and experience of
business management. They are at a stage in their lives where they may
be more confident about their ability to manage their personal
circumstances, sometimes having paid off mortgages and been
relieved of familial responsibilities.
Environmental trends may also be part of the reason why there is
a growth in ‘grey entrepreneurship’. For example, some pension
schemes have failed to provide the level of income that had been
expected, leading to a need to generate additional income. Also, the
flexibility of self- employment might offer a tempting lifestyle where
early retirement or redundancy has been offered.
Self-perceptions
Readiness for self-employment
Confidence is all-important in taking the first steps into self-
employment. As shown in Figure 5.2, over time individuals gain
experience and knowledge. We gain background knowledge of the
way the world of work operates through our experiences at school,
from the media, from our families and eventually from our own
experience. Exposure to the world of work is a gradual process, and
as well as developing knowledge and understanding individuals
acquire skills, gaining confidence in their ability to identify problems
and find solutions to them. As responsibility develops, problems
become more complex until a level of expertise is achieved which
instils a degree of confidence that most situations can be managed.
At this point an individual might feel ready to take on the challenge of
running a business of their own. Of course, eventually age takes its toll
and the demands of a steep learning curve can appear too great a
demand on both time and energy.
Complex problem solving
Increased responsibility
Masters of routine
25
40
Adapted from: Liles P.R. (1981) Who are the Entrepreneurs? Small Business Perspectives (Gorb, Dowell and Wilson, eds). Institute of
Figure 5.2
Readiness for self-
employment.
A nose for business
Laurice Rahme was born in Paris. Her parents were in the restaurant business, but Laurice
wasn’t convinced that she wanted to do likewise. She was a rebellious teenager, but luckily fell
in with a good group of friends. They were experts in antiques and took Laurice with them
to flea markets and taught her the tricks of the trade. She started a small shop eventually,
but when the area was renovated she was priced out of the market.
She sought help from one of her customers, who suggested she might be able to indulge
her wish to travel by taking a job with Lancome in the Middle East. She said at 21 she was eager
to do this, although very few other French women shared her adventurous spirit at the time
(1970s). In 1976 she received a phone call from Lancome in New York, asking her to open
the first Lancome Institut de Beaute in America. She again seized the opportunity and
moved to Manhattan. She loved her time in America, and had to think long and hard about
her future when the time came to go back to her old job.
On a flight to Paris she met someone who persuaded her to take a position at
Annick Goutal, the fragrance designers, and after a year of negotiations she took the
job. She became a partner with a 22 per cent stake, making about $0.5 m when she sold her
stake back to them six years later. In the meantime she learned a lot about running a
successful business.
Her next venture, at Creed Perfumes, experienced problems arising from discounting in
America, and she decided that the time was right to leave and manufacture her own perfume,
Bond No. 9, so that she could have total control. Sales are now $6 m a year. She says that entre-
preneurs should start small, go slowly, and have as little debt as possible.
Adapted from: Julie Earle Levine, ‘Sweet scent of success’, The Sunday Times,
16 January 2005
Question: What are the advantages and disadvantages of this step-by-step approach to develop-
ing entrepreneurial success?
Self-perceived effective capacity

However, actual competence and capability are different from self-
perceived efficacy. A range of internal and external factors might
affect an individual’s perceptions of their own capability, and the
likelihood of success. Circumstances can appear to limit choice, and
sometimes the risks appear greater than at other times. The
window of opportunity opens and closes as the context changes.
Figure 5.3 shows a typical pattern, although it should be recognized
that this does not suggest that it is representative of every
individual’s circumstances.
Perceived level of capacity to start a firm
Free choice period
20 25 30 35 40 45
Adapted from: Liles P.R. (1981) Who are the Entrepreneurs? Small Business Perspectives (Gorb, Dowell and Wilson, eds). Institute o
Figure 5.3
Self-perceived
effective capacity.
Whether or not an individual feels free to make the decision to

engage in entrepreneurial activity will depend upon:
■ the distractions and obligations they have (such as running
the local under-11 football team, being a local magistrate);
■ their family commitments and the level of security they
need to provide (for example the mortgage, two children,
partner, ageing parents);
■ the salary and benefits they perceive themselves to need (such
as the company car, private health insurance);
■ the status they seek, and its source (for example, is being a
senior manager important to you, would self-employment
enhance or diminish your self-esteem, and does that matter?);
■ the desired level of responsibility (for example, for some
entrepreneurs responsibility increases as they establish
their own business, but for others it is a lessening of
responsibility);
■ loss of their power base (for example, for a managing
director of a company that employs 500 people, becoming a
one-person operation means some diminution of power and
authority, and might also mean the loss of someone to do
the photocopying and make the tea!).
Risks associated with entrepreneurship
During the free-choice period, an individual might seriously

consider starting a new business. At this point they will consider the
risks as they see them. Liles (1981) suggests that there are four
types of risk:
■ Psychic risk. Often the business is the personification of the
entrepreneur, and if the business fails it has devastating con-
sequences for their psychological well-being.
■ Financial risk. The entrepreneur may have invested money
(perhaps all of their savings) in the venture. Often banks
and other funders demand collateral, and this may mean
the risk of losing the house and/or personal bankruptcy.
■ Career risk. If the business fails, the entrepreneur may need
to seek paid employment in the future. They will need to
consider how perceptions of business failure might affect
their career prospects. Also, the focus on general
management might mean that they are less able to keep up
with the latest developments in their areas of specialism,
and the loss of relevant knowledge and expertise might
again disadvantage them if they have to return to paid
employment.
■ Family risk. Family life and relationships can suffer because of
the demands of the business on the entrepreneur’s time,
energy and emotions.
In addition to these, there are also risks associated with:
■ Personal history. The entrepreneur will need to consider their
own capabilities and assess whether they are being realistic
about their own skills, knowledge, attitudes and experience.
■ The environment. Consideration needs to be given as to
whether the entrepreneur has sufficient insight when analysing
trends in the environment.
■ Commercialization. There are risks associated with the com-
mercialization process. Although market research might
reduce these risks, the only way to really know what the
demand is, is to go to market. The risk is equally great for
predicting too little demand as well as too much.
■ External support. While drawing on the experience of others,
and while services such as grants and soft loans, can be
invaluable, there is also the danger that the
entrepreneur might rely too much thereon, so becoming
dependent and losing autonomy.
The final decision comes down to the individual, and some of
these areas of risk will be more pertinent to some individuals than to
others. In Pause and Reflect 5.2, issues of readiness for self-
employment,
self-perceptions and attitudes towards risk could all play a part in Lee’s
decision. One of the distinguishing features of entrepreneurs is their
willingness to take on risks and manage them.

Inspired by gardens
On leaving university, with a degree in Business and Hospitality Management, Lee took up a well-paid job in
recruitment, and he and his girlfriend (a teacher) bought their first home. At first the job was fulfilling; Lee
gained confidence through interviewing candidates and dealing with employers. But in time much of this became
routine, and the long hours and target-driven culture became less appealing.
His real passion was gardening, and he was spending most of his spare time turning the piece of land attached
to his house into a ‘proper garden’. Friends and family were quick to exploit his talents, and Lee seriously won-
dered whether he could turn his hobby into a business.
He had seen an advertisement for a BBC competition designed to give aspiring gardeners an opportunity to
turn their dreams into reality. Not really expecting to succeed, Lee applied. Much to his surprise, after an arduous
selection process (deliberately designed to test the perseverance and commitment of the applicants) he was chosen
from 4000 hopefuls to be one of eight ‘apprentice gardeners’ on a BBC 2 documentary. He gave up his job, and
moved to RHS Wisley for six months to take up what he described as ‘a life changing opportunity’.
Having had a unique experience, Lee now has to decide whether self-employment is for him. He has had the
courage to give up paid employment, and has relied on the financial and personal support of his girlfriend while
being involved in the making of the programme.
Lee has had six months of high-quality tuition at Wisley, and has gained considerable horticultural experience.
He was part of a silver medal winning team at Tatton Flower Show, has made extensive and invaluable contacts
in the industry, and has been inspired by some of the gardening world’s most famous characters.
Source: Sue Marriott
Questions: Should Lee have taken the plunge? How might his aspirations, and his perception of the risks
involved, have altered in the light of his experience at Wisley?
Culture
Geert Hofstede (1980) has proposed a framework for differentiating
between cultures in four dimensions (see Figure 5.4):
1. level of power distance
2. individualism
3. masculinity
4. uncertainty avoidance.
The predominant culture in a country or society would have an
impact on the entrepreneurial climate. For example, in America the
cultural climate is dominated by masculine values, looking for material
gain, a competitive spirit and dogged determination. These values are
the ones that we commonly read about in the literature as typifying
entrepreneurs. We
unequal distribution of power. Even the less powerful accept the situation.
For example, they might establish formal rules, frown on deviant ideas, etc. These societies also seem to be characterized by anxiety and a
re expected to take care of themselves and their immediate families only; the social framework is very loosely knit. A collective society is the
ne’ in orientation, i.e. assertiveness, acquisition of money and things, not caring for others or the quality of life.
Figure 5.4
Cultural dimensions.
might question how far this perception of successful entrepreneurialism

is typical, or, indeed, helpful. In Finland, for example, quality of
life issues assume higher importance and the welfare of community
would take precedence over material gain. We might expect to see a
different pattern of entrepreneurial behaviour in such a climate. We
have talked about how we are all culturally conditioned, how we see
the world in the way that we have learned to see it. Hofstede questions
whether the theories developed in one culture (specifically the
American one as that is where many management thinkers originate)
apply in others, for example Japan and India. There is, similarly,
some utility in exploring different cultural contexts for
entrepreneurial activity to test whether the concepts do remain valid.
We explore this further in Chapter 8.
Degree of fit
It is likely that the entrepreneur will, consciously or unconsciously,
assess the degree of fit between their individual values and those in the
community at large. In considering whether entrepreneurship is the
right career path, this cultural aspect would have an effect on
perceptions of the likelihood of success. It might also affect the
choice of sector and the nature of the business. An individual
with masculine values, high power distance and high individuality
might be more successful in the private sector whereas an
individual who has feminine values, low individuality, and low power
distance might prefer to operate in the public or not-for-profit sector,
or become a social entrepreneur, for example.
The support infrastructure
Although running a business can be a rewarding and exhilarating
experience, it also demands considerable investment. This investment
is not only financial, although that burden can be significant, but
means commitment of time and energy. This can have serious implica-
tions for the personal life of the entrepreneur, and those close to
them.
Personal support networks

Self-employment is often described as a lonely experience. It is not easy
to carry the burden of running a business, and support networks might
help in alleviating this.
A supportive family is a real asset, but family relationships can
also be a business liability. If tensions surface because the family
feel neglected, or because the needs of the business are constantly
being pri- oritized over family needs (for example, lack of
holidays, working through weekends, bringing business anxieties
home, not being at school open evenings or sports days and so on),
the entrepreneur can come under intense pressure.
However, there is a difference between personal support networks
and general business networking. The quantity and the quality of
the external linkages between an organization and its environment
are crucial to its success. Entrepreneurs rely on networks for
information and access to resources.
The know-how and know-who of social networks

The phrase ‘it is not what you know but who you know’ is in
common usage, and there is some truth in the sentiment. Networks
are sources of skills, information, contacts and ideas, and are,
arguably, more important in the growth stage than in the start up
stage. Non-supportive networks such as families that are
inexperienced or opposed to entrepreneurship may make risk
judgement difficult or may distract attention or sap motivation at
key moments.
How networks are used is a critical issue. We have already discussed
how women use networks differently from men. They are involved in
smaller, more personal networks, and establish stronger individual
relationships. The entrepreneur can be supported, or hindered, by
his or her social networks.
Businesses can sometimes compete more effectively through collab-
oration, and an example of this is given in Enterprise in Action 5.6.
In this example, a local Business Link was piloting a network broker
scheme, the objectives of this being to facilitate collaborative
ventures between a number of businesses targeting a specific
customer group. Through presenting an integrated service to the
customer, the network of businesses achieved more sales than they
could have done acting independently.

The Wedding Network
During a discussion with a local stationer who was exploring routes to market for her products,
her personal business adviser from Business Link pointed out that there must be many other
local firms providing ‘wedding related’ services. Thinking together, they identified around a
dozen commonly required elements for a wedding (flowers, cars, gowns and so on). The
Business Link was piloting a network brokerage service, and the adviser drew on support from
this pilot scheme to set up The Wedding Network. He brought together a number of small
businesses who could offer the complementary services that a customer would want when
arranging a wedding, and facilitated the management of the network business in the early
stages of the evolution of the network.
The group considered the adviser’s presence to be critical to the effective management of
the network, and as they began to win contracts the businesses developed trust through their
shared experiences. This common understanding included the network broker however,
and although it was expected that the broker would exit the group as it matured, it became
increasingly difficult for the broker to withdraw. When the free time from Business Link
expired, the network chose to pay for the service to continue.
Source: Chris Wroe, Sheffield Hallam University
Question: Argue for and against the view that this story exemplifies how, with the best of inten-
tions, public sector support can inadvertently create dependency.
Supporting enterprising people

If we accept that we need more enterprise in the economy, it
makes sense to consider how we might support people in their
attempts to be more enterprising, whether that lies in the setting up of
their own business, being enterprising in employment, or developing
an innovative corporate environment to stimulate innovation and
growth. We will briefly consider two contexts in which support can
be provided. First, public sector and private sector support in
stimulating an enterprise culture, and, secondly, stimulating
creativity in the employed workforce.
Public sector support
In general terms, governments are aware of the importance of entre-
preneurship and innovation in the economy, and seek to support it
through a range of measures. Opinions vary as to how best to
support enterprise, and the actual measures taken vary between
nations and over time within countries, regions, and local communities.
We cannot offer a comprehensive evaluation of such initiatives here,
but seek to highlight a few issues and pose some questions to stimulate
debate.
Does government intervention make a difference?

It is a point of debate whether there is a case for public intervention
in enterprise at all. In the UK there has been an interest in the
creation of an enterprise culture for at least the past 25 years, but there
is little research evidence that any of the various policies have had a
significant impact on attitudes. It is difficult to prove causality in any
event, as initiatives brought in by government are just one part of
many changes that have occurred in the structure of the economy
and attitudes in society in general, such as the decline of the
manufacturing base and changing expectations of employment.
There are also qualitative considerations such as the nature of
jobs created and how long they are likely to last, and whether
there is a legacy in terms of improved workforce skills when we assess
impact.
The investment of business itself in both time and money will always
dwarf the investment that a government can make, and so it can always
be argued that the achievements should be credited to the
businesses themselves. Given the difficulty in proving causality,
some argue that the public sector should concentrate upon
offering direction and coordination rather than intervening directly.
The various agencies involved in supporting businesses (Chambers of
Commerce, Enterprise Agencies, the Training and Enterprise Councils,
Business Links, and now the Small Business Service) can all point to
individual success stories, but the question arises as to whether these
agencies actually make a significant difference when we cannot
know what would have happened anyway had no intervention taken
place.
Social costs
As well as the perceived benefits of investing in enterprise there

are costs. In any investment, there are opportunity costs. If we spend
money
on enterprise initiatives to support specific sectors or businesses, we
cannot also spend it in other areas, for example education. One
argument might be that if we are serious about generating an enterprise
culture, it may be more appropriate to consider how to foster creativity
and innovation in schools. If we invest in the young, they will be
more enterprising throughout their lives. This may be more
productive in the longer term than targeted business support.
Economic conditions obviously affect enterprise; for instance, more
businesses fail in a recession. When failure rates are high, governments
could be criticized for investing public funds in start ups, for
example. If the business should fail, bankruptcy has a high social
and personal cost. In supporting high-risk ventures, it could be
argued that the potential social cost is greater, and that this should
be weighed in the balance where public money is involved.
The nature of support
If we accept that government intervention is desirable, the next

question to be addressed is what type of support generates the most
impact? Over time there has been a wide range of initiatives (in fact a
term in common usage is ‘initiative fatigue’) designed primarily to
encourage business start up and growth. The last 25 years have seen
the arrival and departure of initiatives such as the creation of enterprise
zones (waiving rates in some areas to encourage enterprise);
subsidized workspace; technology transfer schemes; a variety of
grant schemes to promote innovation; support for export and
internationalization; the Enterprise Allowance Scheme to support
unemployed people in starting a business; training programmes to
support business planning for new-start businesses; one-to-one
counselling and advice; subsidized consultancy services; and a range of
information services. Some generic services are free in the initial stages,
others are partially funded.
Although most business support initiatives in the UK are delivered
through the Business Link network, it should be remembered that
they are but one part of a complex array of support for
businesses. Significant proportions of businesses never avail
themselves of this support and rely instead on their own networks,
trade associations, professional service providers such as their
accountants, and funding providers. Some are suspicious of
government agencies, thinking that information could be passed on
to the Inland Revenue and so on. It is also argued that the investment
in targeted initiatives is misplaced, and that generic support, e.g. fiscal
measures, is more effective in supporting businesses
competitiveness.
What type of firm to support?
In investing public funds, accountability issues inevitably arise, and

governments (and the people that elect them) understandably want
to get the best return from their investment. Some people argue that
support should only be given to those businesses that have the
greatest capacity to grow. Supporting, for example, a mobile
hairdresser would probably displace other mobile hairdressers, as
there is a limit to how many times people in an area will have their
hair done and demand cannot stretch indefinitely. This displacement
means there is little net gain overall in terms of impact.
On the other hand, supporting a high-tech business means that
there is real potential for wealth creation. But the issue is more com-
plex than this. These businesses do have the potential to make a sig-
nificant individual contribution to economic growth, but there are
very few of them. They may also create wealth, but not necessarily
employment.
Using public money to change the industrial make-up of an area is a
laudable aim, and is common in areas badly affected by economic
decline. But it could be argued that this is displacement of a
different kind. Entrepreneurs are very good at getting more for less,
and there is a danger that, where sectors offer significant potential
for profit, the entrepreneur might have resourced the opportunity
anyway.
Picking winners
Some suggest that rather than supporting certain types of business,

public investment should focus on individual entrepreneurs. Many
entrepreneurs start in low-tech, sometimes low growth potential sectors,
but eventually become very successful. For example, would people like
Gates, Dell, and Branson have been spotted as winners and given sup-
port? The other pertinent question, of course, is did they actually
need it? Of course there may have been other people with
entrepreneurial potential who ‘fell by the wayside’ but who may not
have done had support been available.
Employer support
Many potential entrepreneurs take the plunge after working as
employees in other organizations. Employer attitudes to encouraging
(or not!) staff to leave employment to start their own business could
be
a crucial factor for some individuals. Although it would not seem to
make sense for employers to encourage staff to set up on their
own (especially as the knowledge and experience of such employees
might mean that they would choose to compete in a similar
industry), it might help in developing innovation within their own
organization. It might also give the employees sufficient job
satisfaction to persuade them of the benefits of staying.
Tried and tested methods include secondments to provide business
or entrepreneurial management for charities, government, etc. or
opportunities to pursue new ideas within the organization.
Categorizing entrepreneurs
The support needs of entrepreneurs are, as we can see, many and var-
ied. Some rely entirely on personal support, and never engage
with public sector provision at all. But at any one point in time, the
support needs of a specific individual will depend on a combination
of some or all of the factors we have discussed in this chapter. In an
attempt to sim- plify this complexity, it may be useful to consider
whether we can categorize entrepreneurs in the way they think
about entrepreneurship, and their attitudes towards it as a career
path.
In Figure 5.5 potential entrepreneurs are categorized on the basis
of the extent to which the right support infrastructure influences
their decision to become an entrepreneur. Some people will take this
step irrespective of support; others would only do it if the support
were guaranteed. This does not help in determining the nature of
that support, which will also vary depending on the individual’s
needs, aspirations and attitudes.
ntrepreneurship is:
he only route – the individual will do it, whatever the personal circumstances, context and support
he best route – the individual feels it is their preferred career path, and will do it when their personal circumstances and the context is favou
n acceptable route – the individual could be persuaded if the context, infrastructure and support are in place
possible route – the infrastructure and support available are an integral part of the decision, and may be instrumental in determining wheth
Figure 5.5
Attitudes towards
entrepreneurship.
Spotlight 5.1
High Growth Start Up in South Yorkshire

The High Growth Start Up (HGSU) Initiative was launched in South Yorkshire in October 2002 as one way of
increasing levels of business start ups in the region where numbers have historically been lower than in any
other sub-region in Yorkshire and Humber. Since its launch, HGSU has created 404 businesses and 1309 jobs in
industries that have been earmarked as having better potential for growth than others. High-growth industries
include areas such as advanced engineering, digital industry, food and drink, chemicals and bioscience.
Denis Healy, Head of Enterprise at Business Link South Yorkshire, explained: ‘The High Growth Start Up
programme in South Yorkshire is like nothing else in the country. It has been designed with the entrepreneur at
its heart. The specific needs of people with the real drive and ambition to create a high-growth business are
catered for in ways that have never been available before. All the targets for the first phase of the programme
have been exceeded, with more jobs being created, more businesses starting up, and more turnover being
generated. It has been a great success story for the region.’
Despite its success, funding for HGSU, which is managed and delivered by Business Link South Yorkshire,
was due to run out in March 2005, but Yorkshire Forward agreed to invest a further £3 million with a further £3
million coming from the Objective One European Regional Development Fund. The extra finance will see the
initiative run until March 2009.
Source: Adapted from a Yorkshire Forward press release, 13 January 2005
Question: Assess the advantages and disadvantages of supporting high-growth start ups. To what extent would
these businesses be set up irrespective of whether they received public sector support?
Summary
■ The decision to engage in entrepreneurial activity is
influenced by a range of environmental and personal
circumstances.
■ These interrelationships are complex, and two individuals in
similar situations may well make different choices.
■ Although all entrepreneurs face similar barriers to enterprise,
there are factors that are context specific, and this demands a
degree of flexibility in helping people to overcome them.
■ Self-perception, and an individual’s readiness for self-
employment, will vary over time and this will impact on
their willingness to act on their entrepreneurial inclinations.
■ Culture colours people’s perceptions of appropriate models
of entrepreneurship and this may affect their willingness to
take the risk of starting their own business.
■ Support networks can play a vital role in encouraging enterprise.
■ Personal support is just as vital as external support.
■ Public sector support needs to be flexible if it is to respond
to the needs of different categories of entrepreneur.
Chapter questions
1. ‘The key to success in entrepreneurship is motivation’.
Discuss this proposition with reference to (a) entrepreneurs
from ethnic minorities, (b) entrepreneurs that are female
and (c) entrepreneurs under the age of 25.
2. Is it valid to claim that women are more consultative owner–
managers than men?
3. What factors might account for the more positive attitudes
to enterprise by younger people in the UK?
4. Analyse your attitudes towards risk and consider how this
might influence your career preferences.
5. If you were to consider setting up in business, what social and
business networks would you need to develop, and why?
Case study
Babylicious
Sally Preston’s parents hoped she would become a doctor, but she knew she couldn’t get the grades
she needed to do that. After doing work experience with a dietitian, she took a degree in food sci-
ences instead. She then joined Marks & Spencer, spending 11 years working her way up to be a
senior food technologist there. But she had never really felt she belonged in the corporate world, so
at the age of 33 she left to start her own food consultancy.
In the back of her mind she also had an idea to set up a frozen baby-food company. Having two
small children of her own she could see a gap in the market, and wondered why no one else had
exploited it. But before she could do so herself, life dealt her a rough deal. Her marriage fell apart,
and she had to take the children with her into rented accommodation. Then she was diagnosed with
skin cancer. She was resilient, however, and overcame the obstacles, having the malignant mole
removed, and buy-
ing back the family home with the help of her parents.
Two years later, the business idea resurfaced on her list of priorities. She had big ambitions from the
start, always intending to sell through the big retailers. She started out with recipes that her own chil-
dren liked. She did a deal with a factory in Leicester that could make them for her in ice-cube portions
so that parents could use as much or as little as they liked. The next step was to create a brand –
mortgaging her house she raised £55 000 to hire a design company and Babylicious was born.
However, when she tried to register the brand someone had beaten her to it – by 11 days. It
transpired that the name had been lodged, in bad faith, by a woman Sally knew, but it took nine
months to get the court to rule in her favour, and in the meantime the threat of litigation meant she
had to change the packaging, the corporate stationery, the website, the marketing materials, etc. It
cost her £30 000.
Within weeks Waitrose agreed to stock the products – but they wanted her to deliver them her-
self so she had to go out to buy a freezer van. She then needed to convince other retailers, and per-
suade them that they should install freezers in the baby section of their stores rather than
stock Babylicious alongside traditional frozen foods.
However, after all the setbacks, she had finally turned the corner. By 2003 she had several industry
awards behind her, and some welcome publicity when it was made known that Victoria Beckham
was feeding her son Romeo with the product. Earlier this year she raised £1 m from selling 25 per
cent of her equity to private investors, and her products are now stocked by Asda,Tesco and
Sainsbury. Sales this year are expected to be around £9 m.
Sally says ‘This is such an obvious business opportunity that if I hadn’t done it I would have been
forever frustrated that somebody else had. I wanted to prove I could do it. I wanted to be in control
of my life.When it is my son’s school sports day, I know I can be there. I don’t have to ask anybody’s
permission.’
Adapted from:‘Baby meals give mum time to chill’, Sally Preston – How I made it. The Sunday
Times, 14 November 2004
Questions:
1. Identify the barriers that Sally Preston encountered in getting Babylicious up and running and
analyse how her personal skills and characteristics helped her to overcome them.
2. To what extent was Sally pushed or pulled into entrepreneurship?

Basu A. and Goswami A. (1999) South Asian entrepreneurship in Great
Britain; factors influencing growth. International Journal of Entrepreneurial
Behaviour and Research 5(5).
Carter S. and Cannon T. (1992) Women as Entrepreneurs. London: Academic
Press. Deakins D. and Freel M. (2003) Entrepreneurship and Small Firms,
3rd edn.
Maidenhead: McGraw-Hill.
Dr Stuart Fraser, Centre for Small and Medium Sized Enterprises, Warwick
Business School, University of Warwick: Finance for Small and Medium-sized
Enterprises: A report on the 2004 UK Survey of SME Finances http://www.
wbs.ac.uk/downloads/research/wbs-sme-exec.pdf accessed 14/8/2005
GEM (2004) Report on Women’s Entrepreneurship.
Gibb A.A. and Ritchie J. (1981) Understanding the process of starting small
business. International Small Business Journal 1: 26–46.
Goffee R. and Scase R. (1985) Women in Charge: The Experience of Female
Entrepreneurs. London: Allen and Unwin.
Goffee R. and Scase R. (1987) Patterns of business proprietorship amongst
women in Britain. In: Entrepreneurship in Britain, pp. 60–82. London:
Croom Helm.
Hofstede G. (1980) Motivation, leadership and organization: do
American theories apply abroad? Organizational Dynamics, Summer, pp.
42–63.
Liles P.R. (1981) Who are the Entrepreneurs? Small Business Perspectives (P. Gorb,
P. Dowell, P. Wilson, eds). Institute of Small Business.
Schaper M. and Volery T. (2004) Entrepreneurship and Small Business: A Pacific
Rim Perspective. Milton: John Wiley & Sons Australia Ltd.
Westhead P. and Storey D. (1997) Training Provision and development of
Small and Medium-sized Enterprises, Research report No. 26. London:
HMSO. Zimmerer T.W. and Scarborough N.M. (2005) Essentials Of
Entrepreneurship And
Small Business Management, 4th edn. New Jersey: Pearson Education Ltd.
Useful websites
Barclays ‘A Family Affair’ 2002 http://www.familybizz.net/res_europe.asp
accessed 15/8/2005
Office for National Statistics: Changes in self-employment in the UK 2002–2003,
last accessed 15/8/2005 at http://www.statistics.gov.uk/articles/labour_
market_trends/self_employment_1203.pdf
Small Business Service (2003) Household Survey of Entrepreneurship (DTI,
July 2004) accessed 15/8/2005 at http://www.sbs.gov.uk/SBS_Gov_files/
researchandstats/householdsurveysummary.pdf
Key words
criteria for measuring success perceptions
culture personal support networks
early exposure to small business public sector and private sector
ethnic minority entrepreneurs support
family business push and pull factors
female entrepreneurship risk
generational issues role in economic development
impact self-perceived efficacy
location succession planning
motivations young entrepreneurs
older entrepreneurs
C H A P T E R
6
The
enterprise
environment and
the
entrepreneurial
response
Learning objectives
■ explore the nature of the macro environmental context
for entrepreneurial activity and the challenges organizations
face during a downturn in demand;
■ understand the changing nature of the micro environment,
customer attitudes and purchasing behaviour and competitor
activity;
■ compare the responses of entrepreneurial organizations
with those of more predictable organizations;
■ identify the changes in approach of entrepreneurial
organizations in highly competitive, dynamic and fast-
changing markets;
■ understand the alternative market approaches of organiza-
tions from different sectors.
Introduction
In this chapter we consider the nature of the various environments in
which entrepreneurial organizations operate and their responses to
17 Context Part II
8 s
the changing environmental situations that they encounter. In doing
this we begin by considering the changes that take place in the
environment that both offer opportunities and pose threats for
entrepreneurial organizations.
We consider the nature of the changes taking place in the
business environment on a national and international basis (the
macro environmental factors) and attempt to understand how they
might create and constrain business opportunities. We also consider
how incremental changes, critical events and decisions are exploited as
the source of opportunity.
Of more immediate impact for most entrepreneurial organizations
are the changes in the market dynamics of the specific business sector
in which the organization operates (the micro environmental factors).
Changes in the market dynamics, including changing customer needs,
competition and market structures create business opportunities
and also pose very specific threats.
The specific characteristics of entrepreneurial organizations mean
that they are likely to respond to environmental changes and specific
situations differently from organizations that adopt a more
administrative and bureaucratic style of management. This is because
entrepreneurial organizations have both limitations and advantages
in their scope for pursuing different strategies, owing to their size,
market knowledge and capability, and financial and human resources.
These factors affect their approach to the market and to business
decision-making.
Successful organizations are good at spotting how the changes
that take place (or could take place) might enable them to create
future competitive advantage by creating value for customers and the
organization. We therefore consider the alternative approaches to
the market that are adopted by firms and focus particularly on the
marketing approaches and competitive stances adopted by
entrepreneurial firms.
The entrepreneurial environment

The starting point for any entrepreneurial organization exploiting an
opportunity and developing a strategy that will ensure survival and
growth is to have an understanding of the market environment in
order to identify the threats and opportunities that might affect the
current and future prospects for the organization.
The business environment

Chapter 6 The enterprise environment and the entrepreneurial 17
response 9
The business environment is usually analysed in terms of macro factors,
constituting the global trends that affect all organizations, and the micro
factors that affect organizations in one area of the business
environment, for example, a particular market sector or a
geographical area. It is not our intention to discuss the process of
environmental analysis in detail here because entrepreneurs rarely
have sufficient time and resources to undertake a complete
analysis. They do identify and respond to the factors that are most
relevant and likely to have the greatest impact on their business.
However, there is a potential danger existing, in that they focus
continually on the same environmental factors and trends and do
not notice unexpected changes in a related area.
Moreover, because of the particular characteristics of entrepreneur-
ial organizations it is appropriate to consider some specific aspects
of the interaction of entrepreneurial firms with their
environment. Different organizations are affected by the
environment in different ways. For a fashion boutique in a small
town, macro factors, such as the growing national or world economy,
might influence its development but will not necessarily be critical to
success. Stocking the right products for the current fashion trend,
having a good location in the right area where plenty of customers
with high disposable income might shop or the decision of a larger
and more powerful competitor to open nearby will be even more
important. By contrast an international investment fund manager
might be more significantly affected by a changing economic
situation and currency fluctuations.
The macro environmental analysis is normally carried out using a
systematic and comprehensive process and is explored in detail in
many business textbooks. Macro environmental analysis is usually car-
ried out under a series of headings, typically including Political, Legal,
Economic, Social and Cultural, and Technological factors.
Micro environmental analysis of the specific sector or local
geographic environment usually involves an analysis of customer needs
and expectations, the nature and power of the competition and the
structure of the market, including the supply chain and routes to
market (e.g. distributors, wholesalers, retailers and direct selling
through e-commerce).
All organizations, therefore, operate within a macro and micro
environment that is constantly changing. They have no control
over the changes that take place but it is these changes that create
opportunities and threats and every organization must decide how,
if at all, it should respond to the changes that it notices.
In Figure 6.1 are shown three key environments that influence the
development of an organization:
1. the macro environment;

2. the micro environment; and
3. the organization’s immediate environment.
Macro environment
Micro environment
Legal structure
Global market
Support environment
Supply situation Business adviserRetailers
Friends The entrepreneur

Economic situation Business network
Family DealersSocial changes

Accountant
Competitive pressures
Customer demands
Technology infrastructure Demographics
Figure 6.1
Before discussing the entrepreneurial responses to the macro and micro

environment it is useful to refer to the previous chapter, which
discussed the entrepreneur’s environment. Personal circumstances
and experiences may colour perceptions, and consequently impact
upon the entrepreneur’s predisposition to recognizing threats and
opportunities.
The entrepreneurial organizational environment

It is the organization working within its own immediate environment
of stakeholders that enables it to respond to the macro and micro
environmental changes taking place. Stakeholders are those
individuals and groups that have an interest in what the organization
does. The organizational environment is made up of some
stakeholders the organization can choose, for example, accountants,
lawyers, business advisers, funders, suppliers, and distributors, but
also some stakeholders they cannot choose, for example, the
government departments that apply controls and taxation.
For entrepreneurial organizations the organizational environment
is often almost inseparable from the entrepreneur’s personal
environment. It includes not just their commercial stakeholders and
business support network but their personal support network, such
as family and friends, that will offer advice and support, and may
even provide practical assistance in times of crisis.
While the organization can choose some of these stakeholders in
its immediate organizational environment it cannot control them and
so contribute to the uncertain environment in which it operates.
ure of macro environmental changes and the entrepreneurial strategic re
Changes in the environment require a timely organizational response.

Before considering this interaction, however, it is useful to reflect on
the characteristics of entrepreneurial organizations. Such organiza-
tions usually differ from more administratively managed organizations
in the size of the business, the nature, style and culture of the manage-
ment, the availability and limitations of their resources, their
different market approaches, their different relationships with their
customers and other stakeholders, and changes in the ways in which
they interact with the market and compete. Typically they are more
adaptable, flexible and responsive to the changes that affect them.
Changes in the macro environment

Macro factors are the major trends and changes that affect all organ-
izations within a nation, a region or the world and essentially
include the major political, legal, economic, social, cultural,
‘green’ environments and technological factors. These factors
include such issues as the increasing globalization of
communications, the evolution of regional trading blocks, such as
the expansion of the EU, the likelihood of a change of government
in key countries, the ageing population in developed countries,
the increasing concern about climate change, the changing
attitudes of consumers in their purchasing and usage behaviour,
and the prospects for the national and global economy that might
affect demand and consumption.
The importance of analysing these changes is that organizations must
develop an appropriate response to the factors that are likely to have
the greatest impact on them. In Enterprise in Action 6.1 the impact of
technological development on the gaming industry is discussed.
Internet gaming – another way to make money?
One of the most significant Internet success stories has been online betting. As with many indus-
try breakpoints it has been entrepreneurial organizations that have been the main beneficiaries
after developing new business models that offer an alternative to the old betting businesses and
exploit new gaming fashions. By 2005 17 firms had floated on the stock market, valuing the
founders’ shares at £5.3 billion. Some have likened the gaming boom to the dot-com bubble
of the late 1990s, but it has been claimed that there is a significant difference. Gaming
businesses have stable income streams, even in times of recession and are very profitable.
The areas of interest and business models vary. The Internet version of conventional book-
makers must operate within a strict regulatory framework. However, other areas that are con-
sidered to be skills-based (known as cash skill gaming) are less heavily regulated. Betfair
(see Enterprise in Action 10.4) along with a number of other smaller players is a betting
exchange that matches those laying odds with those placing the bets. Party gaming, floated
in 2005 for
£5 billion, has exploited the online poker boom.
The cash skill gaming sector, which can range from chess to virtual billiards, grew by 40 per
cent in 2005, and is expected to continue to grow, fuelled by new game fashions. For
example, backgammon is particularly popular in Scandinavia, Greece, Turkey and the Middle
East.
Adapted from: Goodman M. and Box D., ‘Gaming winners’, The Sunday Times,
7 August 2005
Question: What indicators can you identify that suggest that this is a short-term or sustainable
business opportunity?
e strategic response of entrepreneurial organizations to macro environ
In discussing the nature of the response of entrepreneurial organiza-

tions to changes in the macro environment that will ensure survival
and growth it is useful to consider the changes in the macro
environment in four categories:
1. incremental changes
2. critical decisions
3. critical incidents
4. globalization trends.
Incremental change
Certain changes are predictable and have been apparent for many years,
for example, the ageing population, increasing obesity in
developed
countries and the increasing worldwide familiarity with and usage of
communications technology. The most astute organizations have antici-
pated and prepared for the incremental changes that are most likely to
affect them by modifying the way in which they manage their
business and, where appropriate, by developing new products,
services and processes.
Perhaps the most difficult challenge is timing the launch of new
products and services and making management changes within the
organization to obtain the maximum performance benefits. It can be
expensive and wasteful to make management changes if they are not
needed immediately or to launch new products and services if the
market is not ready for them, so the entrepreneurial management
skill is to get the timing right for the response to the changing macro
factors. In different market sectors, firms such as Bodyshop, Subway
and easyJet have grown spectacularly on the crest of a wave of
incremental environment changes – more environmentally friendly
beauty products, healthier fast food and lower-cost airline travel.
While it might appear from newspaper headlines that the successful
firms have got the timing right and introduced products just as demand
was about to take off, in practice many firms have grown at a slow pace
until they got a lucky break as a result, for example, of a change of
mood in customers or a change in the nature of the competition.
Ryanair and easyJet are highly successful low-cost airline operators,
but they were preceded and followed by a number of similar
organizations that failed to make a significant impact on the market.
The Subway fast food sandwich chain grew very slowly until customers
became far more concerned with healthy eating than had hitherto
been the case. In Enterprise in Action 6.2 (see below), it is shown
how Saga followed a long-term trend by gradually adding further
services to its initial offering.
red the first passport-free trip to France and soon bought the first Saga cruise ship. Sidney was succeeded as chief executi
has adapted, in 2005 launching discount cruising and a new range of cruises based on adventure and explor
In 2004 Roger De Haan decided to retire to spend more time developing Folkestone Harbour, which he had rece
Adapted from: Goodman M. and O’Connell D., ‘Saga family stands to make £1bn from sale’, The Times Online
Question: What are the success factors in exploiting an opportunity based on incremental change?
Critical decisions
The second group of macro environmental changes are those that

depend on a critical decision, which might be expected at a certain
point in time. It may be difficult to predict the implications of key
decisions as they may only become apparent after some time,
perhaps one or two years later. Often critical decisions involve new
legislation, for example, the introduction of the euro or environmental
legislation, such as that relating to the disposal of refrigerators and
freezers in the EU. Many firms appear to wait until the legislation has
come into force before fully deciding how they should react. More
enterprising organizations are able to work out what the implications
are likely to be, decide on their response and so gain first-mover
advantage in the market.
While it may appear obvious what specific opportunity these
critical decisions create it is often surprising that they are not followed
up immediately and a latent demand is often left unsatisfied. The
real challenge for entrepreneurial organizations in responding to new
legislation is not simply recognizing what the implications of a
change in legislation might be, but deciding what the business
opportunity will be as a result. Entrepreneurial organizations often do
not pursue what might be the obvious opportunity but instead go for
a different but related product, service or process that enables them to
create a unique and highly profitable niche. Following new legislation
relating to the need for organizations to remove a certain type of
asbestos from their buildings one entrepreneurial organization set
up a business to carry out surveys of buildings for major companies
which identified the asbestos that needed to be removed.
Critical events
Certain macro environmental factors are almost impossible to

predict. Wars, environmental disasters, health concerns, such as
Hurricane Katrina, computer viruses and 9/11 are largely unexpected
and can have a devastating, often long-term effect on global,
regional or national organizations. The effect can be varied and
unpredictable depending upon the nature of the event. Events such as
these can have an immediate and potentially catastrophic impact on
organizations that were already vulnerable. For example, Sabena, the
Belgian national airline, was financially weak and collapsed following
9/11 owing to the declining passenger numbers.
Even if critical events are anticipated it is unlikely that
organizations can predict when they are likely to occur. Organizations
rarely have spare resources and are unlikely to be able to afford
sufficient resources to plan to cope with unexpected events. The only
defence that an entrepreneurial organization has over larger, more
powerful and better-resourced competitors is to respond very rapidly,
by taking bold decisions quickly, ensuring their management and staff
are flexible and can be mobilized to deal with the event.
Terrorism and various health scares, such as bird flu, have a very
dramatic effect on international travel and tourism. While the
problems of the biggest airlines hit the newspaper headlines after
9/11, smaller organizations that rely on tourism were most vulnerable.
To survive in the market following 9/11 smaller entrepreneurial
organizations had to respond quickly and effectively to the micro
environmental changes (declining customer demand) by using their
core attributes of adaptability, flexibility and responsiveness. The low-
cost airlines, easyJet and Ryanair, responded to a severe downturn in
bookings within days after the 9/11 incident by giving away free or low-
priced tickets to customers to get them flying again. This was a survival
strategy, as they had little scope or reason to make drastic cost cuts and
would not have been able to continue in their business if they had not
quickly got large numbers of customers flying and generated revenue
immediately.
By contrast, the long-established airlines responded by immediately
cutting staff, while trying to maintain high prices. It took some
weeks for them to respond effectively to the post-9/11 situation by which
time the ‘no-frills’ airlines had gone a long way to establishing the
concept of low-cost travel in people’s minds and were making
inroads into the business market too.
Even disasters can provide opportunities. Fairweather (2005)
reported that three weeks after hurricane Katrina hit the US coast,
property
developers were back and very active in New Orleans and, despite
expectations to the contrary, the cost of houses had increased 30 per
cent as people who wanted to move back into the devastated city to
revive their businesses competed over a reduced housing stock. People
with money were now also prepared to move into areas previously
occupied by poorer people, who had left the city to look for work and
were unlikely to return. The new prospective owners believed that the
drug-pushers and criminal gangs had also left. The areas where
houses needed to be demol- ished also offered property development
opportunities.
Critical events do not always have to be disasters as Enterprise in
Action 6.3 shows; on reflection, the Australians may have considered
the scenario discussed a disaster!

Fortune favours the brave
Cricket originated in England but for long periods the national team has not performed well
against the other countries and, particularly, against its old enemy the Australians, the current
world champions. As a result the market in the UK for cricket equipment was mature and
unexciting.
It was against this background that Woodworm was set up in 2002 by Joe Sillett, its
managing director and David Brawn and Michael Hiard, two investment bankers, to market
cricket bats and other cricket equipment based on outsourced manufacture by six suppliers.
The company’s original intention was to shake up the market dominated by the existing
big players, Gunn and Moore, Gray Nicholls and Slazenger in much the same way that
Callaway attacked the golf market some years ago. Their key products were two bats, the Wand
and the Torch, which sold for prices ranging from £25 to £225 each. They are made
from willow shipped from England to India, where the bats are made. In the 12 months to
March 2004 the company made a loss of £123 000 on sales of £260 000.
The master stroke of Woodworm was to arrange a sponsorship deal with Kevin Pietersen
and Andrew Flintoff, reportedly worth £250 000 a year. In the summer of 2005 England per-
formed heroically against the Australians in the series of test matches, catching the imagin-
ation of the British sports enthusiasts. Flintoff was the star performer of the series and Pietersen
was the man of the match in the last critical game. Sales of bats rocketed from 200 a year to 15
000, giving the business a 10 per cent share of the UK market and increasing annual sales to
more than £1 m in 2005. Woodworm were able to bring forward the business plan break-even
point by 12 months. After the launch of a new bat in October 2005 sales in the following
year were predicted to double or treble, bringing in a very healthy profit.
Adapted from: Hope C., ‘Flintoff helps cricket bat firm into the record books’,
Daily Telegraph, 31 August 2005
Questions: What should Woodworm do to maintain its growth? What potential risks might it
face from the environment?
Globalization
Perhaps the most significant macro factor over the last few decades has
been the increasing trend to globalization. Doole and Lowe (2004)
identify a number of drivers of globalization that result in more
organizations competing on a global scale and explain how
globalization has had significant implications for many organizations
by, for example, providing new market opportunities, new sources of
supply of lower- cost components, manufactured items and services.
Many small- and medium-sized entrepreneurial organizations now
find that they are supplying a global niche market, as shown in

For Sunseeker ‘The World is Not Enough’
When Robert Braithwaite built his first sports boat in the 1960s he never dreamed of how
his company would turn out, despite his enormous ambition. After leaving school with no
particular plans he went to work for his father’s engine servicing company. In 1968,
however, he founded his boat-building company, Sunseeker, with a team of seven. The first few
years were ‘horrible’, as the team worked hard but got nowhere. However, they kept trying,
even when it seemed impossible to succeed. Braithwaite decided to focus on powerboats rather
than sailing boats and invested in innovation, technology and design.
By 2002 Sunseeker was rather different. It had 1200 employees, a turnover of £135 m and
sold boats at up to £5 m each to millionaires, world rulers and sports stars, and Braithwaite had
won an Entrepreneur of the Year Award. Ninety-nine per cent of the boats were exported.
Braithwaite also recognized the importance of building the brand and his ambition was to
make Sunseeker the ‘Hoover’ of the luxury powerboat industry. This strategy reached the
heights of success of global awareness with a Sunseeker boat, appearing in the opening
sequence of the film The World is Not Enough with the new James Bond aboard, churning
up the Thames in front of familiar London sites as he pursued an attractive female assassin.
Adapted from: Clark E., ‘Sunseeker scoops entrepreneur award’,
BBC News Online, 8 October 2002
Question: What do you consider to be the critical factors for an entrepreneur in developing
a global niche business?
Competitive threats
The trend towards greater globalization also creates the threat of
greater global competition. The consequence of this for
entrepreneurial organizations is that while the smallest
organizations have opportunities in
foreign markets they must also compete with foreign competition in
their domestic market. Even the local café must compete with US-
owned Subway, KFC, McDonalds, Starbucks, South African-owned
Nandos and so on, by developing a more professionally marketed,
differentiated customer offering.
As the larger international players have sought to dominate the
global market, so they have acquired many medium-sized competitors
that have under-used resources, fill a gap in their product range, have
strength in particular markets or simply offer a competitive threat. To
survive in an increasingly global market, therefore, it is necessary for
smaller- and medium-sized firms to identify a market niche by
developing a product and service offer that is valued by customers, and
then focus on further building competitive advantage, and reinforcing
their own distinct niche by building barriers to entry of competitors
attacking them.
From a strong domestic niche base, such firms then
systematically enter new markets overseas and become global niche
players. This traditional route to developing as a global niche player
has been followed by firms such as McDonalds, Bodyshop and eBay,
which are at different stages of globalization. A number of
international charities, such as Oxfam and Save the Children have
followed similar routes.
Global communications
Perhaps the most significant driver of globalization is
communications, such as the Internet. The Internet provides a low-cost
approach to new- country market entry that has enabled even very local,
specialized businesses to respond to the new opportunity and supply
global customers. The Internet has enabled organizations more
effectively to obtain feedback from customers around the world
directly rather than through export agents and distributors. This is
vital to improve their product and service development and delivery
capability.
Global sourcing of manufacturing and services, until recently
the preserve of larger firms, has also now become feasible for smaller
organizations too, enabling them to improve the effectiveness of their
contributions to the product and service value chain through managing
worldwide supply chains more efficiently. It is the Internet that has
facilitated the instant transfer of substantial amounts of data,
essential for B2B and institutional purchasing, and enabled real-time
transactions to take place. For smaller organizations that lack human
and financial resources, this has enabled them to substitute virtual for
physical presence and to build relationships with customers and
suppliers around the world.
Surviving an economic downturn
It is vital for organizations to develop a strategy to deal with those macro

factors that will have most impact on them. Clearly the main focus is on
those trends that offer opportunities. However, entrepreneurial
organizations must be aware of threats too, and, for example, one
of the key criteria for the success of an entrepreneurial organization is
its ability to survive and grow during periods when the environment is
suffering an economic downturn and a temporary or permanent
decline in demand. Many markets are cyclical in nature and
demand ebbs and flows on a periodic basis. The cycle may be short
and seasonal, for example, buying for holidays, Christmas or at the
start of the new school year. Alternatively it might be affected by the
economic cycle. A gloomy economic outlook will affect consumer
demand, as people fear reduced earnings or even redundancy and
so save more of their income rather than spend it on products and
services. Businesses respond by becoming less willing to invest in
new equipment and product developments. By contrast some
businesses are based around what consumers consider to be essential
purchases and this leads to more predictable cash flow. However, the
nature of what is deemed essential is changing. Consumers may
consider beauty products and a holiday essential and may cut down in
other areas of their budget to fund them. Alternatively they may
trade down, buying a cheaper holiday flight or beauty product,
rather
than do without.
Smaller organizations with very limited financial resources in reserve
would probably always be expected to suffer more than larger, more
well established and better financed, more powerful competitors.
However, this is not always the case.
The reasons why entrepreneurial organizations might succeed
better than their larger or better established rivals could be because of
the following.
■ The organization’s product or service is regarded by

customers as a necessity and also so innovative that there is
no current competition, so demand is maintained and growth
in sales continues during periods when other firms might
be offering more mundane products and services.
■ The entrepreneurial organization is able accurately to
predict problems and take early action to anticipate their
effects perhaps by cutting costs, production or service
delivery capacity. More complacent organizations are often
slow to react and, when they are forced to do so, often have
to take more drastic
action than they would otherwise have to. This can often
reduce their ability to grow quickly when the economy picks
up and the market becomes more buoyant.
■ The organization knows how to find new market opportun-
ities to compensate for the loss of revenue in existing
product and service areas that are vulnerable in periods of
economic downturn.
ture of micro environmental changes and the entrepreneurial strategic re
As we have discussed, certain macro environmental factors such as

changes in technology or consumer demographics can have a signifi-
cant effect on certain market sectors and business opportunities.
For example, Enterprise in Action 6.2 shows how the ageing
population has helped Saga holidays to become a very successful
business.
However, even here the key business development drivers for the
firm came from within the micro environment and focused on the
key market sector factors, customers, competition and market
structure. Saga were able to define a clear niche within a competitive
travel market by differentiating their product offer with tailored
service and promoting it with empathy for their ageing customers.
The main micro environmental changes are key to business survival
and success and involve changes in customer attitudes and purchasing
behaviour, changes in the existing and new, often unexpected
competition and changes in the structure of the market, which has
occurred, for example, when some organizations have cut out
distributors and retailers and dealt directly with customers.
Changing customer behaviour

An in-depth understanding of customer needs and good anticipation
of future expectations is essential for success. It is important that
entrepreneurial organizations and, particularly, start-ups take time
to address the following fundamental questions even if they do not
undertake full- scale market research.
■ Who buys?
■ What do customers buy?
■ Why do customers buy?
■ Where do customers buy?
■ When do customers buy?
■ How do customers buy?
Who buys?
It is necessary to combine an understanding of customer attitudes, val-

ues and beliefs that affect buying and usage behaviour with an
understanding of the dynamics of the sector. It is then necessary to
understand the changes in customer buying patterns that are likely to
occur in the future that present both threats and opportunities to
new and existing suppliers. For example, products and services
targeted at the next generation will need different features and will
probably need to be promoted in a different way, compared to the
current generation; you might think about what the differences might
be.
It is also important to separate myth from reality; for example, there is
a common view that older people are technophobes and therefore are
unlikely to respond to e-business. In practice, many have been using
computers for the last 20 years, and often have the time and knowledge
to search for product information, buy online, download music for
their iPod and so on.
B2B and institutional purchasing is different from consumer purchas-
ing as there are likely to be a number of managers involved in a
purchase decision; all need to be convinced although one or two are
usually more influential in decision-making than the others, but all
need to be persuaded. Clearly e-commerce is increasing, as are online
purchasing hubs where real-time deals are done and auctions are
becoming more common in B2B purchasing.
What do customers buy?
Customers buy benefits including the tangible and intangible

benefits that we discussed in Chapter 3, so more than an efficiently
functioning product or service is needed. The latter needs to be
designed well, and have a recognizable brand name from an
organization with a good reputation. Customers expect better value
from their chosen product and supplier than is offered by the
competition. And good service is just as important for patients and
visitors to a hospital. They subconsciously make comparisons with
the service they receive from the local supermarket. If they are
unable to find a place to park their car or find the
reception, nursing or medical staff rude or obstructive they are likely
to complain.
Why do customers buy?
The motivations for buying are various and dependent on the

situation. Smaller organizations and especially start-ups have to
address the question posed by customers of ‘Why should I buy from
you?’ An important consideration for customers is the perceived risk
(Settle and Alreck, 1989) of buying a product and this is increased
if the supplier is unknown or untried.
Where do customers buy?
The entrepreneurial organization can create its own distribution

channel, for example, using e-business, or it can use a number of
third-party intermediaries. Of course, third parties have different
objectives from the entrepreneurial organization and may not always
promote the products enthusiastically. The key question is whether
the entrepreneurial organization makes it easy for customers to deal
with them. That is not to say that all products should be available
everywhere, but rather that the information search, selection and
purchasing process is ‘customer friendly’.
When do customers buy?

It is useful to consider a number of aspects to this, starting with the
obvious questions of frequency of purchasing, the intervals between
purchases, and when the product or service might be promoted
during the interval, so that it is in the customer’s mind when they are
ready to buy. Some suggest (e.g. Shimp, 2003), that there is little
point in promoting a product if the customer is not ready to purchase.
Typically, there are different levels of customers in terms of their will-
ingness to try new products and services. They tend to follow the
diffusion curve shown in Figure 6.2. The innovators will
enthusiastically try new products and not be too concerned if the
performance is not perfect. The early adopters willingly try the new
product if there are no obvious adverse comments from the
innovators. The main problem often arises after a promising start if
the early majority fail to be convinced, or are offered an alternative
product that they perceive to be more attractive.
Early Innovatorsadopters Early majority 34% Late majority 34%
2.5%13.5% Laggards 16%
Figure 6.2
The diffusion curve.
How do customers buy?
Clearly the whole process that customers go through needs to be under-

stood so that the organization can influence them at key points. The
choices, motivations, pre- and post-purchase behaviour and
decision- making process need to be fully understood, so that
promotion can be used at the appropriate points.
Competition and its changing nature

The changing nature of competition in the sector also poses both
threats and opportunities. Opportunities arise as a competitor grows
and loses interest in certain small-volume products and services in
its portfolio. These could still provide a significant opportunity for a
smaller organization. The consolidation of competition as two
competitors merge also often leads to product range rationalization
in the combined company and opportunities for a smaller firm to
exploit discarded product and service opportunities. A large
organization often pays little attention to peripheral areas of activity
and this provides the opportunity for an entrepreneurial organization
to satisfy the possibly small but still existing demand.
Larger competitors often fail to appreciate the importance of
concentrating on the service aspects of their offer, leaving the
way open for more entrepreneurial organizations to build the
business by being more customer oriented and providing higher levels
of personalized service.
Competitors do pose obvious threats too. Larger competitors
watch for niches to be developed by a smaller firm and then enter
the market, either by generating their own competing product offer
or by taking over the entrepreneurial organization that created the
niche in the first place. Supermarkets have routinely and
aggressively expanded their activities at the expense of local shops. An
alternative approach is to take over the entrepreneurial organization
that has created the niche, enabling the large organization to
acquire the skills of the entrepreneurial organization too. This can
provide the opportunity for an entrepreneurial organization to sell
out at the best time, often making the owners personal fortunes. When
these organizations are taken over by large firms they often fail to
create the right environment for the acquired entrepreneurial
organization to flourish in.
The response of entrepreneurial organizations to competition is
critical. The large organizations have the benefits of size that can
provide economies of scale, power in the market to increase customer
awareness and influence purchasing behaviour, and adequate
resources to invest in new projects. They also have the power to
maintain loss-making products in order to price a competitor out of
the market. The entrepreneurial organizations have to counter this
with unique products, exceptional service and word-of-mouth
recommendations.
Entrepreneurial organizations can move fast in the market and
the large competitors can take a long time to respond to new market
innovations; however, when they do they compete aggressively, they
can have a substantial impact, as they leverage the benefits of huge
resources, strong brands and high awareness levels among customers.
The nature of competition is changing. Competitors in the sector
that the entrepreneurial organization has ‘grown up’ with are usually
well known and largely predictable. However, totally new competitors
might attack a market sector, often because of deregulation of certain
market sectors. This, for example, has enabled supermarkets to sell
petrol, pharmaceuticals and financial services. With increased
globalization it is also the new, unexpected competitors that suddenly
decide to attack a new geographic market.
Market restructuring
A number of sectors have undergone major market restructuring with

changing supply chain roles, discussed in Chapter 10, and new distri-
bution channel arrangements. This has occurred largely because of
e-business, and has provided opportunities for new business creation,
for example online travel agents, booksellers and share dealing.
Many
of the recent market restructurings have come about because of the new
service possibilities created by the Internet coupled with changing cus-
tomer expectations. They have enabled even the smallest specialist
organizations to offer their products and services directly to national
or global customers without the need to appoint intermediaries – agents,
distributors and retailers. The removal of intermediaries in the
supply chain has been referred to as disintermediation.
Other market restructuring has involved the creation of
intermediaries. As many competitive offerings become available online,
customers find it time consuming to assess these offers individually. New
online businesses, such as expedia.com and confused.com, effectively
acting as brokers, have been created to enable customers to assess the
competitive offerings, for example, from travel firms and insurance
companies, and choose the best deal. This has been termed
reintermediation (Chaffey et al., 2003).
Entrepreneurs challenge the existing market structure when there
appears to be scope for offering customers a lower-price product or serv-
ice. In Enterprise in Action 6.5 is shown an example of how this has
been done in spectacle manufacturing and retailing.

A spectacle business success
When James Murray Wells went to an optician in Harrow, UK, where he was at public school,
to buy some reading glasses he was shocked to find that they cost £149.99, equivalent to
half a month’s rent. After carrying out research he decided that the opticians were making
very high margins from the very high prices they were charging and so in his final year
at the University of West of England he set up Glasses Direct as an online business.
He is able to sell at prices well below High Street chains, such as Boots and Vision Express,
for example, £15 for the equivalent of Alice C1 glasses, sold by Boots for £99.
In doing his research Murray Wells found that the manufacturers and laboratories that sup-
plied opticians were not prepared to talk to him and he was on the point of giving up.
Finally, one laboratory gave him the information he needed to demonstrate the business
model. They made his original prescription for a fraction of the price charged by the Harrow
optician.
Murray Wells set up a business in a room at his parent’s house and using an advertisement
on the university notice board found two IT experts to set up the website. Initially a hobby
to give him pocket money at university, the business has grown and now occupies four rooms
in the house and eight staff work there. Murray Wells still faces pressure from the bigger
players in the sector as his business grows further. One supplier has suddenly stopped
supplying him, presumably because of pressure from his competitors.
Adapted from: Goodman M., ‘Online optician is making high-street chains see red’,
Sunday Times, 16 January 2005
Question: What are the strengths and weaknesses of Murray Wells’ business likely to be as it grows?
Sector changes
The conditions in the market change continually but at different
rates in different sectors. Some sectors have many suppliers, others are
dominated by a few key competitors, for example, the retail food
sector in most developed countries, and yet others are dominated by
global competitors. Again, some sectors are mature whereas others are
fast-growing and changing, such as the IT and communications sectors.
This can pose problems for an organization with limited resources for
keeping up with technological advances.
Some sectors are driven by technology application (push) and
others by new consumer demand (pull). Competitor and customer
behaviour may be predictable but on the other hand may be entirely
unpredictable. As we have indicated, market changes in the macro
environment and market sector dynamics not only provide opportunities
but pose threats, as discussed earlier. Entrepreneurial organizations
look at a complacent, mature market and, no matter how unpromising it
appears, will identify an opportunity. Tesco and other supermarkets
dominate food retailing in the UK, but as signs appear that customers
are beginning to resent this,
niche retailing opportunities will appear.
The public sector environment

The environment for public sector organizations is influenced, in par-
ticular, by political considerations that provide significantly different
challenges and require a different type of entrepreneurial response.
Innovative ideas from many different sources may be seized upon by
a political party and become part of its manifesto, so being
implemented if it comes to power through government. At this
strategic level, however, there is often limited scope for managers
in the delivery organizations to innovate because major innovations
are taken out of their hands by politicians. Their entrepreneurial
activity is often confined to tactical actions.
In addition to the long-standing organizations, such as local author-
ities and the National Health Service in the UK, the government cre-
ates so-called quangos (unelected quasi-public sector organizations) that
are given the role of delivering certain services. These include, for
example, business support and training organizations. However, as
these are political initiatives they are likely to be changed or even
disbanded for policy reasons, such as reallocating the funds, no matter
how successful
an individual agency has been or how valued by stakeholders it is. Often
innovation in these types of agencies is concerned with the creative use
of projects to attract additional funding and the manipulation of
income and cost streams to obtain the greatest benefit for the clients
from the resources available.
Many public sector regeneration programmes, such as neighbour-
hood renewal, are targeted at deprived areas and are reliant on
short- term funding. Entrepreneurs who are determined to make a
difference in their local communities often have to spend
considerable amounts of time and effort trying to secure small
amounts of money from different sources, each of which might be
looking for different outcomes in exchange for the money allocated.
Changes in policy and funding arrangements are often made on a
whim by politicians with little thought to the implications for the
programmes, staff and clients involved. This is illustrated in Spotlight
6.1.
Spotlight 6.1
Learning partnerships and being enterprising to survive

Learning partnerships (LPs) have a remit set at national level (revised in 2002) by the Department for
Education and Skills (DfES) of:
■ promoting partner collaboration in support of lifelong learning; and
■ maximizing the contribution of learning to local regeneration.
They were originally set up in early 1999 to promote a new culture of collaboration between providers across
a range of sectors (schools, further education (FE), work-based learning and adult and community learning).
These LPs were also expected to rationalize the numerous existing local partnership arrangements covering
post-16 learning. They were set up in interesting times, as the DfES announced that they intended also to rationalize
the various ways in which lifelong learning was funded, and that local Training and Enterprise Councils would
be closed and replaced by a more centrally managed body, the Learning and Skills Council (LSC). The funding for FE
colleges would also become the responsibility of the LSC.
The changing political priorities made it difficult for the managers of these fledgling organizations to establish
a strategic role, and their task of promoting a culture of collaboration was a tremendous challenge when so many
of the key agencies involved in the delivery of learning activity faced such major upheaval.
The links to local regeneration were no less complex as the government introduced local strategic partner-
ships (LSPs). These are single non-statutory, multi-agency bodies, which match local authority boundaries, and
aim to bring together at a local level the different parts of the public, private, community and voluntary sectors.
They are central to the delivery of the national strategy for Neighbourhood Renewal.
In April 2003 responsibility for LPs passed from the DfES to the LSC. Learning partnerships had always needed
to work collaboratively with partners to secure resources (both funding and people) to deliver any services
needed in their local areas, but now their core funding for staff was also threatened. Despite their clear strategic
remit, learning partnership managers (LPMs) were living from hand to mouth, and in such circumstances could
be forgiven for adopting a more short-term approach. Despite this precarious political and economic
environment, learning
partnerships did contribute increasingly to local strategies for regeneration and many became the ‘learning arm’
of the LSPs.
The degree to which LPs are valued in their localities varies, but commonly partners welcomed the
facilitation role that the LPM offered, and the resources to submit joint funding applications. The crisis came,
however, when LSC support was reduced or withdrawn, with the result that so many of the partner organizations
were unable to offer financial support because of their own constrained circumstances, and the pressure on them
to do more with less.
Learning partnership managers have had to act entrepreneurially, working with partners to establish a shared
strategic vision for lifelong learning and to find the resources needed to make a difference in the communities
they represent. The vagaries of the political and economic context in which they work has made innovative
responses difficult – the pressure to hit targets has made experimentation a little too risky in some circum-
stances. Their networking abilities and negotiation skills are pushed to the limit, as they have no power to direct
partners but are tasked with responsibility. Some LPs have folded despite the commitment of their managers; in
some cases their energy has been dissipated by the constant battle to survive and they have left for pastures new.
Some have persuaded partner bodies to offer some core funding and continued their work; others have set up
their own consultancies.
The sector appears to be characterized by churn, in both an individual and an organizational sense.
Enterprising people move from organization to organization within the sector, committed to the principles and
espoused values, but needing to constantly reinvent their careers in order to continue to make a contribution.
Similarly, organizations are set up and then close down as political priorities change.
Source: Sue Marriott, adapted from various public sources including www.lifelonglearning.co.uk/llp
Questions: Do the politically inspired environmental changes and the need for survival drive creativity or hin-
der it? Can forced partnerships really develop sustainable innovation in delivering services?
Other not-for-profit environments

With increased competitiveness, the environment is becoming more
challenging for smaller organizations in all sectors. In Pause and Reflect
6.1 it is shown how the environment is becoming increasingly tough
for small charities, no matter how worthwhile their cause, as the larger
charities become more sophisticated in their management and market-
ing and become more aggressive in their fund-raising as they
compete to increase public awareness and donations.

Aid Foundation (CAF) pointed out that Oxfam, the National Trust, RNLI and Cancer Research had been top ten fundraisers for 20 years.
ed show perfectly that clever use of branding, collaborative projects between organizations
working in specialist sectors, and smart management all pay dividends’. It is interesting to note, too, that the
large charities had taken a collaborative approach to maximize the effect of their South-East Asian tsunami
appeal.
The award winners demonstrate the broad range of work done by charities. The winner of the award for innov-
ation and management excellence was Beatbullying, a small charity that, in collaboration with other charities,
succeeded in standardizing anti-bullying policy in 21 local authorities. Other winners included the Cumbria
Community Foundation, responsible for the Cumbria Flood Recovery Fund Appeal launched in response to a
local flood disaster. The foundation, which raised nearly £700 000 in grant aid for flood victims, won the grant-
making category.
And Mifumi-UK, which helps to run a grassroots campaign in Uganda to highlight the problem of domestic
violence there, won the international aid and development category.
Adapted from:‘Small charities “face struggle” ’, BBC News Online, 17 June 2005
Question: What are the main environmental factors that impact on the work of small charities and what do you
Strategic response
It is useful to consider how entrepreneurial organizations respond to
the changes in the micro environment. Inevitably, sectors are likely
to be affected by certain factors much more than others and respond
differently. In thinking about this it might be useful to refer to Table
6.1, which shows some of the trends in the characteristics of the next
generation of customers, the changing nature of competition and the
changing market structure, and the type of strategic response that
entrepreneurial organizations might adopt. Of course the whole point
of entrepreneurial organizations is that their response to market
situations should be
Table 6.1
Strategic response to changing market characteristics
(A) Customer characteristics
Changing customer Strategic response from

characteristics entrepreneurial organizations
More demanding ■ More customization and individualization
More willing to experiment of product offers
More sceptical of big ■ Greater focus on design
company ■ More personalized service
promotions ■ More frequent innovations
More fashion-conscious ■ More focused customer communications
Less brand loyal rather than mass marketing
Want more choice More ■ More emphasis on explaining and
willing to complain delivering brand value
More comfortable with
new technology
(continued)
Table 6.1 (continued)
(B) Competitors
Changing competition Strategic response from entrepreneurial

characteristics organizations
More global competitors ■ Exploitation of global niche opportunities
Faster competition ■ Building closer relationships with customers
Competition between ■ More willing to cooperate and form
supply chains partnerships
Unexpected competition ■ Pursue opportunities to cut costs
Better quality of ■ Focused on products and process innovation
competitor products and service enhancement
More standardized products ■ Exploit new ideas quickly, achieve success, sell
Global brand names out to competitors and start again
(C) Market structure
Changing market Strategic response from entrepreneurial

structure organizations
Disintermediation ■ Source components and services globally
Importance of e-business ■ Focus on value contributions
Unclear sector boundaries ■ Integrate physical and online distribution
International supply chains ■ Exploit adjacent market opportunities
Multiple level marketing ■ Work flexibly with distribution channel
Multimode distribution partners
channels
innovative, so you might consider how you would respond to some of

these changes.
Market approaches, competitive advantage and capability
Traditionally, many entrepreneurs have identified an opportunity,

developed a product or service to exploit the opportunity and
marketed it to customers.
Although they had limited resources they were able to grow incre-
mentally and roll out the product into the local, national and, funds
permitting, export markets too.
The changing nature of competitive advantage

Today, however, most markets are much more competitive.
Competitors can find out about a recently introduced, commercially
successful new
product or service, wherever it is in the world. Using the Internet, it
takes minutes rather than weeks of research. This prompts competitors
to attack the same market opportunity and a good idea can usually
be copied and a new offering developed in months rather than years.
Alternatively, and prompted by the challenge of the newcomer to the
market, the competitor may introduce its own different ideas to
exploit the same opportunity and put the newcomer out of business.
In many sectors product life cycles are shortening and so an organiza-
tion will retain a technological lead for a shorter period.
Consequently the payback period on the investment in research,
development and marketing is shorter and so innovators have less time
to generate a return and make a profit. Therefore, they must be faster
into the market and widen the distribution channels to maximize
sales.
Pressure is also applied to innovators as many of the more successful
new product introductions are copied fast by lower-cost manufacturers
from emerging markets. The latter are often now capable of
achieving similar quality to the original and being able to offer more
competitive prices. For example, it is well known that new fashion
styles will be available in shops within hours of their first appearance
on the catwalk. Further pressure is applied to innovators as research
and development is increasingly outsourced by major companies to
subcontractors in emerging markets.
Therefore, it can be concluded that an entrepreneurial organiza-
tion’s source of competitive advantage derives from the ability:
■ to interpret environmental changes and changing market
dynamics in order to identify opportunities; and
■ to leverage its own capabilities and expertise in order to
respond more quickly and effectively to the opportunities
(and threats) arising than its competitors.
On the one hand, therefore, entrepreneurial organizations still need
to pursue the approach of the 1980s, typified by Porter (1985), who
suggested that understanding industry dynamics and competitive char-
acteristics was critical to successful marketing and business
performance. On the other hand it is vital for entrepreneurial
organizations to pursue their opportunities in ways that exploit their
own core competencies, the concept typified by Prahalad and
Hamel (1994).
Universities develop leading-edge technological competence which
can be the basis on which to build a business, as shown in Enterprise in
Action 6.6. The challenge for the company will be to secure effective
market diffusion of their technology, while working on further
technological breakthroughs.
Cambridge Display Technology
Cambridge Display Technology (CDT) was founded in 1992 and was based on research
carried out in the Cavendish and Melville Laboratories at Cambridge University.
Jeremy Burroughes discovered that light-emitting diodes (LEDs) could be made using
con- jugated polymers. Over the next few years many patents were filed as CDT’s ‘PLED’
technology was developed. PLEDs are based on organic chemicals that emit light when
stimulated electrically and have application in the displays market and possibly in lighting
too.
The technology allows brighter, higher-contrast, thinner displays that consume less power,
while offering very wide viewing angles and video response a thousand times faster than
current displays. CDT’s technology is already used in Philips mobile telephones, MP3
players, a professional audio mixer and a TENS pain relief device. By 2007 CDT expect the
technology to be used on large-screen televisions too.
In 2003 the company raised income exceeding £1.8 million from 32 licenses. The
company was floated on the US Nasdaq exchange in December 2004 and raised $30 million
from its initial public offering. The new funds are expected to be used for possible
acquisitions and for ongoing research and developments.
Adapted from: information from Cambridge University at
www.admin.cam.ac.uk and CDT at www.cdtltd.co.uk
Questions: What are the benefits and disadvantages of spinning out from the university? Are
different skills, knowledge and people needed for the new environment?
Against this background entrepreneurs may have to place greater focus

upon creating and extracting value for the customer and their own
organization through their use of resources and capabilities. Given
that it is customers that are the source of revenue and profit they will
increasingly need to adopt appropriate approaches to the market.
Approaches to the market

There are a number of alternative approaches to the market that entre-
preneurial organizations might adopt. Hooley, Saunders and Piercy
(2004) identify the following three approaches.
1. Product push marketing. This approach focuses on persuading

customers to buy the products and services that the firm is
able to produce, deliver and improve easily. It is based on the
organization’s view of what the customers want but it is
influenced mainly by what the organization can offer by using
its tangible resources. Problems arise when the customers’
demands are outwith that which the organization is capable
of delivering.
2. Customer-led marketing. This is typified by those organizations
that aim to satisfy customer needs. While this approach fits
with the flexible, highly service oriented approach of
entrepreneurial organizations there is a danger that the cost
of flexibility and high service levels can exceed the revenue
that is generated. Sometimes, too, customers are not good
predictors of further trends.
3. Resource-based marketing. This is a balanced strategy between
meeting the market requirements and building the
organization’s capabilities (assets, skills and competencies) to
serve the market. It is discussed in more detail in Chapter 12.
Two other types of marketing are important to entrepreneurs.
1. Network marketing. This is an approach that is becoming

increasingly significant as organizations, particularly those
with limited resources, use connections through alliances or
partnerships to exploit opportunities that they would not be
able to pursue alone. Smaller firms that offer complementary
products and services can work together to explore new
potential markets.
2. Entrepreneurial marketing. In practice the marketing approach
of entrepreneurial organizations is to focus on the
opportunity or market gap, irrespective of whether or not this
will make use of existing assets.
In practice the organization tends to pursue whichever marketing

approach is appropriate for the market opportunity and is
dependent on the market context and timing. However,
entrepreneurial organizations are also driven by the personality of the
owner or senior managers and so the marketing approach is often
influenced by this. For example, some entrepreneurs have a sales
orientation and are so convinced of the soundness of their idea that
they adopt a product push approach, may be unwilling to participate
in partnerships and may avoid network marketing. Others have a
strong service orientation and would choose the customer-led
strategy.
As we have seen already a particular dimension of entrepreneurial
marketing is the capacity to be ‘different from the rest.’ Entrepreneurs
do not tend to follow competitors in the way they approach the market
and respond to changes. Very often they develop contrary strategies to
those that seem to be the ‘conventional wisdom’. Pause and Reflect 6.2
shows the different ways in which farmers near Bath, UK, have
responded to the major changes in their sector by building on their
assets and developing new competencies.
Growing a new crop of ideas
Farming in Britain, as in many other countries, has faced tough times over the last few years with BSE and foot-
and-mouth. There is also the bureaucratic maze of European Union regulations to negotiate. For example, farm
subsidies are now based on acreage not production. Farmers are being urged to innovate and find new ways of
making money and this has led many to reduce their farming activities.
Sometimes it is a unique situation that provides the idea. Pinston Mill Farm has an eleventh-century water mill
and 15 years ago the Hopwood family, who owned it, opened it to the public and provided cream teas. This
required a kitchen and lavatories to be installed and, while going to this expense, it seemed sensible to convert the
barn into a function room. This proved to be a good investment as UK law has been changed recently to allow
different types of premises to be licensed for weddings. The Hopwoods landscaped the farmyard and now have a
three-year waiting list for weddings.
Hamswell is a sheep farm close to Bath and Bristol but well away from roads. It has streams, hills, a small
lake and woodlands, ideal for a track for horses. The farm provides self-stabling for horse owners and access to
the countryside. Although only 20 per cent of the total farm turnover, this business provides a much better return
on capital than rearing 1000 lambs per year.
Park Farm, owned by Graham Padfield, has stayed closer to food production, starting to make organic cheese
in 1993. Padfield says that cheesemaking is interesting but a ‘labour of love’, requiring significant capital outlay on
buildings and equipment to control the temperature and humidity and a lot of hard work. Other family members
work on the venture, which helps to keep the costs down.
Adapted from: Cameron J., ‘Farming for new profits’, The Daily Telegraph, 1 October 2005
Question: To what extent do you see these innovations as being a response to critical incidents or simply evo-
lution of the farm as incremental change takes place?
Market approaches in not-for-profit sectors

The market approaches of organizations in the not-for-profit sector
are often more vulnerable to shifts in policy than is the case for private
sector organizations, and so the political aspect of the macro
environmental analysis often assumes greater importance. Although
some voluntary sector and charitable organizations are quite large, and
are able to raise sufficient revenue from donations/subscriptions to
allow them some degree of autonomy, many are very small and living
from hand to mouth in terms of funding. While this has led to them
being extremely flexible and adaptive, it also leaves them vulnerable
to shifts in policy. Many of these small organizations look to public
funding for their survival, and the market for this funding is becoming
increasingly competitive in the UK (e.g. Lottery, Neighbourhood
Renewal, etc.). Changes in government policy in relation to the
amount of money available through these sources and their priorities for
granting funding can have a sudden and severe impact on the
viability of these organizations.
It can also be a positive opportunity as the government is increasingly
looking for ways to more efficiently deliver public sector contracts. It
values the flexibility of the voluntary sector and is usually looking to
include more voluntary and community sector (VCS) organizations in
delivering public services. There are opportunities for more long term
funding if the VCS organizations can secure such contracts but
more robust finance and management systems are needed to ensure
accounting standards are met, especially given that public funds
are involved. However, in doing this a further question is posed: does
this requirement endanger the flexibility of the organizational
innovation and the cost advantage that government valued in the first
place?
Over the years, this reliance on temporary and often meagre
funding streams has led these organizations to develop their capability
to do more with less. One of the strengths of this sector is vision and
leadership, as even day-to-day operations can often depend on the
ability of a single individual to communicate a sense of purpose and
secure the commitment of staff (often limited in number) and
volunteers to deliver the service. Increasing pressure for efficiency
and accountability in the delivery of public services has also driven
innovation; for example, in the UK there have been creative
approaches to improving the quality of school meals. However, it is
always important to consider social and financial considerations. A
development of the Meals on Wheels service, which provides meals
for the elderly and infirm in their own homes, found that delivering
ready-frozen meals that could be heated in the microwave cut costs
because there were fewer deliveries necessary. However, while some cus-
tomers liked this because getting their own meal ready-made, made
them feel more independent, others were not enthusiastic because,
to
them, the most important thing was a chat with the delivery person.
Market approaches through the Internet

The Internet and e-business activity that is associated with it is now part
of the normal context in which the majority of well-established
organizations operate. However, because for customers and clients in
many sectors this is the only contact they have with the organization it
is essential that it is effective. Timmers (1999) explains that private
entrepreneurs have established new Internet-based business models,
such as e-shops, e-auctions, virtual buying communities, collaboration
platforms and electronic marketplaces (e-hubs). While it is not our
intention to discuss the management of e-business activity it is useful to
reflect on the opportunity for innovation to increase competitiveness.
Websites
Websites and e-mail are perhaps the building bricks of the Internet and
for entrepreneurial organizations a key question is what purpose the
website serves and could serve in the future. Lindgren (2003) explains
that there are four main categories, as given below.
1. An organization site. This provides information for stakeholders

about the organization: its beliefs, values, activities and
internal organization. The question is how much of this
information is useful, as the danger is that unnecessary
information may make the site complicated and put off the
customers.
2. Provision of service online. Banks and logistics organizations use
a website to inform customers of the current situation – for
example, their account or where a parcel has got to. Many
more applications of service delivery are being developed.
3. Provision of information online. Media organizations provide
news and information free, often with the objective of selling
other services. The challenge is to provide a unique up-to-date
information service that attracts customers routinely.
4. Facilitation of transactions online. Many entrepreneurial organ-
izations now use their website as a lower-cost method of trans-
acting business but customers must have a reason to visit the
site, either because of the attraction of the site or the unique
value of the offering.
From your own experience you should think about the essentials of
a good website. The starting point is probably that it is easily navigable,
up-to-date, interesting or entertaining. More sophisticated e-business
users are able to link the website to databases and so customize offers
to better meet customer requirements, operate customer relationship
management systems to provide improved customer service and use
information to analyse customer trends.
Websites provide the opportunity for small organizations to
develop a higher-profile market approach than their limited
resources would allow them to do using traditional market
approaches, but as well as developing effective, attractive sites for
loyal customers, they have to ensure that potential customers find
their website; so for example, ensuring that search engines list the
website on the first page of search results is essential. Innovation in
the use of the Internet by entrepreneurial organizations still focuses
on its unique characteristics, identified as the ‘Six Is’ by Deighton
(1996), namely:
1. interactivity, and the opportunity for two-way communications;
2. intelligence and the continual collection of data from
customers and clients that can be analysed;
3. individualization of offers, by using stored data to customize
the products and services to customer needs;
4. integration of many communications, systems and processes;
5. industry restructuring, and the development and management
of new supply chains and distribution channels;
6. independence of location, which enables low-cost market entry.
The failure of entrepreneurial organizations

Finally, although we discuss the high level of failure among
entrepreneurial organizations at various points in this book it is worth
commenting here that it is a significant feature of the business start-
up. Because of the very dynamic nature of such organizations, their
risk-taking, periods of downturn in the economy, crises in the
environment, and other sector changes that reduce demand, many
become vulnerable. This is usually because they:
■ fail to respond quickly enough to environmental changes

that might seriously damage the organization’s performance
or even threaten its survival;
■ fail to anticipate future problems;
■ fail to adopt defensive strategies that are designed to deal with
a decline in demand;
■ become complacent, believing that they do not need to
act immediately but can ride out the storm;
■ fail to spread their risk and become dependent on one prod-
uct, service or on one significant customer;
■ fail to keep resources in reserve; and
■ take a short-term view of the business, relying on short-
term funding which creates additional pressures, such as
paying high overdraft charges.
Of course, there are many people who believe that failure is not as
bad as it seems. Inefficient and ‘no-hope’ organizations are removed,
leaving the way for entrepreneurial organizations that are more in
tune with the changing environment to progress and grow.
Entrepreneurs learn valuable lessons through failure and most
successful entrepreneurs have had at least one failure. Consequently
many believe that we should not worry too much about failure as
churn (new business creation and failure) is healthy in a sector
and economy.
Summary
■ The changing macro and micro environment creates oppor-
tunities and threats for entrepreneurial organizations and it is
the nature and appropriateness of their response that is
critical for success.
■ All environments are becoming more competitive, including
the public sector where there is greater competition for
funding and political support and in the charity sector where
there is greater competition for public awareness and
donations.
■ Smaller organizations in many sectors are able to compensate
for their lack of resources with greater adaptability,
flexibility and responsiveness to achieve the competitiveness
necessary.
■ Major changes in global competitiveness mean that, in the
future, organizations must evaluate opportunities from a
different perspective and change their supply chains to
exploit new sources of components, manufacturing and
services.
■ Entrepreneurial organizations also need to review their
approach to competing in markets, relying less on tangible
assets, such as factories and equipment, and more on the
knowledge, skills and reputation of the organization.
Chapter questions
1. As the entrepreneurial owner of a small hotel in London
that relies on tourists principally from outside the UK,
you are keen to expand and diversify your business and you
have the requisite funds. You are aware of the effect that
the threat of terrorism could have on the numbers of visitors.
What should you do and why?
2. Using examples to illustrate the points you make, explain the
difference between how entrepreneurial organizations and
more bureaucratic organizations respond to environmental
changes.
3. Explain the key environmental challenges faced by a small
not-for-profit organization and how they might respond.
4. A small engineering company based in the north of England
has appointed a new chief executive officer (CEO), who has
asked you, a personal business adviser, to offer some
comments about the business. While the company is currently
busy with lots of small general engineering jobs, mainly for a
manufacturer of
catering equipment for restaurants and hotels, you are con-
cerned that there could soon be a downturn in the
economy. Suggest the key trends that should be watched
and suggest what the CEO might do to prepare for a
possible downturn in the business.
5. Explain the advantages and disadvantages of the alternative
market approaches discussed, in responding to different types
of environmental changes.
Case study
The Eden Project – showbiz meets science
Among Britain’s lottery-funded millennium projects, there were a lot of high-profile flops,
including the Dome at Greenwich, Sheffield’s rock and pop museum and the Earth Centre in South
Yorkshire. But the Eden Project in Cornwall, which opened in March 2001, proved to be a
spectacular success. 645 000 visitors a year were expected, but it attracted 940 000 in its first six
months alone and now has over 1.5 million visitors each year.
The entrepreneur
Tim Smit, an Anglo-Dutch former pop producer, moved to Cornwall in the late 1980s to set up
a recording studio. Next door to the studio was a large, neglected garden, which Smit restored as
‘The Lost Gardens of Heligan’. Soon after opening in 1992 it became one of Cornwall’s top tourist
desti- nations. Smit’s next brainchild was the Eden Project and his aim was to create a rainforest
and other plant ‘landscapes’ underneath two giant ‘biomes’ built in a disused china clay pit. His track
record gave the lottery’s fund commission the confidence to award the project £37.5 m and helped
him to attract the private investment that was necessary to match the lottery funding.
The early success of Eden was attributed to the fact that, unlike some of the other lottery-funded
projects, it was a good idea looking for money, not money looking for an idea. Many projects of
this type appeared to be the result of the determination of cities to get some of the lottery cash,
irrespective of how viable the project was. The Eden Project was the vision of one entrepreneur,
rather than the result of planning by committee. The most notorious failure – the Dome – was the
product of bureaucratic compromise and inappropriate political intervention. After five years the
Dome still has no real role.
The vision
The Lost Gardens of Heligan had proved to Smit that the study of plants could mean good business
in the right situation. Smit realized from his former background, however, that an element of
showbiz was needed and his mission was to ‘make science sexy’. Science appeals to both children
and adults and seems to be good theme-park material. The message of the Project was also very
serious – that man and plants have co-existed profitably together for centuries and must continue to
do so – and this has enabled Eden to make a valuable contribution to education, research, awareness
raising on important issues and campaigning. A new £15 million education centre was built in 2005.
All the buildings have unique, instantly recognizable designs and are made, where possible, from locally
available materials from sustainable sources.
The regional contribution
Eden has a key role and fits in well in the region. There are a number of other garden attractions and
so is a ‘must’ for adults interested in gardening and, given its location in a popular holiday area, it
also attracts visitors looking for a day away from the beach. Many lottery-funded visitor attractions
seemed to be isolated from other attractions and have no emotional attachment to the area, making it
more unlikely that people would visit. Moreover, local people resent money that was intended for
charitable purposes being spent on what they regard as pointless projects.
Eden employs over 440 people, 90 per cent of them being local. It has contributed significantly to
the economy of Cornwall, one of the poorest counties in England. It claims to have appointed 200
local suppliers and to have put £150 million into the local economy in its first year. It also had a
significant impact on the demand for accommodation, being partly responsible for the 96 per cent
increase compared to the previous year.
The potential for conflict
Despite the outstanding success of the Eden Project it does face continual challenges, dilemmas and
potential conflicts. While it is not expected to pay off its original grants it does have to continually
generate income to pay its way and justify further funding for new projects, some of which will not
generate income. The fact that the number of visitors far exceeds the forecast, places considerable
strain on the facilities and catering – areas where the staff try to avoid compromise and wish to
maintain high standards.
Many of its show business activities are high profile and perhaps attract a different type of visitor.
The Eden Project hosted the Africa Calling concert for 4000 people as part of the Make Poverty
History Live 8 campaign in 2005. It was memorable in featuring black artists, answering the
criticisms made regarding some of the other concerts put on. It is planning a repeat event in 2006. It
also creates a giant skating rink as part of its winter event to generate additional income. It has been
host to con- ferences and seminars attended by world experts discussing environmental concerns.
Events such as these create considerable disruption and heartache for the horticulturalists at Eden,
whose work is devoted to creating the right conditions for the plants to be at their best. Neither the
plants nor the staff take kindly to being trampled on or uprooted by the construction workers and
electricians working on the next event, so the management team must try to balance the opposing
interests and maintain the motivation of the staff who believed, when they joined, that they were
working for a science establishment rather than one they feel is increasingly becoming dedicated to
show business. Smit emphasizes that he is not a horticulturalist and that horticulture is not the pri-
mary aim of the Eden Project.
Source: adapted from various public sources including The Economist, 18 August 2001,
BBC News Online and www.edenproject.com
Questions
1. What do you consider to be the aims of the Eden Project and how does this fit with the macro
and micro environmental factors?
2. To what extent would you attribute the success of the Eden Project to the characteristics of
entrepreneurship?
3. How might the spirit of entrepreneurship associated with the Eden Project be capitalized upon
(1) within Cornwall (2) by the Eden Project itself?
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Key words
approaches to the market incremental changes
critical decision Internet and e-business
critical events macro factors
customer attitudes and purchasing market restructuring
behaviour micro factors
economic downturn network marketing
entrepreneurial marketing resource-based marketing
environment for public sector stakeholders
globalization strategic response
C H A P T E R
7
The social,
public and not-
for-profit
context
Learning objectives
■ understand the policy context for the social and not-for-
profit sectors, and the role of government in supporting
their development;
■ evaluate the impact of social and community enterprise in
social and economic regeneration;
■ assess the opportunities and threats facing voluntary and com-
munity organizations;
■ identify the strengths of the not-for-profit organizations and
the lessons that could be learned from the way they operate;
■ understand the nature of innovation and enterprise in the
public sector;
■ analyse the similarities and differences between social and
economic entrepreneurs.
When enterprise, innovation, strategy, and management are discussed
in the literature the underlying assumption has tended to be that what
is being discussed is the way these concepts apply to business, and, by
business, the authors usually mean the private sector. In this book we
Chapter 7 The social, public and not-for-profit 21
context 3
have deliberately widened the scope to include the public and not-
for- profit sectors and particularly highlighted examples of
entrepreneurship and innovation in these areas.
Private sector businesses do not adequately deliver services for every
situation and there are gaps. The traditional for-profit orientation of
private sector businesses does not seem appropriate for some public
sector services that have a social dimension to them that is less
easily defined in ‘product’ terms. Traditionally these services have
been delivered through public sector organizations. Increasingly,
however, social entrepreneurship is being seen as a contributory
factor in economic development and social regeneration. What is
noticeable about the emergence of social entrepreneurship in the
policy debate that sur- rounds it is the way in which it combines the
language and the practice of business with social ideals and benefits.
Consequently the definitions between what are private ‘for-profit’ and
public ‘not-for-profit’ are less distinguishable and many
organizations work at the interface between the two. A spectrum of
organizational types can be envisaged with the traditional private and
public sector organizations at the extreme but a range of
entrepreneurial organizations in between.
In this chapter we explore entrepreneurship and innovation in the
public and not-for-profit context. We begin at one end of the
spectrum, and look at whether entrepreneurs are more likely to
operate their businesses in socially responsible ways. We then move
on to explore the scope and impact of social and community
entrepreneurship, and innovation and enterprise in the voluntary
and community sector. We conclude by comparing some key aspects of
social and economic entrepreneurship, finally returning to the
characteristics of entrepreneurs and discussing what it is that
distinguishes social entrepreneurs from economic ones.
Economic and social motives

In practice most organizations across the spectrum operate in a
‘business-like’ way and increasingly have a social conscience to
some degree, and so it may be helpful to see the ‘social’ focus of
businesses on a continuum, as shown in Figure 7.1. Organizations
are placed on this continuum in accordance with the extent to which
their motives are focused on profit or social benefit.
At one end there are purely profit oriented businesses in the
private sector, followed by those that recognize the value of
corporate social
Profit motive Social benefits
Public/private
collaborative
Corporate social organizations,
Social enterprises
responsibility e.g.
regeneration
partnerships
Figure 7.1
Economic or social Charities; voluntary and
Private sector PFI initiatives Public sector
community organizations
motives of
organizations.
responsibility, although their motives are primarily economic. The

issue of whether this is a genuine ethical stance (which would
suggest that the owners and managers would still adhere to it even if
it made them less competitive) or whether it is enlightened self-
interest (to enhance the organization’s reputation and gain a
marketing advantage) is not for discussion here.
At the other end are voluntary and community sector organizations,
whose motives are primarily social, although they operate on a com-
mercial basis, being accountable for delivering the results that their
stakeholders expect in much the same way as private sector businesses
are expected to deliver.
In between are a range of organizations. We see alliances between
the public and private sectors in private finance initiatives (PFIs) for
major publicly funded projects, and in a host of partnership bodies
that enable collaboration between organizations from all sectors to
drive social and economic regeneration in a locality. The public
sector, and social and community enterprises, marry social benefit
and economic profit. But there is no hint of ‘dependency’ in the
language that these organizations use. There is a strong business
orientation, and a strong association with individualist principles,
incorporating both individual enterprise and organizational
innovation.
Increasingly, over the last two decades, the UK government has been
withdrawing from the direct delivery of public services and
programmes. As quangos (unelected, publicly funded organizations)
and the voluntary sector have become more important in the delivery
of services they have come under increasing public scrutiny. Under
pressure to do more with less, they have recognized the need to
manage the resources they have to best advantage in achieving the
impact they desire.
Corporate social responsibility
What is corporate social responsibility (CSR)?
Corporate social responsibility is the way an organization takes account
of the economic, social and environmental impact that it has, maxi-
mizing the benefits and minimizing the negative consequences of its
operations. It covers a wide range of issues including health and safety,
employment rights, supply chain management, and environmental
protection as well as the more controversial and obvious issues such as
bribery and corruption. The business rhetoric about the need to
maximize profits has often been used as an excuse to turn a blind eye
to the ethical issues. In reality, businesses rarely follow optimum
strategies and there are always trade-offs between profits and
expenditure, and expenditure on ethical behaviour often comes
second to profit generation. However, it is becoming increasingly
important that businesses consider the legitimate expectations of all
stakeholders.
Drivers of CSR
In the Victorian era, Quaker families such as the Rowntrees and
Cadburys were driven by charitable behaviour and philanthropy.
Today the need for better corporate governance and the increasingly
sophisticated demands of customers tend to be the more important.
Charitable giving is no longer enough; increasingly, CSR is expected
to be an integral part of the corporate business model. In the UK,
Business in the Community now publish a Corporate Responsibility
Index, and there are suggestions that organizations might be
legally required to report on their CSR activities before too long. As
with any change in environmental circumstances, organizations
either behave defensively, reacting to circumstances as and when
they need to, or they see them as opportunities to exploit.
CSR as an innovative response

Entrepreneurial organizations have been quick to exploit the market
opportunities that the increasing interest in business ethics has offered.
The Co-operative Bank took an early position on ethical investment;
Anita Roddick did likewise with Body Shop, and we now have a
range
of Fair Trade and Equitable Trade products on the shelves of super-
markets. Drucker (2001: 51) argues that all organizations have to
operate within a social setting. Healthy businesses cannot exist in sick
societies, and so the business world has a vested interest in a
healthy society. Sometimes social impacts are incidental to the main
purpose of the organization, sometimes they are intended, but
management is responsible for the social impacts of the business as
well as economic ones. If the harmful impacts are not minimized,
sooner or later the customers will object, and so ignoring social
responsibilities will erode competitiveness in the long run. For
example, organizations such as Nike and Gap have attracted adverse
attention in the press for their sourcing policies which led to
children being employed by their subcontractors in Third World
countries.

Spotting when the goalposts have moved
Many people in developing countries are unable to access life-saving medicines. Before
2001, the pharmaceutical industry took the view that selling drugs to poor countries at a
discount, or offering voluntary licenses to generic producers to manufacture cheap copies of
their drugs was not in their business interests. Differential pricing and voluntary licensing
might lead to smuggling; this could undermine their profits or lead to pressure to cut prices
in their home markets; and they needed to preserve their margins to maintain investment
in research and development. In any case, they were behaving in accordance with international
patent regulations, so why should they do more?
Pressure to change came from lobbying by non-government agencies; a joint expression
of concern from investors (ISIS Asset Management and the Universities Superannuation
Scheme); and a threat from governments of developing countries to break the patent
regulations and import generic copies of the drugs. This would threaten the international
patent system, which is the foundation on which the major pharmaceutical businesses are built.
Some companies have responded to this challenge and have improved access through a
combination of differential pricing, voluntary licenses and donation programmes. The result
is that some drugs are being made more widely available in some markets before patents would
usually expire.
There had previously been a solid argument against this, but a little creative thinking
has led to a compromise between business interests and a broader citizenship approach.
Adapted from: Barrington and Abbott (2005)
Question: How could an entrepreneurial organization have gained advantage from a more
proactive approach to this situation?
Acting responsibly can add costs, but many argue that CSR policies
become cost neutral in the long term. For example, investing in the
development of renewable sources of raw materials may be costly
initially,
but offers a marketing opportunity, and helps to ensure a viable future.
The elimination of undesirable impacts can be an opportunity in
itself. Drucker (2001) quotes the example of Du Pont, who became
aware of the toxic side effects of their industrial process, and as a
result set up their Industrial Toxicity Laboratory. This laboratory
developed tests for toxicity and processes to eliminate poisons, and it
became a business in its own right selling this service to other
organizations.
Ethical standards of managers and entrepreneurs

The fact that these trends offered opportunities that were exploited
by entrepreneurs does not necessarily reflect on their ethical
standards, or their propensity to engage more actively with issues of
corporate social responsibility. Bucar and Hirisch (2001) concluded
that there was no significant difference between managers and
entrepreneurs in Britain as regards their ethical standards and
aspirations. Although ethical practice may have been a unique selling
point in the past, it is now becoming expected of organizations.
Being proactive in this regard may give the entrepreneur a
competitive edge in some markets, but it would appear not to be a
distinguishing feature of entrepreneurs in general. However, there
are a growing number of entrepreneurs who are driven by social
objectives, and it is to these that we turn next.
Social and community enterprise

What are social enterprises?
Social enterprise plays a significant role in the economy, and in urban
regeneration. Businesses engaging in this dimension often provide
services in areas where there is a market gap which the private
sector does not see as viable.
In the introduction to Social Enterprise: A Strategy for Success
(2002) Patricia Hewitt (in her role as Secretary of State for Trade and
Industry) describes social enterprises as ‘dynamic, progressive
businesses that we can all learn from. They experiment and innovate,
and have the advantage of being able to draw upon best practice in
the voluntary sector, as well as the entrepreneurial flair that exists in
the best of our companies’. The strategy document goes on to explain
how social enterprises provide a mechanism for bringing excluded
groups into the labour market,
raising skill levels and improving future employability. Many of them
operate in areas of the country where economic activity and job cre-
ation are particularly needed, creating real opportunities for the
people who work in them and for the communities that they serve –
for example, some help to return difficult-to-employ people to the
world of work, helping them to develop skills and build
confidence. Many are concerned with environmental benefits,
piloting recycling schemes or encouraging businesses to work on
industrial estates where waste products from one organization can be
used as a source of supply for others. Many are virtually
indistinguishable from the average business, for example companies
that offer IT support to other social enterprises.
The DTI describes social enterprises in the following way:
■ businesses with primarily social objectives;
■ surpluses principally reinvested for that purpose in the
business or in the community, rather than being driven by
the need to maximize profit for shareholders or owners;
■ tackle a wide range of social and environmental issues;
■ operate in all parts of the economy;
■ include local community enterprises, social firms, mutual
organizations such as cooperatives, and large organizations
operating nationally or internationally;
■ have no single legal model.
This description suggests that social enterprises are to be defined as
organizations that combine an income-generating or business-type
activity with a social purpose (with surplus reinvested in the ‘cause’).
However, there are also organizations that generate social change and
new approaches to social problems through implementing innovative
ideas, which create social benefits.
Although clearly having social objectives, both types of social
enterprise are about generating new approaches through using
business practices. Equally, both emphasize the role of individual
social entrepreneurs.

, she won the Design Museum’s Designer of the Year award. She does not see herself as a designer, but the judges said tha
Before joining the Design Council she had set up two not-for-profit companies. School Works researched the
design of schools in the UK, and the Do Tank did a similar job for prisons. Her vision for prisons involved study
bedrooms rather than cells, and an Intranet system to facilitate the development of literacy and numeracy skills.
Such a prison has not yet been built, but her ideas were incorporated into a building programme at Kingsdale
Comprehensive in South London.
Hilary brings teams of professionals together to rethink the design of buildings and the delivery of public ser-
vices, describing herself as ‘part problem solver, part innovator, and part facilitator, but first and foremost as a
social entrepreneur’.
Adapted from: The Guardian, 10 June 2005
Questions: Do you agree that Hilary Cottam is an innovator and entrepreneur? What would the policy and
practical challenges be in building and operating a prison to her design?
The nature of social and community enterprise

The Small Business Service Survey of social enterprises across the UK
(2005) shows how diverse the sector is, and the contribution that it
makes. Eighty-nine per cent of social enterprises are in urban areas (23
per cent are actually in London), but they operate in every region of
the UK and they represent around 1 per cent of the UK’s (employing)
businesses. Social enterprises generate some £18 billion in annual
turnover and employ over 775 000 people (two thirds of whom are
employed full time). The survey found the following.
■ The vast bulk of employment and turnover in social enterprises

(82 per cent) derives from trading revenues, which account
for
£4.8 billion in total. Almost nine in ten (88 per cent) of
those surveyed generate 50 per cent or more of their income
from trading.
■ The typical social enterprise employs 10 people. Almost half
(49 per cent) employ fewer than 10 people, 38 per cent
employ between 10 and 49, 11 per cent have 50–249
employees and 2 per cent employ more than 250. There
are far fewer sole traders among social enterprises
compared with the UK business population.
■ Although around half of social enterprises receive grants, dona-
tions and subsidies (which account for 12 per cent of
income), over 82 per cent of turnover derives from trading
income.
■ About a third of social enterprises derive their income from
Health and Social Care; other important sources of trading
income are social and personal services, real estate and
renting, and adult education.
■ Over 50 per cent of social enterprises are located in the 40
per cent most deprived areas and play a role in urban
regeneration. Most social enterprises exist to help particular
groups of people either through employment or by providing
goods and services.
■ The most common groups helped are those with disabilities,
young people, the elderly and those on low incomes. Nearly
a quarter of social enterprises had environmental objectives.
■ The organizations surveyed were all ‘companies limited by
guarantee’ or ‘industrial and provident societies’ as earlier
research suggested that these types of business would cover
the majority of social enterprises. Other kinds of social
enterprise exist, but have not been included in this
survey, and so the headline figures are an underestimate of
the size and scope of the sector.
Trends
Ideology
In terms of ideology, it could be argued that there has been a

continu- ation from Thatcherism (characterized during Prime
Minister Margaret Thatcher’s time in office by a very individualist
approach and epitomized in Lord Young’s drive to create an
enterprise culture where people were self-reliant, and less dependent
on state intervention) to New Labour’s Third Way thinking.
Individualism still underpins the rhetoric, but it is couched in terms of
‘choice’ and ‘empowerment’. This seems to have softened the
approach a little.
Experience over time has also proved that the private sector did
not always have the answer to social and public issues. For example, the
privatization of the railways and the creation of Railtrack led to
concerns about shareholders taking money out of the organization
rather than investing in the infrastructure at the same time that
accidents were sus- pected of being caused by inadequate
maintenance. Moreover, the performance of the various rail
companies did not really improve once they were taken out of public
ownership. Similarly, although private sector investment in
infrastructure such as hospitals and schools has been welcomed
through Private Finance Initiatives, there is now a debate about the
longer-term implications of such investment as the rents are a signifi-
cant overhead and the ethos of the ‘landlord’ is not always in
accordance with those of the service provider.
Although enterprise remains a strong value, there is now a real
attempt to bring the community back into the debates and to the
policy arena. The dissatisfaction that is felt with many of our public
services has also served to highlight the role of the voluntary and
community sectors that have traditionally filled the gaps.
Top-down and bottom-up
There is a tension sometimes between top-down government policy

and programmes, and local community action. For example, in urban
regeneration, there is a feeling that government policy is not
really being that effective. This has led to the emergence of a range
of support measures for grass-root initiatives (for example, the
government has made money available through the Neighbourhood
Renewal Fund for initiatives that support regeneration in deprived
communities) and a general concern to support people taking
responsibility for their economic and social well-being. There is also
an acknowledgement of the need to create sustainable social provision
both in economic terms and in the context of avoiding the creation of
a ‘dependency culture’ where individual aspirations are low, people
depend on the state for their liveli- hoods, and feel powerless to
improve their situation in life.

Care for the community
Community Foster Care (CFC) was established in 1999 and was one of the first social
enterprises to deal with foster care. Its approach was innovative, as it not only focused on the
needs of the children but wanted to get carers from socially and economically disadvantaged
areas into employment. By providing them with training, an income and qualifications, it builds
self- esteem. It also helps the children, who can stay in their local area among their friends,
attending the same school, and not having to admit that they are in care if they don’t want
to. The children need to feel that they belong, and being moved to rural areas with middle-
class families with the stereotypical 2.4 children can be unsettling.
The application process is complex, and it certainly isn’t easy money for the carers.
Social services are referring children with increasingly challenging behaviour to fostering
agencies. Most children placed by CFC have been sexually abused and, in turn, exhibit
sexualized or violent behaviour. Not everyone can deal with this.
Half of the money CFC receives from local authorities goes to carers, the other half being
reinvested in the business to pay for its link workers, the 24-hour support network, and train-
ing programmes. There has been scepticism from the local authorities, some not
recognizing that a social enterprise could actually save it money. There have also been crises
to overcome.
In 2000 a financial crisis at a social services department led to the withdrawal of a significant chunk of funding,
Question: What practical measures could be taken to help overcome cynicism regarding the effectiveness of s
Potential problems faced by social enterprises

Local focus may limit the market
Although some social enterprises operate nationally and internationally,

the majority do not. Given the fact that these businesses are often set up
to serve a local geographic area, or to fulfil the requirements of a
small niche where there has previously been market failure, this means
that the market they serve can be limited. There is also the danger that
such businesses may become trapped in a ‘parallel economy’, unable
to integrate with mainstream business and commerce. This may be
particularly relevant where the social enterprise has been established
specifically because there is a market gap deemed insufficiently
profitable by the private sector.
Lack of business skills may affect sustainability
Although committed to their cause, many of the businesses in the sector

have limited experience of operating commercially. This may affect
their ability to remain profitable in the longer term, or to transfer to
the mainstream economy where it is appropriate for them to do so,
and establishing capable management teams can be a challenge.
Finding gap funding may distract organizations and

lead to short-termism
Although trading forms a significant part of the income of many
social and community enterprises, for some, the gap needs to be
filled by competing with other agencies for public sector funds.
These are often short-term income streams and place demands on the
organization in terms of the nature of the outputs expected. Chasing
funding can take
up valuable resources (such as time) and sometimes distract the organ-
ization from its strategic objectives.
The policy perspective
Although well-intentioned, government policy can place burdensome

costs on these organizations. For example, consultation on policy
and community involvement is a laudable objective, but the
representatives of the sector have to give their time freely. Many
literally cannot afford to become involved, despite it being in their
long-term interests in terms of developing a profile with the public
sector agencies and having a voice in the decision-making process.
The Department for Trade and Industry (DTI) has highlighted the
role of social enterprises as models for maximizing public good
through business solutions, as outlined in Social Enterprise: A Strategy
for Success (2002). The aims of the strategy are:
■ to create a more enabling environment for social enterprises
by identifying and removing some of the barriers, constraints
and challenges they may face such as supporting the
development of a new legal structure;
■ to make them better businesses, through the provision of
business support and training as well as improving funding
mechanisms;
■ to develop a strong evidence base on social enterprises
which will:
establish the value of social enterprise
inform policy development
contribute to improving the delivery of services to the sector.
Because the sector is new and underfunded, and relatively little is
known about the best practice that may exist, one of the critical tasks
was to actually understand the nature and scope of the sector, and the
DTI Small Business Service finally published a comprehensive survey of
social enterprise in the UK in July 2005. Progress has been made in
terms of development of the sector, and we highlight some of the
current issues below.
Procurement
The government believes there is more scope for public sector

services to be delivered by social enterprises, and the issues are similar
to those that face the voluntary and community sector, which we
consider later
in this chapter. In the government’s view, by being close to their cus-
tomers, and not needing to deliver dividends to shareholders, social
enterprises can offer a more flexible and cost-effective service.
However, it recognizes that there are two key issues that it needs to
focus on if it is to enable such businesses to play a role in service
delivery. There is a need to:
■ promote understanding of social enterprises among those
responsible for public procurement and those who audit
and inspect their work in order to ensure that the sector is
able to compete fairly with mainstream providers;
■ develop expertise in the sector on public procurement practices.
Legal structures
The government have introduced a new legal form to support the

establishment of social and community enterprises, and appointed
a regulator in April 2005, with the intention that organizations
could begin to apply to become community interest companies (CICs)
from the summer of 2005. Organizations can be public limited
companies, or private companies limited by guarantee or shares, and
they will be subject to an asset lock (which means they will be
restricted in distributing profits and assets to their members to ensure
that assets are used to benefit the community). They cannot also hold
charitable status. However, if they need to raise investment, CICs limited
by shares will have the option of issuing shares that pay a dividend to
investors. The dividend payable on these shares will be subject to a cap,
set by the Regulator (after consultation), in order to protect the asset
lock.
Business support and training
If social enterprises are to become better businesses, they will need

appropriate advice and support. A key part of this will be in opening
up mainstream support to the sector, and Business Links (agencies
funded by the DTI to support business development in the UK)
have been required to provide such support within their business plans
since April 2003. Government support will focus on:
■ training the trainers and business support providers;
■ business training and support for social enterprises;
■ building capacity and financial awareness to help social enter-
prises make stronger bids for financial support.
Creation Recycling – Rotherham
Creation Recycling Ltd is an innovative social enterprise created as a result of a feasibility study undertaken by
the Valley Community Partnership (an area of high deprivation in Rotherham) into options for kerbside
recycling. One outcome of the study was that the Valley area, on its own, was seen as not being able to provide
sufficient economies of scale for the project to be economically viable or sustainable; therefore three different
community partnerships have lent their support to the project, which has seen Creation working across a wider
area of benefit, i.e. 11 000 households or 10 per cent of the Rotherham Metropolitan Borough Council (RMBC).
Creation currently offers a weekly kerbside collection service of dry recyclables (glass, cans and textiles) to
11 000 households in the most disadvantaged and hard-to-reach communities in Rotherham, while future plans
include a paper collection service and a kitchen waste service.
In addition to its collection service Creation also operates a materials handling and processing facility, which
takes all the recyclable materials collected by RMBC in the remaining 90 per cent of the Borough.
Creation is currently financed for a two-year action research period, which will lead to self-sustainability by
year 3. Funding comes from a variety of public sources. Year 1 funding had a high capital investment of
approximately
£250 k and revenue costs of £350 k but generated sales income of approximately £150 k. The current running
costs for the initial kerbside collection and materials processing are estimated at £400 k per annum.
Creation employs a total of 15 staff (including 1 apprentice) and offers volunteer/training placements to a
variety of people including young people, asylum seekers and people with learning difficulties. It offers a
programme of education and awareness raising to local schools as part of a citizenship curriculum. Creation is
currently applying for Investors in People.
Creation is delivering services on behalf of the local authority in disadvantaged areas, contributing to neigh-
bourhood management and enabling the local authority to achieve stretched statutory targets. Through adoption
of the proximity principle, Creation sources as much of its own requirements as possible, employs local people
and involves the local community, thereby multiplying the economic impact of the project.
Creation Recycling Ltd has very strong environmental and social aims, which it is achieving, but the bottom
line is – it is a business and aims to be a very successful one.
Adapted from: www.creationrecycling.co.uk/
Question: Evaluate the economic and social impact that Creation Recycling has generated in Rotherham.
The voluntary and community sector

The nature and role of the voluntary and community sector
Governments across the world have seen a shift in the relationship

between the voluntary sector and the state over the last 25 years. In the
UK, the Conservative governments of the 1980s and early 1990s intro-
duced contracting out into the delivery of public service agenda. This
meant that the utilities (gas, water, electricity provision) and rail ser-
vices were privatized and local authorities were required to put many of
their services out to compulsory competitive tender (CCT) in the
interests of securing more economic delivery of services. Before this
change, it had been presumed that public services should be delivered
by the public sector but the Conservative government introduced the
idea that the private sector could deliver public services more effi-
ciently. Since 1997, the Labour government has extended this think-
ing, saying that services should be delivered by those who can do so
most effectively within the resources available, and that this could
be the public, private, or voluntary and community sector. This
changing political perspective has led to recommendations (Treasury,
2002) designed to remove the barriers to the voluntary and
community sector becoming engaged in the delivery of public
services.
Engaging in the delivery of public sector services

Government desire to reform public services
Given the context of wanting to reform public services, improve

choice for consumers, and deliver more efficiently and effectively, it is
clear why government would want to open up delivery to a broader
range of organizations. Although there are many entrepreneurial
voluntary and community organizations (VCOs) that are keen to take
this opportunity to expand their services, grow their businesses, and
secure more long term sources of funding, there are also many for whom
it is not appropriate. The consequences for these organizations also
need to be considered.
The decision to take on contracts for the delivery

of public services
The VCO has to be clear about why it would make the decision to
take on such contracts. The criteria on which it makes this choice would
be similar to those of any entrepreneur looking at a strategic
development opportunity, and it will ask questions such as:
■ Is the service core to its mission?

■ Can it add value to the particular service?
■ Does it believe it can deliver the service better than
competitors from either the public or private sector?
■ Does it have niche experience or knowledge that means no
one else is capable of providing the service?
The danger is that the opportunity could just be the path of least resist-
ance in terms of income generation. Many organizations in the sector
operate on very tight budgets, and securing external funding is crucial
to their survival. There is a danger that they may follow the funding, fit-
ting their activities to match the expectations of funders, in order to
remain viable.
Consistency with strategic purposes
VCOs have their purposes set out quite clearly in their governing docu-
ments and their trustees are bound to ensure that they fulfil these
purposes. Funding opportunities should only be pursued if they are con-
sistent with the organizations’ purposes. There is a danger inherent in
successfully securing contracts, in that these could skew the focus of a
VCO and render the original mission marginal.
Capacity issues
Equally, as with any business expansion, there might arise issues of

capacity to deliver on a much larger scale, as this requires more
complex systems and processes. This might mean restructuring the
business model, and have implications for the culture of the
organization. The VCO might find it difficult to make this step-change
successfully. Once again we emphasize that the key to entrepreneurial
success is not primarily about the idea pursued, but about being
able to create an appropriate business model to exploit successfully
the opportunity that the idea presents.
Lessons from the not-for-profit sector

In relation to the voluntary sector in America, Drucker (2001: 39)
makes some general points that apply in a broader context. From his
analysis we can identify some lessons that can be learned from the
way the not- for-profit sector operates, which we discuss below.
He argues that in two areas, strategy and the effectiveness of the
board that runs the organization, these sectors are practising what the
private sector only preach, and that in the most crucial area – the
motivation and productivity of knowledge workers – they are pioneers,
working out the policies and practices that business will have to learn
tomorrow.
The reason for this is that the not-for-profit sector has
increasingly recognized the importance of organization, leadership,
accountability
and performance. The bottom line is not defined in profits but in
impact, which implies that the participating organizations focus clearly
on their purpose. The implications of this are that the successful not-
for-profit organizations are developing business models which are
finely tuned towards the exploitation of the opportunity and the
achievement of their strategic goals.
For example, charities such as Oxfam have to be concerned with
income and expenditure, demonstrating to their stakeholders that
they are spending money wisely in support of their primary mission.
If they cannot demonstrate impact, their operations are called into
question. The overarching importance of their mission focuses such
organizations on action, which creates discipline, and prevents limited
resources being spread too thinly on things that are less central to their
purpose. It serves to focus them on a very small number of productive
efforts.
Collins and Porras (1996) also recognize the importance of core
values and core purpose, explaining how the companies that enjoy
enduring success might change their strategies (the means by which
they reach their goals) but never change the values and core principles
that underpin their reason for being in business. Having a clear
mission can also help in fostering innovation as it helps people see
that, however much change flies in the face of tradition, it is necessary
if they are to provide the best service for the communities that they
serve.
This focus on accountability and performance means that the not-
for-profit organizations have had to learn to define what ‘results’
mean for them. Once they have clearly defined what they mean by
results, they need to be able to demonstrate the link between the
activities they fund and the resulting impact. It could be argued that this
is more similar to Japanese attitudes than to Western business
practice. The Japanese organization would ask itself what it would have
to make happen out in the marketplace to deserve a reward (profit). In
Enterprise in Action 7.3 it is demonstrated how an organization has
had to review its strategy and design a new business model, driven
by changes in the external environment, but has remained clearly
focused on its core values, and on doing what is right by the
customer.
15 per cent despite sharp cuts in Medicare payments and hospital stays over an eight-year period. The nun who was th
than the business of running hospitals. When health-care delivery began moving out of hospitals for economic
Adapted from: Drucker (2001: 42)
Question: What lessons can the private sector learn from the way this business model was reconfigured?
Drucker (2001: 43) also highlights the way that the not-for-profit sector
makes effective use of their boards, and says that there are lessons that
entrepreneurial businesses can learn from this. Historically, not-for-
profit sector board members have been closer to operations, taking a
more active interest than in the private sector. The directors on not-for-
profit boards also often invest more, particularly in personal terms,
as they usually are very committed to the cause. They have often been
volunteers themselves and so understand the business, and are very
knowledgeable, which is not always the case for outside directors in
the private sector who might only have a minority shareholding.
This has resonance with the way that entrepreneurs seek to manage
their businesses, remaining actively involved, having a deep under-
standing of their business and their customers, and being reluctant to
delegate the running of the business to others. As some of the not-
for- profit organizations have grown, there has been a shift towards
professional management as some of them have become far too big
to be run by part-timers.
Managing non-paid professionals in

entrepreneurial not-for-profit organizations
Drucker (2001: 46) suggests that the not-for-profit sector has also
learned how to secure the commitment and enthusiasm of the
workforce. In the past, there tended to be a view that, as volunteers
weren’t paid, it was unreasonable to make too many demands of
them. This view has changed, and the more likely approach today is
to recognize that, precisely because they do not receive monetary
rewards, volunteers must
get greater satisfaction from their accomplishments. The reward is in
terms of recognition, and knowing that their contribution makes a dif-
ference and is of value. This shift may have arisen out of the necessity of
having to be more productive with the people already involved, as it
can be difficult to find additional volunteers.
More and more volunteers are educated people in managerial
or professional jobs, and are coming up to retirement. They are not
used to being ‘helpers’, having held down responsible and
demanding jobs. They are at a time in their lives where they are in
a position to offer their services in a cause that they feel has value,
but they do expect to be engaged in meaningful work. They may
have been dissatisfied in their paid employment, or feel that it offers
insufficient challenge or opportunity for achievement. They may feel
that they are just a means to an end, that the organizations they
work for have no real sense of mission or purpose, that everything is
expedient to profit. If this is the case, they are not going to settle for
the same as a volunteer; they need to see that their input of time and
energy has worth and that it really does make a difference – and it
has to be a difference that they value. To keep them, the
organizations they commit their time to have to put their competence
and knowledge to work. There is also a sense of mutual learning and
teaching as the experience of the volunteers is put to good use in
training newcomers, and learning new skills.
This has significance for the private sector as managing the know-
ledge worker for productivity is the next great challenge for manage-
ment. Organizations increasingly need business brains rather than
helpers. Stewart (1997) argues that intellectual capital matters. Those
who are not knowledge workers are not rewarded as well as they
were, and organizations that cannot manage knowledge workers may
not be as successful as their competitors who can. The knowledge
content of everyday goods and services is increasing rapidly, and
there are few industries or companies that have not become more
information intensive. Using such information intelligently in making
decisions may, we suggest, distinguish the successful entrepreneurial
organization. The move from non-profit volunteering to non-paid
professionalism has meant that the voluntary and community sector
has experience in managing knowledge workers. The organizations
involved make high demands of their volunteers, with corresponding
responsibility. However, the volunteers know what they are there for as
there is a strong sense of mission, they are managed by objectives and
self-control, there is accountability for results, and there is an
opportunity for continual learning and teaching. These lessons are
valuable for entrepreneurial organizations in all sectors.
Tensions between social and economic imperatives in not-for-profi
Although there are similarities between the social and economic

imperatives, there are inherent tensions created by their overlap.
Business approach and the political process

Traditionally, the voluntary and community sector has tried to
secure social reform by lobbying governments and taking a political
stance. Some of those who operate within the sector see their role
being to challenge what they perceive to be injustices in the way
society operates. The literature and policy on social enterprise
tends to focus on it as a business process and creating change within
the existing political system. This shift of focus from an ideological
debate to practical discussion about business process consequence is
argued to be a depoliticization of their role, and has created some
tension in the sector.
Although there are undoubtedly benefits to be gained from the
move towards greater involvement of the voluntary, community and
social sectors in the delivery of public services, it could be argued
that in giving these sectors a greater voice in decision-making, and in
adopting a more collaborative approach to policy, their cooperation
is being ‘bought’. Decision-making becomes more complicated, and it
is more difficult to achieve consensus as this requires greater
compromise.
Individual and community

In entrepreneurship, there is very much a focus on individualism.
We have spoken previously about how the entrepreneur can seem to
be a ‘great person’ and how businesses can become the
personification of the entrepreneur. This is a little at odds with the
values of the social enterprise, and even more so with those of the
voluntary sector, who adopt a much more collectivist approach. This
can lead to internal tensions. For example, if the person who heads the
organization acts as a representative on policy forums, it can be seen
as an attempt to develop a personal profile as opposed to raising the
profile of the organization as a whole. Equally, if success is publicized,
the person who ‘fronts’ the organization can be seen as becoming
egotistical and failing to give sufficient credit to the team of people
who are involved in achieving such social impact.
Short-term deliverables and long-term sustainability
These trends are leading to an increasing focus on results, which might
have the disadvantage of driving organizations in the sector to fit
a project-based short-term approach when they need to look at longer-
term sustainability and development to be really effective. Involvement
in a series of initiatives, and securing funding from two or three
sources, each demanding slightly different outputs, can lead to
fragmented management, short-term focus, and a loss of strategic
perspective. While the sector is seen as pioneering and capable of
piloting new ideas, there also needs to be a focus on sustainability, and
the critical resources and managerial and organizational competencies
needed by a growing business. We have already discussed how focus
on mission and values is a valuable element in the success of
entrepreneurial voluntary and community sector organizations
(VCOs), and so the funding regime that is predominant in the sector
would seem to be at odds with the criteria needed for their long-term
success.
In considering sustainability, it is also important to remember the
diversity of the sector. There may also be a role for encouraging more
innovation in the large established charities, for example, or in using
their core competencies to bring about social change in different
markets.
Public sector
Successive governments in the UK have focused on the need for a
strong enterprise policy for businesses. Since the early 1980s there has
been a slow but gradual acknowledgement that entrepreneurship and
innovation will not happen spontaneously in any type of
organization but, perhaps, especially in the public sector. If
innovation is valued, it needs to be fostered. This focus on developing
individual initiative and enterprising businesses contributed to the
growing interest in developing similar cultures in the public and
voluntary sectors. The practical consequence of this has been the trend
for contracting out of services that has been so prevalent in local
government, for example, as mentioned earlier. Another example
would be the creation of quasi-competition through the
introduction of league tables to compare performance such as
those used to measure the success of schools. However, the success of
such measures is debatable as it could be argued that they can be self-
defeating, as organizations focus on short-term tactics which enable
them to massage the statistics to improve their immediate position
rather
than implement more substantial changes that may not be reflected in
the league table position quite so soon.
Bureaucracy and conservatism

In discussing the public sector, and the delivery of public sector services,
the literature often speaks of bureaucracy and conservatism as obst-
acles to innovation. But as some of the giants of the private sector –
such as 3 M – demonstrate, size does not have to be an impediment to
enterprising behaviour and entrepreneurial strategies. Just because
the sector is dominated by large agencies, for example the National
Health Service, it does not mean that they cannot innovate, as
highlighted in Enterprise in Action 7.4.
Drivers of innovation
Innovation in the delivery of services has been driven by a number of
factors, the principal ones being the drive for efficiency and account-
ability, and the desire to offer greater choice to consumers. The NHS
Direct example (Enterprise in Action 7.4) illustrates how the need to
operate more efficiently led to the development of a new business
model in the National Health Service.
nurses. These nurses were supported by diagnostic software which prompted them to ask particular questions of caller
e motives behind the introduction of the service, accusing NHS Direct of being ‘parasitic and destructive of the NHS’, ex
The anticipated reduction in demand upon GP and accident & emergency services has not occurred to the exte
Questions: What challenges do public sector organizations face in implementing such innovations in process
Individual enterprise in public life

Some people in public life approach their careers with ambition and
drive, and a clear vision of the difference they want to make. For
example, Mo Mowlem’s contribution to the peace process in Northern
Ireland was unusual, and yet effective.

Mo Mowlem
Mo Mowlem worked as a university administrator and lecturer before pursuing a career in pol-
itics. Her enthusiastic, unpretentious attitude won her standing ovations and media
awards, and earned her the respect of the public. She was popular with voters, partly
because of her determination to carry on as Northern Ireland Secretary despite treatment
for a brain tumour which caused hair loss. It is reported that she would often remove her
wig in the middle of high-powered meetings, or kick off her shoes and put her feet up.
She took a political risk in 1998 by going inside the Maze prison when it became clear
that the Peace Process would only succeed with the backing of the prisoners. The loyalist
UDA/UFF prisoners had previously withdrawn their support for the process. She spent an hour
with them and two hours later the paramilitaries’ political representatives announced that
they were being allowed to rejoin the talks. She told reporters at the time ‘I didn’t negotiate.
I didn’t do a deal. If you want progress, you ain’t going to get it if you don’t have talks’.
The failure of the Northern Ireland parties to agree on the implementation of the
Good Friday Agreement and the release of IRA prisoners without the parallel surrender of
arms led to calls for her dismissal, and in 1999 she was replaced as Northern Ireland Secretary
by Peter Mandelson. She became cabinet ‘enforcer’ after turning down the job of Health
Secretary. Her time in the cabinet was marred by rumours that someone in high places was
briefing against her. She stood down as an MP in 2001. She was a vocal opponent of the war on
Iraq.
Various public sources
Question: To what extent did Mo Mowlem’s personal characteristics make a difference
in Northern Ireland?
Comparisons between social and economic entrepreneurship
At this point it may be helpful to look at some of the different aspects

of entrepreneurship and innovation that we have discussed so far, and
explore how social entrepreneurship compares with the more trad-
itional economic role that the literature more commonly explores.
Innovation
Although often criticized for being less accountable than
government, the not-for-profit sector has arguably more flexibility to
be innovative and to pilot new ways of doing things because it is closer
to the beneficiaries of the service. Many social entrepreneurs have
the opportunity to bring existing ideas together in new ways, which
is consistent with Schumpeter’s ideas of new combinations.
Innovation may emerge in entrepreneurial approaches to:
■ attracting funding and procuring resources;

■ the design of innovative services and initiatives;
■ a visionary attitude to identifying desired outputs and impact;
■ motivating and engaging with ‘difficult’ clients;
■ mobilizing the support of delivery agencies and partners.
Risk-bearing
Social outcomes are in actuality difficult to quantify and hard to evalu-
ate. However, social entrepreneurs do carry the risk of failure even if
it is only to the extent that is so difficult to quantify success or to
establish causality. Certainly in terms of personal risk, entrepreneurs
with social motives may feel the failure more acutely in terms of
failing the people who depended upon them. So although the nature
of the risk may be different, they are still more willing to bear risks.
Unfortunately this difficulty in evaluating impact and demonstrat-
ing accountability also brings another risk. When coupled with a
lack of professional management, there is a danger of
mismanagement, or even fraud, arising. Of course this potential is
not confined to social entrepreneurship alone!
Spotting and acting on opportunities
Social entrepreneurs perhaps see enactable contexts rather than
opportunities as such. The opportunities that they act upon are
often connected with the identification of gaps in provision. Filling
those gaps requires them to convince others of the need, secure
commitment and resources to provide new services, or find different
ways of using existing resources and services to provide a more
comprehensive service. They consequently respond to identified needs
by understanding or presenting an issue in a new way.
Bridging between sectors, fields and resources

This is arguably a key strength of the public/community/voluntary
sector that has long been expected to work in partnership with many
agencies and groups to achieve results. Sometimes this is forced since,
in order to secure funds, they are often required to work across
boundaries and in alliances.
They need to mobilize resources (often bidding for funding) to
achieve their objectives. Perhaps there is less emphasis on having the
idea and more emphasis on communicating that idea and winning
support for it in this sector.
Leadership
The social entrepreneur and the leader of the Voluntary and
Community Organization excel here. They are very expert in
communicating their vision, exhibiting strong values/ideals, setting a
mission and organizing people around it. Unlike purely economic
entrepreneurs, a large part of their role lies in managing the politics
of inter-agency working. This again brings us to the discussion about
the role of entrepreneurs themselves, and the characteristics that
distinguish them.
Characteristics of social and economic entrepreneurs
Bolton and Thompson (2003: 66) identify a range of facets that char-
acterize entrepreneurs. These are:
■ focus
■ advantage
■ creativity
■ ego
■ team
■ social.
They argue that which facets an entrepreneur possesses and the degree
to which they are exhibited determine whether an individual’s
talents lie in business or in social entrepreneurship.
The focus, advantage, creativity, and ego facets are present to
some degree in all entrepreneurs. The presence or absence of the
team facet affects the growth potential of the firm, and the social
facet affects the nature of the business.
Bolton and Thompson (2003: 148) offer an analysis of the building
blocks of this social facet. They suggest that there are four building
blocks, and that all need to be present. These are belief, values, mission
and service to others.
As with the decision to engage in any form of entrepreneurship,
the decision to become a social entrepreneur does not have to be one
that
Spotlight 7.1
The building blocks of the social facet

Belief
Beliefs are the guiding principles that individuals live by. They may believe in God, a particular political philoso-
phy, or even themselves, but their belief provides them with a way of seeing the world, a mindset. Bolton and
Thompson argue that the step from belief to values is the first dividing line between the business
entrepreneur and the social entrepreneur, as they choose to embed their beliefs into their approach to business.
They give the example of Souter, the Stagecoach boss, who is a devout Christian, but operates his business on
economic lines. Some entrepreneurs have strong beliefs and yet partition their lives so that it does not affect
their entrepreneurial behaviour. Applying one’s beliefs in the world of business can seem difficult.
Values
We have spoken about values and ethics in business in discussing corporate social responsibility, and
how adopting ethical practice might well be sound business practice. For socially minded entrepreneurs,
values are an integral part of the way they operate. It is not about enlightened self-interest. They do not
apply their values simply because it will give them an advantage. Socially minded entrepreneurs might have
beliefs and values, but they do not make the next step – to mission, which is the next stage on the road
to true social entrepreneurship.
Mission
Through mission, social entrepreneurs find a cause through which their beliefs and values can be channelled.
Bolton and Thompson suggest that Anita Roddick made this step when she became a campaigner for social
just- ice building on the success of Body Shop.
Service to others
The final step is doing something about it; taking action. Entrepreneurs act, they don’t just talk about act
Adapted from: Bolton B. and Thompson J. (2003: 148–54)
Question: To what extent do you agree with Bolton and Thompson’s categorization? Use practical examples to i
lasts throughout life. Some people start out as social entrepreneurs and
eventually move into the mainstream; others start out as traditional eco-
nomic entrepreneurs and at some point in their lives find a cause
that they feel is worth championing, whether for a short time or for
the rest of their lives. Some combine the two, running commercial
businesses that provide the profits to support social enterprises.
Although the motive is social and focused on making a difference in
other people’s lives, their characteristics and actions have many
similarities with those of entrepreneurs in general. The concepts are
the same, but the context is different.

One
Claire Goose (of Casualty and Waking the Dead TV programme fame) is helping her brother
Duncan to promote One, his new not-for-profit bottled-water venture.
The idea came from a brainstorming session in a pub. Duncan gave up his job and lived off
his savings to get the project off the ground. The water comes from the Radnor Hills in mid-
Wales and all the profits go towards new water pumps in villages in Africa. They are called
‘Playpumps’ and replace traditional hand-pumps with roundabouts that children can play on.
This frees up people’s time, as the water is pumped straight from the ground into storage
tanks.
The first bottle came off production on the day that Bob Geldof announced Live 8, and so
it seemed appropriate to try to use the event to promote the concept. Claire spoke at
the Edinburgh rally, and Duncan in London. Bottles of One water were given to all Live 8
performers and were also available in Edinburgh.
Although there are six years between the siblings in terms of age, Claire says ‘We are
very similar in personality. We will give anything a go. It’s been an emotional roller coaster.
A friend is the designer and everyone on the project has given their time for free. Everyone
is doing it because they want to do it.’
Adapted from: The Guardian, 16 July 2005
Question: Analyse the extent to which (a) Claire and (b) Duncan exhibit the facets of an
entrepreneur as described by Bolton and Thompson.
Summary
■ The UK government’s ‘modernization agenda’ in the
delivery of public services offers opportunities to
entrepreneurial social enterprises and the voluntary and
community sector.
■ Social enterprise makes a significant contribution to urban
regeneration and economic development.
■ Although the potential exists to secure longer-term funding
through contracts for delivering public sector services, volun-
tary and community sector organizations need to ensure that
this supports their mission and objectives. Some will need sup-
port in developing appropriate strategic capability.
■ Entrepreneurial organizations can learn lessons from the not-
for-profit sector in terms of strategy and values, governance,
and the management of knowledge workers.
■ Innovation and enterprise is being driven by the push towards
efficiency and accountability in the public sector.
■ Social and economic entrepreneurs exhibit similar traits
and characteristics despite the different contexts in which
they operate.
Chapter questions
1. Compare and contrast the characteristics and actions of social
and economic entrepreneurs. Draw on practical examples to
illustrate your analysis.
2. Are the economic needs of an entrepreneurial organization
always opposed to those of the broader community?
3. If you were the manager of a voluntary sector
organization what would you see as the advantages and
disadvantages in securing a public sector contract?
4. How might an economic entrepreneur apply the lessons
of best practice from the not-for-profit sector?
5. In creating an enterprise culture, to what extent should
public sector support be focused on social enterprise as
opposed to economic entrepreneurship?
Case study
Locanda dei Girasoli
Locanda dei Girasoli is a 100-seater pizzeria in Rome’s working class Tuscolano district. It has a
regular clientele, attracted by the better-than-average quality of the food. But what makes the
experience unique is that its waiters have Down’s Syndrome. Valerio, Claudio and Viviana (the
waiters) love the human contact involved in the job. They serve customers with aplomb, help in the
kitchen, and even turn a hand to baking a pizza as they have been taught all the necessary skills at
school. Their confidence and cheerfulness is infectious, and regulars are now quite used to being
greeted with an affectionate hug!
Sergio Paladini founded the project. He and his wife, Agostini, hoped that it would give their
Down’s son, Valerio, ‘a purpose in life’. Although they had no experience of the industry, they and
seven partners (including the three waiters) formed a cooperative to run the restaurant. They con-
tinued to work during the day and run the restaurant at night. They found it emotionally very
difficult when, at first, some customers would walk out when they saw it was a Down’s person who
was serv- ing. After four years, they decided to close because of repeated losses and sheer
exhaustion.
The left-wing city hall saved them, finding new investors and staff in the form of committed
cooperatives who could better support Sergio and Agostini. They are about to move into bigger
premises and hope to employ up to 20 people with Down’s.
Although at first the locals were put off by their prejudices, fewer people react badly these days.
Sergio hopes that attitudes to disability are finally changing in Rome.
Adapted from: Bruce Johnston, Down’s staff win over critics at pizzeria,
The Daily Telegraph, 14 July 2005
Questions
1. Evaluate the impact that a restaurant such as this can have on the local community.
2. Should national and local governments rely on the commitment of social entrepreneurs to pio-
neer such initiatives, or should they share the responsibility? Justify your views.

Barrington R. and Abbott C. (2005) What makes a multinational company a
global citizen? Sustainable development challenges for companies oper-
ating internationally. In: J. Hancock (ed.), Investing in Corporate Social
Responsibility. London: Kogan Page.
Bolton B. and Thompson J. (2003) The Entrepreneur in Focus: Achieve your Potential.
London: Thomson.
Bucar B. and Hirisch R.D. (2001) Ethics of business managers vs entrepre-
neurs. Journal of Developmental Entrepreneurship 1: 59–72.
Collins J.C. and Porras J.I. (1996) Building your company’s vision. Harvard
Business Review, Sept–Oct, pp. 65–77.
Drucker P.F. (2001) The Essential Drucker. Oxford: Butterworth-Heinemann.
DTI Social Enterprise Unit (2002) Social Enterprise: A Strategy for Success.
London: DTI.
DTI Social Enterprise Unit (2003) Social Enterprise: Delivering for All. London:
DTI.
Schaper M. and Volery T. (2004) Entrepreneurship and Small Business: A Pacific
Rim Perspective. Milton: John Wiley & Sons Australia Ltd.
Stewart T.A. (1997) Intellectual Capital: The New Wealth of Organizations. London:
Nicholas Brearley Publishing.
Useful websites
http://www.ncvo-vol.org.uk
http:// www.sbs.gov.uk/SBS_Gov_files/researchandstats/
Social-Enterprise-Survey-2005.pdf
Key words
collectivist approach parallel economy

community interest companies partnership
corporate social responsibility public sector
depoliticization short-term approach
effectiveness of the board short-term income streams
efficiency and accountability social enterprise
enactable contexts social entrepreneur
innovation strategy
limited experience of operating voluntary and community
commercially organizations
local community action
motivation and productivity of
knowledge workers
C H A P T E R
8
Multicul
tural
entrepreneu
rship
Learning objectives
■ understand the nature, challenges and impact of entrepre-

neurship in market economies at different stages of develop-
ment;
■ compare the nature and strategies of entrepreneurship in dif-
ferent cultures;
■ appreciate the size and impact of the informal economy;
■ recognize the different patterns of international entrepre-
neurship and strategies adopted to develop international
business;
■ identify the different specific skills, attitudes and techniques
prevalent in multicultural entrepreneurship.
Introduction
So far in this part of the book we have discussed the various dimensions
of entrepreneurship from the perspective of the generic skills, atti-
tudes and techniques adopted by entrepreneurs in different sector
contexts. In this chapter we discuss the dimension of different cultural
and country perspectives on entrepreneurship. While many of the
generic skills, attitudes and techniques that we have discussed so
far
Chapter 8 Multicultural 24
entrepreneurship 3
are common across cultures and countries there are some
differences too. There are considerable differences in the different
international contexts for entrepreneurship, including for example,
the nature of the markets, the competitive pressures and demands,
expectations of customers and the support and resources available.
As we introduce the various topics to be discussed in this chapter
it is also worth reflecting on the purpose of studying multicultural entre-
preneurship within the aims of this book. Clearly it is useful to add
to an understanding of how the different economic contexts that
exist in different country situations impact upon, and are affected
by, entrepreneurship within the economy. In conjunction with
many other factors we will discuss how entrepreneurship contributes
to the economic regeneration of economies and is therefore
particularly important in emerging markets.
The attitudes to entrepreneurship and the support,
encouragement and advice given to entrepreneurs are significantly
affected by the cultural standards and values of the host country as
well as its infrastructure, wealth and geography. The skills, attitudes
and techniques of entrepreneurship in different cultures can
therefore be given different emphasis. A discussion of the different
value placed on them can lead the reader to review his or her own
beliefs about the topic and possibly even resolve to embrace different
skills and attitudes with new enthusiasm.
Learning about alternative entrepreneurial cultures can also be
enhanced by gaining a greater understanding of the informal
economy, which has such a significant impact on many developed
economies.
Finally we will discuss the implications of international entrepre-
neurship and examine the various strategies that might be adopted by
international entrepreneurs.
The characteristics and impact of entrepreneurship in different cultures
In this first section we consider cross-country comparisons of entrepre-

neurial activity and the implications of some of the findings. Global
Entrepreneurship Monitor (2004) (GEM) makes a distinction
between the following two types of entrepreneurial activity.
1. Opportunity entrepreneurship, in which a perceived opportunity

is exploited. Opportunity entrepreneurs make up on average
65 per cent of the total but are more prevalent in high-
income economies; and
2. Necessity entrepreneurship, in which the activity is
undertaken because there are no other employment options
or because the other employment options are
unsatisfactory. Necessity entrepreneurs make up on
average 35 per cent of the total, but as might be expected
are more prevalent in low-income economies.
GEM makes cross-country comparisons using total entrepreneurial
activity (TEA) as an index. TEA is defined as constituting nascent entre-
preneurs, who are thinking about start-up or have paid wages or salaries
for less than three months and owner-managers, who have been paying
wages or salaries between 3 and 42 months.
The prevalence of entrepreneurship in different countries
GEM divides the 34 countries studied into high-, medium- and low-
income groups according to their per capita gross domestic product
(GDP). It found that TEA averaged 9.3 per cent for adults between 18
and 64 and varied among the 34 countries studied from 1.5 per cent in
the case of Japan to 40 per cent in the case of Peru. Generally, men are
twice as likely to start a business as are women.
There can be many reasons for the differences in TEA and these
are often cultural. Nueno (2000: 224) points out that, in Japan, leaving
a large organization to start your own small business is not well
accepted and previous business contacts are unlikely to be supportive
of the new venture. The figure for the UK is 6.3 per cent and for the
USA, 11.3 per cent.
To emphasize the scale of entrepreneurship in the USA, each year
more than 600 000 new businesses are launched and this number has
doubled in the last two decades. One year this figure reached 900 000.
10 million people are self-employed in the USA. Despite the high
failure rate of businesses, according to the 2002 Census Bureau data,
there was a 10 per cent increase in the number of businesses in the
USA between 1997 and 2002; interestingly, the number of black-owned
businesses grew by 45 per cent, Hispanic-owned businesses by 31 per
cent, and the number of Asian-owned businesses by 24 per cent.
However, minority-owned firms still make up only about 18 per cent of
the country’s businesses.
There are some significant differences as well as similarities between
the countries. For example, low-income countries (low per-capita
GDP) have the highest level of entrepreneurial activity for all age
groups and most people who consider starting a business there have
not completed
secondary level education. In contrast the level of activity (around 28
per cent) is the same among those that have secondary education
irrespective of the GDP. Usually people starting a new business already
have a job (91 per cent in high-income countries, 81 per cent in
middle- income countries and 77 per cent in low-income countries)
and only
0.1 per cent of businesses start with finance from venture capitalists or
business angels.
Despite some similarities across the countries, GEM concludes that
the policies of individual governments to support entrepreneurship
need to be tailored to each situation.
Culture and attitudes to entrepreneurship, risk and failure
Culture plays an important role in influencing attitudes to entrepre-

neurship, risk and failure. Before considering the prevalent attitudes
to entrepreneurship it is worth reflecting on the nature of
culture, which Doole and Lowe (2004) explain has three essential
components:
1. beliefs that reflect our knowledge and assessment of certain
situations and activities;
2. values regarding what we consider to be appropriate behav-
iour; and
3. customs, which concern our behaviour in certain situations.
They also explain how culture is made up of a number of
different components, including education, language, religion, social
organizations, law and politics, the response to technology and
material culture, and prevalent values and attitudes.
Against this background it is possible to see how the different
cultures across the world influence the prevalence of entrepreneurship
in various countries, because of different attitudes to self-employment
rather than employment in large organizations, attitudes to risk,
bankruptcy and starting again after a failure. Culture also affects the
way in which business is organized and carried out, not just in terms of
owning, financing, managing and growing the organization, but in
terms of the nature of the relationships between those doing business
together and those regulat- ing how business is done. Culture also
makes a significant contribution to how start-up organizations
determine the vision, mission, objectives and what might be considered
as success.
In order to illustrate some of these effects we now consider
entrepreneurship in some of the regions of the world.
Entrepreneurship culture in America: Culture in the USA has always
been characterized by the American dream that trying is everything,
anything is possible, success is celebrated, bankruptcy is tolerated and
entrepreneurs who fail are encouraged to try again. US
entrepreneurship, as in many high-income countries, is driven by high
levels of scientific and technological innovation and so many of the
fastest-growing and most successful global US firms in recent years,
such as Microsoft, Intel and Google, were high-technology start-ups.
Entrepreneurship culture in Europe: There are typically lower levels of
entrepreneurial activity in Europe than in the USA and
entrepreneurship in each region has a different focus although there
are some similarities in the encouragement of technology-based
businesses. For many years Germany has been proud of its core
of entrepreneurial family businesses that are the heart of the
economy, the Mittelstand. They have consistently achieved high
growth and delivered excellent export performance to make Germany
consistently one of the leading exporting countries. Much of the
competitive advantage of these businesses has been based on their
reputation for quality engineering and technology.
Many of the European Union countries have traditionally provided
significant social benefits which afford a secure ‘cushion’ for individ-
uals and act as a disincentive to become self-employed. Pause and
Reflect 8.1 shows the possible political implications in Germany of
the business environment ceasing to be supportive of its
entrepreneurial powerhouse.
as weak and personal saving had reached 11 per cent of income, hitting retail spending.
to kick-start the economy. This was in spite of a German export boom. The problem for the Mittelstand was that, at that m
ared to negotiate flexible hours and lower wages to help hard-pressed SMEs. But continued high oil
prices, an adverse euro exchange rate, global economic slowdown or a change of government to a party with
fewer pro-business policies in the forthcoming election could slow recovery.
However, the biggest problem, German entrepreneurs admitted, could be that the Germans love to whinge
instead of buying, investing and taking risks! The thing that would probably make the biggest difference would be
raising the nation’s morale, in particular if the home team did well when Germany hosted the football World Cup
in summer 2006.
Adapted from: Weber T., ‘Is Germany’s economy recovering?’ BBC News Online, 5 Sept 2005
Question: Which environmental factors are the most critical in supporting entrepreneurship in a developed
country?
As well as reducing individual incentive to become entrepreneurs

these high social costs cause high business costs and contribute to
European firms being less competitive.
In the UK traditionally there has been a rather negative attitude to
entrepreneurship with a low tolerance of risk-taking and little
acceptance of failure. In the community there may also be a degree
of envy of the most successful entrepreneurs and suspicion about the
business methods that entrepreneurs adopt. Strenuous efforts have
been made by the UK government to encourage enterprise generally
and entrepreneurship specifically. Italy has had a strong tradition
of family-owned businesses that has survived longer than in many
developed countries but increasing competition and acquisitions
coupled with the disintegra- tion of the traditional family unit and lack
of interest among succeeding generations poses challenges for the
traditional family business.
A number of the central and eastern European states have been and
still are going through a transitional period and Twaalfhoven and
Muzyka (2000) explain that entrepreneurship is at different stages in
different countries, with the more advanced being those that have
gained accession to the European Union. Much of central and
eastern Europe is still volatile because of the uncertainty of the
politics and economics, and the unreliability of the infrastructure,
resources and markets. It is important to recognize the impact of
recent history on entrepreneurship, for example, the fact that in
the former East Germany only 11 per cent of the population worked
in firms with less than 50 employees compared with 50 per cent in
the European Union (EU). This lack of entrepreneurial spirit and lack of
business and management skills has contributed to Germany’s
recent poor performance, as Pause and Reflect 8.1 shows.
While foreign direct investment by highly efficient global manufac-
turers and service providers has a huge impact on economic
regeneration the EU has recognized the need to increase the
entrepreneurial
and innovative capacity of indigenous organizations of the new EU
states prior to their accession, as Enterprise in Action 8.1 shows.

Helping CzechInvest to build the entrepreneurial supplier base
Prior to the accession of the Czech Republic to the European Union a number of major
multinational original equipment manufacturers (OEMs), particularly in the automotive,
electronic and information technology sector, such as Philips and Volkswagen, invested in the
country in order to benefit from low labour costs and a workforce with high technology and
engineering skills, demonstrated by the success of the Skoda car in international markets.
CzechInvest, the inward investment support organization, had been very successful in attract-
ing foreign multinationals but the problem for the Czech Republic was the weakness of its small
business supply base, not in terms of technical skills, but in management skills, as a result of its
recent history and the economy being managed centrally. The EU commission contracted with
a partnership between CzechInvest, the UK Department of Trade and Industry and
Sheffield Hallam University (UK) to provide programmes of training, consultancy and
business advice for many small Czech entrepreneurial organizations, with support from the
World Bank. By improving financial and human resource management, marketing, supply
chain and operations management, the entrepreneurial organizations became better
equipped to supply the OEMs and thus create a stronger supply base that would help to
attract further investors against competition from other countries.
Source : Robin Lowe
Question: What enterprise skills would you expect to be most needed by an SME wishing to
become an effective supplier to an OEM?
Entrepreneurship in Russia has also accelerated in recent years and

provides a good example of entrepreneurs exploiting
opportunities that are created through the chaos caused by
economic and political change. It provides a specific example of the
importance of entrepreneurs being in the right place at the right
time and, in the case of Russia, having the right political connections
to create huge businesses by exploiting valuable natural resources, such
as oil. In these situations politics and business are tightly interlinked,
especially so in high profile operations and hence it is particularly
important to be able to deal with potential political enemies too. Roman
Abramovich was elected as regional governor and his new businesses
benefited from tax breaks but he was able to successfully manage the
business, and his own wealth, through the changing political situation,
whereas the founder of Yukos Oil, Mikhail Khordorkovsky, was not
and was jailed for nine years on charges relating to fraud and tax. A
typical strategy of entrepreneurs in
this situation is to buy assets abroad, Chelsea football club in the case
of Abramovich, to help legitimize the business and build the
entrepreneur’s public profile. In October 2005 Abramovich sold back
his assets to the state, making a considerable profit in the process.
The business environment in Russia for entrepreneurship has
generally been characterized by corruption and this is discussed
later in Enterprise in Action 8.4.
Asian entrepreneurship
Asian entrepreneurship appears to be dominated by the Chinese,

who have a strong and very successful tradition of entrepreneurship,
and overseas-based Chinese play a significant and often dominant
role in the economy of many countries around the world as we
briefly discussed in Chapter 5 and as is further emphasized in Figure
8.1.
Redding (2000: 231) explains, however, that the countries of
the region vary in terms of political regime, stage of economic
development (from the poverty of Cambodia to the super rich
Hong Kong), and social and business culture. This has led to different
types of entrepreneurship and organizational structures. In Japan
successful entrepreneurship has led to the formation of the keiretsu –
complex organizations such as Mitsui, Mitsubishi and Yusada, which
are involved in many different activities, such as manufacturing,
banking and international trading through the Sogo Shosha. South
Korean entrepreneurs have created very disciplined family
businesses, chaebol, that are tightly linked to
55 m overseas Chinese have contributed significantly to economic development. They:

Control $2 trillion in cash or liquid assets in the region
Are the biggest direct investors in China ($26.5 billion in 1997, equivalent to 58 per cent of total foreign direct investm
Make up 9 out of 10 of the region’s billionaires Own around two thirds of retail industry
Are generally family businesses
Make up 1 per cent of the population in the Philippines, control 40 per cent of the economy
Make up 4 per cent in Indonesia and 10 per cent in Thailand but in both countries control half the economy
In Malaysia make up one third of the population but control two thirds of the economy.
Adapted from: Ng (2000) and Nueno (2000)
Figure 8.1
Chinese family
networks.
government policy of economic development. Examples include Sam-
sung and LG, which have grown from being suppliers to
multinationals, to eventually become global brands in their own
right.
By contrast the ethnic Chinese have based their entrepreneurship
on the development of small businesses that are not known globally. It
appears that while the Japanese and South Korean entrepreneurial
organizations have been able to organize and manage complex large
organizations, the Chinese have achieved efficiency and scale of
operations through an international network of family connections.
All three entrepreneurial approaches face future challenges and
will have to adapt to change. For example, the Japanese Sogo Shosha
(Doole and Lowe, 2004) are needed increasingly less as international
trade increasingly moves from face-to-face negotiations to online
transactions between the supplier and B2B customer without the
need for an intermediary. The South Korean organizations have to
adapt their ethno- centric roots to become truly global players. The
Chinese have to overcome the problems of growing beyond a
certain size by becoming better at managing complex organizations.
Entrepreneurship in China
Perhaps the creation of global Chinese brands will stem from the
previously state-owned enterprises that dominated the economy in
China until the market reforms. They have impacted on the nature of
entrepreneurship as the Chinese market has opened up. Nueno
(2000) comments that following the economic reforms in 1978 the
output from the state-owned enterprises (SOEs) has fallen rapidly,
while the collectively and individually owned enterprises, often started
by former SOE executives, have grown rapidly.
Entrepreneurship of this type is valued in China but the new compa-
nies experience recruitment problems because they do not make
social provisions for their staff as do the SOEs and so find it more diffi-
cult to attract the most able staff. However, as in most parts of the world
more aggressive competition and cost reduction is making it increas-
ingly difficult for large organizations to fund social provision for their
existing and retired staff.
The focus of entrepreneurship in China so far has been for the
country to use its huge pool of low-cost labour to become the manufac-
turing workshop for the world, particularly in labour-intensive activity
such as textiles and garment-making, but also in electrical goods
and electronics.
Through the efforts of entrepreneurial chief executives, a number
of the SOEs and newer businesses too, such as Lenovo and Hai’Er, are
being transformed into truly global players with well-known brand
names in a similar way to the South Korean companies mentioned
earlier.
Increasingly China is encouraging foreign direct investment from
multinational companies and foreign entrepreneurs, whose markets
are typically international. Many ‘blue chip’ Western firms entered
China quickly after the market reforms but struggled to adapt to the
uncertainty of the Chinese legal and business environment and a
different business culture. Many of the successful foreign
entrepreneurs have built better connections based on a common
culture and often through a Hong Kong office that acts as a bridge to
Western customers and partners. An example of an entrepreneur
gambling on how the authorities will relax controls in China is shown
in Enterprise in Action 8.2.

Racing in China
Taking risks is an inevitable part of entrepreneurship but Yun Pung Cheng, a Hong Kong
toy maker, seems to be taking a bigger gamble than most. He has invested more than £33
million in setting up a complete racing and bloodstock breeding centre just outside Beijing,
China, with a staff of 1000 including professional jockeys, 18 trainers recruited from
around the world, and 1000 thoroughbreds racing on a perfectly maintained track. Only
two things are missing – gambling and crowds of people.
China is considered to be the last frontier of horse racing. Despite China moving towards a
free market and operating its ‘one country, two systems’ policy, which means that gambling is
tolerated in Macao and Hong Kong, it has not allowed gambling in the rest of China
since Chairman Mao took power in 1949.
Racing started in 2002 and crowds of 5000 were attracted to the first events. A ‘guessing
game’ was used to get around the gambling ban but this did not last as the government clamped
down following an investigation into illegal betting. Now the meetings are less frequent,
there have been cuts in prize money, there is no ‘guessing game’ and the crowds have
disappeared. The real gamble for Yun Pung Cheng is whether the government will change its
mind.
Adapted from: Godfrey N., ‘China’s £33 m gamble under starter’s
orders: Vast untapped betting market the prize but few
turning up’.
Question: Do you consider this to be a risk worth taking?
It is easy to forget that as well as the successful Chinese family firms

there are very many necessity entrepreneurs, particularly in the poorer
rural areas. They face the constant challenge of petty bureaucracy and
corruption of local officials in attempting to comply with ever-
changing regulations.
The Chinese business culture
Having commented on the outstanding success of Chinese entrepre-

neurship (see Table 8.1), it would be useful to identify the reasons
for this and the distinctive approach to business which Ng (2000:
200) believes can be only due to the distinctive Chinese business
culture. The latter is based on Confucian principles and hard work,
and there is a strong emphasis on traditional standards and values. It
emphasizes collectivism and a focus on working for the benefit of the
group rather than on individual achievements. There is considerable
respect for authority and so there is centralized control and clear
vertical order.
A significant underpinning principle that has led the Chinese to be
so successful in internationalizing is that of guanxi, which means special
relationships or favours. By using the extended family and other
contacts it enables new business ventures to be started without the
need to find sources of finance as the extended family will usually help
to provide the initial capital. Often, too, the new-start business does not
have to go to the trouble of immediately finding new suppliers or, in
some cases, new customers. Once the new venture has been
established it might be expected to return the favour for other family
members who might require help with their businesses.
A major difference between Chinese and Western organizations is
the approach to agreeing deals and contract negotiation. While
Western organizations prepare a very detailed contract to protect
themselves from anything that could conceivably go wrong, Chinese
businesses rely on covenants, based on mutual friendship and trust,
believing that if things go wrong it is better if both parties are
committed to working together to take corrective action rather than
the parties resorting to the contract to apportion blame.
Indian entrepreneurship
As in China, the Indian economy has been transformed over the last
few years. There is still abject poverty in some city and rural areas
but there is a strong culture of entrepreneurship, evidenced by India
having the second-highest TEA score in the GEM 2002 survey. The
focus for the economic growth achieved has been in information
technology (IT)-related activity, both in design, development and
production of the hardware and software and in outsourced
services, such as call centres and administrative activities. A number
of Indian entrepreneurs have become very adept as spotting
international business
opportunities and have built up very effective businesses, for example,
Lakshmi Mittal in steel, Azim Premji in IT and outsourcing and
Mukesh Ambani in a range of sectors. Enterprise in Action 8.3
focuses on Ambani and the issue of greater partnership between the
humanitarian and business world.

Red Cross recruits Indian billionaire
The Foundation for the International Federation of Red Cross and Red Crescent Societies
was created in 1995 to more effectively manage its global fund-raising and humanitarian
activities. In the past it depended on philanthropy but now recognizes that closer links with the
business world may be beneficial too.
Billionaire Indian businessman Mukesh Ambani has been nominated as chairman. He is
chairman and managing director of the Reliance Group, India’s largest private enterprise
with an annual turnover of US$ 15 billion. The group has operations in a range of business
sectors, including petrochemicals, gas, textiles, telecoms, and financial services.
Ambani was persuaded to become a volunteer after being impressed by the work of the
Red Cross in his home state of Gujarat in 2001, following an earthquake and the fact that it
is a clear demonstration of corporate citizenship in practice.
Adapted from: ‘Indian billionaire backs Red Cross Red Crescent Foundation’,
27 May 2003, Press release International Federation of
Red Cross and Red Crescent Societies accessed at www.ifrc.org
Question: Who will gain most in an alliance between an entrepreneur from the private sector
and the not-for-profit sector?
Entrepreneurship in emerging markets

Much of the entrepreneurship in less developed countries is necessity
entrepreneurship and is frequently based on a survivalist strategy.
The opportunity identification and ideas of the majority of the self-
employed entrepreneurs in these countries are influenced strongly
by their own immediate circumstances, culture and traditional
values, the locally available resources and the limitations of their own
market knowledge. Without the opportunity to communicate with
more distant potential customers they are unable to appreciate the
requirements of a wider market, for example, in design, quality
standards and values and so have little opportunity to tap into more
lucrative business.
As we discuss later, many survivalist strategies can become firmly
established in a parallel informal economy. For example, while it is
indefen- sible that farmers in Afghanistan grow poppies for heroin
production, it is also understandable. A buyer takes the crop
directly from them
and has the requisite manufacturing and distribution knowledge to get
the product to the market via the criminal networks. Without a
mechanism to help the farmers connect with the market for other
crops, a supportive infrastructure and an effective supply chain
network there is little chance of them being able to break the cycle of
dependency on the heroin network that they are part of.
Changing attitudes in developed countries
Although the levels of entrepreneurial activity do fluctuate from year

to year the entrepreneurial culture overall does remain relatively
constant. However, in practice the recent growth in self-employment
in developed countries can also be partly explained by changes in the
nature of work in established organizations, the greater degree of
stress among staff caused by increased competition and inadequate
management, and the consequent changing relationship between
employer and employee. Privatizations, outsourcing of public and
private sector and downsizing of some organizations has eroded the
loyalty and trust between employer and employee in many
companies and many disillusioned employees have concluded that
they would be better off working for themselves. The life values of
young people are also changing as they recognize that there is no
possibility of a ‘job for life’ with a large organization. They no longer
feel the need for security that a permanent job would give them – if it
were possible to find one – and they are instead increasingly looking
for independence and choice rather than predictability.
The role of entrepreneurship in economic development
As we have seen in the previous section there is little doubt that private
and public enterprise is essential for economic development. Larger
countries, such as Russia and China were, until recently, command
economies in which the state controlled the greater part of business
activity and left little scope for enterprise. They are now moving to
promote the private sector to create growth.
Aid or business support

While few people would disagree that a global priority should be to
tackle world poverty there is inevitably considerable disagreement about
how it should be done. Many of the most vociferous protestors argue
that privatization and capitalism should not be forced on poor
African nations against these nations’ will. In practice, however, there
appears to be considerable anecdotal evidence that expanding the
private sector is an important way of reducing these nations’
dependence on aid and stimulating growth.
International aid can make up a huge percentage of an
emerging country’s budget; for example, in Uganda’s case it
accounts for nearly 50 per cent. While aid is vital to help with
alleviating hunger, providing basic health care and addressing the
most severe poverty it does little to enhance the dignity,
independence and self-respect of the country’s inhabitants. If people
are able to earn even a small income they can begin to provide for
their families.
While aid and the government’s budget is essential to develop
health, education and the country’s infrastructure there is a limit
to the employment that can be created in the public sector.
Consequently it is the growth of the private sector and
entrepreneurship that is needed to put money in people’s pockets,
increase domestic demand and generate tax revenues. The
additional danger is that if there is no scope for entrepreneurship in
the formal economy individuals will turn to the informal economy. In
the latter type of economy, however, there is no protection for
employees from the abuses thereof, such as child labour, prostitution
and criminality.
Political change and infrastructure development

For some governments the change to building and encouraging
private sector growth may be contrary to their political principles.
Bolderson (2005) comments that the previously Marxist Ethiopia has
started rapidly to liberalize its economy and encourage foreign
investment by giving tax breaks and enabling investors to avoid high
import duties when bringing capital goods into the country. However,
change is often difficult to adjust to as it often leads to foreign or
part-foreign ownership. The Ethiopian government has still not
released its grip on the telecommunications and freight industries;
only the state is allowed to own land and the banking sector is not yet
open to foreign ownership.
We have identified earlier the many push factors that motivate entre-
preneurs to set up in business, and in emerging markets these are
amplified by the prospect of escaping poverty or financial independ-
ence. However, the pull factors – the business support infrastructure –
is often absent or even positively discouraging. For example, in
Uganda
the banks charge rates of up to 26 per cent on loans for repayment
in five years (Bolderson, 2005).
Low- and high-displacement companies

Having discussed the benefits of new business creation and the expan-
sion of the private sector in general it is important to emphasize that
certain firms benefit by the economic performance of a country more
than others. Business growth generally creates wealth and employ-
ment, but for a new start growth results from creating new demand
or gaining market share from the competitors. For certain types of
business there is a fixed demand. In a developed country
hairdressing or car repair is a good example of this. If the local
demand is satisfied by the existing suppliers, a new-start
hairdressing or car repair company can only succeed by taking
business away from the existing companies, probably ultimately
forcing one out of business. New companies in these sectors
therefore have a high displacement effect on the existing businesses.
Overall the local GDP does not expand as a result of a high-
displacement start-up.
A low displacement start-up company sells a totally new product or
service that is not currently provided locally and so creates a new
demand or sells the product outside the local area, and so does not
adversely affect any existing companies. Indeed it adds to the wealth
of the local area and so increases the GDP.
Export markets and cash crops

The ideal start-up company in terms of its effect on the GDP is one
which exports, as the net effect is to increase the wealth of the local
community and ‘import’ jobs. The competitive advantage of many
emerging countries is their fertile land, a climate that is conducive to
growing crops and low labour costs. The temptation is to sell the crops
abroad to supermarkets (cash crops) in developed countries where
there is huge demand and foreign currency can be obtained in
exchange. There is considerable criticism of farmers growing cash
crops in less-developed countries as they take the best farmland, where
food crops for the local population could be grown and so alleviate
hunger.
Another problem for small businesses that export mainly to global
supermarket chains is that they are at the mercy of the ruthless
supermarket-chain buyers, who have little concern for the implications
of their actions for their growers (see Pause and Reflect 8.3).
The multiplier effect

A significant further difference between the types of start-up companies
is found in the overall effect of their supply chain on the local
economy. Clearly some start-up companies, for example those in labour-
intensive manufacturing and service delivery, will create more
employment within themselves. In addition, some business activities
also require many other companies to support their activities. For
example the hairdresser and, possibly, the car repair company, do not
depend on the supplies of other local companies and so have a low
multiplier effect. One job in a start-up hairdresser will not create
additional jobs in other local companies. Their supplies of beauty
products and car components are likely to be imported or
manufactured a considerable distance away.
A manufacturer of machinery – vehicles for example – might
require many supporting local skills, such as metal fabrication,
component manufacture, design, packaging and even catering
services. One job in a start-up manufacturing organization can be
multiplied a number of times in terms of the total additional jobs
created in the local economy because of the jobs created in other
local companies.
Small-firm support or infrastructure development

We discussed earlier the dilemma of whether to provide aid or
support to the development of the private sector in emerging
markets. A further question is whether financial support should go
to small firms directly or to the development of the wider business
infrastructure. The World Bank approved more than $10 billion in
the five years to 2003 for international aid agency programmes in
emerging markets to provide targeted assistance for SMEs, with the
purpose of accelerating growth and reducing poverty. Beck and
Demirguc-Kunt (2004) highlight the arguments for and against the
pro-SME policy. These arguments are as follows.
■ SMEs enhance competition and entrepreneurship and so

benefit efficiency, innovation and productive growth.
■ SMEs are often claimed to be more productive than large
firms but are let down by financial and other institutions.
Therefore infrastructure improvements of this kind made
through direct government support boost economic growth
and development.
■ Because SMEs are more labour-intensive, supporting the
growth of the SME sector should help reduce poverty.
The arguments against SME support are listed below.
■ Large firms exploit economies of scale and more readily
undertake research and development, pay higher wages
and offer more stable employment.
■ The pro arguments above are challenged by research that sug-
gests SMEs are neither more labour intensive nor better at
creating jobs and weak financial and legal institutions con-
strain growth in all firms.
■ The optimum size of firm is dependent on the particular
country context as, for example, the optimal firm size in
countries open to international trade is larger than in those
countries that are not open.
■ It is the business environment facing all firms that is
critical, including low entry and exit barriers. Effective
contract enforce- ment and access to finance is crucial for all
firms.
The authors comment that previous research has demonstrated a
strong relationship between the importance of SMEs and economic
growth, but their own research suggests that a strong SME sector is not
the reason for a high-growth economy but is a consequence of it.
Their research appears to show that it is an effective business
environment that causes growth and should be the focus of financial
support rather than directly subsidizing SMEs. Therefore the state
should focus on avoiding creating obstacles or, even better, remove
barriers and thus speed up the growth of entrepreneurial activity.
The infrastructure and availability of resources

It is the governments of the different countries and their attitudes to
developing an effective business environment, their different
approaches and different speeds of development of the financial
infrastructure and business support that are critical. Of course, as
most of the developing countries are recipients of financial aid it is
the beliefs, standards, values of the donor countries and the
policies of the international institutions, such as the World Bank
that are funded by the developed
nations that strongly influence the decisions many emerging coun-
tries take.
Returning nationals
Many developing countries have suffered from wars and other forms
of instability and this often prompts some of the most resourceful
and entrepreneurial individuals to leave the country. This places the
country at a significant initial disadvantage when finally there is
peace and stability. Many return when peace comes, often with new and
different knowledge, skills and attitudes. Along with the local
entrepreneurs, they often form a network of new businesses and
begin to create more reliable employment for local people.
The challenges of entrepreneurship in emerging markets
In this section we first focus on the significant opportunities that exist for
entrepreneurs – in large and small organizations – in emerging
markets that recognize and are able to deliver appropriate solutions.
We then discuss the informal economy. The informal economy exists
in all countries but in many less-developed countries it constitutes
over half the gross domestic income. Clearly if some of the informal
economy can be converted into legitimate business activity that
generates taxes for the government, the country and its people as a
whole should benefit.
We have discussed in the previous section the macro factors that
impact on the growth of entrepreneurship and the private sector in
general in various countries, but here we discuss the constraints
that pose specific challenges to starting up and growing a company.
Social entrepreneurs have played a key role in addressing some of
the barriers to growth of the smallest business activities but also have
used their unique motivations and skills to find practical solutions to
other social problems.
The opportunity
The traditional view of the very poor in the world appears to be that
they are economically inactive and this fits with the strategies of
most
Table 8.1
The global pyramid of wealth
Global population (m) Purchasing power

The wealthy 800 $50 000
The emerging middle class 1500 $1500–15 000
Low income markets 4000 <$1500
Adapted from: Prahalad C.K. and Hart S.L. (2002) The fortune at the bottom of
the pyramid. Strategy and Business 26(54): 67.
multinational enterprises that focus on the customers wealthy enough

to purchase their goods and services. However, Prahalad and Hart
(2002) have suggested that there is a pyramid of wealth (see Table
8.1) and those with the lowest incomes still have the potential to create
a significant demand for goods and services that are designed to
meet their particular needs and situation. In less-developed countries
around the world and in the poorest neighbourhoods of more well-
developed countries, entrepreneurs have devised creative solutions,
often using a combination of the latest technology and practical
approaches. These innovative solutions have flowed from large
organizations, individual entrepreneurs and social entrepreneurs.
Hart and London (2005) have identified examples of innovative
solutions that not only satisfy a demand but in so doing create a viable
business model or network for self-help and support, or to facilitate
business transactions more efficiently. They emphasize that the key for
multinationals is to work with partners that they would never have con-
sidered before. These new approaches to doing business in the first
stage enable the small businesses to survive and become more econom-
ically viable, but then in the second stage link with larger and more
wealthy markets. We have provided examples too in various parts of
the book.
The informal economy

An area of economic activity that is largely overlooked in the
business and management texts is the informal economy. The latter
includes illegal criminal activity that ranges from trade in stolen
goods, drug
dealing and manufacturing, prostitution, to smuggling and fraud, as
well as legal activities that are ‘underground’ because of tax evasion or
avoidance. The size of the informal economy in a number of
countries has been estimated, as shown in Spotlight 8.1. Because of
its impact, particularly on the developing economies, and importance
in crime, its nature and size should be of concern to all
governments. An increasing amount of research is being done
although the methodology for estimating the size of the informal
economy is still debated (Schneider, 2002) as it is unlikely to be
very accurate given the fact that those involved in the informal
economy are unlikely to want to provide details of their activities.
However inaccurate the estimates are, it is clear that the informal
economy is significant and is driven by continual criminal
entrepreneurship and innovation.
There is also some difficulty in estimating the size of the informal
economy partly because of the lack of an agreed definition, but
Lippert and Walker (1997: 5) explain the alternative types of activity
and these are summarized in Table 8.2.
In a study for the World Bank, shown in Spotlight 8.1, Schneider
(2002) estimates that the average size of the informal economy as a per-
centage of official gross national income in 2000 in developing coun-
tries was 41 per cent, in transition countries 38 per cent and in
OECD countries, 18 per cent.
Table 8.2
Types of activity in the informal economy
Legality of Monetary Non-monetary

activities transactions transactions
Illegal Stolen goods, drug Barter of drugs, stolen goods,
dealing, prostitution, etc; growing drugs or theft for
gambling, smuggling and own use
fraud
Tax evasion Tax avoidance Tax evasion Tax avoidance
Legal Unreported Employee Barter of legal All DIY
income from fringe services and and help
self- benefits goods for
employment neighbours
or legal
goods and
services
Source: Lippert O. and Walker M. (eds) (1997) The Underground Economy:

Global Evidences of its Size and Impact. Vancouver BC: The Frazer Institute.
Spotlight 8.1
The size of the informal economy and how to reduce it

It is estimated that the informal economy in Africa averaged 42 per cent of GDP in 1999/2000 with Zimbabwe,
Tanzania and Nigeria the highest at 58–59 per cent and Botswana and Cameroon the lowest at 33 per cent. In
Latin America Bolivia had the highest informal economy at 67 per cent and Chile the lowest at 20 per cent. In
transition countries Georgia had 67 per cent while the Czech Republic and Slovak Republic had 19 per cent.
The range in Asia was from Thailand at 53 per cent to Singapore 13 per cent and Japan 11 per cent.
In European OECD countries it is estimated that 48 million people work in the informal economy, the aver-
age being 18 per cent of GDP, ranging from Greece with 29 per cent to Switzerland with 9 per cent. The UK
figure is estimated to be 13 per cent. In the USA the estimate is 9 per cent.
It is in the interest of governments to at least contain but ideally reduce the size of the informal economy in
order to increase their taxation income, better control the activities of organizations and provide greater pro-
tection for workers. Clearly, separate strategies are needed to deal with businesses engaged in illegal activities
that need to be closed down compared with businesses engaged in legal activities that are operating in the infor-
mal economy to avoid or evade tax.
Adapted from: Schneider F., ‘Size and measurement of the informal economy in 110
countries around the world’, July 2002, accessed at www.worldbank.org on 8
Sept 2005
Questions: What should countries do to bring more of their economy into the formal sector? What policies
have been tried and what has been most effective?
Schneider (2002), summarizing many research studies, suggests that

the reasons for the large informal sector are the high and complex
tax regimes including high social security payments, excessive
government regulation for start-up businesses and over-regulation of
labour markets. Underground labour can include a second job
carried out during or after regular working hours, or by those who
are not part of the official labour market, for example because they
are officially categorized as unemployed or disabled or because they
are illegal immigrants. These workers are quite obviously more
productive (in terms of output per unit cost of employment) than
those in the official economy. They are likely to be employed more
frequently by smaller organizations looking for cheap labour that
are prepared to take the risk of using illegal
practices to run their businesses.
practical difficulties faced by entrepreneurs in less-developed count
The typical problems that are faced by entrepreneurs in less-developed

countries are, in part, similar but also more extreme than those
experienced by their counterparts in better-developed countries.
There are also more acute problems created by the macro and micro
environmental factors. Generating a vibrant business economy in a
less developed country, or indeed regenerating a deprived region in
a developed country is a greater challenge because the existing weak
business environment is often further weakened by political,
economic, infrastructure, education and market problems. Because
these factors are interdependent they tend to compound the
individual difficulties that are faced by entrepreneurs.
This causes a downward spiral that creates a very negative
external image of the area. To reverse the downward spiral requires
improvements in every area of the environment, but some of the
critical difficulties, such as culture, values, education and
infrastructure can take years to change.
Access to finance
Most entrepreneurs experience problems raising finance for their

operations but in less-developed countries they face more acute
problems. For example, with widespread poverty it is unlikely that
family and friends will be able to help with initial loans and the
banks charge very high interest rates on loans, and are often
inflexible in their business transactions and requirements for
collateral. As with businesses in the developed countries the problem
is often greatest for those entrepreneurs who have no assets and only
require very small amounts of finance to start a ‘survival’ business. The
case study at the end of the chapter on Grameen Bank shows how a
social entrepreneur addressed the financial problems of some of the
poorest people, seeking to set up a business.
In Pause and Reflect 8.2 it is shown that even businesses that are set
up and managed as recognizable international operations can have
severe problems in managing their transactions and have to resort to
unconventional means.

address this she set up an online retail business for African arts and crafts, It operates under fair trade principles and its a
shown and discussed at dinner parties. For $1000 it is possible to buy a a coffin in the shape of a fish, aeroplane
or beer bottle. Such coffins originate in Ghana, the design reflecting the way the deceased earned their living.
There have been considerable problems in starting up the business, for example, local banks could not cope
with credit card payments and international banks required a bank account to be held in the West. Ms Salter-
Nour solved this by using her own personal account to start off the business. A further problem is that, while she
expected the USA to be a major market, because of the African roots of many Americans the country is being
flooded by imports of Chinese products made to look like African products and made by workers that are paid
unfair wages.
Adapted from: Hale B., ‘African crafts go on-line’, BBC News Online, 3 February 2003
Question: What impact on the economy does an initiative of this sort really have?
Access to skills and education
As we have discussed earlier there is a view that successful

entrepreneurs do not necessarily need to be the most formally
educated. However, basic education which is still unavailable to
many people in LDCs is necessary to enable the basic business
activities to be completed successfully, so that the companies can
become part of the legitimate business market. Indeed it might be
suggested that a significant reason for the large informal economy in
LDCs may be not solely to avoid taxation but simply because
people operate their businesses in the informal economy because they
are illiterate and cannot manage their business affairs as part of the
formal economy.
Women entrepreneurs
Women entrepreneurs experience particular problems in emerging

markets due to their role in a society that is often dictated by culture
and tradition. Women are unable to access education in the same way
as men in many countries. The World Bank has reported that the
targets for women’s education have not been met and this lack of
education can result in them lacking the necessary basic skills.
Culture and tradition may prevent them from being taken seriously
in business, moving freely around to carry out their business
activities and it certainly affects their ability to access finance.
Against this background it is interesting to note that the Grameen
Bank, discussed in the case study at the end of this chapter, lends pri-
marily to women as it considers them to be more reliable in repaying
a loan.
Infrastructure weaknesses
Many of the less-developed countries have difficult geography with

remote areas, difficult terrain with poor roads, and an inhospitable cli-
mate. Building a reliable financial and business support infrastructure
as we have discussed earlier is essential. Many emerging countries have
a poorly developed infrastructure and suffer unreliable and often
poor- quality supplies of utilities, such as energy, water and power.
Telecom- munications and transport are often slow and unreliable
and it has been suggested that mobile phones could become the
most significant factor in developing the emerging market
economies by enabling entrepreneurs to communicate with distant
business contacts and the global market in a way that has never been
possible before.
Bribery and corruption
We have shown already that the informal economy is huge in less-

developed countries but, in addition, bribery and corruption is rife at
all levels. In Russia this will be a significant problem until the business
structures, legal authority and controls are in place, as discussed in

Entrepreneurship Russian style
Russian entrepreneurship has been born again out of the political upheavals in the country. It
is characterized by a few oligarchs who, over a period of 15 years, have become
unbelievably wealthy. In contrast the vast majority of entrepreneurs are fighting to survive in an
environment of corruption and violence.
A few multibillionaires emerged from a small group of wheeler-dealing entrepreneurs
who made money, from importing computers and cars to setting up banks. It was risky
being an entrepreneur in the early days because after 70 years of communism even honest
business people were regarded as thieves. Many bankers were killed by hired assassins.
A few of these oligarchs were close to the reforming communist leaders and were able to
benefit from the opportunities that arose when the Russian government sold off oil and
min- eral assets in 1995 to try to stop the market reforms being reversed. Vladimir Potanin, a
banker, acquired Norilisk Nickel, one of the world’s richest raw material suppliers and
Mikhael Khordorkovsky got Yukos Oil. They became fabulously rich overnight but it was their
political ties that many think were critical to gaining ownership of the assets but, also, this
was their greatest area of risk.
Political relationships can work two ways and Khordorkovsky appeared to fall out of favour
and was taken to court on fraud and tax charges and in May 2005 was jailed for nine years.
Yukos Oil was destroyed by huge tax demands in apparent political retaliation. This has
sent warning signs to foreign investors who are, for the moment, more reluctant to invest in
Russia. For the many small entrepreneurs the environment is even more difficult as they
are continually harassed by local mafia. Business owners are frequently killed if they do not
pay up or their premises are burnt down. They are overburdened by rules imposed by the
federal and local government. In the power vacuum after the fall of communism it appears
that the gangsters are in league with local government officials, who change the rules to
obstruct those busi-
nesses that do not pay protection money.
The gangsters appear to be filling that vacuum but there is an optimistic view that says they
will gradually learn how to run legitimate businesses as the market develops and follow the
example of some genuine entrepreneurs who have created excellent businesses in the local
community that demonstrate how the new economy could work.
Adapted from: Gregory M., ‘Corruption and extortion face Russian firms’,
BBC News Online, 23 June 2005; and Fraser H., ‘Russia’s oligarchs:
their risky routes to riches’, BBC News Online, 27 July 2004
Question: How can genuine entrepreneurs survive in this environment?
War and terrorism
The disruption to businesses because of war and terrorism is well

reported, particularly in developed countries. However, for
developing countries it is not necessarily the disruption to goods and
services organizations that is the biggest problem because enterprising
individuals find new ways to serve their market and run their
organizations. However, the disruption to tourism, on which many of
these countries, such as Egypt and Bali, depend, can be catastrophic,
as there is little individual organizations can do to generate visitors.
Quality and service perceptions
In countries that do not have a large domestic market demand it is

necessary for entrepreneurial organizations that have the ambition
to grow to become involved in international trade. Later in this chapter
we discuss the alternative routes to internationalization for small
organizations but here our concern is that whatever the route the
goods and services from the country take they must compete with those
goods and services supplied from other countries, even though they
may be cheaper or unique. For entrepreneurs from emerging
markets this poses problems of the customers’ perceptions of the
quality of their goods and service. What is
acceptable in a local emerging market may not be acceptable to con-
sumers in a developed country.
Access to markets and some dangers for

community enterprises
The problem is one of both reality and perception. First, the goods
and service standards in the country and company may not be of the
necessary standard and a key role of governments is to support
industries to improve quality standards. Second, irrespective of the
actual quality consumers may have a perception of the country that
the goods and services might not be of an acceptable standard. The only
way this perception will change is if the company can re-educate
customers and convince them of its ability to supply high-quality
goods and services.
It is unlikely that an early-stage independent business in an emerging
market has the resources to promote its goods and convince
international customers of its quality of goods and services. There are
three alternative approaches for entrepreneurial organizations, as now
discussed.
Becoming a contract manufacturer

In low labour cost countries contract manufacturers are used by multi-
national companies (MNCs), such as Nike and Gap, to produce their
clothing products. Their customers use the Nike and Gap brand
to provide the quality assurance that they require to reduce the risk
of buying a poorly manufactured product. The contract
manufacturers then have to make to the quality standards
determined by Nike and Gap. In practice contract manufacturing
should benefit the local economy by setting new quality standards.
There are some risks attendant to contract manufacturing. The
principal risk for the supplier is that in return for predictable orders
and income streams it will be under constant pressure to contain or
reduce costs from its MNC customer. Ultimately if it is unable to
compete on costs the MNC may simply transfer manufacture to
another supplier, or even country, and there is unlikely to be much
it will be able to do to prevent this.
Network marketing
For small entrepreneurial organizations from an emerging market
that do not wish to become locked into a subcontracting business and
seek
to have more control over their markets an alternative approach is to
form a network that collectively markets their products. Networks
are often facilitated by local trade associations, government support
agencies or the buyer.
Internet marketing
The most significant development to assist smaller entrepreneurial
organizations in emerging markets to develop international trade has
been the development of the Internet. As well as enabling inter-
national trade transactions it provides the opportunity for organiza-
tions to present their products and services more professionally to
their international customers and obtain feedback on the quality of
the supplies.
The Internet can also help to facilitate networking and support
supply chain management.
Low price competition
While it is not our intention here to debate at length the issues of

fair trade and free trade, it is important to recognize the significant
impact of global trading practices on entrepreneurial organizations
in emerging markets. A specific issue centres on farming and the
production of food and drink products in emerging markets, which is
often the most important sector. The problems arise when global
commodity prices fall dramatically, often due to dumping or subsidies,
or simply because the huge scale of their operations make it
possible for MNCs from developed countries to offer prices that are
below the cost of producing the crops in developing countries, until
at least the farmers have been able to improve efficiencies and
increase the scale of their operations. Sudden falls in commodity
prices have a catastrophic effect on the lives of millions of small-
scale producers, their families, workers and their local communities,
forcing them into crippling debt or caus- ing them to lose their land
and homes. Even quite large businesses can suffer from unfair
practices, as shown in Pause and Reflect 8.3. These practices are
justified to customers by aggressive supermarket buyers because it
allows them to charge low prices. Others argue that such ruthless
practices simply increase the profits of the most powerful
supermarket chains.
UK supermarkets’ unethical behaviour?
UK supermarkets have long been criticized for their unethical business practices in their dealing with farmers.
Sixty-five per cent of South African grape farmers were estimated to be operating at a loss in August 2005.
While part of the pressure was caused by the strong rand and bad weather they blamed British supermarket price
wars as a major reason for the high level of financial hardship and bankruptcies. While the supermarkets demand
high standards of production they are not prepared to pay the price it costs to achieve this. Just before his grape
farm, family-owned since 1920, was forced into bankruptcy by the low prices a farmer at Orange River went to
the UK and was shocked to see the exorbitant prices consumers were being charged, compared to the prices the
supermarkets were paying the farmers. Five years ago his price was equivalent to £5 per 4.5 kilo box, whereas
he was now getting £2 per box. On production of around 175 000 boxes a year his losses were considerable.
Buy one, get one free promotions or sudden discounts result in farmers being paid even less because, often,
the promotions and what price the supermarket will pay are only decided by the supermarket after the grapes
have left the farm.
So while the UK consumer possibly benefits from low prices and supermarket shareholders benefit from high
profits, it is South Africa’s poorest people who suffer. They live in near-poverty, earning less than the South
African minimum wage of £4 per day. The campaigning charity, Action Aid, and the South Africa’s Women in
Farms trade union want supermarkets to abide by the ethical codes that most of them have signed up to.
Not all supermarkets are the same. Marks & Spencer and Waitrose behave ethically and pay realistic prices to
their suppliers. Asian supermarkets also pay realistic prices. Of course their shoppers also have to pay a realistic
price but they do this knowing that, as a result, the workers on the farms have an acceptable standard of living.
Adapted from: Emmett S., ‘South African grape farmers face squeeze’, BBC News Online, 12 August 2005
Question: Should supermarkets behave ethically towards suppliers or should their responsibility be merely to
get the best price to benefit their customers and shareholders?
Fairtrade
Nicholls and Opal (2005) discuss the principles of fair trade and the
organization, www.fairtrade.org, was developed to promote ethical
consumption, including:
■ direct purchasing from producers;

■ transparent and long-term trading partnerships;
■ cooperation not competition;
■ agreed minimum prices to cover the costs of production, usu-
ally set higher than market minimums;
■ focus on development and technical assistance via the pay-
ment to suppliers of an agreed social premium (often 10 per
cent or more of the cost price of goods);
■ provision of market information; and
■ sustainable and environmentally responsible production.
By September 2004 Fairtrade claimed to have certified 422 producer
groups in 49 countries, who were selling to hundreds of Fairtrade-
registered importers, licensees and retailers in 19 countries. Fairtrade
turnover is expected to reach £1 billion by 2007.
The nature and development of international entrepreneurship
Before leaving the discussion of multicultural entrepreneurship it is

useful to consider international business opportunities and the
entrepreneurial options that are available to exploit them.
The impact of globalization

Traditionally, organizations have not needed to become international
traders until their business has grown substantially as their domestic
market is usually large enough to provide sufficient demand.
International trading has always posed perceived risks (Barker and
Kaynack, 1992) to small organizations including:
■ too much red tape;
■ transportation difficulties;
■ lack of trained personnel;
■ lack of assistance and incentives;
■ unfavourable conditions overseas;
■ language and cultural barriers;
■ lack of competitive products to meet different needs;
■ slow or late payment.
Increasing globalization, however, has posed new challenges for smaller
organizations. In most sectors they are being subject to increasing com-
petition from international companies in their domestic market. For
example, in 2005 UK haulage companies complained to the govern-
ment that high fuel taxes meant that haulage companies from
contin- ental European countries were using lower-priced fuel
purchased in Europe, where fuel taxes were lower, to deliver loads
within the UK as well as into the UK.
Globalization has meant that customers around the world
increasingly want to buy similar products and services, giving rise
to global niche marketing. In many technology areas entrepreneurs
setting up a business based on a breakthrough technology have to be
‘born global’
and immediately supply customers around the world. If they fail to
do this competitors will copy their idea and fill the vacuum left.
Exporting
Traditionally, the way that organizations have pursued international
opportunities has been through exporting, which is essentially
selling products across borders. This approach relies on the
organization having a distinct competitive advantage for its product,
such as low cost, which should be the case for organizations from low
labour cost countries. Alternatively an organization’s competitive
advantage might be based upon its technical leadership over
competing products, even though the prices it must charge might be
higher than those of competitors in export markets. Usually the
exporter sells through importers, dealers, distributors or retailers but
not to the final consumers, except in the case of B2B sales, as this
usually requires too much financial and human resource for marketing
and selling. Some organizations have been able to build an export
business even in commodity sectors by offering exceptional levels
of customer service, and convincing customers that there is little
point in looking for supplies from elsewhere (see Enterprise in Action
6.4 and Spotlight 12.2).
Organizations with very limited resources, and marketing and man-
agement expertise, for example community enterprises or suppliers
of a major MNC, rely on domestic purchasing, where the customer
comes to the organization’s home location to purchase the products.
For many organizations the disadvantages of exporting and,
particularly, domestic purchasing are that the organization has little
contact with the final customers and market and so often cannot
respond quickly enough to changes that might adversely affect the
business. However, if the pur- chasers behave ethically (see Pause and
Reflect 8.4), the impact for the local community can be very
significant.

n the demand from major international companies, who effectively carry out domestic purchasing. In the past many comm
Conservation International (CI) to add sustainability to the activity by taking a nut by-product and using it in a hair car
to source plant-based ingredients for its developing product range. The unique ingredient for Aveda is the pro-
tein Morikue. CI’s objective is to help local communities create sustainable, environmentally friendly
businesses and avoid damaging the natural resources upon which they depend. Activities of this type add value
to the nut- processing operation.
The enterprise is based in the Tambopata–Candamo reserve zone, an area rich in biodiversity and claiming
the most extensive single-site species diversity records for woody plants, birds, butterflies, mammals and
dragonflies. The nut collection and processing activities directly affect conservation and natural resource
management, and so Aveda supports training activities for Brazil nut collectors and has run enterprise
development workshops to show how sourcing guidelines can be used to establish reliable supply chains and
improve product quality, necessary for enterprises aiming to develop new markets.
Aveda has also helped to fund Profores, a business founded in 2000 to produce and market sustainable
forest products, such as fruit nectars. The funding has been used to improve the quality of manufacturing and
establish the required systems, necessary for quality recognition that will enable the company to develop new
markets.
Adapted from: corporate partnerships at Conservation International at www.conservation.org
Questions: How important to the community are partnerships based on ethical principles and involving for
profit organizations, such as Aveda? What can be achieved?
Niche marketing
For most entrepreneurs traditional exporting is too much at arm’s
length as they typically want to be more closely in touch with their
customers. They prefer to have intimate knowledge of the markets in
which they have started to operate, so that they can use their
innovative capability to create and exploit opportunities and respond
to customer demands more quickly than their larger or more local
competitors. For this reason entrepreneurs are usually more
successful as niche marketers, concentrating on a limited product
and service range offered to one customer segment that has
common requirements despite being found in different countries.
Alternative patterns of international development strategies
At this point it is worth emphasizing the different attitudes and

approaches to international development. For example, small and
medium-sized US organizations have little reason to develop inter-
nationally because their huge domestic market provides sufficient
demand without the risks identified above. In many small countries and,
especially emerging markets, the domestic market soon becomes too
small to support an organization’s continued growth and it is forced
to internationalize. Japan has few natural resources and so to pay
for importing essential goods, the government has had to encourage
businesses to internationalize in order to build the economy.
The pattern of geographic development of organizations varies.
Western and larger Asian firms have internationalized by carefully analy-
sing and selecting the most attractive markets, often starting with those
markets close by. By contrast, as we have indicated earlier, Chinese
firms have typically spread by using family connections particularly
where there is a large expatriate community.
E-commerce
Globalization has been accelerated by e-commerce and its
advantages of interactivity and real-time communication and
transactions. It has been particularly significant for entrepreneurial
organizations as it has enabled entrepreneurs to meet many of the
challenges of international trade, particularly their lack of resources
compared with very large competitors. It has helped with:
■ global sourcing, enabling entrepreneurial organizations to

use and manage remote, low-cost suppliers efficiently and with
less management resource;
■ enabling entrepreneurial organizations to enter new, distant
markets at low cost and supply widely spread customers at a
com- parable cost to larger competitors, for example, a
Philippines- based IBM employee left his job to set up an e-
store at www. pinoydelikasi.com to sell Philippino food
delicacies because his London-based mother kept asking him
to send them to her and her friends; and
■ obtaining immediate feedback from customers from diverse
cultures and a better understanding of remote markets.
E-commerce will be vital in the development of entrepreneurial

organizations in emerging markets in central and eastern Europe,
Asia, Africa and South America. Africa missed the opportunities
offered through the increase in global sourcing because it was not able
to offer low-cost manufacturing. It is essential that it does not miss out
on this next commercial revolution.
Summary
■ Around the world entrepreneurship can be categorized as
necessity or opportunistic, based on the motivations of the
entrepreneur.
■ The prevalence of and approach to entrepreneurial activity
varies considerably because of the unique contexts, culture,
history and economic situation of a particular country.
■ Entrepreneurs are seen as vital to economic development or
regeneration.
■ Many challenges face entrepreneurs, particularly in
developing markets. A key factor is making the best use of
international aid and investment to develop a supportive
infrastructure, but the unfair trading practices of developed
nations are often the most difficult barrier confronting
them.
■ Opportunities exist in emerging markets and both private sec-
tor and social entrepreneurs have an intimate understanding
of their local situation and often have to substitute
ingenuity and determination to compensate for their lack of
resources to exploit them.
■ Globalization forces entrepreneurs to consider international
trading earlier, and recent developments in technology and
changes in approach are assisting entrepreneurs in emerging
and developed markets.
Chapter questions
1. Using appropriate examples show how different cultures have
developed different attitudes and approaches to
encouraging and supporting entrepreneurship.
2. Explain how the country context affects the nature, role and
economic contribution of entrepreneurship.
3. You are an experienced adviser to small businesses in a
developed country and have been invited to speak at a
conference to discuss entrepreneurship in developing
countries. You have been asked to identify the most important
challenges that entrepreneurs in developing countries are likely
to face and suggest some practical ways that they might adopt
to overcome the problems. Create an appropriate presentation
on the subject.
4. Through the use of examples show how entrepreneurs can
be highly innovative in less developed countries. What do
you
think an entrepreneur from a developed country might learn
(in knowledge, skills and attitudes) from your examples?
5. How might international aid, charitable donations and eth-
ical business principles, such as Fairtrade, be used to support
entrepreneurship in a less developed country?
Case study
The Grameen Bank of Bangladesh
Muhammad Yunus was born in Chittagong, Bangladesh, one of 14 children. As with many entrepre-
neurs the themes and motivations for his later life probably were set in childhood. His father owned
and operated a jewellery store above which the family lived. His mother taught him life values that
included the values of charity. He was a bright child and, after starting a packaging business in
Bangladesh, won a Fulbright scholarship and attended Vanderbilt University in the USA, where he
was encouraged to question traditional economic theory and adopt a more pragmatic and social
perspective. He returned home to take up a post as an economist at Chittagong University.
On a field trip with students in 1974 he talked to a woman in a poor village who was making bam-
boo stools and learned that she had to borrow the equivalent of 15p to buy raw bamboo for each
stool made and had to pay the middleman as much as 10 per cent a week, leaving her with only a 1p
profit margin. If she had been able to borrow at better interest rates she would be able to build a
reserve of money and lift herself above the subsistence level. From his own pocket he lent £17 to 42
basket weavers and found that not only did this help them to survive but generated a new personal
initiative to pull them out of poverty.
He carried on giving similar micro loans and in 1983 founded Grameen Bank on the principles of
trust and solidarity. By 2005 the bank had almost 1200 branches, 12 500 staff and 2.1 million
borrowers in 39 000 villages. Ninety-four per cent of the loans are made to women and 98 per cent
are paid back, higher than for any other banking system. The average loan is $160. Despite high
illiteracy levels among women (78 per cent) economic activity has significantly increased. The
model has been copied in many countries throughout the world.
There are critics that argue that the micro lenders tend not to provide loans to those that most need
them and the interest rates are 30–50 per cent higher than with commercial banks. They argue that
the borrowers do not make the most use of the money because they lack the basic business skills and
the small size of the loans only allows the financing of trading and not manufacturing. Furthermore
they suggest that although women are the recipients of the loans it is the men who take control of the
money once it is received.
Grameen does not offer a global solution to poverty but it does provide some practical short-term
help for some of the world’s poor. Despite the criticisms, Grameen continues to develop and, for
example, is helping to finance community projects to provide renewable energy, purchase solar
panels and mobile phone equipment and encourage the greater use of the Internet.
Grameen Bank stays focused on its aims of building social, not legal, contracts and combines
social and business principles. It recognizes that credit is the last hope of those faced with absolute
poverty, which is why Muhammad Yunus believes that the right to credit should be a fundamental
human right. There is debate about whether this type of capitalism should be used to alleviate
poverty but the
World Bank has acknowledged that this business approach has enabled millions of individuals to work
Adapted from: Bangladesh’s Micro-Loans, Article 22, BBC World Service accessed online 6 Sept 2005;
Questions
Identify the challenges facing the very poorest people in less-developed countries who must create
What are the arguments for and against micro credit?
What do you consider to be the essential characteristics of a social entrepreneur, such as Muhammad

Barker S. and Kaynack E. (1992) An empirical investigation of the
differences between initiating and continuing exporters. European
Journal of Marketing 26(3).
Beck T. and Demirguc-Kunt A. (2004) SMEs, Growth and Poverty: Public
Policy for the Private Sector. Note No. 268, The World Bank Group,
February.
Bolderson C. (2005) Africa’s entrepreneurial vision. BBC News Online,
11 October.
Development and Implementation, 4th edn. London: Thomson Learning.
Global Entrepreneurship Monitor (2004) accessed at
www.gemconsortium.org on 18 September 2005.
Hart S.L. and London T. (2005) Developing native capability: why multi-
national corporations can learn from the base of the pyramid.
Stanford Social Innovation Review, Summer, accessed at
www.ssireview.org
Lippert O. and Walker M. (eds) (1997) The Underground Economy: Global
Evidences of its Size and Impact. Vancouver BC: The Frazer Institute.
Nicholls A. and Opal C. (2005) Fairtrade: Market-Driven Ethical Consumption.
London: Sage.
Ng D. (2000) Succession in the bamboo network. In: S. Birley and D.F. Muzyka
(eds), Mastering Entrepreneurship. Edinburgh: FT Pitman.
Nueno P. (2000) The dragon breathes enterprising fire. In: S. Birley and
D.F. Muzyka (eds), Mastering Entrepreneurship. Edinburgh: FT Pitman.
Prahalad C.K. and Hart S.L. (2002) The fortune at the bottom of the pyramid.
Strategy and Business 26(54): 67.
Redding G. (2000) Three styles of Asian capitalism. In: S. Birley and D.F.
Muzyka (eds), Mastering Entrepreneurship. Edinburgh: FT Pitman.
Schneider F. (2005) Size and measurement of the informal economy in 110
countries around the world, July 2002 accessed at
www.worldbank.org on 8 September 2005.
Twaalfhoven B. and Muzyka D.F. (eds) (2000) In: S. Birley and D.F. Muzyka
(eds), Mastering Entrepreneurship. Edinburgh: FT Pitman.
Key words
bribery and corruption less developed countries
cash crops low displacement
culture multiplier effect
exporting necessity entrepreneurship
fair trade niche marketers
high displacement opportunity entrepreneurs
informal economy pyramid of wealth
international aid
Integrated
personal
development
activity
Introduction
In the second part of this book we have discussed how
environmental issues can support enterprise and innovation for both
individuals and organizations, and a number of contexts in which
enterprise and innovation arise. The purpose of this integrated
personal development activity is to help the reader apply and
evaluate some of the concepts that have been introduced so far in
two different contexts. They should then reflect on the knowledge,
skills and attitudes required in both situations, and analyse the
extent to which these entrepreneurial attributes are transferable
between contexts.
Learning objectives
■ apply and evaluate a concept in different contexts;
■ reflect on the extent to which entrepreneurial attributes are
transferable between contexts;
■ use research and analytical skills to construct a balanced argu-
ment and form conclusions, grounded in theory.
Chapter 8 Multicultural 27
entrepreneurship 9
The task
1. Choose a concept or issue from the first two parts of the
book, and decide on two different contexts in which the
concept/ issue arises.
2. Drawing on the theory from the literature, and application
from the business press, online sources, and your own
experience, compare and contrast the similarities and
differences between the two, evaluating the extent to which
the theoretical arguments are supported or otherwise by
real-world examples.
3. Consider the knowledge, skills and attitudes exhibited in both
situations, and analyse whether they are transferable between
different contexts. You may use further practical examples to
support your arguments.
Getting started
In order to get you started on the first two tasks, we include some sug-
gestions based on the first eight chapters of this book.
In the tables below we have highlighted some of the concepts
and issues raised so far, and the chapters in which they are primarily
discussed. We have also listed some of the contexts in which they arise.
These lists are indicative only; you may prefer to choose others.
However, they consti- tute a starting point upon which you could base
your research and analysis. Choose either a concept or an issue
(therefore one topic from either Table 1 or Table 2), and apply it to
two different contexts (Table 3). For example, you may choose to look
at technological and non-technological innovation in a dynamic private
sector company and a charity; or you may choose to analyse female
entrepreneurship in America and Asia.
You should draw on both relevant theory and practical examples
to address the question that you have chosen, and build a convincing
argument, leading to conclusions that are grounded in the theory
that you have used.
Researching existing literature
You will need to conduct independent research as the book itself

only provides an introduction to the concepts and issues. This will help
28 Context Part II
0 s
you
in developing your skills in sourcing and evaluating information. You
should take a critical approach to the literature, as it is a representation
of a particular viewpoint or argument, and you may find some of it
more relevant or useful than others.
Table 1
Concept Chapter
Definitions of entrepreneurship/changing conceptual perspectives 1
Characteristics of enterprise 1
Individual propensity to entrepreneurship 1
Role of government 1, 5
Personality traits/characteristics of entrepreneurs 1, 2
Invention 1
Entrepreneurial actions, what entrepreneurs do 2
Motivations of entrepreneurs 2
Types of entrepreneur 2, 7
The entrepreneurial administrative continuum 2
Categories of innovation 3
Incremental and discontinuous innovation 3
Creative destruction 3
The innovation process 3
Management of innovation 3
Entrepreneurial learning (individuals) 4
Entrepreneurial learning (organizations) 4
Entrepreneurial capacity and capability 2, 4
Entrepreneurial decision-making 2, 4
Entrepreneurial learning 2, 4
Signal and 3R learning 4
3R learning and innovation 4
Push and pull factors 5
Technological and non-technological innovation 3, 6
Table 2
Issue Chapter
The role of education in enterprise 4
Learning from critical incidents 4
Leadership and the creation of an entrepreneurial climate 4
Decision-making in entrepreneurial organizations 4
Learning capability and entrepreneurial strategy 4
Female entrepreneurship 5
Young entrepreneurship 5
Ethnic minority entrepreneurship 5
Grey entrepreneurship 5
Family businesses 5
Enterprise culture 5
Environmental change and entrepreneurial strategy 6
Intrapreneurship 6
Corporate social responsibility 7
Social and community enterprise 7
Voluntary and community sector enterprise 7
Role of entrepreneurship in social regeneration 7
Role of entrepreneurship in economic development 8
Role of entrepreneurship in emerging markets 8
The nature and development of international entrepreneurship 8
Table 3
Context Chapter
Different sizes of business, different industries, private, 1, 6, 7
public not-for-profit sectors/environments
Different genders, ethnicity, ages 5
Different types of business (family owned, privately 5, 6
owned, publicly owned)
Different business models (e.g. traditional, e-business) 6
Different environmental conditions 6
Different markets, competitive conditions 6
Different economies (e.g. emerging economies, developed 8
economies)
Different cultures, countries 8
Identifying practical examples
The next stage is to source practical examples, locally, nationally or

internationally, and to consider whether ‘real-life’ mirrors theory.
This will help you in taking a critical approach to the literature,
and in analysing the concepts and issues.
Conclusions and impact

The third stage is to draw conclusions from your research –
considering the broader impact of the concepts and issues, offering
opinions and drawing conclusions based on the knowledge you have
gained. This will help you in developing reasoning skills.
You should also consider whether there are any lessons to be learned
from the different contexts, and whether any of the attitudes, knowl-
edge or skills exhibited are transferable between them.
P A R T
III
C
c
l
a
o
In the first part of this book we discussed the
concepts of enterprise, entrepreneurship and
innovation and emphasized the importance of the
skills, knowledge and attitudes of individual
entrepreneurs in creating innovative organizations.
In Part II of the book we discussed the various
contexts in which this enterprise occurs, including
the personal and business environments, and the
drivers of entrepreneurship and innovation.
In Part III we turn to commercialization and the
practical aspects of bringing the idea to the market.
We build upon the application of these
entrepreneurship and innovation concepts and
contexts by discussing the identification of these
innovation opportunities and the creation of solutions
to exploit them. In doing this we recognize that
entrepreneurship is about creating long-term
sustainable businesses from these initial ideas by
adopting an innovative approach, planning for long-
term success, acquiring the necessary resources to
create the business and then developing the
strategies to overcome the barriers to growth and
success.
In Chapter 9 we discuss the identification of the
opportunity that will fill a market gap and an idea
that will deliver a solution that will provide new or
better value for customers than is currently offered by
competitors. We then discuss how a solution can be
developed through innovation in every aspect of the
product, service and process offer.
In Chapter 10 we go on to discuss how plans should
be developed for each stage of the organization’s
development from the initial idea to becoming a
sustainable business. To do this a business model is
required to sustain and grow the business by creating
new and improved revenue streams. Planning is
undertaken to assess the feasibility of the idea, organ-
ize external financial support and manage the internal
business activity. In Chapter 11 we explore the process
of getting started and creating an organization. This
involves assembling the necessary financial and
28 Commercializati Part III
4 on
human resources, finding a suitable location and obtaining legal
protection. We then go on to discuss the development of the team
and how revenue should be generated through marketing activity.
In Chapter 12 we discuss the barriers and challenges that face an
organization and the strategies that are needed at start-up, for fast
growth and to deal with underperformance. We end by considering
competitive advantage in an entrepreneurial organization and return
to the importance of learning as the basis for future enterprise,
entrepreneurship and innovation.
C H A P T E R
9
Opportu
nity
identification
and solution
development
Learning objectives
■ understand the sources of opportunity;

■ compare the thinking and analytical techniques that can be
used to identify market opportunities;
■ appreciate the importance of challenging assumptions that
determine how the sector operates;
■ understand the stages in the new product development process
and be able to apply them to new ideas and opportunities;
■ appreciate the nature of the solutions that might be created
in terms of products, services, processes and ideas; and
■ recognize the alternative commercial approaches to exploit-
ing an opportunity.
Introduction
Having discussed the contexts in which entrepreneurship and innov-
ation occur, we now turn to the practical steps of proactively identifying
6 on
the opportunities that the entrepreneur or enterprising organiza-
tion might pursue and discussing the various alternative solutions that
might be developed to exploit them, such as new products, services, pro-
cesses and ideas. In doing this we emphasize that while there might be
good potential sources of opportunity that are generated by changes
in the environment or through invention, it is only when customers
are convinced about the benefits of the solution that they are offered
that the opportunity might be considered to be viable as a business
venture.
We emphasize that opportunity identification is not simply con-
cerned with invention and the development of completely new prod-
ucts or services. The response to the opportunities that are identified
might take the form of many small improvements in the processes used
by an organization or throughout the whole supply chain. Alternatively,
the response required might involve a completely new way of
thinking about and exploiting a market.
We start off by discussing the sources of opportunities and how
these might be identified and look at how, with the benefit of
hindsight, this has been done in the past. We then go on to
discuss the knowledge, market understanding and thinking
processes that might be used to identify opportunities from
breakthrough ideas through to more modest incremental
improvements. True breakthrough opportunities challenge the
assumptions, standards and values on which the sector has operated,
by fundamentally changing the ways things are done. While it is
often individuals or organizations that are outside the sector that
develop the new ideas, it is possible for those working in the
sector to more systematically analyse a particular situation in order
to challenge their own assumptions about what customers might
want.
In constructing an offer to exploit the opportunity it is necessary
to recognize the nature of the possible business solutions that might
be developed in terms of the combination of ideas, products,
services, and business support processes that make up the complete
package of benefits to customers in order to provide greater value
than before. Once a number of opportunities and possible
solutions have been identified successful innovators follow a
systematic new product (or service) development process to decide
which ideas are worth pursuing to the later stages of concept testing,
prototyping, and market testing. However, to follow a systematic
process can be very time consuming and potentially expensive and so,
finally, we consider the ways in which entrepreneurial businesses
can reduce the length of the development process.
The identification of opportunities
The starting point in the commercialization process of ideas is
identifying where a gap in the market might exist or where changes
in the market might act as a catalyst for developing a new solution
that customers will need. Muzyka (2000) explains that
opportunities come in many ways, shapes and forms and
entrepreneurs, while not needing to have the idea themselves must
structure a business around the idea. In this chapter, therefore, we
first consider some sources of innovation before discussing the
drivers that might encourage entrepreneurs to create a new
business.
Sources of innovation
Many opportunities for innovation and entrepreneurship come from
applying technology or bringing new ideas into the functional areas of
a business to create change within an established market. Two views
about the source of innovation come from Ansoff and McDonnell
(1990) and from Drucker (1985). Ansoff and McDonnell emphasized
the effect of shock events on innovation. Opportunities for the
organization and threats to the organization emerge from the
environment and are not within the control of the organization. They
suggested that shock events arrive suddenly, pose novel problems and
raise the prospect of major business loss. Two examples of this are the
effect of 9/11 on the airlines, and of Napster and other pirate websites
on the music recording industry. When faced with sudden and
unexpected events the organizations that are more innovative than
competitors in their response to the opportunities and threats are
the ones more likely to succeed.
Drucker (1985) identified the same factor but also suggested
others such as:
■ the unexpected event that triggers off a new demand (for
example, interest in renewable forms of energy because
of potential shortages or the high price of oil) or climatic
effects (for example, demands for construction following the
Asian tsunami and hurricanes);
■ an incongruity between what is available and what is
needed by consumers (for example, the creation and growth
of telephone and Internet banking);
■ a process need to fulfil a major new demand by consumers
(for example, security software for e-commerce);
■ a change in the industry structure, for example the increased
deregulation of financial markets leading to many new busi-
nesses, or in the energy and farming sector (see Pause and
Reflect 9.1);
■ a change in demographics (for example, the increasing
number of elderly people in developed countries boosting
demand for certain categories of new products);
■ a change in the perception or mood of the community
(for example, green marketing and interest in organically
farmed foods); or
■ the development of new knowledge (for example in
bioscience leading to the growth in research into and
promise of new products and in biotechnology regarding
the development of personal identification for passports and
identity cards).

tive to fossil fuels if their proposal for a ‘Global Centre for Non-Food Crops’, being considered by the UN in New York, the Food and A
council, Sir Sandy Bruce-Lockhart after discussion with Countess Sondes of the Lees Court Estate in Kent, a long-time champion of non
with research facilities and industrial links too and, most importantly, no one else is doing it!
Looking for opportunities in the market

So far we have presented some conceptual and perhaps rational
methods for looking for opportunities in the market. However,
innovation does not necessarily follow rules and the way that
entrepreneurs and enterprising organizations identify and develop
opportunities is often very subjective and personal as well as objective
and rational. Inevitably this means that entrepreneurs often see
opportunities where others do not and view the opportunities
differently from others. The opportunity
for an entrepreneur might not be in a high profile product but in
peripheral support activities, such as consultancy, software or training.
Mature markets, not necessarily growth markets
Conventional wisdom might suggest that high-growth markets offer the

best chance of success. Indeed, stock market analysts often pick
‘winners’ from these growth sectors, which are typically well-researched
and docu- mented in the business press, and often overlook the new-
starts and early- stage businesses that are growing steadily in more
mature, less glamorous markets. These mature markets are usually
dominated by well established suppliers, products and services.
Competition is largely predictable, prices are often static and customer
expectations and demand appear to change little.
However, many of the examples that we have given in this book
relate to innovation by entrepreneurs who bring new ideas to
uninteresting markets, capture the customers’ interest and
subsequently achieve spectacular growth.
Seemingly impossible markets
The highest compliment that can be given to a salesperson is that

‘he or she could sell sand in the desert or refrigerators at the North
Pole’ but there are in actuality many examples of entrepreneurial
businesses exploiting opportunities that seem very unlikely. For
example, a tiny UK soup manufacturer, New Covent Garden Soup
Company, was able to develop a market in the USA for its soups
made from fresh ingredients against fierce competition from the
locally based multinational soup manufacturers.
Exploiting the obvious
Frequently, potential entrepreneurs believe that an opportunity that is

clear and obvious to them must be equally clear and obvious to
many other individuals and organizations, but this is often not the case.
The same opportunity is not always obvious to everyone and, often, a
simple idea can be introduced without immediate competition.
Although not a major player in the ice cream market Grand
Metropolitan developed an entrepreneurial business, Haagen Dazs, to
offer a new, premium- priced product using innovative marketing,
including sexy advertising
in glossy magazines and endorsements from celebrities to create an
adult market for ice cream. Usually competitors in the UK, such as
Walls, had traditionally produced largely children’s and family
oriented ice cream products and it was some time before they offered
a competitive product.
Creating customer value

One of the rules that governs entrepreneurship is that innovations
must create added value for the customers. Of course, customer value
can be interpreted in many different ways and different
organizations will create different value propositions to exploit the
same market opportunity.
Offering low-cost alternatives
In identifying opportunities, simply offering a lower-cost ‘me-too’

alternative to existing products or services is not considered to be a
sustainable strategy, because of the likelihood of competitor
reaction. A small business that undercuts the market is likely to attract
a response from larger and more powerful competitors, who will be
better resourced to win a price war. Low-price copies of most
products and services will quickly become available from
organizations from emerging markets and so threaten unsophisticated
offers.
Being able to introduce a new product, service or process at a
lower cost than a current product from a competitor might win
over customers, but it is not always necessary, and in the longer
term may not be as important as building in other dimensions of
added customer value.
Low-price products and services, with ‘no frills’
Some low-cost businesses have secured a viable market position; value

food retailers, such as Lidl, Aldi and Netto are examples of the
exploitation of a market opportunity, in which a customer segment
is seeking value in the form of basic products of acceptable quality
at everyday low prices. Innovation in these organizations is focused
on lowering the costs of supplies, reducing overheads and maximizing
the impact of limited marketing.
Pause and Reflect 9.2 shows how the ‘no frills’ model is being
applied to many sectors.

easyJet – one business model fits all
easyJet is a low-fare airline that operates many routes within the Europe market. Stelios Haji-Ioannou set up
the company backed by £500 million from his father. easyJet grew rapidly during the late 1990s by undercutting
flights that offered a full customer service package.
The key to the easyJet strategy is maximizing the income generated from each flight by carrying as many
passengers as possible on each journey. The company achieves this by offering very low prices to the first
passengers to book a particular flight. The price for seats on the flight is then increased for passengers booking
closer to the departure date. Yield management software is used to manage the complex calculations that ensure
that the revenue for each flight is maximized by balancing the price and predicted number of passengers that are
likely to travel on that particular flight. As easyJet grew, Stelios was not content to manage the company in
steady state and turned his attention to other projects. In 2002 he relinquished his role as chief executive
and, still only 35, he was looking to transfer his price- and cost-cutting, yield management business model to
other sectors and create an ‘easy-everything’ empire of companies. The car rental service was already
established. An early and loss-making attempt to create
easyInternetcafe was revived.
Stelios decided to establish other businesses, using a similar low-cost model with hotels, ocean cruises and
cin- emas. The cinema concept, for example, is based on the fact that the films have to be shown, the staff
employed and the cinema heated on a Tuesday afternoon when, perhaps, only one or two customers would
choose to go and pay the full price. Many more would go if they only had to pay 20p and would probably also
buy a drink and popcorn.
Source: Robin Lowe from public sources
Question: How easy is it to transfer one entrepreneurial idea to different sectors?
Premium-priced value added products
In general new products that offer extra value for customers can
carry a premium price. There are many examples of value added
product introductions that were priced higher than the competitive
products that they were aiming to replace. Dyson launched bagless
vacuum cleaners at a price that carried a significant premium to its
competitors. It was able to gain a high market share because of a
product innovation for which customers were prepared to pay
considerably more for real benefits. Users of mobile phones, too,
have been prepared to pay more for the convenience that they offer
over fixed-line telephones.
Finding a unique edge
Even if there is competition, exploitation of one of the elements of

the total offering that is made to customers can provide a unique
competitive edge. For example, Starbucks run coffee bars, which are
part of what is essentially a commodity market. Although they have
considerable competition they provide a differentiated product offer
that is valued by customers, even though customers have to pay a rela-
tively high price for a relatively basic service.
It is important to focus on the customer needs, and Barrow et
al. (2005: 143) suggest that it is important to concentrate on
answering the question ‘How can we make money for our customers
rather than how can customers make money for us?’
The triggers to the creation of new business

Bolton and Thompson (2000) note that in identifying the triggers
to the creation of a new business there are a number of recurring
themes, as follows.
Frustration with existing products and services

There are many examples of entrepreneurs, such as James Dyson
(see Enterprise in Action 9.1), frustrated that the products that were
available to them were not effective, not available or did not suit their
purpose.
Exploiting a hobby
Many entrepreneurs, such as Bill Gates of Microsoft, have started their
businesses essentially as hobbies.
leaner. The machine dispensed with a bag and used his patented dual cyclone technology. In a number of other ways th
and so he had to set up his own business.
Dyson’s management style was also rather different. He banned smoking and ties and had little time for mem
Question: We all get frustrated with poorly performing products. What are the skills and attitudes that are ne
Starting young with a simple idea

Many of the best-known organizations started from a very modest
base, often while the entrepreneur was very young, even while at
school. Hewlett Packard made a feature of this in their advertising
when they showed an image of the garage where the founders started
their business. Michael Dell exploited a fairly basic retailing
opportunity and simply got used to running his own business. As
their companies grow, entrepreneurs spot new opportunities,
continually innovate and offer new products, often in unrelated areas.
Enterprise in Action 9.2 shows how Julian Richer started young with
little real idea what he wanted to do.

Richer information at Richer Sounds
Julian Richer, founder of the hi-fi chain Richer Sounds, opened the first of his 50 stores in
1978 when he was 19. He had no burning ambition to start a hi-fi business but hi-fi was a
boom- ing sector in the 1970s and ‘reasonably sexy’. He would probably have preferred to
start a property development business but he was too young to sign contracts or run a car sales
business, and too young to drive a car. He concedes there is more money in property
development and too much competition in hi-fi.
Customer service
Richer places a lot of emphasis on customer service and measurement. Small businesses have
a potential advantage as there is less of a gap between the customers and the management,
compared to larger businesses. This should make it easier for small businesses to give good
service but often they do not. Richer continually asks the customers to communicate with the
business to comment on how it is doing. He believes that even the simplest questionnaire can
provide useful information and should be addressed to a named person in the company.
Adapted from: exclusive Julian Richer interview, www.startups.co.uk, sourced 14 August 2005
Question: Does it matter if you do not have a ‘cause’ to pursue but still want to start your
own business?
Responding to a personal crisis
Many entrepreneurs start a business in response to a personal
crisis. For example, a successful woman sales executive for a
pharmaceutical firm returned home one day to find her husband in
bed with another man, thus leading to the break-up of her marriage.
Her response was to throw all her energy into setting up a nail
manicure business. It had originally been her hobby, but developed
into a part-time business to help pay the way through university. The
business was very successful and she sold it off very profitably when she
felt she had got over the bad experience and wanted a career change.
Dee Dawson (see Enterprise in Action 9.3) responded to a family crisis
by setting up a business.

Dee Dawson – mother, necessity and invention
Dee Dawson was expecting her fifth baby and on holiday with her family in France. Her
husband popped home to check on the business, which was an extremely successful
computer firm and found his staff had run off with the business, wiping his files and codes,
and leaving him and his wife broke as he had given personal guarantees on cars and the lease of
premises. He was too shocked and depressed to cope.
Dee had an MBA and had just completed seven years’ training to be a doctor. She
decided to set up a residential clinic for anorexic children. She was not passionate about
anorexia, but just thought there was a market opportunity at the time, that there was a
need for dedicated residential care, and that the health authorities and medical insurance
companies would be willing to pay if she could convince them of her credibility. A friend
that she had met on medical training was a leading child psychiatrist and so was willing to
put her name to the project. She persuaded the medical insurance companies to recognize
the clinic and then rang the Anorexia Association and said she had opened a clinic that day;
thereafter they sent her their first patient. She then contacted the television programme
London Tonight and appeared on television to promote the clinic. In six months she had six
patients and all her family were living in one room in the house but they survived. Her
reason for opening the clinic was that she felt that she had little left to lose at that time.
Adapted from: Handy C. (1999: 97–103) The New Alchemists. London: Hutchinson
Question: To what degree do you believe in necessity being the mother of invention?
Generating new ideas

Individuals think creatively and build knowledge from their own
experience and expertise that will lead to potentially
commercializable opportunities. However, an organization can work
against the creative
capability. Baron and Shane (2005: 219) note that established firms
innovate but have some disadvantages:
Core rigidities They are good at doing the things they are used to
doing, but not new things, so the organization is rigid rather than
flexible.
Tyranny of the current market Because they listen to customers
they find it difficult to come up with new ideas. Customers ask for
improvements on existing products, not products for new markets.
User myopia Customers only see their own narrow needs or
solutions and may not be able to articulate or explain the
required solutions of others, or indeed their own needs in a
different situation.
The vital role of information

The starting point is to use market information to identify new possi-
bilities. However, Baron and Shane (2005: 217) warn that traditional
methods of market research work best in established markets where
the market information, preferences and behaviour of customers is
known, whereas when the entrepreneur is creating a new market it
may be necessary to use some traditional customer surveys and
focus group techniques; but simply extrapolating the past may not work
and more blue sky approaches are needed, such as using expert opinion
or some of the methods covered in the next few pages.
Using someone else’s ideas

At the most simplistic level the idea that acts as the stimulus for the
individual to exploit could be their own or it could be someone
else’s. We are not, at this point, condoning stealing someone else’s
ideas if they intend commercializing an idea themselves even though
some of the best-known entrepreneurs have ‘stolen’ someone else’s
idea. However, it is important to recognize that having an idea is
often the simple part of the enterprise process and, as we have
discussed earlier, all of us have ideas but few of us exploit them
commercially – this is the difficult part. Often someone else’s idea is
interesting but not commercially exploitable; however, it can act as a
prompt and start a potential entrepreneur thinking about how the
idea can be built upon, developed into
a real market opportunity and lead to the creation of a potentially
viable business model.
Observation in a familiar area

The normal starting point is for the entrepreneur to use his or
her knowledge and experience to make observations about the market
gaps and opportunities. The knowledge that is built through work,
participation in hobbies and leisure activities, or simply reflecting on
normal life experiences can provide the basis for the identification of
new ideas.
Doole and Lowe (2004) explain that Fisherman’s Friend cough
lozenges were initially developed by a pharmacist in Fleetwood, UK,
for local sailors and trawlermen who were working in severe
Icelandic conditions and that the lozenges were sold locally.
When Doreen Lofthouse became managing director, she observed that
it was not just local but visiting sailors and trawlermen who bought the
lozenges, and so she started to export the products. Now exports
account for 95 per cent of the turnover and the product is available
in 100 countries.
. . . and in a less familiar area
There are some, but not very many, examples of individuals being suc-
cessful in a market about which they had no working knowledge.
Having said that, it is possible to learn very quickly about an unfamiliar
market and bring to it new thinking or to have an idea
established in another sector. Richard Branson has brought the
Virgin brand values to a succession of unrelated markets with
which he was initially unfamiliar.
Niche opportunities
Observation of what is happening in a situation can lead to a

niche business opportunity. The long queue of cars at traffic lights
on com- muter routes on Friday evening, each one occupied by one
person only thinking of getting home to their loved one presents a
great opportunity for an entrepreneur to sell bunches of flowers.
However, even here the prices charged in this situation probably cannot
be set as high as at the flower shop outside the maternity hospital!
Ticket touts know that fans will pay a high price to be at a big sports
event or concert.
There must be many times when we have all made comments
about existing products such as ‘That is so difficult to use, I could do
that better myself’, and ‘Why do they do it that way; they could do it
like this’. The starting point in responding to this is thinking about
meeting customer needs ‘better’ than the existing supplier. Through
routine use customers get used to coping with a badly designed
product to the point that they might no longer believe that a ‘better’
product could be made. The task is to take a very objective view of the
product, and define in detail what a customer could mean by ‘better’ by
systematically evaluating all the possible criteria that relate to the
use of the product. Once this has been done it is possible to challenge
the belief that ‘because customers are not complaining it must be
satisfactory’ and focus on providing the product and service that is
‘better’ in terms of the most important criteria in the eyes of the
customer.
Removing unnecessary features

Many products are ‘over-engineered’, either being made to too high a
specification for their purpose or with too many features for some cus-
tomers. There is a high cost of providing certain aspects of a product
or service but this is often difficult to quantify. The myth in many organ-
izations is that it would cost extra to remove unnecessary functions.
Moreover, what is often quite difficult for an employee to understand
is which aspects of a product or service are really valued by their
customers and for what reasons.
For example, there was a belief that a hot meal should be provided
free on all airline flights. In practice this was extremely expensive
and removal of this service by the low-cost airlines has not damaged
their business.
Do better what the employer does

Many employees perceive the limitations of their employers’ products
and services and are only too aware of what their customers
complain about and what problems the organization fails to address.
Organizations very often have a set of beliefs about their products
and services that have grown up over the years and are part of
the mythology of the organization. They often ignore continual
customer complaints or criticisms about a product or service.
Often, too, within the organization a
belief is built up that customers need a product or service to do certain
things; however, in practice they do not, with the result that the
product or service is ‘over-engineered’ and built to an
unnecessarily high specification. Extra features might be built into a
product, incurring extra cost, that simply are not necessary.
Many entrepreneurs have used this knowledge to set up a
business doing what their employer does, but better. Through
detailed knowledge of their market such entrepreneurs are able to
assist customers in identifying simple additions to the product that
could be made in the product-manufacturing process at little or no
extra cost but which would add considerable customer value.
We have discussed earlier the point that opportunities are not seen
the same way by everyone. Perhaps one of the main reasons for this
is that different individuals bring different observations, knowledge
and experience to any opportunity.
Making connections
A particular dimension of identifying opportunities is the ‘art’ of
making connections. Individuals always have experience of
different business contexts – one or more work situations, leisure
activities, holiday experiences and so on and quite often the ideas,
tools and techniques that have been used in one situation can be
transferred into a new situation – or new business opportunity – where
they have never been used before. Often these two different business
contexts will appear to have nothing in common but the technique
might just work in both. This is the case in Pause and Reflect 9.2, in
which it is explained how Stel- ios Haji-Ioannou applied the same
technique to easyJet, easyHotel, easyCinema, easyCar and others,
too.
In Enterprise in Action 9.4 is shown an example of opportunity spot-
ting by making connections between two unrelated businesses.
such opportunity. In this case the opportunity requires two well established companies to work in partnership and shar
by supporting new technology rather than reducing consumption and emissions. Chemicals giant Dow, and Cargill, one o
biodegradable plastic after many years of research into the replacement of oil-based plastics. Their slogan is ‘100
The difficulty that they now face, however, is how to explain the leap to customers. People have problems unde
Question: What are the difficulties in establishing credibility for an entrepreneurial organization diversifying in
Exploiting structural changes in sectors and large organizations
Opportunities for new products, services and processes arise when

there is a change in the structure of a market or in a large organization.
Subsegmentation of markets
All through this section we have focused upon adding value as perceived
by the customer. Therefore the most important element in the
opportunity search is the identification of a market gap. Most of the
innovations considered in this book fill a market gap. Because of the
proliferation of products and competitors it is unlikely that a huge
market opportunity will be obvious to an innovator as, today, most
customer needs are filled, at least to some extent. However, by
articulating customer needs precisely and understanding what
customers really need or want, rather than what they will ‘make do’
with, it is possible to identify market gaps. Subsegmentation is one
example of filling a market gap.
While the major market segments are served, customers in the sub-
segments of the market are not getting products and services that they
consider to be ideal. Over the last 20 years the car market, which
arguably was already mature, has been the subject of subsegmentation
by carmakers. A whole range of niche products have been produced
to address market gaps. These include the Renault Espace, Renault
Megane, Range Rover and Smart Car. In a similar way Prêt á Manger
and Underground have exploited the market opportunities for better-
quality, yet still fast, sandwiches.
For those who are working and cannot book at surgeries during nor-
mal surgery hours but are prepared to pay, GPs have set up surgeries in
supermarkets and other convenient locations, allowing patients to
drop in.
Because markets generally are crowded with products and
services the key to identifying the market gap is defining and explaining
to customers exactly how the new offering meets their own specific
needs and how the new product or service differs from the existing
products. This process is called positioning and is dealt with in
greater detail in the next section.
Sectors with particular potential for entrepreneurs

A number of sectors that have low entry barriers and low set-up
costs tend to be attractive ones for entrepreneurship. These
include, for example, the leisure and tourism industries. Sectors
evolve over time and pass through different phases in their
attractiveness to entrepreneurs. Food retailing has gone through
years of consolidation, with many corner shops going out of business
as supermarkets and hyper- markets have proliferated. Now, however,
a gradual backlash is appearing as customers become frustrated
with bland food filled with additives and salt, often grown in
unnatural conditions. Specialist high- quality food manufacturers,
retailers and farmers’ markets seem to be expanding.
Organization structure opportunities

The business model adopted by a large organization or changes to its
structure, can offer opportunities. While we discuss these below we
refer to them again in the following chapters.
Franchising tends to be a relatively low risk and low cost

entry option and offers the prospect of owner management
without the entrepreneur having to come up with an idea and
develop a business model to exploit it. Over 1000 franchise
opportunities are listed at www.franchise.org. There are some
clear benefits in starting a business through a franchise, for
example a proven business model, reliable suppliers and
supporting promotion but there are also some disadvantages,
such as the relative lack of independence,
freedom to manage the franchise and scope for innovation
on the part of the franchisee.
Subcontracting enables smaller suppliers to supply products and
services to a major company to a defined specification at an agreed
price. While the promise of regular orders can be attractive to
the small supplier, the risk of supplying one or two customers only
can be high.
Break up of an organization Large organizations restructure their
operations from time to time because of market changes,
mergers and acquisitions, and this provides opportunities for
management buy-outs and management buy-ins, which are
discussed in the next chapter.
Looking at what others have left behind
If a major organization decides to stop supplying a business sector

there are often opportunities for small businesses to step in and supply
established products that are no longer available. Quite often when
large organizations downsize their operations they often continue to
require the services that they used to supply themselves and obtain
them by subcontracting to small suppliers.
Creativity and thinking techniques

We now turn to methods that might be used to generate ideas. Barrow
et al. (2005) say that some weird ideas exist for managing creativity,
commenting that, from their research, successful management prac-
tice can include opposites, such as:
■ Find some people and make sure they don’t fight, or . . .
make sure they do fight!
■ Think of some sound and practical things to do and do
them or . . . find some ridiculous and impractical things to
do!
■ Take your past successes and replicate them or . . .
forget them!
■ Hire people you do need or . . . hire people you do not need!
Baron and Shane (2005: 65) discuss the importance of intelligence
in creativity and suggest that entrepreneurs need to balance three
components to achieve successful intelligence: (1) creative
intelligence to come up with new ideas, (2) practical intelligence to
identify ways to
develop these ideas and (3) analytical intelligence to evaluate the
ideas and determine whether they are worth pursuing. They go on to
explain, in taking a broader view suggested by Sternberg and Lubart
(1995), that creativity emerges from the confluence of:
■ intellectual abilities, relating to problem interpretation and

persuasion skills to convince others of the new ideas;
■ a broad and rich base of relevant knowledge;
■ an appropriate style of thinking – novel thinking and escap-
ing the ‘rut’;
■ personality traits, and the willingness to take risks and tolerate
ambiguity;
■ intrinsic, task-focused motivation so that creative people gain
rewards from doing their work;
■ a supportive environment that supports creative ideas.
Asking customers or potential customers
Asking customers or potential customers about possible new

product ideas is the most obvious route to generating ideas but it
requires real understanding on the part of the innovator to
interpret customer requirements.
The problem with asking customers for new product ideas is that
they often, in the first instance, do not ask for a new product
because they do not really know what is possible – therefore they cannot
ask for it. They try to articulate their future requirements in terms of
what is currently available, rather than what might be possible in
the future. Some leading customers, especially if they are close to
more ‘blue sky research’ thinking, are able to visualize the future
and what products will be needed.
Considering adjacent markets

Here the objective is to consider whether an opportunity in one mar-
ket might lead, with some modification, into another. For
example, a more robust version of the mobile phone is necessary for
use where it might be easily damaged, for example, in the
construction industry. Equally, there is a market for short-term
mobile phone hire. The technology used in home entertainment, such
as video cameras and television monitors, is used for security
applications.
Analysing competitor products
It is possible to learn a great deal by analysing competitor products

as this might also provide opportunities for improvement. For
example, the Japanese earthmoving equipment manufacturer
Komatsu analysed the products of the US supplier Caterpillar, which
was the market leader. Komatsu realized that many Caterpillar
products were over-engineered and therefore unnecessarily expensive
for the market it was targeting. Komatsu produced cheaper but
soundly performing products for specific uses and gained
considerable market share from Caterpillar.
Analysing customer needs and behaviour
Observations of customers using products and services together with

an analysis of their buying motivations can reveal new insights into the
ways customers respond to products. Provided they are willing to
allocate sufficient time, individual entrepreneurs can gain similar
insights and so help to avoid costly mistakes in the future. For example,
observ- ing customer traffic in a shopping centre or street can help in
choosing an appropriate location for a retail outlet. Studying the
hits on a website will provide considerable information about how
the website should be configured to retain the interest of those
visiting it.
Brainstorming
Brainstorming is a commonly used technique for idea generation but

the results will not be as good as they might be if it is not carried out
systematically. All suggestions or ideas should be allowed in brain-
storming as they may be modified and eventually lead to
workable ideas but, if there are no rules, crazy ideas are likely to be
dismissed without proper discussion. Also, if the boss is present at a
brainstorming session, it is necessary to ensure that he or she will
not stop crazy ideas being suggested or inhibit other ideas being
discussed in favour of their own. Brainstorming can be made more
productive by setting some basic guidelines, such as initially listing all
the ideas generated by the group of individuals without additional
comment, then taking time to group ideas, build on them and
ensure that even the most outra- geous suggestions are considered in
case there is anything of value that will build on the other ideas
proposed.
Forced relationships
The objective here is to force together two existing concepts to create

a new third product or service idea. The computer workstation
combines a desk and a computer, an electric piano combines a
traditional piano and electronic sound system, and many combinations
are available of a DVD recorder and television, and television, radio
and alarm clock.
Morphological analysis
This is a technique designed to deal with a complex problem by

breaking it down into a series of steps and then considering
different ways of taking each step. It is effectively about a way of
determining the different ways of getting from A to B. Spotlight 9.1
considers the various ways (the routes to market) in which the buyers
of personal computers have been
Spotlight 9.1
Morphological analysis in computer distribution

When the first personal computers were developed in the late 1970s they were quite difficult for everyone but
computer enthusiasts to use. They were also prone to difficulties and needed a high level of technical support.
Consequently, in those early days, the computers were supplied through local or regional, typically IBM distrib-
utors, which had expertise in computing and could provide high levels of specialist technical support. When
computer operating systems became more user-friendly and users became more knowledgeable, so the high
level of specialist support became unnecessary and computers were supplied by new specialist retailers.
Computer components then became more freely available so new assemblers or businesses that simply badged
assembled computers were set up and they typically supplied direct via mail order, via firms such as Gateway
and Evesham, and through retail outlets, for example Time Computers.
As the computer games market developed so computers became available through department stores, super-
markets and electrical stores, such as Dixon’s and Curry’s.
Now companies such as Dell supply computers using the Internet, supported by telephone sales, and it is now
possible to obtain a computer made to the purchaser’s specific requirements. Other companies will supply parts
so that the home user can build their own computer. A number of organizations, such as banks, became aware
that it was in their interest to encourage online transactions and so provided customers with a computer either
free or at discounted rates.
So which is the next route from A to B? In practice, of course, consumers do not necessarily want to own a
computer, especially as it will probably have to be replaced in 3 or 4 years at considerable cost as greater com-
puting power becomes required. What consumers want is computing power as a utility in a similar way to elec-
tricity. Unless they had no alternative, most electricity customers would not dream of going to the expense of
buying their own electricity generator.
Source: Robin Lowe
Question: Can you apply this technique to a situation that you are familiar with?
able to obtain the product over time from a computer manufacturer.
As each new potential route has been developed it has resulted in
many new business start ups.
Challenging industry assumptions

Firms in mature business sectors often become reactive, drawing in
resources to respond to short-term competitive activities and have
no time or resources to think about the sorts of products and services
that are needed for the future. Without this creativity these firms fall
back on imitating competitors, believing the competitors’ actions to
be right for the market, rather than really exploiting the changes
taking place in their customers’ needs and wants. Their innovations
often become limited to small changes that result from benchmarking
against competitors. Kim and Mabourgne (1997) explain that high-
growth firms leave the competition to fight among themselves and,
instead, seek to offer customers a quantum leap in value. The
question that should be posed is not what is needed to beat the
competition but rather what is needed to win over the mass of
customers. The implications of this are that it is necessary to
challenge the conventional wisdom and assumptions of the industry
about the basis on which firms compete and what customers value.
An additional bonus from challenging the way the industry does
things is that, if the firm thinks globally, this can also lead to large
cost savings as unnecessary operations are cut out. If the benefits
really lead to a step change in value they will be perceived as such
by customers all round the world. In Spotlight 9.2 is illustrated a
struc-
tured approach to challenging assumptions.
Spotlight 9.2
of intense me-too competition, Callaway Golf, the US golf club manufacturer, launched its Big Bertha, a club with a large
By finding answers to these questions a firm can create new markets and new expectations for customers in exist-
Question: Apply the technique to a sector with which you are familiar.
Creating innovation solutions: products, services and processes
Having identified an opportunity we now turn to developing the idea,

product, service or process that will provide the solution for customers.
Customer benefits
The starting point is to consider what people actually buy.
Customers buy benefits rather than product features. A new idea,
product, service or process must provide something that customers
need, want and will value. The benefits might be something that will
save them time and hassle, entertain them, solve a problem or,
perhaps, enhance their feeling of status among their friends.
However, many organizations and entrepreneurs erroneously
believe that the secret to satisfying all their customers is to focus on
packing a product with features, introducing a technologically advanced
new product, service or process and including many (often rarely
used) functions or unnecessarily intricate designs. The danger can be
that entrepreneurs, designers, development managers and innovative
organizations ‘fall in love’ with the technology and create the new
product to demonstrate their superior technical knowledge and
capability rather than work out and give exactly what the customer
might want.
Customer segmentation
Many new products claim to be right for everyone. The problem with
the ‘one product fits all’ approach is that it ignores the fact that, within
a mass market, there are a number of groups of customers (segments)
with some similar but also different requirements. As we have discussed
earlier, an entrepreneurial organization might choose to target either
the mass market or one segment, as a niche supplier, but whichever
approach is adopted it must meet the customer’s specific needs.
Usually, the key to ensuring a match between the offer and the bene-
fits sought by customers is recognizing that different segments want dif-
ferent things. The approach is first to identify a number of groups of
customers (segments) that have a similar need or expectation of the
product. For a personal computer, this might include the technology
‘geeks’, small-business users, gamers, children using it for homework,
and so on. The organization would choose the segments it wishes to
target on the basis of its ability to service the segment better than its
competitors. To do this it then would have to profile the target
segments by getting as much information as possible about their
characteristics, beliefs, needs and lifestyles. It can then position its offer
to be attractive to the target segment and different from the
competitors’ offers by innovating in various aspects of the total
product offer to make it quite distinctive. Even if the benefits are
obvious, many customers will still be reluctant to buy a new product
or service, until they are convinced that they have a reason to buy it
and it is a good use of their money, so the prod-
uct offer must also have marketing support as we now explain.
Innovation throughout the total offer

Over the years increased competition to provide a solution for an
identified opportunity has led to a proliferation of products and
services and increased choice for the customer. The aim for the
majority of suppliers is to differentiate their product or service from
that of their competitors through innovation in some aspect of the
product or service, or the activities supporting it, in order to gain
competitive advantage. For the remaining suppliers who wish to
copy competitor products and services the challenge is how to use
innovation to gain competitive advantage by reducing costs, so that
profitability can be maintained even at lower prices.
The total product offer and areas for innovation
Building upon these ideas it is useful to think of a product or service

innovation not just in terms of creating new core product benefits to
the customer but rather in terms of improving some or all of the
elements of the product offer.
Kotler (1997) proposed a framework for the total product offer,
as shown in Figure 9.1. Each of the elements of the total product
offer provides the opportunity for innovators to increase value by
better meeting consumer needs and wants and this can be achieved
through breakthrough or incremental improvements.
The core product benefit or service
Perceived
Image BENEFITS
value
Performance
Quality
Brand name Features
ATTRIBUTES
DesignPackaging
Size and colour variants
After-sales service
MARKETING SUPPORT SERVICES
Guarantees Installation
Delivery
Figure 9.1
Three levels of Adapted from: Kotler (1997)
product offer.
Goffin and Mitchell (2005: 105) refer to work by Kano et al. (1996),
who have explained how the features of a product affect customer satis-
faction, categorizing them as:
basic features these are the core attributes, without which the
product would be unacceptable;
performance features these provide a real benefit to the customer,
such as fuel economy in a car or battery life in a mobile phone;
and excitement features or delighters these give unexpected value to
the customer that seems out of proportion to the objective
value, for example, remote controls for television operation.
In the model, product benefits are the elements that consumers
perceive to meet their core needs and provide satisfaction through
performance and image. Product attributes are the elements closely
associated with the core product, such as features, specifications,
design, branding and packaging, which provide reinforcement of the
core product benefits. The marketing support services are the
additional elements to the core product, which include delivery, after-
sales service and guarantees. In commodity markets many of the core
benefits of a product are similar, no matter which competitor
provides the product. It therefore becomes necessary to differentiate
the offering through innovation in one or more of the other elements
of the total product offer. The core benefit of a motorcycle or a tee
shirt is fairly obvious but you may wish to consider the
aluate the total product offering by answering the following six questions for each market:
has the product been developed and how will the product be used?
ysical properties does the product have? What benefits is the consumer expected to gain?
positioned and what image do consumers perceive it to have? Which consumer segments of the total market are expected to buy the produ
Figure 9.2
Product innovation
opportunity
checklist.
ways that different suppliers differentiate the product by using

innovations throughout the total product offer. As you will find,
new products may include a single innovation or a combination of
many. Having introduced the concept of the total product offer and
the opportunity for innovation in every element, it is useful to
consider the questions highlighted in Figure 9.2.
Moments of truth
Barrow et al. (2005: 143) explain that the quality of the offering is not
just what you do but how you do it, and refer to Jan Carlson of
Scandinavian Airways (SAS), who introduced the concept of ‘moments
of truth’ when the customer experiences the reality of who you are and
what you do. The customer expects from the organization reliability,
responsiveness, competence, courtesy, creditability and security that
the offer will be delivered.
Design
Design plays a particularly important role in innovation as good design
embraces all aspects of:
■ customer needs and values;
■ the total product offer as elements for potential improvement;
■ all the processes involved in getting the idea to the final customer.
A decision that must be made in design is whether to challenge conven-
tional thinking or conform to customer expectations of design. A
characteristic of French-designed cars, Citroen and Renault, is that
they frequently incorporate an innovative design that bucks the trend.
Others, such as the VW Golf, have maintained the integrity of
their ‘classic
designs’ over many years by introducing new models that have
simply had facelifts. Because of differences in personal perception
many very innovative designs manage only limited appeal. The mark of
true innovation is a cutting edge design that becomes iconic, such as
the Coke bottle, the Shell logo or a Harley Davidson bike. Design
should be regarded as a holistic activity. In this book we provide a
number of examples of design, not just of products but of services,
process and business models.
New service innovation

So far we have been discussing products but while many of the charac-
teristics of the service innovation process are similar there are some
significant differences that exist too. Before discussing them, however,
it is worth commenting that innovation in services should be con-
sidered in two dimensions:
1. where the service is part of the total product offer, as discussed
above, for example the free three-year warranty on a car or
a very efficient return-to-factory and repair service for a
personal computer;
2. where the service exists in its own right and is not part of a
product offering, for example, hairdressing or travel services.
Confusingly, many service organizations, such as banks, refer to
their service offerings such as mortgages and insurance offerings as
products but here we are using the term ‘product’ to refer to
physical goods, such as a can of baked beans or a refrigerator, and
‘services’ to offerings with very little physical content, such as
hairdressing or training. In practice, as we have seen with the earlier
discussion many but not all ‘offerings’ include both product and
service elements.
New service offerings

While the objective in providing new service offerings is similar to
product innovation in that it is to ensure that customers obtain value
in the service, there are some additional challenges too, as follows.
■ Services, by definition, are intangible and so part of the innov-
ation might be to add a powerful physical recognition of the
supplier, hence both easyJet and Orange mobile phones have
a strong and memorable colour. In Enterprise in Action 9.5
an example is given of challenging assumptions in a service
and recognizing the importance of the customer experience.
■ It is often difficult to match supply and demand for services
which, unlike products, do not allow for storage so innovation
might be needed to try to achieve a balance. Examples
include yield management systems in low-cost airlines.
■ Because it is the customer experience that determines the suc-
cess of a service, innovation is needed to ‘manage’ the
process that customers are taken through to ensure they have
the best possible experience. Some restaurants find ways of
‘helping’ customers to occupy time spent waiting to be
served.
ave been seen by 50 million people in almost 100 cities.

rcus industry was shrinking rapidly. The traditional circus format with the pedestrian animal acts and slapstick comedy
m with technology, performance arts and musical theatre. Moreover, Cirque no longer targeted children with a low-priced
In providing services to support products the challenge is to identify

the various aspects and limitations of service delivery and think
creatively and innovatively about how the elements might be improved.
Customers are constantly let down by poor and inadequate service
and a lack of attention to the needs and expectations of customers. The
best service organizations, especially those in commodity markets,
where it is easy for customers to transfer to an alternative supplier,
must work hard to ensure that their service never falls short of
customer expectations.
Retailing
Retailing is a service which, in one form or another, provides one of
the largest categories of self-employment. However, it is also
characterized by price competition and high failure rates,
particularly among new
starts. Many new start ups in retailing are ‘me-too’, offering nothing dif-
ferent and no additional customer value over what is already
available from established retailers. The secret to retailing is
considered to be location, location, location and, too often, poorly
located shops selling me-too products close with depressing
regularity.
E-commerce has been seen as providing a major opportunity for
retailing innovations over the last few years as it offers customer
convenience and accessibility to both mass market and niche
products. In the early days of the electronic retailing boom there were
many failures and it became clear that simply providing a new route
to market will not work unless the retailer has something of real
benefit to offer the customer. Substantial cost savings and a more
exciting experience probably explains why eBay has been so
successful.
New process innovation

The opportunities for business starts based on new process develop-
ment are enormous because opportunities occur throughout the
complete supply chain, for example:
■ research and development processes;
■ design;
■ manufacturing processes, ranging from the extraction of
raw materials, conversion to a material that can be fabricated
into components, to assembly into a finished product;
■ business service processes, warehousing and logistics or
administrative processes;
■ new routes to the customer that involve marketing, commu-
nication and distribution;
■ manufacturing support processes, such as consultancy, market-
ing research and advertising. Examples include Siebel Systems
for customer relationship management and SAP for
operations management and inventory systems.
New market innovation

The final area of innovation that we discuss in this chapter is the
exploitation of new markets. The most obvious area for market
development is international development. Businesses may introduce a
product, service or process that becomes a success in the company’s
home market. The
idea may be considered to be innovative and have scope for develop-
ment in other countries. The traditional way of developing inter-
nationally has been to use agents and distributors but, increasingly,
firms are exploiting new international market opportunities through
the use of alternative market entry strategies, such as joint ventures,
alliances or licensing. A number of small firms have also used networks
to exploit opportunities by working with other companies selling
complementary products and services.
In recent years e-commerce has offered a new route to
international market development, as we saw in the last chapter.
Checking on the organization’s capability to deliver the opportunity
Before completing this section it is important to re-emphasize that suc-

cess comes from effective and efficient exploitation of an opportunity.
There must be a market and the organization must be capable of
delivering a solution either alone or through a partnership. We
return to assessing the feasibility of the idea in the next chapter, but
even at this stage the organization must have a clear idea of how it
needs to reconfigure its operation, and add capabilities and
techniques. One way of doing this is to use SWOT analysis (Figure 9.3)
but in a slightly different way – as TOWS – to assess this.
Identifying strengths, weaknesses, opportunities and threats is a com-
mon analytical technique for assessing an organization’s current posi-
tion and future prospects. It can also be used to help assess whether an
organization is capable of delivering a particular opportunity. The start-
ing point is to identify the threats to the organization as it exploits
the new opportunity and think about what it would take for the
organization
Strengths Weaknesses
Build on specific strengths
Focustoon
exploit
specific
opportunities
weaknesses essential to delivery of opportunities
Opportunities Threats
From effectively Threats that will prevent
addressing the threats success
Figure 9.3
SWOT to TOWS
analysis.
to manage these threats effectively and exploit the opportunities. To
do this the organization should then identify its weaknesses and strive
to transform these into strengths. For example, the threat to success
might be that competitors will compete on price for a domestically
produced product. The solution and main financial opportunity
might be to outsource or manufacture in Asia, in which case an
organization that has little skill in managing outsourcing and supply
chain management would consider this a weakness, but an area of
potential opportunity that could be made a strength.
This was a problem that faced Dyson (see Enterprise in Action
9.1). Initially, the competitive advantage of Dyson in exploiting the
market for vacuum cleaners was the technological invention and the
knowledge applied to the manufacturing process. The opportunity
initially was for the company to manufacture the products in the UK.
In the early years of the product, Dyson could charge relatively high
prices and was able to manufacture in a relatively high cost area in the
UK, but manufacturing in the UK was not really the main opportunity
and, as Dyson increased its volume of sales and came under price
pressure from competitors with copies and their own developments,
it transferred manufacture of its established, volume products to a
lower manufacturing cost base in Asia and uses its UK base for
development and early-stage manufacturing.
Summary
■ Opportunities can be identified in many situations. Entrepre-
neurs often exploit ideas when the market is mature or where
there appears little scope for commercial success.
■ There are many triggers to creating new business and entre-
preneurship is often initiated by a single and often trivial event.
Entrepreneurial organizations may then pursue the opportun-
ity for many years before bringing it to fruition.
■ There are many systematic and creative ways of identifying
new opportunities and, even for those without a commercializ-
able idea themselves, there are still ways of setting up an enter-
prising organization.
■ The key to business creativity is to challenge the assumptions
on which the sector operates and seek new ways of
delivering customer value.
■ In developing solutions that will exploit the opportunity it is
essential to consider all the variables that make up the total
product or service offer as opportunities arise both in the
core
aspects of the offer and in the support services, such as a new
method of promoting or distributing the product or service.
■ To exploit the idea efficiently and effectively it is necessary
for the organization to identify the threats and opportunities
and reconfigure its operation where necessary to build
strengths in the key areas of knowledge, capability and skills.
Chapter questions
1. As a specialist consultant to the industry write a report
identifying some potential sources of business opportunity for
a major investor in the home entertainment industry.
2. If you were establishing a new product and service development
process in an organization what methods would you suggest to
encourage staff to identify new ideas?
3. What advantages do small firms have over large ones in exploit-
ing market opportunities?
4. The process of exploiting an opportunity from the initial
idea to commercialization can be expensive and time-
consuming. How can a new or smaller organization reduce
the time and costs involved?
5. How might environments that encourage networking (e.g.
business incubators) support small firms in exploiting oppor-
tunities?
opened five years later. His idea, which came to him in the 1980s, was that people were too busy making money to stick aro
re it is needed, changing the lighting and layout in one store could increase the revenue by 30 per cent. Feeling that Prêt á M
In 2001 McDonalds bought one third of the company and by 2003 there were 150 cafés
worldwide but things had not gone altogether smoothly for Prêt. Although in 2002 the British
business showed healthy profits the overseas expansion had led the company into making an overall
loss. Twenty-two cafés had been opened in the USA in one year and Metcalfe believed that the
expansion had been done too quickly. There were plans to open a café in Beijing, but why do that
before opening one in Bromley in the UK? The chief executive and deputy chief executive left the
company very soon afterwards.
When he returned to work more intensively for Prêt again Metcalfe realized that the cafés had
become outdated. He said the old look was like the inside of a washing machine, with stainless steel
tables and high stools. Customers had changed too. Now they are concerned with their own health.
They care about what they eat, how they eat and where they eat. David Collins, the Dublin-born
designer, who created the ‘look’ for Eat, a competitor to Prêt, comments that ‘Now people wanted
not only good and healthy fast food but also wanted to get out of the office for half an hour’. The
‘look’ for Eat, founded by Niall and Faith MacArthur, is a white kitchen, with white walls, white
tiles and no clutter. Fifty Eat cafés have been opened to date.
Design seems to be important. Starbucks is still popular but no longer leading edge – it has a
rather dated look too. And there are a number of other competitors in the market. In response to a
decline in business and criticism about unhealthy eating, McDonalds and KFC offer real competition
as does the rapidly expanding Subway sandwich chain. Even Marks & Spencer has introduced its Café
Revive in many of its stores. Many other ideas are being tried, such as Internet cafés and music
download services.
Source: adapted from various public sources, including C. Broughton, Bread Winners,
The Independent, 29 February 2004
Questions
1. Using the opportunity identification approaches highlighted in the chapter, including
subsegmentation, challenging assumptions and observation, suggest some possible niche
business opportunities in the market for informal eating and drinking.
2. Taking one of your ideas, explain the segment of customers you would target and what new
concept you would offer them. Then show how you would design a product and service offer
that would use innovation in all aspects of the business.

Ansoff I.H. and McDonnell E. (1990) Implanting Strategic Management. London:
Prentice Hall International.
Barrow C., Burke G., Molian D. and Brown R. (2005) Enterprise Development,
The Challenges of Starting, Growing and Selling a Business. London:
Thomson Learning.
Bolton B. and Thompson J. (2000) Entrepreneurs, Talent, Temperament, Technique.
Development and Implementation, 4th edn. London: Thomson Learning.
Drucker P. (1985) Innovation and Entrepreneurship. New York: Harper and Row.
Goffin K. and Mitchell R. (2005) Innovation Management. Palgrave: Macmillan.
Kano N., Saraku N., Takahashi F. and Tsuji S. (1996) Attractive quality and
must- be quality. In: J. Hromi (ed.), The Best in Quality, Vol 7, Ch 10.
Milwaukee: ASQC, pp. 165–186.
Kim W.C. and Mabourgne R. (1997) The strategic logic of high growth.
Harvard Business Review 75:103–112.
Kotler P. (1997) Marketing Management, Analysis, Planning, Implementation and
Control. Harlow: Prentice Hall.
Muzyka D.F. (2000) In: S. Birley and D.F. Muzyka (eds), Mastering
Entrepreneur- ship. Edinburgh: FT Pitman.
Sternberg R.J. and Lubart T.I. (1995) Defying the Crowd, Cultivating Creativity in
a Culture of Conformity. New York: Free Press.
Tushman M.L. and Anderson P. (2004) Managing Strategic Innovation and
Change, 2nd edn. New York: Oxford University Press.
Wickham P.A. (2004) Strategic Entrepreneurship, 3rd edn. London: FT/Prentice
Hall.
Key words
challenging assumptions source of innovation
customer value subsegmentation
market information total product offer
moments of truth triggers to the creation of a new
service innovation business
C H A P T E R
10
Enterprise
planning
and risk
managemen
t
Learning objectives
■ appreciate the stages in developing a business from initial
idea to a sustainable business;
■ assess the factors that will influence the choice of business model;
■ evaluate the risks associated with the pursuit of new oppor-
tunities;
■ assess the feasibility of commercial success for the new prod-
uct or service; and
■ explain the purpose of a business plan, its preparation, frame-
work and key components.
Introduction
In the previous chapter we discussed the first stage of the
commercialization process by focusing on the identification of an
opportunity and the development of a business solution to exploit it,
by creating a new product, service or process. The natural inclination
of an entrepreneur is to immediately want to make things happen by
gathering the necessary resources and concentrating on getting the
idea to market. Before doing that, however, it is worth re-emphasizing
that the long-term objective is to create a sustainable business from
the idea, not simply to quickly
Chapter 10 Enterprise planning and risk 31
management 9
get a few customers to try to prove that the idea will work. While a
key characteristic of an entrepreneur is adaptability and the ability to
quickly respond to problems, it can be argued that it is preferable to
avoid some future pitfalls by thinking and planning ahead wherever
possible.
Creating a sustainable business from the idea requires confidence in
the commercial prospects for the idea and this comes from assessing
the feasibility of delivering it viably to the market and evaluating the
risks associated with starting and building the venture.
It is also useful to develop an overall strategy that will determine the
shape of the organization now and in the future, define its
capabilities and what its activities and income streams will look like,
and what its overall goals, objectives and standards will be. A more
detailed plan will indicate precisely how, in the early stages, the
organization intends to win customers in the market and manage and
control its resources. In this chapter, therefore, we begin by mapping
out the various developmental stages of the business and explain how
a strategy and plan can assist the transition of the organization between
the stages. We then discuss the development of a business model
that defines the organization’s activities, income and cost streams.
The next section deals with the feasibility assessment of the business
model in the market and then goes on to discuss the evaluation of risk
that occurs when acquiring and managing resources, and setting up
a new organization. We then emphasize that feasibility study and
planning continue to be important as the organization grows and that it
should be part of a dynamic learning process rather than merely the
production of an output that satisfies
only the limited interests of some outside stakeholders.
In the section on planning we begin by considering the purpose
and value of planning, which for some entrepreneurs might seem to
be a time-consuming and unnecessary exercise for a start up business.
In the last section we explain the essential components of the
business plan and discuss its preparation. It is worth noting at this
point that while we discuss the preparation of business plans later, it is
not our intention to provide a detailed ‘how to’ guide to start up
planning as there are some excellent books and software that
comprehensively deal with this aspect of entrepreneurship. Instead we
focus on the key areas of business start up and on the essential
decisions that are required.
The developmental stages of the business

The experiences of working in start up or early-stage business often
0 on
seem to be characterized by a succession of crises interspersed with
Initial ideas
People
Business proposition
Modify
Owner motivations Ownership, etc. Identify income and cost streams, operations and market conne
Business model
Feasibility study and preparation of the plan

The business case
Forming the organization and launch
Growing the venture to achieve a sustainable business
Figure 10.1
The start up stages.
fleeting moments of success as the long-awaited breakthrough

occurs accompanied by the extremes of emotions – euphoria with a
successful event and deep despair at an unexpected failure. It is only
usually with hindsight that it is possible to observe distinct phases
through which the start up or early-stage business has progressed.
However, in order to plan, assess and manage risk it is useful to
consider the organization in distinct stages, as shown in Figure 10.1.
Stage 1: The business proposition
The first stage of the business was described in the last chapter and is
the definition of the business proposition. This emerges from the
identification of the initial opportunity by the entrepreneur or
entrepreneurial team and the subsequent development of the idea to
exploit it, in the form of the business solution. Through obtaining
market information from an understanding of the market context,
customer demand and expectations, and the likely competitor
response the potential size of the market can be determined. Against
this background the entrepreneur or team then use their knowledge,
skills and competencies to develop the product, service or process
proposition.
Stage 2: Defining the business model
In stage 2 the business model is defined. As we discuss in the next sec-

tion this follows from decisions made about exactly what the
business will look like, what activities it will undertake itself and,
accordingly, what its income and cost streams will be.
Stage 3: Preparing the business case
An early task in the process is to prepare a clearly thought out business

case that explains how the venture will be formed, funded and
owned, operated and managed. The business case is essential if the
entrepreneur wishes to persuade investors or banks to finance some or
all of the necessary resources for the venture. This is fairly obviously
the case for a new start up but preparing a business case is essential
for new ventures within an existing organization too, where senior
management support for investment is just as critical if finance is to be
secured and resources acquired. The business case is normally
presented formally and justified within a business plan. While the
feasibility of the venture in the market will be the main focus of the
business case, investors do not have a crystal ball that will enable
them to make better predictions of likely success than the entrepreneur.
Therefore they place considerable emphasis on the capability of the
management team, particularly its enthusiasm, experience,
competence and astuteness in dealing with unexpected problems.
Stage 4: Forming the organization and launch
Having prepared the plans that justify the formation and launch of the
organization the next stage is to get started. This involves obtaining the
resources and activating the various operations of the business, includ-
ing finance, production and distribution, marketing, sales and
people management. While much of the focus of this chapter is on
making decisions and planning the business before start up, the
launch strategy is a critical stage in the start up process, especially if
a high profile launch is essential, timing is crucial and resources are
limited. The venture can be given a significant boost or may suffer a
setback, which may take a long time to recover from. In some market
sectors, stakeholders are unforgiving and, if the business launch fails,
there may not be a second opportunity.
Stage 5: Growing the venture to sustainability
The success of an early-stage venture is achieved through the combin-

ation of an entrepreneur, an idea and a realistic business model that
will effectively exploit the opportunity but a surprisingly difficult task
is to repeat the success and continue to build the organization. As
we shall see, building a sustainable business requires a succession of
product and service developments and improvements in the
management and operation of the venture, in order to overcome
the barriers to growth and ensure future success. Although this is the
final part of the start up process and, perhaps, well into the future, it
is necessary to build into the business model and business plan the
capacity and capability for the organization to develop and grow
from the start.
Enterprise in Action 10.1 provides an opportunity to consider the
planning issues in a new start up business.
s you are convinced that there is an opportunity to offer consultancy to the firms that you have been working with to he
Many successful entrepreneurs have the capability, interest and

ambition to play a ‘hands-on’, operational role in the early stages of the
process of enterprise. However, many become bored with the often
less exciting later stages of building and growing the venture into a
sustainable business. There are many other reasons why initially
highly successful organizations are unable to overcome the barriers
to growth and fail to become sustainable businesses and we discuss
these factors in Chapter 12.
Creating a sustainable business model
The key challenge at the start of the process of commercializing the
idea is to decide how a particular idea might be exploited. As there
are many ways of exploiting a market opportunity, the decisions that
are taken may be rational, logical and justifiable but they usually
also reflect the owner’s personal views, experience and capabilities.
A conventional business model may be safe and offer predictable
returns. A more innovative model has the potential to offer above
average rewards, but is often more risky because less information is
available to assess the model, the problems cannot be anticipated
and the outcomes are more unpredictable.
Entrepreneurs are usually prepared to take a risk based on
imperfect information and implement their model quickly,
believing they can act fast to change things and obtain the high
returns before competitors catch up. Sometimes being first mover
is essential as it prevents others competing, as shown in Enterprise
in Action 10.2.
want a quick service to get them moving again and this requires an effective network of depots and mobile repair st
Defining the business model

At the outset it is necessary to define the business model at least in out-
line terms. The key factors in the business model are listed below.
■ What the organization will do and what tasks it will carry out. For
example, will it be a research and development company, a
specialized consultancy company, a marketer of the final prod-
uct or an online direct seller of the product?
■ How the organization will connect with the market. It is essential to
assess the alternative routes to market and how the connec-
tions with the market will be made. For example, an
invention can be converted into a product that will be sold or
the invention can be licensed to another producer. The
route to market may be largely through e-commerce,
traditional distribution through wholesalers and retailers or
a combination of online and ‘off-line’ routes. The
organization will need to decide for example, if it wishes to
sell its offering directly to customers or approach the market
in partnership with other organizations, for instance as might
occur in a media or artists’ network. The consumer may be
different from the customer or, in B2B markets, a number of
individuals will be part of the buying team, so it is necessary
to decide who should be contacted.
■ What the offer is, how it is positioned and communicated to the cus-
tomers. For example, what benefits and value the customers
might expect, how the offer and its benefits can be
differentiated from similar offers from competitors and
what methods are used to promote the offer and obtain
feedback on customer response to it.
■ What the income streams will be. There are many possible income
streams. For example, the company might generate income
by license fees, daily rate consultancy, payment for developing
a new product, sales from selling a product or service, or
being paid a proportion of the savings or increased profit
that result from using a new process. For an e-business,
income can be generated through sponsorship, advertising
and ‘click-through’ fees.
■ How the organization arranges its resources and what the cost streams
will be. We shall discuss later the choices that the firm might
have relating to how it will carry out the necessary value-
adding business activities. For example, the company might
decide to carry out tasks in-house or subcontract work
resulting in very different associated cost streams. The
company might outsource manufacturing but employ in-house
staff for design, development and marketing. This will also
have significant impact on the investment costs of setting
up. If capital equipment is required, there are a number of
ways of financing it and this will have a significant effect on
overall cost streams and cash flow.
■ The organization’s role within the value chain. A key feature
of the business model will be how the new venture will con-
tribute to the value chain of the product or service and
the nature of collaboration with or degree of independence
from third parties to deliver value to the customer. For
example, the suppliers to an independent retailer may
have limited influence or impact on its operations, whereas
the actions of a franchisee will probably be dominated by
the demands of the franchisor.
■ How surpluses will be generated for further investment. All these
considerations are important in determining how profit
or surpluses will be generated to pay the current investors or
to further invest in the business. At a simple level this is the
difference between income and cost streams. However, it is
the medium- and long-term financial dynamics that are
important as the business model must be flexible and robust
enough to routinely deliver surpluses so that the
organization is able to undertake further investment
programmes to improve its efficiency and effectiveness in a
changing competitive market.
Factors affecting the design of the business model

There are a number of factors that will influence the choice and
design of the business model that is ultimately adopted for the business
and it is useful to group them under the following series of headings.
■ Market factors
■ Organizational issues
■ Entrepreneurial personality and organization culture issues
■ Flexibility to respond to organizational growth
■ Risk factors.
Market factors
Fit with the market

The business model must give the venture competitive advantage in the
market. If a new-start adopts a conventional model it must operate
the model more effectively and efficiently than do the competitors. A
potential innovation opportunity is to develop a business model
that challenges the assumptions about the way the market works and
deliberately does not fit with the present ways of doing business in the
sector. Over
the years there have been a number of breakpoints in business models
that have given the customers added value and the venture a
competitive edge; some examples are included in Table 10.1.
Chaston (2000: 154) gives the example of Ray Kroc, the founder of
McDonalds, who realized in the 1950s that the middle classes were
migrating from the city centres to the suburbs. He noticed the rapid
service and inexpensive food of the McDonalds brothers’ restaurant
in California and acquired franchising rights. The business model he
developed was designed to fit with the market opportunity that was
emerging. In Pause and Reflect 10.1 eBay, one of the most
distinctive and spectacularly successful recent business models is
discussed.

individuals and organizations. eBay takes a fee to insert the advertisement and a fee based on the final value of the good sold. It is the mo
g on eBay full- time, with many more employed people who use eBay to run businesses in their spare time.
Table 10.1
Examples of business model breakpoints
Business models Examples

Bait and hook Low-margin basic product with high-margin refill, e.g.
razor and blades, mobile phone and air time, computer
printer and cartridges
‘No frills’ airlines Yield management processes to maximize revenue from a
flight, using flexible pricing, rather than relying on a
fixed seat price at South West Air, easyJet and Ryanair
Online retailing Easy purchasing online with customized recommendations
at Amazon
Online auctions Organizer takes percentage from advertiser and completed
deal, e.g. eBay and Betfair
Source: http:digitalenterprise.org/models/models.html
Flexibility to deal with changing market dynamics
A rigid model that takes one view of the market can be
problematic if the market dynamics change. For example, a model
that is geared to supply one main B2B customer is risky if there is a
danger that the key customer goes bankrupt or is acquired by
another company that is not a customer. Nestor Healthcare, set up to
provide temporary staff to the National Health Service in the UK,
suffered when the NHS decided to set up an in-house agency itself
but Nestor had other complementary activities in its portfolio to
compensate for the decline in this income stream. Granville
Technology, however, failed to respond to a rapidly changing
computer market, as shown in Enterprise in Action 10.3.

Collapse of Granville Technology
In July 2005 the UK’s largest computer manufacturer, maker of Time and Tiny computers, col-
lapsed with the loss of 1500 jobs. At its height the company was manufacturing 500 000
computers a year and sold them through 150 stores in UK high streets. It also supplied
supermarkets including Asda, Tesco and Woolworths.
No accounts had been filed for two years and just before it collapsed the company was
losing £2 m per month. The problem for Granville was that its business model was becoming
no longer appropriate as the cost of computers fell. PCs from India were being sold for as
little as
$225, making it impossible to compete using products made in a higher labour cost
country. Furthermore, the low retail margins that were constantly eroded by Internet
sellers, such as Dell made Time’s high overhead retailing operation unsustainable.
Time was set up by Tahir Moshan but he resigned as managing director in 2004. It took over
Tiny Computers, which collapsed in 2002.
Source : adapted from Tiny PCs goes into administration, 27 July, 2005 BBC News Online,
Guardian online 27 July 2005 and other public sources
Question: What could Granville have done to reinvent the business?
Competitive response
If a new venture is successful it will be noticed by competitors, who are
likely to attack the market opportunity identified. The business
model must make provision for dealing with the competitive
response. Body Shop initially suffered when mainstream retailers, such
as Boots in the UK, brought out products with similar ethical claims
but it has since grown internationally.
Organizational issues
In order to fully exploit the potential flexibility of a business model it

is vital to consider all the possibilities. To do this it is useful to
consider first the concept of the organization. Morgan (1997)
identifies a number of dimensions, which are shown in Figure 10.2.
It is the particular combination of these elements that enables the
organization to develop a unique business model.
Protecting the idea

Some business model options make it more difficult to protect
the intellectual property that is transferred in the course of the
business transactions. For example, business models that are based on
partnerships may mean that it is inevitable that sensitive information
is shared for the business to grow but this could lead to one partner
gaining sufficient intellectual property to be able to go it alone.
Areas of expertise
It might be more expedient for the team running the business to
develop a model that builds upon their areas of expertise, skill and
knowledge. For example, a team of designers may not have selling
expertise and it might be more advisable to offer a consultancy service
rather than selling to final consumers.
Organizations serve a number of purposes:

The coordinator of actions to share complex tasks; the complementary activities are carried out by a diverse range of individuals an
An independent agent, existing and taking actions in its own right, with an individual and separate character
A network of contracts that are a framework of agreements based on exchange of labour for something in return
A collection of resources, including capital, people and productive assets, such as buildings, machinery and vehicles
A system, a coordinated collection of elements and a pattern of relationships
A processor of information that leads to the accumulation of knowledge that in turn leads to competitive success
Figure 10.2
The concept of the
organization.
Unsuitable partners
It may be unwise to build a business model that is dependent for
success on one particular partner that is potentially unreliable or not
fully committed to the venture because the activity in question is
peripheral to the main business.
Entrepreneurial personality and organization

culture issues
The business model needs to take account of any weaknesses or the
preferred way of working of the entrepreneur or entrepreneurial
team and either reflect or change the way they work. It is common to
hear the comment ‘That is the way we have always done it’, when the
model should be changed to meet new circumstances.
Areas of expertise
Some entrepreneurs prefer to work in their comfort zone of expertise
and do not easily take on responsibility for some functional areas
that are core to the business model. For example, the defence of
Bernie Ebbers, the chief executive involved in the £11 bn fraud at
Worldcom, was that he was an entrepreneur with humble origins as a
milkman and he did not get involved in the finances of the company,
which he left to the ‘bean counters’. His defence failed and he was
jailed for 25 years.
Unwilling or incapable of working in partnerships

Some entrepreneurs tend not to trust people who are outside
their direct control and do not easily work in partnerships and so avoid
outsourced services as far as possible. Their belief is that the
organization will not be as efficient as it could be, because those in
the venture are more committed, will be more reliable and work
faster to achieve the necessary outcomes than will subcontractors or
partners.
Leadership and management

If the entrepreneur does not have particular strengths in leadership
and management, it might be better to avoid setting up a model
based on employing large numbers of production or service staff and
instead use a small team with expertise in outsourcing services.
Flexibility to respond to organizational growth
Early-stage flexibility
One of the merits of small organizations is their flexibility but this is
often used as an excuse for not taking decisions to clearly define the
business model, in the belief that changes to the business model can be
made later when they are required. However, rather than leaving the
business model vague, flexibility should be built into the model.
To illustrate this point many e-businesses set up at the time of the dot-
com boom obtained huge investment on the expectation that they
would generate revenue from advertising and sponsorship of their
website. However, many failed to clearly define their business model
and reliable income streams and, as a result, the majority of
businesses burnt their investment cash very quickly and went bankrupt.
Re-engineering the business model

As the organization develops, and changes occur, it may become neces-
sary to re-engineer the business model. Chaston (2000: 138) debates
whether this re-engineering is entrepreneurial, citing the example of
IBM where two senior managers tracked the organization’s credit
approval system. By changing from a system that used different special-
ists to carry out each stage of the process to appointing one person
to carry out the whole process, they reduced the time needed from 6
days to 90 minutes. By our broad definition, we would consider this to
be an entrepreneurial ‘moment’ of process or architectural
innovation.
Risk factors
Choosing a business model can be influenced by a number of areas

of risk including legal, political and competitive risks. In Enterprise
in Action 10.4 it is shown how Betfair were faced with legal and
competitive risks but chose to pursue their business model in spite of
them.
nd often lead to legal and competitor threats. The dilemma for the entrepreneur is whether to slow down or ignore th
The betting industry went through a huge boom at the beginning of the 2000s with a num-
ber of entrepreneurial companies offering new propositions to different customer segments,
as discussed in Enterprise in Action 6.1.
Betfair was set up an attic room in 2000 by Andrew Black and Edward Wray. Within
nine months £1 million worth of bets were being placed on the website each week and in three
years this had increased to £50 million per week. The company employed 200 people and
had won the Queen’s Award for Enterprise and Innovation. In contrast with many online
betting companies Betfair is an exchange that matches up those who lay odds with those
who place bets. Betfair takes a commission of up to 5 per cent on the net winnings on
either side. The advantage that Betfair claims is that the prices are 20 per cent better than
those of traditional bookmakers. By 2005 it had 90 per cent of the betting exchange
business.
However, high-street bookmakers claimed that Betfair and other similar exchanges were
illegal as they flouted the UK betting laws and the model did not identify criminal activity.
Betfair denied these claims and, in 2005, the UK government in the course of preparing a
new gambling bill appeared to take the side of Betfair.
While this appeared to be on the point of solving Betfair’s problems, it provided another
threat and opportunity. Given that Betfair had substantially expanded the market, the antici-
pated clarification of the legal position means that the sector would become attractive for
the traditional bookmakers to set up their own exchanges. Against this background Betfair had
a number of options: to sell the company, refinance it or float on the stock market, in which
case it would be valued at £900 million, making the two owners £100 million each.
Adapted from: ‘Betfair in possible £700 m float’, BBC News Online, 28 March 2005
Question: What should the owners do and why?
Value chain contribution

Porter (1985) introduced the concept of the value chain, and the
elements of a value chain for a new idea are shown in Figure 10.3. The
new venture that is based on the idea must decide which of these
elements it wishes to and is able to deliver. Does it wish to:
■ have the responsibility for transforming the idea into a saleable
product or service and/or marketing the final product or
service to the consumer?
■ control each of these elements in-house?
■ outsource some of the elements but still control the supply
chain?
■ focus on a key element of the supply chain while allowing a
partner organization to market the final product?
Each of these strategies involves risk that must be assessed in a
feasibility study, which is discussed later in the chapter. Critical to each
approach is the decision of make or buy.
Design Design consultancy
Technical development Outsourcing

R&D company
Supplies Usually outsourced
Production Contract manufacturer
Warehousing and logistics company

Storage, delivery
Communications PR, ad agency
In-house Sales Contract sales force
Figure 10.3 Distribution channel Intermediaries or web hosting

The value chain, in- Obtaining payment
house and Factoring
outsourced
provision.
Make or buy decisions
Every link in the chain can be undertaken in-house, thus potentially

adding the most value for the venture, but in this case all the costs are
also incurred in-house. The venture, however, may not be the most
efficient or expert supplier of these elements in the chain; for example
the capital expenditure for equipment and facilities could be
unjustifiably high and some of these elements could be outsourced to
efficient external suppliers. If the venture wishes to maintain control
of the supply chain and market the final product, outsourcing of
some tasks can still be used to reduce the internal resource
commitment but this will increase purchases and so have cash flow
implications. This strategy increases the risk of relinquishing control of
the supply chain to a more powerful partner. Each of the supply
chain elements can also provide an alternative income stream for
the new venture, such as design or research capability (see Table
10.2). Alternatively, marketing and selling the final prod-
uct could be left to another better resourced organization.
Market penetration is likely to be greater if the venture is able to
concentrate on its core expertise but the consequence is that it would
have less control over subsequent developments in the market.
Knowledge of the organization’s customers might be considered to be
its most important asset. Tesco ran its loyalty card operation to retain
customer knowledge, and you might consider if it was wise for Sainsbury
to use the Nectar card from a third party to run its loyalty card scheme.
Table 10.2
Elements of the supply chain and possible income streams
Some elements of the supply chain In-house added value or possible

alternative commercial income streams
■ The intellectual property of ■ Licensing IP to a manufacturing or marketing company
the initial idea ■ Consultancy
■ Research and development of further IP ■ Licensing IP
■ Consultancy
■ Design of the product or service ■ Design consultancy
■ Licensing from applications of IP
■ Designing the manufacturing process ■ Process consultancy
■ Development/enhancement of the ■ R&D consultancy
product ■ Market information research and consultancy
■ Efficiency improvement in manufacturing ■ Process consultancy
■ Outsourcing management
■ Manufacturing the product ■ Contract manufacture or manufacture for others
■ Marketing the product ■ Marketing externally sourced products and services
■ The sales force ■ Can be contracted out or sell externally sourced products
and services
■ Logistics ■ Can be contracted out or deliver externally sourced
products and services
■ Retailing ■ Physical or online retailing
Many entrepreneurial organizations believe that in order to

achieve successful commercialization they must carry out each of the
tasks in the supply chain themselves – owning the IP, and designing,
manufacturing, marketing and selling the product themselves. In
some situations they may even wish to retail the product direct to
customers, using the Internet. This approach is the most demanding as
it requires the highest level of financial investment and the
broadest range of expertise and management skills, and for an
unproven venture it ultimately carries the highest risk of failure.
In today’s competitive environment it is unlikely that a new
venture can carry out each of these stages cost effectively. For
example, manufacturing and some service processes, such as
telephone call centres and processing of transactions can be done
more cheaply in developing countries and if the venture needs to reach
a mass market, online marketing alone may be inadequate. However,
if retailing through major supermarkets is essential this may be
difficult too. Many supermarkets
would not be prepared to buy just one product (however good) from a
supplier as the costs of managing the administration and logistics of
a single product supplier is unlikely to be cost effective. Therefore,
the venture may be forced to work through a distributor.
Entrepreneurs might find that certain of the links in the supply chain
are critical in terms of adding value for the customer and protecting
their intellectual property. For example, the entrepreneur might
decide that manufacturing in-house is essential until the product and
venture are established in order to maintain control of quality and
secrecy of the manufacturing processes.
The value chain and business model and risk

Perhaps business model and value chain decisions are ultimately deci-
sions about what type of risk the entrepreneur will accept. For example,
it is essential to identify reliable income streams but sometimes
these may not be sufficiently attractive to win a customer’s business.
For instance, in many services it is preferable to charge a daily rate
for the actual work done as this is usually less risky than charging a
rate for a completed job, where the cost of unexpected and
unplanned delays is borne by the supplier.
Entrepreneurs often appear to balance the cost and risk implications
against the potential benefit differently from other managers. They
are more driven to act, to be first to establish the venture and new
business model, and so they value these things more highly. As a result
they are prepared to run with higher levels of risk. Entrepreneurs
typically are not foolhardy, however, and know that their priority is
to be aware of what activities it is essential to retain control over.
The purpose and benefits of business planning

Starting and growing a new venture and developing an appropriate
business model entails the entrepreneur acquiring and applying con-
siderable amounts of disparate information and carrying out a large
number of often unfamiliar tasks. The risk in this is our limited cap-
acity to process information and apply rational thinking (Baron and
Shane, 2005). We have some weaknesses including:
■ the belief is that we can complete more in a given period

of time than we can;
■ the fact that we find some information easier to bring to
mind and so use it more often than other information that
might be of equal value and more relevant; and
■ the belief that we have more control over our fate than
we actually have.
This means that to operate more effectively it would seem sensible

for entrepreneurs to use formal processes for using information to
run their business.
It is generally recognized that the process of planning can play a
significant part in helping to reduce the risk of failure by placing
greater emphasis on reflection, analysis and detailed implementation
actions that are decided in advance. Planning assumes that there will be
changes and so planning is particularly important, for example at times
of a new start up activity, the acquisition of a new investor or growing
the business. Indeed, if an organization does not intend to change
anything that it is currently doing there seems to be little point in
planning. Planning also infers making decisions to deal with the
changes that have occurred. Planning is therefore the thinking
process that involves information collection and analysis, decision-
making between the options available, identifying actions to be
taken, setting timescales and checking on progress. If it is to be
effective in steering the venture through the various crises that it is
likely to encounter planning must be an almost continuous process.
Some arguments against formal planning

There are some arguments against formal planning. Coulter (2003:
143) summarizes the criticism of Moore (1996), Hamel and Prahalad
(1994) and Mintzberg (1994), who have challenged the basic
assumptions of planning as listed below:
■ Formal planning may create rigidity as organizations are locked
into specific goals, potentially fatal for an entrepreneur in
a changing environment.
■ Most environments are dynamic, and organizations cannot
plan for unexpected and unpredictable events.
■ Most successful organizations are the result of someone’s
innovative vision rather than the result of formal planning,
which is based on thorough analysis that can kill creativity and
innovation.
■ Formal planning focuses on how to capture existing oppor-
tunities not how to reinvent the business or create a new
market.
■ Reinforcing current success through planning may be dan-
gerous in a changing market.
Many writers, for example Kaplan (2003) and Coulter (2003), suggest
therefore that the plan should be used as a road map rather than a
rigid discipline for the business.
The benefits of strategy development and planning

There are a number of recognized benefits of strategic development
and planning, including the following.
■ Planning encourages proactivity among the managers rather
than reactivity, so the organization can have a greater influ-
ence on its future direction rather than simply reacting
to events as they occur.
■ Planning encourages a systematic process of collection of
information and analysis of the factors involved in the deci-
sions rather than using only the information that is most easily
recalled.
■ Planning forces organizations to define their objectives and
policies more precisely, avoiding ambiguity, so they are not
misinterpreted when individual decisions are taken.
■ As the organization and its management becomes more
complex it is essential that managers become more focused in
their thinking but their actions must be complementary in
delivering the strategy.
■ As the environment becomes increasingly complex and un-
stable, planning prepares the organization to respond quickly
and decisively in a coordinated and effective way.
■ In a growing organization planning increases the participa-
tion of staff in decision-making and increases their motivation
and loyalty.
■ Day-to-day action and control can be integrated with the
longer- term strategy to ensure that the objectives are achieved.
■ Planning should also offer the entrepreneurial organization
the opportunity to challenge assumptions in their strategic
decision-making processes and reflect on and re-evaluate their
operations, as discussed in Chapter 4.
The planning process
The real purpose of planning in the organization is to address the
following four fundamental questions.
1. Where are we now?

2. Where do we want to get to?
3. How will we get there?
4. How will we know when we have arrived?
Where are we now?
Being absolutely realistic about the organization’s current situation

is essential because delusions about the present position and
capability lead to over-optimism about what can be achieved in the
future with the resources available. This is a common pitfall for an
entrepreneur who is convinced of the value of the idea. There are
four considerations in this section:
1. the nature and demands of the environment, including the

competition and customers;
2. the range of stakeholders that have an interest in the organ-
ization and its activities, and may have the power and interest
to influence its chances of success;
3. the objectives and ambitions of the entrepreneur and staff;
and
4. the capabilities, strengths and weaknesses of the staff.
For a new start up organization there may be a temptation to give

very little thought to the answer to this first question and the
three dimensions that make up the assessment of the current
situation. However, it is essential to define carefully where we are
now in order to decide which business model to adopt and to work
out the gap that needs to be bridged between where we are now and
where we want to go to. It is also vital to identify the resources and
capabilities that are needed over and above what are already
available to deliver the plan. This is particularly true in terms of
creating a balanced team. The entrepreneur must know what skills
are needed overall to complement his or her own skills.
It is also essential to be aware of the environmental pressures that
could knock the organization off course. A lack of consensus or
clarity about the objectives and ambitions of the entrepreneur and
the staff
can lead to wrong decisions being taken. For example, an entrepre-
neur might be looking to create an organization with the purpose of
selling it as soon as a return can be made on the investment, rather
than expecting to manage the business for the long term.
Where do we want to get to?
The ‘future’ must be identified through the entrepreneur’s vision and

then by setting clear and meaningful goals and objectives with the pur-
pose of increasing the organization’s focus and leading to the coher-
ence of efforts. Financial and non-financial drivers should be included.
Collins and Poras (2004) have emphasized that, in building the com-
pany’s vision, the organization must be clear about its purpose or rea-
son for being, and be able to articulate this in a phrase or sentence.
They should set BHAGs – Big, Hairy, Audacious Goals – to stimulate
progress. Chaston (2000: 163) explains how some entrepreneurs are
excited by a unique vision that becomes their entire focus and that can
lead to spectacular success. Bill Gates set out to put a computer on
every desk and in every home in America.
According to Drucker (2001: 30), organizations should identify
objectives in eight areas:
1. marketing
2. innovation
3. human resources
4. financial resources
5. physical resources
6. productivity
7. social responsibility
8. profit requirements.
He argues that organizations must not just think about what the busi-
ness is about, but also what it should be about. They should avoid wast-
ing energy defending yesterday’s business.
Having a vision and communicating it effectively can be a significant
advantage for an entrepreneurial organization if the goals stretch the
capabilities of the organization. However, there is a possible downside.
They must be achievable and motivating to staff – without being unrea-
listic, meaningless and dispiriting – in order to prevent them feeling
they are always underperforming against the entrepreneur’s expect-
ations. The achievement of the goals set must also be considered as
success for the entrepreneur. But Wickham (2004: 93) explains that
success can mean many things and, certainly, different things to differ-
ent stakeholders. Financial success was clearly not the most important
factor to two of the owners discussed in Pause and Reflect 10.2.

nally through acquiring its Australian counterpart, Schoolfriends.com. In 2004 its profits increased from £3.6 to £4.6 million on a turnover
How will we get there?
These are the action plans that will ultimately determine whether
the venture will succeed or fail. For them to work it is necessary that:
■ the essential stakeholders in the venture understand the plan
and are committed to it;
■ it is clear who is responsible for doing what and to what
timescales;
■ the resources (including people and finance) are procured in
timely fashion and used effectively. Moreover, Coulter
(2003) emphasizes that the organization must sweat its
assets, and further emphasizes that the best way to sweat
assets is for the owner to roll his or her sleeves up and do
the work!
How will we know when we have arrived?
The plan rolls forward so there is a temptation for many

entrepreneurial organizations to think that no concrete final goals
can or need to be set. It might be thought better to set stage posts
along the path with measurements to indicate whether the plan is
working, for example potential customer awareness and conversion
rates. The action plan
should be regularly reviewed to check on progress and take
corrective action when necessary. Again, using the notion of 3R
learning, the question should be asked as to whether the original
plans were valid in the light of what the organization is learning
about its performance rather than continuing to plough the same
furrow. It is this continual reflection and reassessment that
distinguishes entrepreneurial ventures.
Planning and the business plan

At this point it is worth clearly distinguishing between planning and
the business plan. Whereas planning is the thinking process, the
business plan is the formal written document that records the
planning process at one point in time for a specific purpose. Without
constant updates most plans will be out of date almost as soon as
they have been completed, because of the constantly changing
environment. Many entrepreneurs, therefore, have reservations
about the benefit of the time that they might devote to planning what is
likely to be a fast-changing entity. Many believe they plan continually
and effectively – in their heads – and see little point in writing things
down.
While some entrepreneurs claim that they can manage without writ-
ing down their plans, Chaston (2000: 40) point out that there are
some limitations to this approach. Where the entrepreneur is not
working alone and needs to convey ideas to staff and other
stakeholders, such as investors, accountants or banks it is necessary
to provide some justification for the decisions that have been made
about how the organization will be set up and run so that they
fully understand the implications for them. It is necessary to allow
them to read the information and understand the link between the
analysis, forecasts and assumptions that have been made and the
actions that are intended.
One of the problems that we observe frequently is that the differ-
ence between a good and bad plan is that, in a good plan, there is a
clear link between the implementation of the plan and the analysis.
Often there is little difference in the amount of relevant information
that has been collected, the understanding of the market and the
objectives set, but there is a big difference in the quality of the deci-
sions that have been made between the choices available in terms of
whether the actions and timescales are realistic and whether monitor-
ing will be in place to prevent any nasty, unexpected shocks.
Planning should ensure that, unless there is a compelling reason to
change, some aspects of the business stay relatively constant, such as
the medium-term objectives, otherwise decisions will be taken on a
whim
of the entrepreneur or member of staff and will change by the day or
even hour. This can lead to contradictory instructions to staff,
misun- derstandings and wasted resources.
What the plan is used for
Before proceeding to the elements that should appear in the prepar-

ation of the business plan, it is worthwhile taking one step back to con-
sider what the plan is going to be used for and how it will be
prepared, by asking the following fundamental questions.
■ What is the purpose of the planning carried out by the

organization and how will the plan benefit the new
venture?
■ What is the plan going to be used for?
■ Who should be involved in the planning process?
■ How should the plan be used?
■ Who should write the plan?
■ What should the format of the plan be?
■ How should the success of the plan be assessed?
The components of the plan

A number of writers from banks, venture capitalist companies, aca-
demic institutions and entrepreneurial firms, have proposed what
should be included in the business plan for a new venture. There are
also a number of business planning websites and software available that
can be utilized when undertaking the process. At the end of the
chapter we have referred to a number of useful websites and books
to help with detailed new-venture planning. Because the authors of
these books and websites have different objectives for writing their
approach to planning the frameworks and priorities vary, although in
general the content is very similar.
What are the aims of the business plan?

For entrepreneurial organizations there are usually three different
objectives in writing a business plan, as follows:
1. to define the business for the start up of the organization and

to assess its feasibility;
2. for the new organization to explain its proposed future busi-
ness activities to external stakeholders with the purpose of
obtaining investment, loans and other types of support;
3. to manage and control the organization and staff internally
through its various phases.
Writing the plan

Before discussing what the three types of plans will be used for, how
they should be used and, hence, what they should include it is useful to
discuss some general points in answer to the remaining questions
posed earlier.
Pre-start and close-to-start, it is likely that the entrepreneur team will
write the plan as they are the only people who really understand
what the organization will do, perhaps by using one of the many but
similar standard formats available online or in books. Considering
each element of the plan and analysing the information helps
ensure integration and acts as a checklist of things to consider.
Obtaining the necessary information to provide the justification of
the plan might involve discussions with many people, such as
potential landlords, accountants and customers, each of which has
specific expertise or knowledge to contribute.
There are consultancies that offer services in business plan
writing. They provide plans that are professionally written and
presented to a high standard, and they can be useful in saving the
entrepreneurs’ time where a specific format is required, for example
in obtaining specialized investment or loans. However, it is essential
that the owners of the new organization have ownership of the
objectives, strategies and promises implied in the plan and play a full
part in the planning stages. Whatever the purpose of the plan it
should be used to direct and manage the new venture. Coulter
(2003: 147) has identified the crit-
ical success factors for a business plan (see Figure 10.4).
Even if it is primarily used once to attract funding, investors will wish
to refer back to the plan periodically to see how the organization has
delivered on its promises. Although it may be necessary to
develop plans for different purposes the fundamental business
model, strategies and implementation actions must be common
throughout all planning. Slightly different versions of the basic plan
can be used to meet the specific demands of the different situations.
Finally, Baron and Shane (2005: 177) identify the ‘seven deadly sins’,
as shown in Figure 10.5.
Content:
Captures the essence of the organization Clear financial and business forecasts
Detailed market research (customers, competitors and the market environment) Details of the key executives
Highlights the positive factors and deals with the challenges.
Presentation:
Relatively short and precise Well written and formatted Detailed actions and timescales Regularly updated
Shows financial astuteness.
Adapted from: Coulter (2003: 147)
Figure 10.4
The critical success
factors for a plan.
Poor preparation and an unprofessional appearance The plan is too slick

Rambling executive summary and long-winded explanation of the venture Not making it clear what stage the proposition ha
Not making it clear why a customer would ‘buy one’
No statement of the experience and qualifications of the team Financial projections are unrealistic
Adapted from: Baron and Shane (2005: 177)
Figure 10.5
The seven deadly
sins of new venture
business plans.
Feasibility study and risk

The business case and feasibility assessment
Most ventures require support from their various stakeholders, such as
banks, customers, potential employees and suppliers if they are to suc-
ceed. To obtain their support the rationale and justification of the
venture must be presented within the plan. The entrepreneur must
be confident that the plan will work and be able to answer questions
they might have. Drawing on their experience, the funders will wish
to be convinced that the venture will be viable both as a business
and as a personal career choice for the entrepreneur. To test this it
is essential
for the entrepreneur to carry out a feasibility study to answer the fol-
lowing questions.
■ Is going into business in this way right for me?
■ Should I spend my time working in this way?
■ Is the idea credible and is it the right place and time to
launch the venture for it to succeed?
As we have suggested earlier there is a great temptation to be
over- optimistic in planning a new venture and so fail to assess the
realistic potential and consider the obvious pitfalls. A feasibility study
should provide the reality check by concentrating on the validity and
the analysis of the information on which the case is built,
anticipating the potential barriers and pitfalls and preparing to
overcome them. It might result in changes to the plan. A rigorous
feasibility study takes time to undertake but is likely to save time
and cost at the implementation stage. It will identify any make-or-
break issues that might stop the project going forward. In this case the
entrepreneur would save the considerable amount of time necessary
in writing a business plan for investors, not to mention costs of
setting up and failing! It will also identify other potential problem
areas that are better solved in the early stages, for example
registering building plans that might involve a lengthy approval
process in the local council planning department.
In the feasibility study it is also essential to assess the associated
risks. No organization, particularly a new venture, is without risk and
risk is an accepted element of new business creation and
development. However, new and developing ventures need to recognize
the risks they are taking, and manage them by developing
contingency plans for when things go wrong.
Gumpert (1994) comments ‘Although an unsuccessful feasibility
study may appear to be a failure, it’s not. The real failure would have
been if you had invested your own and others’ money and then lost
it due to barriers you failed to research in advance’.
The focus of the feasibility study for different organizations will vary
but key areas can be identified, and these are shown in Figure 10.6.
Each of these areas is important and detailed evaluation can be
worthwhile from a number of points of view. For example, Coulter
(2003: 98) explains that it is important to research competitors that
might be in the same market and to garner as much information as
possible from a range of sources to obtain an understanding of their
current and likely products, services and processes, and their strengths
and weaknesses and resources. It can also be useful to analyse in
detail their products and services to help in understanding how they
are manufactured and delivered (reverse engineering).
Market analysis
Is the market defined precisely and is your forecast share realistic and big enough?
How quickly will customers switch? Will it be fast enough to get to break-even before the cash runs out?
Is the market stable, growing or shrinking? How many customers are there and how many can you win over?
Who are the competitors and how will they react to your marketing?
Do you have the right location to appeal to the customer?
Are you critically dependent on one supplier or distributor? In what circumstances could you lose their support?
Organizational issues
Is the chosen business model the most appropriate?
Who will own the organization and do the owners have common objectives?
Do the owners have the skills, expertise and knowledge to start up the venture? How will any gaps be filled?
Who will manage the business and what staffing will be required?
What technology, facilities and equipment are needed and how will it be obtained?
Financial issues
Are the estimates for costs and income realistic? Can costs be trimmed without affecting customers’
perceptions of value? Are sales figures supportable?
Are the cash flows and profitability estimates realistic and can they be improved?
Contingency plans
Can improvements be made to improve the projected profitability and is it possible to assess the risk of failing
to generate the forecast income or of incurring extra costs?
What are the critical success factors (CSFs)?
Figure 10.6
Feasibility study – some areas for assessment.
In Enterprise in Action 10.5 you are invited to consider how to

obtain relevant market information in a difficult-to-assess market situa-
tion and what implications this might have for the assessment of the
other areas of the venture.
in developed markets, where the majority of cars are relatively new and have factory-fitted alarms or immobilizers, or
The value of the plan is dependent on forecasting accurately, and in
some detail, the likely income and cost streams, but for a new
venture these are usually highly unpredictable. Indeed it is often said
that the one certain thing about the business plan for a new venture is
that the forecasts will not be correct. Therefore it is essential to
build into the plan some flexibility that allows for overhead and
variable costs, cash flow and revenues being higher or lower than
expected. It is worth noting that overtrading is as dangerous as not
securing enough revenue, especially where the organization must wait
for customers to pay their debts, which can take up to many months
and preclude the purchase of further supplies. Banks may be
unwilling to make further loans to the venture. There is less risk of this
nature in a business that is based on cash sales, where payment is
immediate.
External plans to obtain start up investment

At start up the most obvious purpose of the plan is to provide justifica-
tion for those considering investing, or providing loans or credit facil-
ities. Indeed there would be little prospect of investment or support
from third parties without the business case being presented
through a written, formal business plan. In Figure 10.7 are shown
the typical elements of a start up business plan.
A badly produced plan will not convince potential investors that
the business is likely to be well run. The British Venture Capitalist
Association has, in addition, suggested that other signs of extravagance
and wasteful expenditure are likely to put off would-be investors (see
Spotlight 10.1).
Résumés of founders and key managers Statistics relating to sales and markets
Names of potential customers and anticipated demand
Names and information about your competitors and your assessment of them Financial information required to support you
Research and development information Production processes and sources of supply Information on requirements for factor
Magazine and newspaper articles about your business and industry Regulations and laws that could affect your business
Product and process protection (patents, copyright, trademarks)
Adapted from: The European Venture Capitalist Association at
Figure 10.7
The elements of the
start up business
plan.
Spotlight 10.1
Avoiding the appearance of extravagance

On a lighter note, the following signs of extravagance and non-productive company expenditure are likely to dis-
courage a private equity firm from investing and so are best avoided.
■ flashy, expensive cars
■ company yacht/plane
■ personalized number plates
■ carpets with the company logo woven in
■ company flagpole
■ fountain in the forecourt
■ ‘International’ in your name (unless you are!)
■ fish tank in the board room
■ founder’s statue in reception.
Adapted from: British Venture Capitalist Association http://www.bvca.co.uk/
Questions: How important are visual signs in gaining support? What would you recommend?
The focus of a plan for this purpose would need to be financial. If the
new venture is targeting an activity with which the investor is familiar,
such as hairdressing or a restaurant, the investor will have considerable
experience of similar plans and financial projections and would
question unrealistic estimates of capital requirements, overheads or
variable costs, or selling prices without strong evidence that this new
venture will be different from its competitors and likely to be more
successful. For genuinely innovative ideas or ‘leading edge’
technology with which investors could not be expected to be familiar,
investors, being risk- averse, would require considerable evidence to
be convinced that they should invest.
Business plans are also required by business support agencies to
back applications for government-aided grant and loan schemes.
Very often the investment in specific organizations is for a specific
purpose; for example, support for a community enterprise might be
specifically provided:
■ to increase the employment prospects of the employees;

■ to exploit new growth markets for firms locked in declining
sectors;
■ to increase R&D; or
■ to support exporting activity in a region.
To be successful in these schemes the business plan may need to adopt

a particular focus, such as identifying the number of staff to be trained,
customers gained in the new growth sectors, new products being
generated by the R&D activity or new export markets identified,
rather than profits generated.
The emphasis in this framework is on securing outside
investment, offering some guarantee of business success against the
loans or investments that might be made by banks and the objective
here is to demonstrate in the plan how the investors can be reassured
that they will get their money back. To that end at least equal
emphasis is placed upon the experience, attributes and capabilities of
the owners and senior management team as upon the uniqueness or
likely success of the proposed idea. Investors recognize that the new
venture will not progress smoothly from the initial idea to an
established, profitable organization and so when the organization
hits problems they would prefer a reliable management team to be in
place to deal with the crises.
The plan should reassure the investors that the new business owners
have done their ‘homework’ in obtaining a good understanding of the
market, customer demands, the power and influence of competitors
and documentary evidence of the industry changes and
developments from trade journals. They also expect to be reassured
that the owners have a clear understanding of the legislation that
affects their organization and whether their intellectual property is
secure.
The setting up (facilities, equipment, etc.) and operational aspects
of the plan tend to be included as financial information. Investors
and banks have a clear idea of what are realistic assessments of
investments, income, expenditure and cash flow management.
Although the justification of the figures written into the plan might
not be expected to be included formally within it, the new-venture
owners and managers would be expected to have a very detailed
operational plan that would support each of the financial forecasts
and they would be expected to be able to answer any questions about
the justification of the individual figures.
The plan for business management

The internal operational plan for managing the business during its
early and subsequent phases should be based upon a fairly
standard framework. In Figure 10.8 is shown a typical structure for
a business plan that includes reflection and analysis of the current
situation, the principal assumptions and vision on which the plan is
based, the vision, objectives and strategy for the next period, and the
budgets, actions, timescales and responsibility allocations for
delivery of the plan.
The emphasis on developing a plan for running the operation is to
create a framework that enables progress to be checked, and deviations
The summary or overview
For the initial plan: the overall vision, a statement of the idea, the market opportunity, and the customer benefits
For subsequent plans: the overall vision and the principal assumptions underlying the plan The situation analysis includes:
The assumptions about the environmental and market pressures and changes and
the opportunities and threats that emerge
The strengths and capabilities of the management team, organization and key partner
The identification of any weaknesses and gaps that need to be addressed The short- and long-term business objectives
The strategy
A detailed list of actions to be undertaken in each area of operation (e.g. production, marketing), timescales and responsibil
Resource requirements to support the plan Budgets and cash flows
Performance measures and targets
Procedures for review, control and taking corrective action.
Figure 10.8
The elements of
the business plan.
from the plan to be corrected. Coulter (2003: 254) advocates the use
of scorecards to keep the business on track and help entrepreneurs
communicate the vision to the staff. This inevitably means that the
plan will need to be regularly updated as certain actions fail to achieve
the results that were forecast or as new ideas and improvements are
implemented. Planning underpins the whole organization and its
operations. It is true that many entrepreneurial organizations can
achieve considerable short-term impact from opportunistic actions but,
in a competitive market, this opportunism must still be integrated and
coordinated in order to achieve the maximum long-term impact,
necessary for sustainability. Planning is essential in public sector
organizations that involve partnerships and stakeholder support. An
example is given in Spotlight 10.2.
Spotlight 10.2
ults in schools and libraries across the county. The system provides e-mail, filtered Internet access and firewall security,
The project cost £10 million, has 367 schools and 100 000 users and NETLinc claim that 98 per cent of edu
Adapted from: Post
Question: What are the most important planning elements in a situation such as this?
In the next chapter we focus on obtaining the necessary resources to

support the start up plan and build the ongoing operation. The plan-
ning key here is to obtain only the resources that are necessary to estab-
lish the business according to the most realistic assessment of the
future market situation.
In the final chapter we discuss enterprise strategies and here the
planning contribution is to ensure that the strategy to maximize the
longer-term performance of the organization is implemented effi-
ciently. This can be achieved by using a plan similar to that shown
in Figure 10.8 to build the organization’s operation and
continuing to manage all of the organization’s resources efficiently.
Summary
■ The stages of the business have been defined and it is
necessary for entrepreneurs to understand and address the
requirements of each of them to enable the business to make a
smooth transition between the stages and enhance its
chances of success.
■ It is important to create and define the business model that
underpins the business, the cash flow streams, the
customer offer, connection to the market and the place in
the supply chain. There are advantages and disadvantages
to a conventional and unconventional business model and
these should be assessed.
■ By identifying the value chain contribution of the venture it is
possible to focus the areas of expertise and capability.
■ Planning has some critics but, when used as a road map rather
than a rigid, formal plan, it can:
secure the commitment and support of key stakeholders;
define the business and assess its feasibility as a
sustainable business; and
support and manage the internal development of the
organization.
Chapter questions
1. What are the benefits of carrying out a feasibility study for a
bakery that the two owners thereof propose to start in a
market town in the North of England? What risks do they face
and what aspects of the study would you recommend the
owners to particularly concentrate on in order to address the
risks?
2. Explain the difference in purpose and contents of a
feasibility study, business plan for investors and internal plan
to manage the new organization.
3. Explain to a sceptical entrepreneur the benefits of creating
a business plan.
4. Why can timing be crucial to the decision to set up a business?
5. What assistance is provided in your area for new start up busi-
nesses? Do you consider it to be
a. appropriate?
b. sufficient, and why?
Case study
Olympic Games
When the International Olympic Committee awarded the 2012 Olympic Games to London many
enterprising people could rightfully claim some of the credit. Although Lord Coe, the chairman of
the London Organizing Committee and a famous Olympian himself, was praised as the main
architect of the success, many others made significant contributions and were heralded as winners,
from the Prime Minister, Tony Blair, who worked particularly hard in the final stages to convince
the Olympic Committee members, to Princess Anne and David Beckham, who lent their unswerving
support, to children from Langdon School in East Ham, East London, who were in Singapore for the
announcement, to the many tireless workers that were part of the team.
The entrepreneur
Perhaps the person who was not quite so much in the limelight at the ceremony to award the
games was Keith Mills, the vice-chairman. But the insiders said that it was his steady leadership and
pragmatism that was at the heart of the bid, his confident practical approach, getting on with the job
and quiet determination to tackle the seemingly impossible tasks. He had done the numbers and
was so confident of success in Singapore that 200 planning meetings had already been arranged for
after they had won.
He was hired by Barbara Cassini, the then chairman of the bid team at a time when no-one was
really interested in bidding for the games. She chose Mills because he was ‘self-made’ and passionate
about sport. Coe adds that he is not traditional or strongly corporate, but instead is creative,
seeing the world in a different way. Mills recognized that his 25 years of experience in marketing
products throughout the world was appropriate for the bid. A technically excellent product had to
be created and marketed domestically and internationally. Mills invented customer-loyalty
schemes, selling Air
Miles to British Airways in 1987 and, later, coming up with the Nectar reward scheme. He had
already amassed a fortune of £200 m by the time he was appointed.
Despite his success, Mills will not continue as chief executive of the newly formed London
Organizing Committee of the Games. He recognizes that his skill is in marketing and that an execu-
tive is now needed with experience in a consumer-facing, fast-moving business based on managing
logistics, perhaps retailing, to plan and implement the next stages of the preparation. The ‘leg-work’
for the Olympics is now beginning but Mills prefers starting companies to running them and he has
already got new ambitions – to challenge for the Americas Cup sailing competition.
The preparation for the Games
A huge area of East London needs to be cleared in order to build the Olympic village and this
requires the relocation of many people and over 200 businesses. Major construction work is required
to create the venues, accommodation, and training, media and support facilities and infrastructure.
Entrepreneurs will exploit opportunities to provide additional services and goods that will be
Olympics-related such as improved local shopping, and leisure and accommodation facilities. A
month after the games were awarded the planning team had a list of 8500 jobs that would need to be
done.
The Games themselves
Fairly obviously, at what will be the biggest supported event, there will be huge challenges to coord-
inate all the elements necessary to make it a successful Games including competitors, visitors,
service providers and media. Already 50 000 people have signed up as volunteers to help. The
London bomb- ings that immediately followed the announcement reminded everyone that ensuring
security will probably become the biggest headache.
The potential legacy
The potential legacy of the Games could be increased interest in sport and better facilities, and
improvements in health of the population. The construction work will create many tens of
thousands of jobs and provide pre-event training facilities and services for the foreign teams with
benefits for all parts of the UK. The hope is that a neglected area of East London will benefit from
the regeneration that will result and so improve the lives and prospects of the local community.
Enterprise and planning
It is very rare that any organization has the luxury (or worry) of having seven years to plan an event,
knowing that everything must be ready for peak performance during a very short period of time, and
that the potential for financial failure is great, given the experience of recent Olympics.
This project requires cooperation between many different interests, public and private, large and
small, those that will benefit and those that will be inconvenienced. This will result in the need for
entrepreneurship and innovation as well as tight control and monitoring to avoid overspend, fraud
and negative publicity, often a danger with projects such as this.
Source: adapted from L Armistead, Britain’s real Olympic hero, The Daily Telegraph, 7 August 2005
Questions
1. What are the drivers that determine the business planning process for each stage of the project?
You will need to define the stages first.
2. How can the various planning challenges, discussed in the last paragraph of the case, be managed?
3. What skills did Mills bring and what will be needed in the next phase? In which aspects of the
next phase of the project will entrepreneurship and innovation be needed?
Help with business planning
Books
Barrow C., Burke G., Molian D. and Brown, R. (2005) Enterprise Development:
The Challenges of Starting, Growing and Selling Businesses. London: Thomson.
Hisrich R. (2004) Small Business Solutions: How to Fix and Prevent the Thirteen
Biggest Problems that Derail Business. New York: McGraw-Hill.
Woods C. (2004) From Acorns . . . How To Build Your Brilliant Business From
Scratch. London: Pearson Education Ltd.
Zimmerer T.W. and Scarborough N.M. (2005) Essentials of entrepreneurship and
small business management, 4th edn. Upper Saddle River NJ: Pearson
Education Ltd.
Websites
British Chambers of Commerce
http://www.chamberonline.co.uk
DTI’s Small Business service
http://www.sbs.gov.uk
London Business School
http://www.bizplans.co.uk/main.html
http://www.startups.co.uk
National Federation of Enterprise Agencies
http://www.nfea.com
UK government Business Link
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073858805&t
c=000KW020584170

Birley S. and Muzyka D.F. (2000) Mastering Entrepreneurship. Edinburgh:
FT Pitman.
Chaston I. (2000) Entrepreneurial Marketing. London: Macmillan Business.
Collins J.C. and Poras J. (2004) In: M.L. Tushman and P. Anderson (eds),
Managing Strategic Innovation and Change, 2nd edn, Oxford University Press.
Coulter M. (2003) Entrepreneurship in Action. Upper Saddle River NJ: Pearson
Education Ltd.
Gumpert D.E. (1994) How to Really Create a Successful Business Plan. Boston:
Magazine Publishing Inc.
Kaplan J.M. (2003) Patterns of Entrepreneurship. Hoboken NJ: John Wiley and
Sons.
Mintzberg H. (1994) The Rise and Fall of Strategic Planning. New York: Free
Press. Moore J.F. (1996) The Death of Competition: Leadership and Strategy in the
Age of Business Ecosystems. New York: HarperCollins Publishers, Inc., pp. 230–264.
Morgan G. (1997) Images of Organization. Thousand Oaks CA: Sage
Publications. Porter M.E. (1985) Competitive Advantage: Creating and
Sustaining Superior
Performance. New York: The Free Press.
Hall.
Key words
building a sustainable business formation and launch
business case income streams
business model process of planning
business plan profit or surpluses
business proposition risk
entrepreneur’s vision routes to market
feasibility study value chain
C H A P T E R
11
Getting started:
creating
the
organization,
obtaining
resources and
reaching break-
even
Learning objectives
■ identify the resources that are needed and the decisions
that are required for a new venture;
■ understand the requirements of forming an organization,
including deciding on ownership, obtaining premises at a
suitable location and legal protection for the organization
and its activities;
■ define the various sources of finance and the criteria that
will affect the suitability of a particular source for the
organization;
■ develop a team of staff that will contribute to achieving a sus-
tainable operation;
■ understand the marketing and sales that are needed to win
over customers and maintain their satisfaction with the orga-
nization’s offerings;
6 on
■ determine the critical steps and decisions needed to achieve
break-even; and
■ appreciate the potential pitfalls in new business starts and
how they might be overcome.
Introduction
It is easy to fall into the trap of believing that the breakthrough step
occurs when a market opportunity has been identified and an idea
developed that will provide a new solution for potential customers. In
practice, of course, all of us spot opportunities and have ideas that
we believe could be commercially viable. However, few people are
able to make their ideas a commercial reality. In this chapter we
discuss the important early stages of creating the organization that will
achieve this. For our purposes an organization is essentially a
collection of resources brought together to achieve the principal
objective of exploiting an idea, but in doing this we have emphasized
throughout this book that a more important objective is to create a
sustainable business. For this reason it is not enough to create an
organizational vehicle that will simply get the idea to the market
because it must also be capable of managing growth to achieve
longer-term success. Drucker (2001: 145) identifies the challenges of
entrepreneurship as focus on the market, financial foresight (and
managing cash flow), and building a team
before it is needed (or can be afforded), all topics for this chapter.
In this chapter we focus first upon the formation of the organiza-
tion, including deciding on its ownership, its legal basis and the protec-
tion of its interests, such as its intellectual property. We then go on to
discuss the decisions relating to the acquisition of premises and, for
example, the problems of securing the right location and having the
flexibility for expansion that might result from the growth in the
organization’s activities.
It is generally recognized that the critical step in the formation
of a new business is obtaining the necessary financial investment to
purchase the essential resources and fund the early period of
development. Of equal importance is the effective management of the
organization’s finances in order to ensure it does not run out of cash
and continues to maintain profitability.
The most critical investment of a company is in its people and, while
we do not aim to discuss people management and organizational
behaviour at length, we do discuss some success factors in building
a team in a new venture.
Without customers there will be no demand for the idea and there
will be no organization. Consequently, we discuss the use of marketing
and sales in the specific situation of a new start up organization to cre-
ate awareness among customers and persuade them of the benefits
of the new offer to win them over. This involves communication and
distribution of the offer and, where necessary, negotiating with
potential partners to persuade them to become part of the extended
organization. There is always a limit to the money that people or
organizations are prepared to invest or to loan to a new venture. As
we have indicated it is essential for an organization to have reached
break-even, where income is in balance with outgoings, before it has
used up the available and potential financial resources it could
attract. For this reason we discuss the management of the
organization up to break-even and the
potential problems it might encounter up until that point.
We follow this up with the final section, which is devoted to
the major challenge for most new businesses, i.e. dealing with the
constant stream of problems that must be solved, situations that must
be managed and crises that require an immediate response.
Forming the organization

Although not strictly concerned with obtaining resources we first focus
on creating the organization that provides the framework for organiz-
ing and protecting the resources. At the outset it is important to recog-
nize that the aim of entrepreneurship is to create a venture that
is self-sustaining by transforming an initial idea into a commercial
success from the limited resources available. Many of the best
known organizations today, such as McDonalds, Vodafone and Microsoft
started from humble beginnings. Many too, such as Nokia, IBM and
Barnardos (Enterprise in Action 12.5) have changed substantially
from their original purpose as they have responded to the changing
environment.
The starting point, therefore, is to decide what kind of
organization should be formed and what resources are required, by
considering certain questions, which are listed in Figure 11.1.
In answering the first questions it is necessary to take the first steps
in forming an organization, which are:
■ deciding between the various forms of ownership of the
organization;
■ obtaining legal protection for the organization and any
important aspects of its operation, such as the product idea or
brand name; and
■ acquiring premises.
What sort of venture should be created? Who will own the venture?
How will the business be financed? How will it be managed?
Who will make the key decisions and how will the responsibilities be shared?
Who will have the responsibility for building the customer base and what resources are required for this?
How will the supply chain activities (e.g. production and distribution) be delivered and who will be responsible for them?
What other key external stakeholders with power and influence must be convinced of the benefits of the new offer?
What will be the critical success factors for the operation, what are likely to be the challenges and barriers to success and how might
Figure 11.1
Some key questions
for the start up and
early stages of the
business.
The name, location and purpose of the partnership The names and addresses of the partners
The personal contributions of each partner including cash, assets and services
The decision-making authority of each partner The decision areas where consensus is required The work responsibilities of ea
The duration of the partnership The distribution of profits or losses
The procedure for dispute resolution and dissolution of the partnership The procedure for dealing with the death or disability of
Source: Baron and Shane (2005) and Coulter (2003)
Figure 11.2
The elements of a
partnership
agreement.
Alternative ownership models

For new start up organizations there are a number of alternative
ownership models, as explained below.
Sole trader is the most popular way to start up and requires minimal
formality. The proprietor has sole ownership and complete
control over the way the business is run. However, the downside is that
the proprietor has all the responsibility too, and (as the law does
not distinguish between the business and the owner) all the liability
should things go wrong. In the worst case the business fails with
substantial debts and the owner could be made bankrupt too.
Partnership is where ownership is shared, but all the partners are
jointly and severally liable should things go wrong. There is a great deal
of opportunity for disagreements in partnerships as businesses grow
and the circumstances of the partners change, and it is strongly
advisable
to draw up a partnership agreement before the business is set up.
Sharing the burden, being able to draw upon someone else’s ideas in
making decisions, and having complementary skills are positive advan-
tages of choosing to be a partnership. However, each partner
loses some autonomy, and decision-making can be slower.
The partnership agreement is the key to anticipating and resolving
potential partnership problems; some key elements of the agreement
are given in Figure 11.2.
Having a partner or a financial backer usually means that the entre-
preneur has to jump through hoops to keep them satisfied. In Pause
and Reflect 11.1, however, it is shown that just occasionally even the
most dynamic go-getting partner meets his match.

Wallace, Gromit and the curse of the man from Hollywood
Nick Park created Wallace and Gromit in 1983, when he was a student at the National Film and Television
School. He wrote to Peter Sallis, a star of the TV programme Last of the Summer Wine, begging him to be the
voice of his plasticine model, Wallace, for his film A Grand Day Out in exchange for a £50 donation to charity.
Sallis was rather puzzled and had probably forgotten all about this when, seven years later, Park phoned him to
say that the film had been made. Since then Sallis has been the voice of Wallace, earning rather more than £50,
and Park has arguably become the most successful UK Oscar winner with Creature Comforts (1991) beating his
own A Grand Day Out, The Wrong Trousers (1994) and A Close Shave (1996). Park then turned his attention to
full-length films with The Chicken Run (2000), the first of five scheduled films.
His first 85-minute movie was Wallace and Gromit: The Curse of the Were-Rabbit, released in October 2005.
It was backed to the tune of £40 million by DreamWorks, makers of Shrek 2. And there was the rub. Because
the plasticine models must be altered for every shot and there are 24 frames per second, up to 24 separate poses
are shot for every second in the scene. About three seconds of usable film are shot every day and the film has
taken five years to complete. So life moves very slowly for Park.
By contrast Jeffrey Katzenberg, chief executive of DreamWorks, lives very fast and is everything Park is not.
He is a sharp dresser and fast talker, and full of confidence, and he has earned the reputation of being the most
irri- tating little man in Hollywood. He flies in to Filton, Bristol, in his executive jet from Los Angeles to badger
and cajole Park into speeding up. Park keeps his control while Katzenberg talks a lot, gives his opinions and
then flies off again.
Park comments drily that ‘. . . it is a privilege that he takes the interest to write the cheque. I also feel grateful
that he lives about 6000 miles away!’
Adapted from: Pearce G., ‘One man and his dog have Hollywood on the run’,
The Sunday Times, 25 September 2005
Question: What do you consider to be the requirements for a successful partnership?
Limited company has the advantage of limiting the owner’s liability to

what they have invested should things go wrong, but is administratively
much more complicated, with various legal requirements concerning
the filing of accounts, annual general meetings, etc. It is also much
more complicated to wind the business down.
Cooperatives are owned and democratically controlled by their mem-
bers rather than investors. Members are the people that use the service
or buy the products. Cooperatives fall into four general categories:
consumer, producer, worker and purchasing/shared service
cooperatives. They are formed by their members (Barrow et al., 2005:
106) when the marketplace fails to provide needed goods or
services of acceptable quality or at affordable prices. They operate in
virtually every industry and range in size from large enterprises to
small local businesses.
Charitable status The Charities Commission through its website pro-
vides advice for UK-based charities. According to the Commission, for
an organization to be a charity it must fall within the law’s
understanding of ‘charity’ and be subject to the jurisdiction of the
High Court according to the Charities Act. In order to fall within that
definition an organization must have purposes which are exclusively
charitable and must be set up for the benefit of the public. These
purposes fall under four headings, the relief of poverty; the
advancement of education; the advancement of religion; and other
purposes beneficial to the community.
Public ownership There are various ownership models for community-
based projects and usually there is some element of partnership in the
delivery (see Spotlight 10.2).
Ownership situations
There are a number of specific situations where particular models of
ownership and formation are used, and we discuss some of these below.
Franchise is a system of distribution in which legally independent
business owners pay fees and royalties to a company (the franchisor) in
return for the right to use its trademark, sell its products and
services or use its business model. In the USA it is estimated that there
are 5000 franchisors with 650 000 outlets run by franchisees. A good
franchise agreement can provide the owners with a strong brand
name, equipment, and financial and managerial support but they
must also understand the implications of the franchise agreement.
Owners can be tied into legal arrangements that limit their
autonomy and prevent them from making changes that are necessary.
Moreover, the ongoing financial commitments to the franchisor may
become onerous particularly if the franchisor sets up too many
franchisees in a limited area, thus restructuring the franchisees’
potential growth. For example, McDonalds was criticized by some of its
franchisees who saw their revenue drop as
new franchises were opened.
Spin-outs A specific situation for start up businesses that often has a
slightly different ownership model is a spin-out from higher
education institutes. The reason for highlighting this specific
situation is that in many countries a considerable amount of
government funding goes into supporting university research to
benefit the community at large, for example, medical research. Quite
frequently this research can lead to the development of ideas that
have the potential to be launched commercially. As the pressure
intensifies on universities to generate additional income streams to
teaching and government and industry- funded research, many of
the more technologically advanced universities have been
encouraged by national and regional government to spin out their
best commercial ideas from the university. Usually the university and
the individual inventor take a share of the ownership in the business
that is created.
The rationale for creating a separate spin-out business is that by
operating independently from a university it is free to operate in
a much more entrepreneurial way, with fewer constraints from
the bureaucratic management that is necessary for a university. In
practice the success rate of spin-outs has not been as high as might be
expected (Lambert, 2003). One reason for this is that very often the
ideas are based on leading edge, innovative technology but are a long
way from being market-ready products, because they are poorly
developed in terms of customer requirements, viable businesses rather
than research models and efficient business operations. Quite
frequently, therefore, substantial amounts of money need to be
either invested in or loaned to the spin-out company and the path to
commercialization can be difficult.
Quite often a preferable way of obtaining income for
universities from their research is to work in partnership with existing
large organizations by offering licensing arrangements, contract
research or consultancy for their scientific, technical and other
knowledge-based solutions.
Management buy-out and buy-in ownership models

Most of the business models and forms of ownership that we have
discussed so far, perhaps with the exception of franchising, have
centred on the generation of an idea by the organization as the reason
for business start. A separate situation for business ownerships is
management buy- outs (MBOs) and management buy-ins (MBIs); in
Pause and Reflect 11.2 is given an example of an MBO that has
resisted the temptation to make a quick profit.
Interfleet – taking the MBO track
When the rail industry in the UK was privatized in the early 1990s, British Rail was broken up into many operating compani
One business that bucked this trend was Interfleet Technology, which was originally the Intercity engineering division of Brit
Source: Bryan Lowe
Question: What drives the decision for an MBO management (a) to sell out quickly at a profit, and (b) to build a sustainable
An MBO is the purchase of a business by the existing management

team. This usually occurs when a large company wishes to dispose of
parts of the business or when an existing owner-manager decides to
retire. This option is often preferable to the existing owner than
closing the business down or selling it to a competitor. Moreover, the
existing management are often best placed to develop the
business, given their knowledge of the market, company operation
and workforce.
For the new potential owners this may provide the opportunity for
ownership and independence, which they may have long dreamed
about, making a lot of money and without many of the start-up
risks. MBOs, however, usually require more capital investment than
start ups because they are usually substantial and valuable businesses
and this may create a problem for the potential owners. MBOs are
usually attractive for venture capitalists to invest in, provided a
strong case is made, as some of the risk of a start up from scratch is
removed, given that the management team, operations and revenue
streams are already established.
An MBI occurs when an outside management team buys a stake
in an existing business, usually one that is underperforming owing
to ineffective existing management or where faster growth is possible
if a more capable management team is in place. In return for the
new managers using their experience in the firm to improve
performance they share in the success through ownership.
Table 11.1
Some areas of legislation affecting new ventures
Areas of legislation Some examples

Business structure Sole trader, partnership, limited company
Trading name The name of the organization and website
Trading laws Restrictions on the way the organization trades with
the public
Terms of trading Dealing with suppliers and other partners in the
supply chain
Employing people The rights of the employees and the organization
Intellectual property: Protecting the organization’s products and ideas
trademarks, copyrights
and patents
Insurance Damage or loss of property or data
Taxation VAT, corporation tax, staff and owner income
Legal protection for the organization and its stakeholders
There is a legislative framework for setting up and running a business,

ensuring health and safety, employment rights and financial and
accounting management. It is intended to provide protection for the
various stakeholders of the venture.
Business start up books cover these areas in detail and we
provide a summary of some key areas in Table 11.1.
Intellectual property
While most of these areas are mandatory, intellectual property
requires decisions based on commercial judgement. Intellectual
property is often known as IP, and allows people to own their creativity
and innovation in the same way that they can own physical
property. The owner of IP can control it and be rewarded for its use,
and this encourages further innovation and creativity to the benefit
to the community.
In some cases IP gives rise to protection for ideas but in other
areas there will have to be more elaboration of an idea before
protection can arise. Often it will not be possible to protect IP and
gain IP rights (or
IPRs) unless they have been applied for and granted, but some IP
protection such as copyright arises automatically, without any registra-
tion, as soon as there is a record in some form of what has been cre-
ated, for example the drawing of a design or a music score.
The four main types of IP are:
1. patents for inventions including new and improved products

and processes that are capable of industrial application;
2. trade marks for the brand identity of goods and services allow-
ing distinctions to be made between different traders;
3. designs for the appearance of the whole or a part of a
product resulting from the features of, in particular, the
lines, con- tours, colours, shape, texture or materials of the
product itself or its ornamentation;
4. copyright for material including literary and artistic material,
music, films, sound recordings and broadcasts, including soft-
ware and multimedia.
However, IP is much broader than these categories as it extends

to trade secrets, plant varieties, geographical indications,
performers’ rights and so on.
In the UK a patent for an invention is granted by government to
the inventor, giving the inventor the right in law for a limited
period of 20 years to stop others from making, using or selling
the invention without the permission of the inventor. When a patent
is granted, the invention becomes the property of the inventor, which
– like any other form of property or business asset – can be
bought, sold, rented or hired. Patents are territorial rights; a UK
patent will only give the holder rights within the United Kingdom
and rights to stop others from importing the patented products into
the United Kingdom.
To qualify for the grant of a patent, an invention has to be:
■ new and details should not have been previously published;

■ involve an inventive step that has not been done by others;
■ be capable of industrial application; and
■ must not fall into an ‘excluded’ category, which includes
literary works, scientific theories and methods for doing
business.
Disadvantages of patenting an idea
■ Disclosure of the innovation enables competitors to analyse it

and find a way of achieving the same objectives by
getting
around the patent through appropriate changes. Large
firms have departments that work solely on this.
■ It may be difficult to defend as the legal costs for a small
firm could be huge, especially if the patent is infringed by a
powerful competitor.
■ It is often impossible to find out about patent infringement
of processes that are carried out in the privacy of a
competitor’s premises and may not change the
appearance of the final product.
■ It is expensive to make patent applications to cover all
the countries in the world where patent infringement could
occur.
■ In some sectors 20 years may be too short a period to
recover R&D costs, whereas in fast-moving high-technology
areas the period during which the patent is valuable could
be insignificant as the technology moves on.
Where appropriate it may be preferable to use copyrights and trade-

marks, such as the golden arches of McDonalds and the ‘swoosh’ sym-
bol of Nike, as they provide more effective forms of protection. Baron
and Shane (2005: 278) explain that it may be best to avoid divulging
essential knowledge and keeping trade secrets, such as the Colonel
Sanders KFC recipe, but the danger with this approach is that if some-
one independently determines the formula and so long as there is no
evidence of theft, there is no legal protection.
Premises
For most small and growing businesses the decisions relating to obtain-
ing premises and moving to new premises present real dilemmas. It is
often suggested that businesses never have the right premises, as they
are usually too small or too large and they could always be in a more
visible and convenient location. The reason for this of course is that,
for a growing business, there is only a short period when the
building is working at its optimum capacity.
For a new venture there are three main choices:
1. Working from home The benefits of working from home are

fairly obviously that there is no additional cost; it is conven-
ient as there is no travelling time; and it can fit in with domes-
tic responsibilities convenient for parents with young children.
The disadvantages are quite obvious for anyone who regularly
works from home, including the distractions of domestic duties,
the difficulty of ‘getting away from work’ and the loneliness
of not being in contact with others, although this is a
problem of self-employment generally. There are other
considerations too, such as health and safety issues, tax
implications, security, segregating the work area and even
the danger of annoying the neighbours if a lot of traffic
movements are involved. Cus- tomers might also be more
impressed by a prestigious office address.
2. Renting property The benefits of renting are that capital is not
tied up in the building and that renting also increases flexibil-
ity for a rapidly growing business. The cost of renting
properties varies enormously and, when added to rates
and insurance, the costs can be become high. It is essential to
balance cost with the benefits of a particular location. The
disadvantages are that there may be restrictions on how the
property can be used or changed and certain property
landlords can be unscrupulous in adding restrictions and
increasing rents.
3. Buying property While the disadvantage of buying property is
the tying up of capital, the advantage is that the
mortgage repayments to purchase the premises are likely to
be lower than renting costs and the venture will eventually
own the premises. The owner has more flexibility over the
use of the premises although there are normally still
restrictions on its use and if the space is not required by
the organization the property can be a source of rental
income for the business.
The choice of premises depends upon a number of factors including:
■ Location The major consideration of location should be
based on proximity to customers and, for many retail
outlets, the business location is likely to be the most critical
decision of all as it may well make or break the venture. Many
retailers need to be located in areas where their customers
are and other early-stage organizations are dependent on
‘passing trade’ until they have built a reputation, at which
point customers are prepared to go out of their way to visit.
■ Space Given the high cost of space and the need to maintain
a low level of fixed costs, new ventures should occupy only the
space they need for their activities now and in the near future.
The problem, of course, is that moving premises is both costly
and disruptive to the organization and its customers and
should
be avoided if at all possible. The challenge is therefore to
strike a balance between the two.
■ Cost Ventures have to find appropriate premises that are right
for their business activities and offer value for money. They
can be tempted to occupy either high-cost, high-profile, osten-
tatious buildings that will present the ‘right image’ to cus-
tomers or large, low-cost buildings that appear to be
suitable for future expansion and that are poorly
maintained and located. There is, of course, the danger
that the venture may spend too much management time on
property development rather than running the core
business.
■ Customers Customers are influenced by the appearance of
premises and it is surprising that many organizations fail to
look at their premises from the customer viewpoint, and to
consider not just location, but cleanliness, decoration and
so on, which are often relatively inexpensive to put right. A
faded sign or weeds growing through the car park for
example, may indicate a low-quality organization.
■ Grants Local authorities often produce lists of vacant proper-
ties and premises in an area and provide grants and rent-free
holidays to entice organizations to locate in less-attractive
areas. While many new ventures will find this appealing and
beneficial they should not be unduly influenced and, instead,
should consider the other business reasons for choosing a
particular location.
■ Competition While it might seem obvious to avoid premises
close to the competition, there may be some good reasons to
do the opposite if the venture can benefit from a greater
foot- fall in the area or believes it can offer a better
proposition to customers and could benefit from them
making a direct comparison.
For the smallest firms small, often informal, premises designed pri-
marily to assist the venture to grow, can be found. Local authorities
and other local government agencies often provide managed
workspace or business incubator centres that include shared
resources, such as computing infrastructure and receptionist or
secretarial services. Some prestigious innovation centres and science
parks offer mailboxes to allow businesses to be run from home yet
have an impressive mail address and the opportunity to rent
meeting- and conference-rooms by the hour.
Obtaining the necessary finance
All new ventures require start up finance to ‘pump prime’ the
activities that will ultimately generate sufficient revenues and surplus
cash to pay for the subsequent purchases of materials, services and
labour. There are few occasions when the entrepreneur has enough
personal resources for it to be unnecessary to use external sources of
finance of some sort, but they do exist and in Enterprise in Action 11.1
an example is given. Generally, external sources are needed and there
are many to choose from. These are dealt with at length in the start up
guides and websites listed. For a start up venture there are
advantages and disadvantages associated with each lender. On the
other side of the coin, the individual and organizational investors
must weigh up the attractiveness of the proposition and the
probability of high returns with the risk of underperformance of
failure and the loss of the money invested.

Global business and not a penny borrowed
Jurga Zilinskienne became an entrepreneur at the age of 6 when she found some packets of
seeds in the family home in Lithuania. She took them to the market and sold them but
realized, given the long queues that formed, that she must be selling at too low a price. At
10 she used the family pets to get into pet breeding and also bought sweets to sell to her
schoolmates. By 16, Zilinskienne was importing clothes from the United Arab Emirates and
selling them on, and a year later opened a small supermarket. After an unsuccessful marriage
she moved at age 19 to the UK to study law. She did not complete the course but instead in
2001 started a translating business, Today Translations. She now has over 200 clients and a
huge team of lin- guists. Her legal education proved of some use as 80 per cent of her business
is with law firms. In 2004 her turnover was £600 000 and she was planning to double that in
the following year. Perhaps the most surprising thing about her however, is that she has only
ever invested her own money into the business, £13 000, and she has never borrowed a penny
form a bank – very
unlike the British!
Adapted from: www.startups.co.uk on 18 September 2005
Question: What do you to consider the advantages and disadvantages of financing the business
in this way?
Personal and informal finance

Personal funds The majority of new ventures start with quite limited
funding. The money often comes from the personal savings of the
entrepreneur or a loan, or through remortgaging the
entrepreneur’s own
home. Credit card limits have increased and provide short-term finance
for working capital (Bolton and Thompson, 2000: 322). Kaplan
(2003: 156) explains that many businesses are started by ‘moonlighting’,
where an entrepreneur continues in employment while starting the
new venture in his or her spare time.
Family and friends are a further source of funding through loans, but
sometimes this is formalized so that the friends or family take a
small share in the ownership and future returns, rather than expecting
their money back in the short term.
Sweat equity Perhaps the hidden funding of a start up is ‘sweat equity’
where the owners of the venture roll up their sleeves and work
for lower rates of income than the work is worth. In some cases the
owners work for nothing to get the business started.
The disadvantage with these sources of funding is that personal and
work life become inextricably linked and put at risk the
entrepreneur’s personal finances and adversely affect relationships
with family and friends. A further problem of using informal sources
is that there is a danger that the venture will be undercapitalized.
The organization works ‘hand to mouth’ with little money to spare for
even small investments that could improve efficiency and
effectiveness.
The attraction for the entrepreneur of using personal and informal
sources plus bank loans is that this precludes, or at least limits, people
from outside the organization having a say in its decisions and allows it
to stay truly independent. If venture capitalists or business angels invest
they wish to maximize their long-term returns and minimize their risk,
and so wish to give their advice as to how the business should operate.
While some entrepreneurs welcome this, others do not.
External funds
There are three broad categories of external funding:
Debt
Debt is funding that is derived, usually, from a bank, in the form of

a loan and accrues interest. The interest charge is an ongoing expense
of the organization and the capital must be repaid at set points in time.
Overdrafts are essentially short-term bank loans but the interest
rate can fluctuate and they can be called in at any time. They are
therefore useful only for short-term needs.
Term loans are more formal arrangements with a set term of, for
example, 3 or 10 years. The lender usually requires security, such as the
assets that were purchased with the loan (e.g. vehicles or premises), but
the entrepreneurial organization gains from the confidence in having
money for the term of the loan, so long as it can keep up the
repayments. The time when the loan is taken out can be important
if the interest rates are fixed. Sometimes this can be advantageous,
sometimes not! Governments often provide loan guarantee
schemes for small businesses in order to provide favourable rates on
what the lender normally considers high-risk business that should
attract high interest rates.
Grants
Grants are sometimes available and involve neither interest and capital
repayment nor giving an equity stake in return, but eligibility criteria
come into play, for example firms being of a particular size. It is essen-
tial that the organization does not change its strategy simply to
obtain a grant.
Equity
Equity in the organization is provided by the shareholders including

the owner. They expect to get a return either from the annual profit
or, if the profit is retained to fund expansion of the firm, by
having the opportunity to sell their increasingly valuable share in the
organization at some point in the future. Although there are
various schemes in existence we focus here on two, which are
discussed in greater detail by Muzyka and Birley (2000: 104) and
Mason and Harrison (2000: 110).
Venture capital (VC ) Venture capital firms make investments in new
business opportunities on behalf of clients, for example, in the form
of pension funds. VCs look for growth potential so that they can
provide a good return on their clients’ investment while also avoiding
high-risk activities where there might be a danger of losing their
clients’ money. Because of the nature of their client needs, VCs
operate on a medium- to long-term timescale with regard to their
investment performance.
It is important to remember that, to realize the growth in their
investment, VCs need to exit from their involvement in the business, by
selling their share of the business to others. Often this is done when
the business is sold to new owners or floated on the stock
market. If the entrepreneur owner wishes to retain control it is
necessary for them to buy out the VC’s share of the business. VCs
manage portfolios
of investments, some of which do better than others, so they look for
high returns from the companies they invest in to cover the potential
losses and will expect 30 per cent minimum.
Spotlight 11.1 emphasizes that timing is important as the
financial situation and the state of the financial markets can be
important too for venture capitalist investment and exiting.
Spotlight 11.1
3i
Getting out while the going is good
Over the five-month period to September 2005, 3i, the quoted venture capitalist, collected £6 million per day
(£910 million against £577 million the previous year) as it cashed in some of its investments. The last time a
similar thing had happened was at the height of the dot-com boom in 2000. Then, 3i was realizing its
investments in technology businesses, whereas this time management buy outs seemed to have been a
significant factor, with the sale of Travelex, a bureau de change, for £1 billion, and of the directories business,
Yellow Brick Road, for £1.3 billion. The main reason for the good performance this time was the high level of
stock markets and the excellent financial conditions for exiting from companies and investing in others.
Adapted from: Hope C., ‘Venture capitalist 3i nets £6 m a day with more in the pipeline’,
Daily Telegraph, 30 September 2005
Question: Where might the conflicts lie between the interests of venture capitalists and the organization
receiving the investment?
VCs aim to protect their own interests and investments and

usually want to influence the strategy of the entrepreneurial
organization. VCs expect the owner to take advice and, to ensure
this, they often select a non-executive director to serve on the board.
VCs are more cautious of investing in pure start-ups as they tend to
be the most risky and instead are likely to prefer MBOs and MBIs.
The costs of an investment project are high as they require an
in-depth study of the organization and its market (due diligence) and
so VCs rarely invest less than £1 m in an individual project. It is only
appropriate, therefore, for low numbers of businesses and, as Figure
11.3 shows, it is both a good team and a good idea that are necessary
to ensure high returns. It is important to remember that there is a
degree of competition among those seeking funds from VCs and
business angels. If there is an alternative opportunity to invest their
money and obtain a higher return and/or lower risk they will take it.
Business angels These are wealthy individuals who are willing to invest
in more speculative projects, where others, such as VCs, ‘fear to
tread’. They are more informal suppliers of risk capital, are often
private investors and sometimes they lose money, but sometimes
they win.
Low risk High risk
High
Low return High return
Experience of entrepreneur or team
Very high risk

High risk
Low High/medium
Low return
return
Low High
Figure 11.3
Uniqueness of idea
Risk and return for
funders.
Frequently they ‘mentor’ their clients too. It is difficult to estimate

how much investment comes from business angels because it is
informal. Equinox Management Consultants (2000) note that 98 per
cent of business angels are male, and that many are millionaires,
often previously entrepreneurs themselves with an average age of 50.
They reject 90 per cent of applications at the first screening. Often
their investments are located close to where they live, presumably so
that they can keep an eye on them. They back people rather than
propositions and are typically five times more likely to invest in start
ups than are VCs.
Problems of financing the business

In practice, most early-stage organizations will use a mix of funding
arrangements to achieve the greatest efficiency. For small firms how-
ever, there can be some limitations. Due to the high transaction cost
for investors of preparing and managing small investments or loans,
Chaston (2000: 176) comments that small firms often have difficulty in
raising relatively small amounts of money (£10 000–£50 000).
There are a number of dangers for new ventures in arranging
finance. A very successful organization may grow very rapidly and this
may make big demands on the cash resources to fund the expansion
(equipment, operations, staff and working capital). Alternatively, a
new venture must have financial arrangements that are robust enough
to cope with a downturn. Problems arise as there can be a temptation to
regard all sources of income in the same way but short-term funds need
to be used for managing working capital fluctuation and not
financing longer-term investments, such as equipment and premises
that should be funded out of long-term debt finance or equity.
Other forms of financing
Other forms of financing the business can be used, for example invoice
factoring (see Spotlight 11.2), invoice leasing, hire purchase and leasing.
Spotlight 11.2
Giving credit where it’s due

Arguably for an early-stage business, managing cash flow can be the most critical issue and taking immediate
action against late payers is vital. After 60 days the likelihood of being paid falls to 80 per cent, after 6 months
to 50 per cent and, after 1 year, to 10 per cent.
On average, invoices are paid 19 days late in the UK and, like many other countries firms can charge interest,
at the rate of 8 per cent above the Bank of England base rate. In practice, companies do not implement this
because they do not wish to upset customers.
Small firms must be proactive, implement good credit management, and monitor their customers’ credit rat-
ing. They must also invoice accurately and immediately to avoid disputes in the first place. One approach is to
use factoring.
In five years Pendragon, a Hampshire-based recruitment agency, has grown from zero to a £5 million
turnover. The owners, Steve Johnstone and Richard Hall, have used factoring to better manage their finances.
Factoring involves using a specialized company to collect payments and chase debts. Pendragon issues the
invoices and HSBC advances 85 per cent of the money. The remainder, less their fee, which in Pendragon’s
case is 1 per cent of turnover, is received when the invoices are paid. Factoring has a number of advantages for
Pendragon. It allows them the time to get on with their core business and they are not diverted into chasing bad
debts (one or two of their customers seem to go bust every year), it smooths out their cash flow and their
working capital is not tied up in debts and can be used to develop the business, making it unnecessary to refi-
nance the business.
Adapted from:‘Pendragon gives credit where it’s due’, Daily Telegraph, 16 August 2005
Question: What are the benefits and disadvantages of factoring?
In practice this demonstrates that obtaining finance for the venture

is tied very closely to the ongoing financial management of the
organization. A highly disciplined approach to managing the
finance can reduce the funds required later. Some years ago Ian
MacMillan, director of the Snider Entrepreneurial Centre, emphasized
this in his suggested approach to purchasing:
■ Never buy new what can be bought second-hand.

■ Never buy what can be rented.
■ Never rent what can be borrowed.
■ Never borrow what can be begged.
■ Never beg what can be salvaged.
Building and leading the team
Earlier in this book we discussed the characteristics of entrepreneurs,
and highlighted, first, their approach to setting up new ventures,
second, the difficulties that some have managing the routine of day-to-
day activity needed to build a sustainable business, and third, their
reluctance or inability to delegate responsibilities to other managers
in the organization, in order to give themselves the time to focus on
the next development.
In taking the embryo venture from initial idea through the
early days of the venture to launch, the particular characteristics that
the entrepreneur contributes are leadership and an ability to
understand and focus on the details of the venture. This enables the
entrepreneur to:
■ take strategic and operational decisions and speed up their

implementation;
■ understand the whole picture, and have a detailed under-
standing of the market, finances and supply chain;
■ be able to stretch the capability of the venture to the
maximum and deliver extraordinary results;
■ negotiate with suppliers, customers and partners to obtain the
most favourable results for the organization;
■ make connections with a network of people that can assist the
organization informally or formally; and
■ lead from the front on projects and take responsibility for all
decisions, and also use their personal charisma to enthuse
other members of staff.
Many entrepreneurs, however, fail to take the time to create a

competent management and staff team that complements their own
capabilities and fail to delegate tasks to the new staff, and so fail to
maximize the potential of the team. To avoid these failures:
■ the founder has to learn to be the leader of a team rather

than a ‘star’ with helpers (Drucker, 1985);
■ it is necessary to build a management team before the
team is really needed, so that the team can be tested and
prove their capabilities. The reason for this is that teams
take time to develop relationships, trust and confidence
before they can perform effectively. However, in the early
days of a new venture, it may not be possible to afford to
employ a full management team. The case study at the
end of Chapter 2 (http://strategis.ic.gc.ca) shows how Steve
Perez’s staff worked
for nothing for him after he went bust, to get the new business
going;
■ the critical success factor for a team is to build complemen-
tary skills and capabilities. It is necessary to determine
what each member of the team is good at, and what other
strengths are needed;
■ the key activities and requirements of the business, together
with the gaps in the capability of the team to deliver, must
be identified;
■ the team works informally at first to carry out their tasks and
cover the gaps but eventually decisions must be taken regard-
ing more formalized roles and responsibilities, and more
formal identification of the gaps in capability;
■ at this stage it may be necessary to seek outside advice, either
to assist training for existing staff or recruitment of new
staff with complementary skills.
Cartwright and Cooper (2000: 212) emphasize the need for the entre-
preneur to recognize the dynamics of team working and manage the
process of building a high performance entrepreneurial team.
Alongside building the internal team, building the network of
external contacts is important too.
Marketing and sales

The nature and role of marketing in a new venture
So far in this chapter on obtaining resources, everything that we
have discussed involves additional cost to the organization.
Obtaining the resources to market and sell products and services
also means additional cost but marketing and selling is the only
element that generates income. In reality most businesses fail
because they are unable to generate sales quickly enough in the early
stages or do not succeed in sustaining the sales levels through
customer repeat purchasing or winning over new customers.
As with other areas of business planning there are some benefits for
the new venture in adopting a systematic, planned approach to mar-
keting and selling, involving analysis, consideration of options,
identifying priorities and identifying the tasks. While this is
emphasized by Carter and Jones-Evans (2000) (see Figure 11.4), it is
important to recognize that with limited resources available in a new
venture and the
Incremental innovation
Information gathering Identification of customer segments
Interactive
communication
Influence by word-of-mouth
Image and reputation building
Customer involvement
Figure 11.4 Customer incentives
Creating awareness
and persuading
customers.
informality of the management, the preferred approach is

Adapted from: Carter and Jones-Evans (2000), p. 365
incremental and interactive, rather than being based on the type of
formal, rigid programmes and processes that a large firm would
adopt. Such an approach allows for opportunism and many of the most
successful new ventures have used highly innovative marketing and
selling approaches, for example in the use of PR and advertising.
Entrepreneurs, such as Richard Branson, Stelios Haji-Ioannou and
Alan Sugar have used their own personality, interests and fame to
build awareness in their companies. Baron and Shane (2005: 258)
suggest that forming alliances with established firms is another
useful ploy, citing George Foreman’s alliance with Sears to sell his
grilling machine.
Marketing and selling the products and services

For most new ventures the biggest problem is to find potential cus-
tomers quickly enough, explain to them the benefits of the product
or service and persuade them to buy in sufficient quantity to generate
the necessary revenue. Marketing embraces the whole customer- or
client- oriented activity and selling focuses on building relationships
and negotiating with the customer in order to maximize the revenue.
While a new organization may not be able to afford staff specifically
appointed to these tasks it is essential that someone takes responsibility
for carrying out the tasks.
The following questions are crucial in assessing whether sales can be
generated quickly.
■ Who exactly are the customers going to be? For example, there is
no point wasting time selling to customers that have supply
contracts from which they cannot escape without penalty. It is
essential to know when the customers are ‘in the market’ to
consider alternative offers and the EO must prepare to sell
to them at that point.
■ How many can you switch to your offer? As we shall see later in
the diffusion curve, only a relatively small proportion of cus-
tomers want to be the first to try out groundbreaking ideas.
Most customers wait to see whether the first customers to buy
are satisfied with the new product or service, so it is important
to focus the initial marketing and sales efforts on the most
immediate prospects.
■ Who needs to be influenced – the customer, the retailer and/or the
expert? As fewer distributors and retailers wield more power
and dominate more and more business sectors it is becoming
more important to influence the intermediaries. Also,
experts in certain sectors can be very influential in
recommending to customers new products, services and
ideas that they believe will be of benefit.
■ What are the routes to the market, and what might be the
barriers? In our discussion of the business model we
highlighted the possibility of using alternative routes to the
market and these need to be assessed in terms of their cost-
effectiveness but also in terms of any barriers or disadvantages,
such as the domin- ation of a distribution channel by a
powerful competitor or the new venture’s lack of market
power to control strong distribution channel members.
■ How will competitors respond – will you be tolerated as not signifi-
cant or will you be a threat? Many new ventures adopt a low-
profile market entry approach and operate a targeted
marketing approach to customers, so that they can build
early revenues before they are seen as a threat. While a
high-profile market entry might lead to greater customer
awareness it might also prompt a greater response from
competitors.
The extended organization

A small organization with limited resources can leverage the resources
of other organizations by forming partnerships in order to market
complementary products and making connections with influencers
in the
market. Even retailers or distributors that handle many products
can be persuaded to put extra effort into promoting one
organization’s offering if good relationships have been built.
Network brokers help to facilitate networks of complementary organiza-
tions in becoming capable of selling to larger customers, whereas indi-
vidually they could not. For example, a network formed from a
company selling PCs together with a carpet fitter, interior designer
and office furniture supplier got together to sell ‘whole office’
solutions to companies.
Use of contacts
Contact can be used in all sorts of ways and charity fundraising is one
example. Events such as Band Aid and Live8 involved using an extended
network of celebrities, entertainment entrepreneurs and technical sup-
port staff. Sometimes, as shown in Enterprise in Action 11.2, an
individual entrepreneur can mobilize a multiplicity of talents
without being part of the resulting group, provided that the idea is
compelling.

Answer to fundraising on a postcard
Daisy Bell was 20 and a psychology student when her uncle, Robin Needham, died in the
South-East Asian tsunami in 2004. With two university friends she decided to raise £10 000 for
Care International in his memory. Robin Needham’s life’s work had been spent working to
help in the developing world and he was head of Care – Nepal Aids Charity. He died during
a holiday in Indonesia, when trying to move people to high ground after the disaster struck.
Daisy had the idea of asking 300 artists, musicians and celebrities to fill a blank
postcard with their art or doodlings. The result was a unique collection of works by people
such as Sir Paul McCartney, David Hockney, Anthony Gormley and Charlotte Church. She
was determined to get a contribution from Damien Hirst but her five letters were politely
rejected by a secretary, before she found a connection through her sister’s school and a
next-door neighbour. Christie’s auctioned the first 65 cards and, with the remainder
auctioned online, a sum in excess of £50 000 was raised.
Adapted from: Iqquiden A., ‘Will you help me raise tsunami
cash? Answers on a postcard, please’, Daily Telegraph, 5 September
2005
Question: What are the critical issues in gaining support of this type?
Getting to break-even
In the section on financial management and control we emphasized
the fact that cash flow management of the inflows and outflows is vital
for success. The first stage of an organization can be regarded as
complete when it reaches break-even. Then it is essential to focus on
building profits that can be reinvested in further developing
profitable revenue streams. The traditional advice to new ventures has
been that it is important to reach break-even as quickly as possible. For
organizations set up to carry out leading-edge technological research,
loss-making for a number of years is inevitable because it takes time
to generate new products. However, in recent years, many new ventures
seem to have believed that it is essential to create a strong customer
awareness and market presence through considerable marketing
and sales activity rather than trying to reach break-even. Dot-com
businesses, such as Amazon.com and lastminute.com seemed to
justify long periods of loss-making with the promise to investors
of ‘profits tomorrow’. However, creditors of companies that are loss-
making for long periods can become nervous, particularly when
payments are delayed, as shown in Enterprise in Action 11.3.

Not such a red letter day
Red Letter Days was set up by Rachel Elnaugh to sell memorable experiences, such as driving
a Formula 1 car or climbing a mountain. The idea came to her when, as a 24-year-old, she
could not find a suitable present for her father. The experiences are sold as gifts in major
retail stores such as Boots and Debenhams. The company appeared to be growing successfully
when it hired a new chairman in May 2005 ahead of a planned float on the alternative
investment market, which valued the company at £20–25 million.
Only two months later, however, suppliers were reported to have lost patience with Red
Letter Days over late payments. Racing track operators were reported to be owed £300 000 and
a charity that provided whale and dolphin watching trips in Cornwall claimed it had not
been paid for four months and had begun legal action.
The £20 million per annum turnover business went into administration in July 2005 follow-
ing cash flow problems. This was rather embarrassing for Rachel Elnaugh, who was a judge on
Dragons’ Den, a TV show in which would-be entrepreneurs made a pitch to successful
entrepreneurs for investment in their idea.
Another Dragons’ Den judge, Peter Jones, teamed up with ex-Millwall football club chair-
man, Theo Paphitis, to buy the company’s assets, which meant that more than 150 Red Letter
Days employees could keep their jobs. However, it seemed unlikely that Red Letter Days’ cred-
itor suppliers would see any money.
Adapted from: Osbourne A., ‘Red Letter sails close to the wind as suppliers play safe’,
The Daily Telegraph, 30 July 2005; and ‘Gift firm thrown dragon lifeline’,
BBC News Online, 2 August 2005
Question: What are the indicators of a failing business?
Achieving break-even
For many organizations in the early stages, accelerating and
maximizing positive cash inflows is more important than making high
profits as they seek to achieve break-even. Many organizations find it
advantageous to quietly build a market presence without attracting
the attention of larger, more powerful competitors that might apply
pressure by lowering prices.
An alternative marketing strategic option is to set low prices in order
to quickly build volume sales. Of course a balance must be struck,
as setting unrealistically low prices in the early stages of the business
simply in order to generate revenue, as against making profitable sales,
can be detrimental to the business in the long run since raising prices
later in a competitive market can be very difficult.
The better option for long-term benefit therefore, is to set realistic
prices that the customer is prepared to pay in a competitive market and,
using effective marketing and sales effort, to explain to customers
the benefits and value provided by the offer and persuade them to
buy. However, the financial pressure to pay outstanding invoices
makes it difficult for a start up to turn away immediate, low-price sales
opportunities and wait for the possibility of getting customers to
buy at higher prices.
Looking at the break-even chart in Figure 11.5, it is obvious that con-
trolling costs as tightly as possible is a key strategy in the early days by:
■ minimizing or delaying capital investment;

■ negotiating hard on purchases of supplies as savings here
go straight on to the bottom line; and
■ carrying out cost-effective marketing and selling.
The diffusion curve
Customers demonstrate different levels of predisposition to buy new

products or services and, consequently, the sales of new products
and services follow the diffusion curve shown in Figure 11.6. A small
percentage of the potential market, around 2.5 per cent, are
innovators, who are always keen to try out new products or services.
For a new venture the task is to quickly identify and convince the
innovator customers in the sector, who will be most willing to try the
new products and services. The early adopters will wait a little until
they perceive there to be low risk in purchasing. They are likely to be
influenced by hearing the
Sales income
Cash
Break-even point
Total costs Variable costs
Fixed costs
Items sold
No. of items that must be sold to break even
Figure 11.5
Break-even graph.
Laggards
Fast adoption Late majority

Penetration of potential market Slow adoption
Early majority
Time
Figure 11.6 Innovators Early

adopters
The diffusion curve
for a new launch.
experiences of the innovators. If the product or service performs satis-

factorily they will be likely to try the new offering.
Fast adoption is likely to occur if the new product or service solves a
significant existing problem, provides substantial additional customer
value for the innovators who first try it or gains high profile through
celebrity or expert endorsement, or reaches the Internet chat-rooms.
Two of these situations are highlighted in Enterprise in Action 11.4.
Slow adoption results if the benefits of the new product are not really
significant, there are deficiencies in performance against what is
expected or the marketing, sales and distribution are ineffective in
reaching a large audience with the result that prospective customers
are not made aware of the new offering. It can be argued that it is
only when the early majority decide to buy that the offer can be
considered a success.

Web success at different ends of the scale
Londonlaunch.com was set up in Autumn 2000 by PR executive Will Broome with an initial
outlay of £200 000. He spotted a gap in the market for a one-stop portal for event and
party planners. It puts event organizers from office parties to awards ceremonies in touch
with venues, caterers and other event service providers that are needed for the event or
party to be a success. From very modest beginnings, the company has become an
international operator.
Alex Tew, 21, due to start at Nottingham University in October 2005, was concerned about
graduating three years later with a considerable debt. He decided to launch a website,
www.milliondollarhomepage.com, in an attempt to pay for his three-year degree course.
Within a month, and before he had even started university, he had earned £56 000. His website
is split into 10 000 boxes, each 100 pixels in size and companies can buy one or more boxes (at
$100 [£54] per box) and cover each with a logo, which when clicked on will connect with the
customer’s own site. Within days of the website being launched it was mentioned on chat
rooms and soon Tew had 240 companies advertising and was getting 30 000 hits per day. The
companies pay with a credit card and e-mail their own design in to Tew.
Adapted from: Poston T., E-business success stories at www.Computerweekly.com,
23 October 2001, and Savill R., ‘Student solves debt fears as website earns
£56 000 in a month’, The Daily Telegraph, 24 September 2005
Question: What do these two stories say about the opportunities and resources needed to start
an e-business?
In highly competitive markets where new and improved offerings are

made, effective marketing and selling are needed to make even
breakthrough products or services stand out from the crowd.
Innovative marketing is needed to achieve the maximum customer
impact with limited resources.
Both fast and slow adoption can cause cash flow problems. Fast adop-
tion can lead to overtrading and a strongly negative cash flow resulting
from the need for higher levels of funds than forecast for the
purchase of materials and work in progress to support the higher
level of sales, before debts can be collected from customers. Slow
adoption restricts income below what was forecast while expenditure
often cannot quickly be reduced below the level forecast, because it is
not possible to renege on commitments made to suppliers. Slow
adoption causes cash flow problems but is of greater concern if it
indicates that the offer may be unsuitable for the market.
In dealing with slower than expected adoption, Bolton and
Thompson (2000) suggest that there are two critical points in the early
stage of the business, as shown in Figure 11.7. Cash demand increases
as the venture starts trading, incurring operational and marketing
costs before there is substantial income. If the offer is acceptable,
income increases and the break-even point is reached. From then on the
cash inflow substantially exceeds cash outflow and becomes
increasingly positive and profits are generated. The period of negative
cash flow is critical and it is here that the entrepreneur looks for two
indicators to show that the critical points of achieving a technical
and a commercial success have been reached and that the venture will
ultimately prove to be successful. Bolton and Thompson (2003: 383)
suggest that the entrepreneur needs first to prove that the offer will
be a technical success in the market,
Commercial success
Profitability
Break-even
The valley of death
Technical success Marketing success Failure
Figure 11.7
Adapted from: Bolton and Thompson (2000)
Cash flow at
start up.
with the product or service performing as anticipated and delivering
the promised benefits when used by a (paying) customer.
It is then necessary to prove that the offer will be a marketing
success, with sufficient customers (at least the early majority) being
switched to this new offer and away from competitive products and
services. This often requires considerable education and persuasion
to overcome the customers’ inertia, which can stem from their being
satisfied with existing products, or being apathetic towards new
products and services because of the cost and inconvenience of
switching to a new, even better product or service.
For individuals intending to leave secure employment and set up a
new venture it is beneficial if they can prove the proposed new
venture is a technical success by gaining commitments to purchase
from their first ‘innovator’ customers before they leave.
If the business case has been prepared and rigorously evaluated,
it is unlikely that the venture will be a complete failure. However, it
is also worth remembering that few new ventures are instant
winners. The most likely situation is that cash flow underperforms
the forecast and the performance of the new venture leaves
considerable room for improvement. There are three areas where
a decision might be needed:
■ The offer and the way that the product or service is being mar-
keted may be appropriate, but it may be taking longer than
expected to reach break-even, in which case a ‘do
nothing’ strategy might be appropriate.
As shown in Figure 11.8 the two other possible reasons for

underperformance against forecast are that:
■ The customer need and benefits have not been

demonstrated effectively to customers, who need further
persuasion.
■ Alternatively, the need may have been demonstrated but the
product or service underperforms to customer expectations
and does not provide the promised benefit.
The real reasons for the underperformance need to be

understood. Revision of the product specification and increasing
marketing and sales effort can be expensive and should not be
undertaken lightly. For ventures run by technically based staff there
can be a great temptation to respond to underperformance by
trying to further technically improve the product, incurring additional
cost. But this may not be the cause of the problem. Sales-oriented
management may believe that
High
Need to work
harder to Potential
persuade winner
Organization’s ability to profitably providecustomers
a solution
Need to improve
Likely the
loser product/service
offer
Low
Low High
Figure 11.8
Opportunity proved
Decision areas for a
slow take-off.
trying harder to sell the product may be the solution, when in fact
the product or service is inadequate for its purpose.
In Pause and Reflect 11.3 it is shown how a different customer offer,
revision of the business model and a different approach to resource
utilization proved successful at The Officers’ Club.

Changing the business model with The Officers’ Club
For the majority of entrepreneurs the dream is a start up that funds itself but the dream comes true for only a
few. Rarely does it happen first time and David Charlton is no exception. After qualifying as an accountant
Charlton worked in the clothing industry for Jackson’s the Tailor, now part of Arcadia Group. When parts of the
business closed down, several of the factory managers set up their own business, sourcing material, manufactur-
ing in the UK and retailing through their own shops. Charlton worked for the operation but was envious of the
money the bosses made.
The trigger to Charlton becoming an entrepreneur was his brother’s redundancy. In 1979 Charlton persuaded
him to put his £4500 redundancy cheque into setting up an upmarket clothing business, Fiori. In 1987 Charlton
bought out his brother and a venture capitalist took a 13 per cent stake in the firm.
As the recession of the 1990s took hold the company went into receivership. But in true entrepreneurial spirit
Charlton tried again. A visit to the USA convinced him that discount retailers, with their fast stock turnover,
were busiest, so he made the decision to go to the opposite end of the spectrum from luxury fashion and set up a
discount clothing retailing business.
His suppliers were confident in his business model and were prepared to provide stock, and his landlord
allowed him to pay rent one month in arrears. With only a small loan secured on his house he started up the
business. He realized that he had to make money from day 1, as he had no financial cushion for security but
deep discounting brought in the customers. The Officers’ Club now have 180 stores in the UK.
Adapted from: The Officers’ Club at www.startups.co.uk, accessed on 29 September 2005
Question: What are the key lessons from this for a determined entrepreneur?
The start up barriers
There are obstacles that seem to conspire to prevent a successful start
up and these are summarized in Figure 11.9.
than planned because entrepreneurs are optimistic Gaining market credibility is very difficult for an unknown new start Forecasts are rarely
self does not always solve the problem. Entrepreneurs are often good at selling but margins are important, too, to generate profit.
relationships are demanding
ys easy and requires a disciplined approach You never have the right premises; they are too small or too large
biggest challenge, particularly when trying to build a good team quickly
etween partners and investors, because each side has different objectives
ss, both from repeated crises and the desire to perform even better
R. (2000: 164) Negotiating the start-up obstacle course. In: S. Birley and D.F. Muzyka (eds), Mastering Entrepreneurship, FT Pitman.
Figure 11.9
The start up
barriers.
Summary
■ The organizational form and location of an organization
is determined partly by the owner’s ambitions and also by
the context for the start up.
■ There is a framework of legislation for organizing the
business and protecting stakeholder interests. In protecting
intellectual property there is a framework of, for example,
patents, copyright and trademarks, but in some cases it
may not be beneficial to obtain patent protection.
■ While the majority of new ventures are financed from
informal and personal sources there is a range of
institutional funding for larger projects. In seeking formal
funding it is essential for entrepreneurs to understand the
expectations of the funders.
■ Building a high performing management team and staff
is particularly challenging and there is a danger that the
entrepreneur is unwilling or unable to devote sufficient
time to managing and leading the team.
■ Marketing and sales generate the revenue for the organiza-
tion and this often presents challenges both in terms of win-
ning over enough customers quickly enough and negotiating
sales with a high enough margin to generate profits and funds
for further investment.
■ Overall there are many start up obstacles in obtaining, organ-
izing and managing the resources, but overcoming them is
the key to success in entrepreneurship.
Chapter questions
1. It is often said that when setting up a business the three most
important things are location, location and location. Explain
whether you agree and why, in the context of setting up an
organic sandwich shop.
2. Many business angels choose to ‘back the jockey not the horse’,
i.e. they are more interested in the qualities, characteristics
and capability of the entrepreneur or entrepreneurial team
than in the business proposition. Do you think this is
appropriate and why?
3. What are the advantages and disadvantages of using a busi-
ness angel to fund a growth strategy for a small business?
4. What reasons can you suggest could be the cause of a business
achieving technical success and yet failing to emerge from
‘death valley’?
5. Which is most important in achieving the break-even point
– managing costs or generating sales?
Case study
Emma’s start up decision
At the end of October Emma made a dramatic decision. She wanted to start the New Year working
for herself. She no longer enjoyed working for the department store chain that she had joined
when she left university five years ago. Her role was a buyer in the department that sourced gifts
and craft items. Emma enjoyed meeting people and negotiating deals and she felt that she had
good communications skills and understood what people wanted to buy. More recently, though,
her department had experienced some quality problems with two of their suppliers and this coincided
with some key staff leaving. Emma had become more involved with dealing with complaints from
internal staff and customers as well, which seemed to be wearing her down. She could see no real
end to the turmoil.
Emma had always thought she would one day run her own business and decided that this might
be the time to take the plunge. A male friend from university had started a business which seemed to be
doing well, although she was not sure exactly what it was – he always seemed to be too busy to
spare the time for a drink and a chat. And presumably he was making lots of money as he had just
bought a new sports car.
Her boyfriend, Neil, who was quite satisfied with his job as a schoolteacher in a sixth form
college, appeared to be generally supportive although he had admitted to not being the slightest bit
interested in, or capable of, running a business. They had recently bought a house together in the
centre of a small market town in the south of England and had used up £10 000 of their joint savings
on paying for the deposit and the legal fees, and had £10 000 for a ‘rainy day’ or getting married,
whichever came the soonest. The couple had decided that getting married could wait and that the
remaining £10 000 could be invested in the business. Sadly Emma and Neil had no rich relatives that
could lend them any money, however, they had decided they could survive on Neil’s salary for a few
months until the business was profitable, although things would be tight.
Emma had always been interested in crafts and gifts and believed that she had a good eye for
design, although her boss occasionally criticized her for buying ‘way out’ items that would only
appeal to a very limited market. She believed that her contacts with suppliers all around the world
and her understanding of selling prices, costs and margins could be put to good effect and, although
she had no experience of marketing or selling, she felt that these were skills that she could soon pick
up.
Out of their busy social life they had decided to set aside some time to decide what to do. Emma
would need to give a month’s notice to the company if she wanted to leave, but she could not afford
to leave if she did not have a plan for the business and know how she was going to assemble the
resources to run it. She knew what she wanted to sell but suddenly realized that she was not really
sure what business model would be best. Her initial thought was to set up a small shop in the mar-
ket square – indeed she had seen two shops empty and to let – but Neil’s first contribution to the
discussion rather surprised her. He rarely bothered going into the town centre because he said it was
easier to buy gifts online. This prompted some lively discussion about the importance of seeing,
touching and feeling the items. In the middle of the discussion the phone rang and it was Emma’s
university friend apologizing for never having the time before and suggesting they meet. Emma
immediately agreed, thinking she could get some useful tips. Before he rang off she asked what his
business actually was. His reply was ‘I buy and sell stuff on eBay’. They said their goodbyes and
Emma suddenly realized that she had more decisions to make than she realized.
Neil immediately adopted teacher mode and said ‘the first thing we need to do is decide what
questions you need to ask yourself before we try to get the answers. I have looked on the web and
found that there are guides to starting up a business at www.startup.co.uk, and at www.ebay.co.uk/
businesscentre/BC_Guide.pdf where the Institute of Business Advisers have teamed up with eBay’.
Questions
1. What are the questions that need to be asked?
2. Given the context for Emma’s new business, which business model should Emma choose?
3. Carry out some online research to determine what resources Emma will need and provide some
rough costs, and list what she needs to do between now and the New Year.

Barrow C., Burke G., Molian D. and Brown R. (2005) Enterprise Development:
Thomson.
Birley S. and Muzyka D.F. (2000) Mastering Entrepreneurship. Edinburgh: FT
Pitman.
Bolton B. and Thompson J. (2003) The Entrepreneur In Focus: Achieve Your
Potential. London: Thomson Learning.
Carter S. and Jones-Evans D. (2000) Enterprise and Small Business. London: FT
Prentice Hall.
Cartwright S. and Cooper G. (2000) Distilling a strong team. In: S. Birley and
Education Ltd.
Drucker P. (1985) Innovation and Entrepreneurship. New York: Harper and Row.
Equinox Management Consultants (2000) Informal Equity Capital for SMEs: a
review of literature, sourced at http://strategis.ic.gc.ca, 20 December 2005.
Kaplan J.M. (2003) Patterns of Entrepreneurship. Hoboken NJ: John Wiley and
Sons.
Lambert R. (2003) Lambert Review of Business – University Collaboration,
HM Treasury, at www.hm-treasury.gov.uk, accessed 5 October 2005.
Mason C. and Harrison R. (2000) Business angels are the answer to the entre-
preneur’s prayer. In: S. Birley and D.F. Muzyka (eds), Mastering Entre-
preneurship. Edinburgh: FT Pitman.
Muzyka D.F. and Birley S. (2000) What venture capitalists look for. In: S. Birley
and D.F. Muzyka (eds), Mastering Entrepreneurship. Edinburgh: FT
Pitman.
The Charity Commission http://www.charity-commission.gov.uk http://
www.patent.gov.uk, accessed 8/8/2005.
Hall.
Key words
break-even management buy-outs
business angels management team
charitable status marketing and selling
cooperatives partnership
debt patents
diffusion curve premises
equity public ownership
franchise sole trader
intellectual property spin-outs
invoice factoring sweat equity
limited company venture capital
management buy-ins
C H A P T E R
12
Enterprise
strategies
and fast
growth
Learning objectives
■ appreciate the need for a strategy in an entrepreneurial
organization and the need for a different strategy at key stages
in the development of a business;
■ identify the barriers to growth and compare the appropriate-
ness of strategies to overcome them;
■ evaluate the strategies that are used by entrepreneurial organ-
izations at start up, and during periods of growth,
consolidation and underperformance;
■ develop a niche strategy to achieve fast growth;
■ understand how competitive advantage is developed in entre-
preneurial organizations through market positioning and
building core competencies.
Introduction
One common characteristic of the organizations discussed in this book
is that the majority of them are fast changing (or need to change
fast) to cope with the dynamic environment. However, the focus of
their effort is often day-to-day management and frequently
concerned with dealing with the current crisis. While many small
firms survive and,
Chapter 12 Enterprise strategies and fast 39
growth 1
indeed, prosper in this way, to establish a secure business and develop
the capability to grow significantly requires some longer-term
thinking in the form of a strategy. In the previous chapters in Part III we
have discussed the steps to developing a new venture including
identifying the business proposition, developing a business plan,
establishing a business model, and assembling the necessary
resources. In this chapter we emphasize the need for a broader and
deeper understanding of strategic development and the importance
of developing a strategy that is sufficiently proactive to drive the
organization not only to achieve long- term success, but to be flexible
enough to cope with the continual changes that occur and that need
day-to-day actions in response.
We start by briefly explaining the nature and role of strategy, and jus-
tifying the importance of strategy for entrepreneurial organizations.
It is important to be able to characterize the stage of development of
the organization and recognize that different strategies are needed
for the different life cycle stages, such as start up, rapid growth and
consolidation in the mature phase of the business. It is also important
to be able to develop strategies to deal with difficult trading
environments that occur periodically and we discuss turnaround
strategies for the organization. For both new and established
organizations there are barriers to growth and organizations can
become obsessed with the immediate problems. The focus on the
short-term day-to-day operations means that many organizations
fall into bad habits and fail to recognize that periodically they need
to make major changes to the organization.
To become more successful in the longer term, entrepreneurial
organizations need to reflect on their capabilities and source of com-
petitive advantage, and work out what further knowledge and
competencies might enable them to compete more effectively in the
market. Finally, we discuss the link between competitive
advantage and learning and consider how entrepreneurship and
innovation can be
maintained in the future.
Strategy in entrepreneurial firms

A commonly held view is that strategy is the preserve of large organiza-
tions that have an expanding customer base and substantial
financial and human resources to manage. In practice, however,
even a sole trader has a vision of how his or her business might look in
a few years’ time, and sets some longer-term goal, even if it is simply
to work fewer hours for the same income. Competition inevitably
2 on
appears and customer fashions change so the organization must
respond by striking out
in a new direction. From time to time, too, an entrepreneur
decides whether or not to sell out and start afresh.
Some assessment of the various options available might be required,
including which customers to prioritize and which products and ser-
vices to concentrate on. The decisions taken must be implemented
by deciding how to allocate the limited available resources between,
perhaps, buying equipment or putting an advertisement in the local
newspaper. A strategy, however flexible and informal, is needed to
generate surplus funds to allow investment in some future as yet
unspecified project or merely to cope with incremental growth.
There is a problem however, as there is no separate body of theory
relating to enterprise strategies. Drucker (2001: 161), for example,
comments that he has never come across a discussion of entrepreneur-
ial strategies but suggests four specifically entrepreneurial strategies:
1. ‘Being fustest with the mostest’
2. ‘Hitting them where they ain’t’
3. Focusing on an ‘ecological niche’
4. Altering the economic characteristics of a product, market
or an industry.
Assuming we have interpreted the first two correctly, we feel that these
are not entirely comprehensive for our purpose.
The discussion of strategy in entrepreneurial organizations in
most textbooks is usually a ‘lite’ version of corporate strategy, picking
out some relevant ideas and ignoring other theories. Rather than offer a
prescrip- tive approach to strategy development in entrepreneurial
organizations, which by definition operate in very different ways, we
have chosen to highlight some important issues and illustrate some key
areas for strategic decision-making.
The purpose and characteristics of strategy

Without a well defined base of entrepreneurial strategy theory it
is worth starting from first principles and thinking about exactly what
the purpose of a strategy might be. Mintzberg et al. (2003) suggest
that if the potential aims or responses of intelligent opponents can
seriously affect the organization’s desired outcome, a strategy is
needed. Most entrepreneurial organizations operate in environments
where they are potentially vulnerable to competitive actions and so
by this definition they need a strategy to determine the way in which
they intend to compete in the market. Mintzberg and colleagues
suggest that a strategy is
re not delivered in reality, because of a lack of consistency in the organization. Gaps then emerge and managers and staff fill them with eme
by matching up the organization (internal context) with the environment (external context).
Figure 12.1
Five definitions of strategy.
about making plans for the future, based on a set of objectives, policies
and plans that, when taken together, define the scope of the
enterprise and how it intends to survive and achieve success. There
must be a strategic fit of the many activities that are intertwined to
provide competitive advantage and, ultimately, sustainability for
the organization. They identify five definitions of strategy (see Figure
12.1).
In looking at these definitions it is relatively easy to match these
approaches with the apparent strategies of some of the most successful
entrepreneurial businesses. Both easyJet and Virgin Atlantic grew
through actions specifically focused on outwitting their rivals, such as
British Airways and other long established airlines. Drucker (2001)
suggests that, in situations like these, large organizations have bad
habits that let entrepreneurial organizations in. They include:
■ the ‘Not Invented Here syndrome’, where large organizations
only take their own developments seriously, not those of their
competitors;
■ ‘creaming a market’, with unwillingness to compete in
the lower-price segments (Xerox let Japanese
manufacturers of small photocopiers in to eventually
dominate the market);
■ a belief in setting a high specification and making a product
difficult to copy but in so doing losing out to customers that
want value for money, and lower-specification products;
■ premium pricing, which effectively subsidizes the market entry
by a newcomer that can undercut the market leader but
still have plenty of margin with which to build a business; and
■ maximizing rather than optimizing. Xerox tried to compete
on everything rather than selecting the segments that they
could best serve.
Entrepreneurial organizations see the world differently from others
and they ‘do it their way’ but still operate within a pattern of consistent
behaviours. Sometimes it works, sometimes it does not. The behaviours
in the market of many entrepreneurial organizations are less pre-
dictable than those of better established competitors. Entrepreneurial
organizations, for example, create unique connections with the mar-
ket, with both customers and partners. Steve Jobs at Apple has focused
on developing a unique connection between the organization, its
products – such as iPod – and Apple Mac and its market. In the process
Jobs has built relationships with Apple’s buyers such that they can now
be described as ‘devotees’ or fans, as we saw in Enterprise in Action 3.1.
Many strategies have an internal focus and we have observed that
many entrepreneurial organizations are the very personification of
the entrepreneur and that the strategies they develop reflect their
personal influence on, beliefs in and values regarding every aspect of
the way the organization operates, as illustrated in Enterprise in
Action 12.1. The reader will find a lot of evidence of the
entrepreneur’s influence on the strategy of entrepreneurial
organizations, ranging from: a single- minded approach to
maximize the benefits from limited resources; almost an obsession
in trying to take customers away from more established competitors;
a total focus on exploiting a specific market gap; a belief about how a
new way to approach the market will succeed; to a highly autocratic
way of running the organization. Some entrepreneurs are so
determined to stamp their values on the organization and its
products that they insist on appearing in all the advertising, too.
d graphics, but it does provide ads that people read even if (or perhaps, because) some are sexually explicit or tasteless.
the website offers a public service and, moreover, their belief is that once you are financially comfortable, the
The independence of the company did seem to be threatened recently when a former employee sold a 25 per c
Question: What do you think drives Newmark and Buckmaster’s strategy?
trategic approaches at different stages in the lifetime of an organizatio
The typical and quite separate stages of an organization throughout its

life cycle are shown in Figure 12.2. For entrepreneurial
organizations, each of the stages requires a different strategic
approach. This reveals a significant difference between the strategies of
large and small organizations because large organizations are
usually in a relatively steady state and their strategies usually reflect
this.
Entrepreneur exit
Entrepreneur exit
Entrepreneur exit
Start up Growth Consolidation Under- Turnaround Reinvention

performance
Figure 12.2
The life cycle stages of an entrepreneurial organization.
In the following sections of the chapter we explore the
strategies that might be appropriate for each situation.
Strategies at start up Strategies at start up are concerned with estab-
lishing the organization and its operations, workforce and financial
basis. Strategies are needed to establish the presence of the
organization in the market and to position it in the minds of the
stakeholders, on which it is dependent for future success.
Strategies to overcome the barriers to growth Once established, an organ-
ization is faced with a number of barriers that could curtail its
growth unless suitable strategies are developed to overcome the
problems arising. Typical difficulties might include shortage of
investment and resources, lack of capacity and capability of the
staff to take on new responsibilities, an inability of managers to
respond to new challenges, an aggressive competitive response and
the reluctance of the mass of potential customers to switch to the new
offering.
Strategies to achieve consolidation of the gains made During periods of
rapid growth an organization can become overstretched.
Management and staff may be expected to be totally flexible and take
on too many responsibilities, and the owners often forget to
encourage and support those staff carrying out difficult tasks. This can
result in staff becoming tired, stressed and less effective.
Most organizations operate too closely to the capacity limits of
their equipment, facilities and finance and have no contingency
plans for when things go wrong, as they inevitably do. While
organizations try to retain their momentum, embrace change and
continue their sustained growth, there are periods when the
management of the organization should consolidate the gains made
and reflect on the situation, taking time to decide how to build up
the resource base in order to ‘have something in reserve’ to deal
with the next set of growth challenges.
Niche strategies to achieve fast growth Small organizations can use their
limited resources more effectively to grow quickly by concentrating
on supplying one customer segment with a specialized offering. It
needs to be differentiated from the offerings from competitors, and
customers should perceive it to be of extraordinary value. This
requires a highly focused strategy and a disciplined approach to
business decision-making and development.
Strategies to deal with underperformance At different points, that are
often unpredictable, the organization will suffer a downturn in demand
or underperform against what the owners and other stakeholders might
expect. Income may be insufficient, the costs may be too high,
creditor payments may become extended and drastic action may be
needed to put right the problems. The organization may have strayed
from its original
purpose and be opting for easier but less valuable activities. Many entre-
preneurial organizations reach this point and the existing management
fail to take sufficiently decisive action early enough to anticipate and
correct the problem. Such situations frequently result in the
entrepreneurs being forced out of the organization by investors that
have increased their financial stake and control in the business. This
can be a painful experience for the entrepreneur, whose brainchild it
was, who has struggled to set it up and steer it through the many
obstacles to growth.
Turnaround and strategies for reinvention Improvements in
management effectiveness and business efficiency may be sufficient to
turn around the organization. This might need to be accompanied by
the replacement of some senior executives, staff redundancies and
closure of some activities. Sometimes such incremental change proves
insufficient to put right the problems of the organization, and
complete reinvention may be required either with or without the
existing management. It may be necessary to completely redefine the
business vision and mission.
Strategies for exit/realizing the value of the organization We have already
referred to the fact that many venture capital organizations look for
a maximum of around seven years to realize the value in their
investment by selling their stake in the business. Exit is a valid strategy
in other circumstances too. As well as an entrepreneur’s personal
reasons to leave the business, such as the wish to retire, to realize
his or her personal investment or to move on to the next
entrepreneurial venture when the venture has become established, it
might be appropriate for the organization to be merged or taken
over by a larger organization for it to achieve its full potential.
Strategies for administrative management Many entrepreneurial organ-
izations become so successful that they succeed in evolving into very
large, established organizations. Others become so successful that
competitors try to take them over to further exploit their potential
success or, alternatively, to stop them becoming strong competitors in
the market. While it is not our intention here to discuss generic
strategies it is useful to draw attention to the different approaches to
administrative and entrepreneurial strategies and management.
gy development in entrepreneurial organizations and the implications
While aiming to justify our case that small organizations, as well as

large, need a strategy it is clear that their strategic approaches are sub-
stantially different.
Emergent strategies for entrepreneurial organizations
Large organizations have the resources to devote more time to formal

discussion of strategy, the resources to invest in strategic development,
and the advantage of having a number of management teams who
bring different skills and perspectives to the debate about future
possibilities. By contrast, smaller organizations are often dominated
by one person and this individual has a significant influence on the
vision, mission and objectives of the organization and the decisions on
the future direction, too. This can be an advantage in that the
entrepreneur is often very close to the customer and the market, but
the decisions arrived at, although benefiting from being made
quickly, can be taken on personal criteria, often on whims, that do
not really stand up to scrutiny. The danger, of course, is that the
strategy emerges as a series of knee-jerk responses to critical events and
crises that occur from time to time with decisions being largely taken
to deal with short-term problems and not to deliver long-term success.
Smaller organizations can in addition be too heavily dependent on
a key customer, and this can also influence their thinking. If they have a
small market share, they are less able to influence the longer-term mar-
ket development than can a larger business with more significant mar-
ket influence. Smaller organizations may not have the resources to
diversify and, not being limited companies, cannot go to the stock mar-
ket to raise funds for expansion. They do not always have the
management capability, or capacity, to grow successfully, and can feel
that many strategic options that are talked about in textbooks are
simply not relevant to or viable for them. However, as we discussed
in Chapter 10, knowing where you are now, where you want to be,
and having a plan for getting there is just as relevant to a small
organization wanting to build its competitive edge as it is to a large
firm.
Strategic decision-making
Small organizations usually have a simple business structure in which

line management responsibilities are clear. It is relatively easy to
develop a vision of what the owners and managers expect the
business to be like in the future – its short- and long-term
objectives, its target customers, main products and services,
operations and activities – and to communicate these to the staff. Even
when rapid changes occur it is still relatively easy for the managers to
keep staff informed and engaged with the development of new strategies
and plans and the key decisions that need to be made and
implemented swiftly and effectively.
Larger, more complex organizations have complicated, geograph-
ically diverse departmental structures with matrix management in
which staff often are required to report to two or more bosses. Many
such organizations are slow to respond because of their bureaucratic
processes, procedures and control systems. They need to consult
with a range of interested stakeholders and poor coordination and
communications often lead to turf wars between rival departments
or managers. Because of central planning, annual budgeting and
multilayer managerial approval before making investments, it is often
difficult for larger organizations to make fast decisions. Sometimes, for
example, if the request for new investment is not included in the
annual budget it may be a year before there is an opportunity to bid
for a new project investment. This provides the entrepreneurial
organization with an opportunity to compete with larger
organizations through speed of response and decisiveness. This
speed of response can be critical, as shown in Enterprise in Action
12.2.
eaving a small sales office in the UK. The company turnover dropped from £10 million to £3 million but is now back to £9
Strategies for start up

Earlier in the book we emphasized that the business approach adopted
by entrepreneurial organizations is characterized as the pursuit of
an opportunity irrespective of the resources that are controlled by
the
organization, and we have discussed the external and internal
factors that drive the process of start up.
The fundamental purpose of the strategy is to set the framework
for the longer-term vision, objectives, policies and plans that were
discussed earlier. For a lifestyle business the strategy might simply
be about establishing a modest but reliable income with relatively
little risk to the owners. For a more ambitious venture the objectives,
policies and plans must be developed to achieve growth and
high performance. In both these cases, which are at opposite ends
of the scale of new starts however, the fundamental requirement of
the strategy must be to configure the organization to define,
create and deliver value for the customer (Doyle, 2000):
■ Define value within the business proposition in a way that

indicates clearly how customers will benefit and obtain
value from the product and service offer.
■ Deliver consistent value by cost-effectively using the resources
to meet or exceed the customers’ product and service
expectations.
■ Create value by efficiently acquiring and utilizing the neces-
sary skills, competencies and supporting resources (e.g.
human, financial and equipment) within a robust business
model to continually improve value for the organization and
increase its competitiveness over the longer term.
Start up capability
Bolton and Thompson (2000: 58) explain the start up strategy in terms
of the convergence of three dimensions: (1) the business environ-
ment; (2) the resources of the organization; and (3) the values of the
organization (its culture and style of management, usually largely
influenced by the entrepreneurial leader). Windows of
opportunity are constantly opening up in the environment but it
requires appropriate resources to be assembled and an
entrepreneurial approach to be applied to exploit the opportunity.
This leads to the definition of three key areas of capability of
the entrepreneurial organization: (1) opportunity recognition; (2)
strategic positioning; and (3) the ability and commitment to change,
Opportunity recognition is not just about identifying a new
customer demand or gaps in market supply, but is about defining
exactly what
Window of opportunity
Strategic positioning
Strategic capability
Ability & willingness to change

Opportunity recognition
Entrepreneurial management
Figure 12.3
Entrepreneurial
strategic
development need Adapted from: Bolton and Thompson (2000)
to change.
the opportunity might be for the entrepreneurial organization, what

the offer or solution should be, discussed in Chapter 9, and what busi-
ness model could be applied, discussed in Chapter 10, to enable the
opportunity to be effectively exploited.
Strategic positioning is about defining the offer in a competitive
market so that the value to the customer and other stakeholders is
clearly identified, and seen to be differentiated from and superior to
the value offered by competitors.
The ability and commitment to change is essential within an organization
not only as the staff configure the organization to deliver the solution
to customers at start up but to reconfigure the organization
internally as successive new products are introduced.
Therefore, having the idea and spotting the market gap is not
enough. Exploiting the window of opportunity requires distinctive
strategic positioning that ideally offers a ‘quantum leap’ in customer
benefits and then continues to build competitive advantage and increase
the barriers to entry, in the process developing a secure position for
the entrepreneurial organization in the supply chain. To do this the
firm must be willing to change (including competencies and
resources, etc.) to achieve this new strategic positioning and build its
competitive advantage, as is discussed later in the chapter. An example
of this is shown in Enterprise in Action 12.3.
Organic growth at the Soil Association?
The Soil Association is a charity that campaigns to promote sustainable organic agriculture in
the UK, by encouraging consumers to buy organic produce. It also provides certification for
farms that meet its criteria, and allows them to use the Soil Association logo. It has an income
of £7.4 million and employs 146 full-time and 25 part-time staff. The organic sector is the
fastest growing part of the UK food and drink market, showing 10 per cent annual rise with
sales of £1 bn.
The survival of the association currently depends on subscriptions and it has 25 000 sub-
scribers. If the idea really caught the imagination of consumers, however, it could become very
influential indeed, especially given the high profile of healthy eating and environmental con-
cern. The charity has set an initial target of 100 000 subscribers within the next five years.
To increase subscriptions, however, the Soil Association must change the public’s percep-
tions. Most people think that the Soil Association is a government body, not a membership
organization and last year just a few hundred new members joined. It has no large
marketing or advertising budget and instead relies on the PR that results from campaigns.
Its ‘Food for Life’ campaign hit the headlines recently because it showed that more was spent on
lunches in jails than in schools but this did not lead to an increase in membership.
At the moment the assumption is that the subscribers are contributing to a good cause.
They only receive a magazine in return for their subscription. More might join if they could
perceive more benefits.
Adapted from: Terry F., ‘Green food campaign sows seed of success’,
Sunday Times, 14 November 2004
Question: What would you do to set the Soil Association on a path of healthy growth?
Step change and incremental change strategies

After the organization has established an initial market position Bolton
and Thompson (2000) emphasize that it must continue to build a
sustainable business by:
■ maintaining growth through continual small-scale innovations;
■ improving management efficiency; and
■ making visionary leaps forward to achieve periodic step
changes in performance in the business.
This is achieved by two types of learning (see Figure 12.4). The
continual improvement and reinforcement of strategic
positioning is achieved by single loop learning and, particularly,
learning good practice by reflecting on past successes and failures.
Making visionary leaps
Strategic positioning
Single loop learningDouble loop learning
ContinuousEffectiveVisionary leaps operationalimplement-forward

improvementsation
Figure 12.4
Entrepreneurial
Adapted from: Bolton and Thompson (2000)
strategy
development.
forward and establishing entirely new strategic positions is achieved by

double loop learning, discussed in Chapter 4.
The barriers to growth and turnaround strategies
The start up strategy should result in the organization gaining a sustain-

able and commercially viable position in the market. However, strategies
are transient and their appropriateness for long-term growth is
usually limited. Without periodic updates a strategy will become
obsolete and no longer appropriate for the current situation. There
are considerable barriers to growth and, before discussing fast-
growth strategies in the next section, it is useful to identify the barriers
and challenges of growth and consider the possible response of an
entrepreneurial organization to situations such as where it is
underperforming to expectations or is having to deal with a severe
market change and is faced with a turnaround situation.
The barriers to growth

Storey (1994) found that only around 4 per cent of SMEs grow signifi-
cantly but this small number of organizations contributes 50 per cent
of the increase in employment created by the SME sector. Barrow et
al. (2005: 110) refer to evidence that shows that nearly one third of
firms cease to trade within 10 years and the overall pattern of
mortality appears to be common throughout European and the US
economies among franchise and non-franchise businesses.
There are a number of barriers that will prevent the continued
growth of the organization if strategies are not put in place to deal
with them. These include:
■ changes in the market environment that make the existing
start up strategy, the offer and the targeted customers no
longer appropriate;
■ the failures in the internal operation of the organization (the
growth pains); and
■ lack of continued support from the stakeholders, who may
become increasingly disillusioned with the performance of
the organization.
Growth challenges of management
Of particular concern to us in this section is the owner and manage-

ment effectiveness in responding to the growth challenges.
Ultimately the ‘external’ barriers, such as inadequate funding,
insufficient customers and underperforming products (Hall, 1995)
should be overcome by management action. It is worth saying that
stakeholders, such as employees, suppliers and investors, are unlikely
to dismiss a failure of the entrepreneurial organization to respond to
market changes as ‘unlucky’ but rather criticize the management for
a failure to anticipate the market changes, use the resources
available to seek out new opportunities and take action to change
the direction of the organization to secure its future.
The biggest challenge for the organization, therefore, is the devel-
opment of a team to manage the organization through its growth
challenges. Fast-growing organizations become totally obsessed
by the obvious growth drivers and the need to make the next
sale, get the next order delivered and get the next product offer on
to the market. For the team itself there seem to be a continual flow
of daily problems that disrupt this growth, such as staff being away ill
and so slowing down a new development, a spelling mistake on the
packaging that holds up the production line or the delivery lorry
breaking down at a critical moment, delaying an essential delivery.
This is interspersed with more serious periodic crises that threaten
the ambitious growth
plans, such as coming close to exceeding the overdraft limit, failing
to win a new customer order or the threat of an essential supplier to
withdraw supplies.
There is a danger that the organization’s strategy simply becomes task
focused with little or no time to consolidate the gains already made
and build in management flexibility, spare capacity and capability to
more effectively manage the problems and crises, and prepare
strategies to cope better in the future. To both develop a longer-term
strategy and deal better with the day-to-day activities for the
organization the managers need information, effective
communication with their colleagues, contact with key stakeholders
and a robust way of making high quality decisions.
Greiner (1972) provided a model (see Figure 12.5) of the problems
that occur within the management team, which managers of most
developing organizations will recognize. He found that many
entrepreneurial organizations face a number of crises of
management which, if not dealt with effectively, could lead to business
failure. It is essential for management to recognize the signs,
anticipate the problems and take action.
It is important to recognize the different phases of organizational
development as separate states and know when the organization must
change its management strategy, culture and guiding operating
Stage 1 Making the vision a realityloyalty, informality fast growth

few people,
quick return on effort
‘It’s getting too big’ ‘We want guidelines’ ‘Too much firefighting’
‘Unclear about priorities’
First crisis
Stage 2 Building
clear asystems,
more formal
consistency
business
organizational structure specialist functions
‘Lost touch with customer ’ ‘Too many meetings ’
‘Too much paperwork ’ ‘Low risk’ attitude ‘empire building ’
more autonomy
positive management of change more concern for the customer emphasis on em
Second
Adapted crisis
from: Greiner (1972)
Stage 3 Creating a new vision

Reinventing the business
Figure 12.5
Evolution and
revolution.
principles in order to deal with a new phase and the challenges it
poses. In Enterprise in Action 12.4 it is shown how Napster has been
involved in turbulent changes as it has moved to become a legitimate
organization.

Napster seeking legitimate downloads
The name of Napster is linked with illegal music swapping. Although it was just one of
many illegal sites in 1999 it was the one that gained the most publicity.
It was started by 19-year-old Shaun Fanning, a bored Boston, USA computer science
student, who wrote software for his friends to download and share music. It was named
Napster after Fanning’s ‘nappy-style’ hairdo. The popularity of the illegal sites was in part
due to the frustration of CD buyers who felt they were being ripped off by the record
companies, which maintained very high prices for the CDs. Napster was shut down in July
2001.
In reality such sites were the forerunners in an industry breakthrough and the creation of a
new business model, arguably more radical than Amazon and eBay, because the whole process
of the purchase, delivery and usage of music for consumers was changed.
Now Napster has reinvented itself as a legitimate business to capitalize on its well known
brand. It is marketing two formats, selling permanent downloads, which in the UK sell typically
for 79p but can be as low as 39p, and by monthly subscription, where users can rent the
downloads for
£9.95 per month. Napster’s current competitors include Virgin Digital at £9.99 per month and
HMV at £14.99 per month for the subscription service. iTunes only sells permanent downloads.
One potential growth problem for Napster is that a poll by Parks Associates suggested that UK
customers would not pay more than £5.50 per month for the subscription service.
Adapted from: Flanagan B., ‘Napster’s a hit – but can it stave off rivals?’
The Observer, 4 September 2005
Questions: What are the advantages and disadvantages of the two models, permanent down-
load and subscription service, and how would you advise Napster? What implications might
this have for the operations?
The reasons why start up strategies might no longer be appropriate
Chowdhury and Lang (1993: 8–17) refer to the boiled frog syndrome,
which is particularly relevant for small firms as they are often so focused
on the immediate problems that they are not aware of what is going
on around them. A frog that is dropped into a boiling pan of water
reacts instantly and jumps out because it is aware of the changing
environment. A frog that is dropped into a pan of cold water that is
gradually
heated does not realize that the environment is changing
dangerously and eventually dies!
There may be many reasons for a failure to meet the short-term tar-
gets set. The reasons for underperformance might include:
■ poor implementation of the right strategy by a weak

management team;
■ the right strategy, properly implemented but taking too long
because of a failure to generate turnover and recover debts,
production delays, sourcing difficulties and a failure to obtain
additional loans;
■ the strategy no longer being appropriate for the market,
because it has changed as a result of competitive action, the
introduction of alternative offerings or changing customer
fashion;
■ operational inefficiency and poor cost control, because of
lack of management experience or expertise or as a result of
management ‘living beyond their means’;
■ indecisive leadership, and weak management leading to lack
of direction and control;
■ lack of investment in new projects as the existing offer is no
longer competitive in the market;
■ unwise and inappropriate investments by the management as
a panic reaction to market changes;
■ failure to cope with the nature, speed and intensity of
change in the sector;
■ inability to manage an economic downturn, or an industry
sector cycle;
■ failure to anticipate and plan for legislative and
technological changes;
■ inability to cope with slower than expected diffusion of
key products and services because switching customers
proves more difficult than anticipated;
■ inability to cope with changes in the route to market and
distribution channels;
■ becoming overdependent on one major customer or one
major product;
■ overfocusing on production, research and development and
a lack of focus on changing customer needs and
competitor actions;
■ the imminent withdrawal of a major sponsor, investor or
supporter.
Of course the organization may have outperformed its start up strategy
objectives and exceeded its most optimistic estimates. Without correct-
ive action this situation can also be problematic, because the organ-
ization may run out of cash, have to cut back its activities or risk being
taken over. Sometimes an entrepreneur may have the objective at
the start to prepare the organization for takeover and so
outperformance may simply speed up this end point. In other situations
where the senior managers wish to maintain ownership and control it
might be useful to opt for a period of consolidation, which we discuss
below, rather than seek further ‘wild’ expansion.
hieve consolidation of the gains made and the development of the ma
While most discussion in this and most other business textbooks is con-
cerned with opportunity exploitation, growth, and business
expansion, for most businesses the most difficult strategic tasks are
coping with a less benign market environment and addressing
underperformance in the market. Most firms, including the majority
of global businesses, have faced serious problems at some stage. The
same is true for entrepreneurial organizations and the true test of
the organization is whether it can survive in difficult situations.
During the good times the entrepreneurial organization must
make sure it is well equipped for difficult times, for example, by
balancing the portfolio of products and services to manage risk.
There needs to be a constant drive to improve efficiency, especially
if there are in-house production operations. The capacity required
during growth periods will exceed the demand during periods of
downturn. Kano and Rao (1995) in studying entrepreneurial
businesses during the Japanese downturn in the 1990s, emphasized
the importance of improving the efficiency of production
operations. Chaston (2000: 150) discusses the 3 ‘Ds’:
■ Dehumanize by replacing human involvement with automation.

■ Delegate tasks to subordinates or external suppliers.
■ Delete unnecessary tasks in the operation to increase long-
term efficiency.
While a more prudent strategic approach in running the business
might fail to achieve the full growth and revenue potential in the good
times it will result in a leaner organization – perhaps with fewer staff –
that is more
capable of operating on a smaller scale in difficult times. By not using up
scarce financial resources to try to maintain a larger operation during
difficult times, spare cash might be available for investment when the
market picks up. In this way a more prudently run organization
might be better equipped to come out of a recession more quickly than
its rivals.
If the management team is able to recognize and address the various
crisis points that Greiner (1972) refers to and develop
appropriate strategies to deal with them the organization will be able
to consolidate its success and be able to build for the next phase of
growth.
The indicators of poor performance and the concerns of stakeholders
In the section above we identified the reasons why strategies fail or are
no longer appropriate. Coulter (2003: 336) identifies the following
causes of organizational decline.
■ poor financial controls;
■ costs too high and out of control;
■ new more aggressive or unexpected competition;
■ unpredicted change in customer requirements;
■ failure to respond sufficiently to change;
■ overexpansion or too-rapid growth;
■ internal culture problems.
Of course, these reasons for decline only really become apparent
with the benefit of hindsight, analysis and reflection on good and bad
practice. For the stakeholders that are dependent on or have some
expectations of the organization, such as employees, investors or
even family, there is little concrete evidence of how the organization
is performing and they must look for indicators that might give clues
and early warning of the possibility of losing their job, income or
investment. Coulter (2003: 335) identifies some of the early warning
indicators, which might include:
■ lack of a clear vision and goals;
■ inadequate or negative cash flow;
■ overstaffing;
■ waste, inefficiency and a high level of complaints;
■ fear of conflict and risk aversion;
■ ineffective internal communications;
■ overfocus on unnecessary, bureaucratic procedures.
The underperformance in not-for-profit areas may be more
concerned with no longer fitting with the current environment
situation (see Enterprise in Action 12.5).

Barnardos finding a new way to help children
In London in the 1860s a Dublin-born doctor, Thomas Barnardo, formed Barnardos, a charity
dedicated to ‘giving children back their future’ by ‘preventing disadvantaged children carry-
ing over problems into adulthood or into the next generation’. By 1905 when Barnardo died
the charity had 96 ‘Dr Barnardo Homes’ fostering 8500 children.
Today in the UK, residential homes are not considered the best way to foster children,
following investigations in the 1980s and 1990s that found some children had suffered
neglect, discrimination, and even physical and sexual abuse in residential homes run for
children.
Barnardos has changed its strategy completely and instead of running orphanages it now has
300 projects that range from schoolwork mentoring to legal counselling for domestic
violence issues. However, to date it has failed to reposition and build the brand and 70 per
cent of the UK population still associate the charity with orphanages. It currently spends less
than 0.5 per cent of its £180 million income on publicity. It has maximized donations by using
‘shock advertising’, such as a baby snorting heroin rather than ‘good work’ stories but this also
leads to complaints.
Charities face problems in getting across their message. Donors cannot try out
Barnardo’s services – all they see is the advertising and publicity, so getting it right is vitally
important.
Adapted from: Modernising Barnardo’s, Centaur Communications,
Brand strategy online, 4 April 2003
Question: Given their shortage of resources, Barnardos needs an entrepreneurial approach
to get across their message. What should they do?
ound strategies to deal with underperformance and taking difficult de
Ullmann (2000: 337) suggests strategies to achieve a turnaround

and emphasizes the importance of getting in new management with
a new perspective, but also stresses that it is important to recruit
managers who are known to the owners and to motivate them. We
have indicated earlier that turning around an underperforming
business requires decisive actions to reassure external stakeholders.
This usually involves cost cutting and redundancies among staff. Very
often too, outside investors will insist on a change of leadership to
indicate a clear new direction and restore their faith in the
organization. For an entrepreneurial organization this inevitably
will mean the entrepreneur whose
idea the business was and who built it from scratch will either have
to take a back seat or be removed completely from the business.
The difficult decisions in a turnaround strategy are often portrayed as
being cost cutting. A new chief executive is appointed at the crisis point
specifically to turn around a business, and to undertake cost cutting, by
sacking staff, because this has short-term financial benefits. Often, how-
ever, the actual short-term costs are increased given the cost of
redundancy. Moreover, the removal of key staff often results in
the loss of essential knowledge and expertise with the effect that
rebuilding the organization can take much longer. Such actions
change the culture of the entrepreneurial organization and it loses its
original identity and values. Indeed a number of organizations that
underperform following a period of extraordinary success find it
extremely difficult to substantially improve their position for many years
and many never recover at all.
To avoid this, first it is necessary for the entrepreneurial organiza-
tion to react quickly and decisively to the early signs of underper-
formance as this can avoid the need for more substantial change later.
Entrepreneurs that have weak management capability themselves
need to establish a professional team, quickly learn to delegate tasks to
it and leave it to run the day-to-day business.
Businesses in trouble are a potential opportunity for
entrepreneurs but Ullmann (2000: 337) warns of the difficulty of
assessing potential companies for turnaround because of the
difficulty of obtaining reliable information, especially in the case of
firms that are in receivership, as the receiver has few obligations to
potential buyers.
Fast growth, niche strategies and service

A few organizations grow quickly to become large organizations.
Some achieve spectacular growth from day 1, while others start with
modest growth then suddenly accelerate fast, because of some critical
incident. Successful organizations focus on the areas of activity that are
the most important and become expert in them, as shown in Figure
12.6. There is little point in over-investing in activities that are
unimportant for the organization’s future, even if the organization
performs well doing them. Successful organizations maintain their
efforts in areas that are important, where they are doing well, and
concentrate their efforts by using
their resources for the high importance, low performance activities.
It is important to focus, too, on those activities that will deliver the
best reward for the risk involved, but it may be that the portfolio will
need to be balanced and include activities with different levels of reward
and risk
Performance
Low High
Concentrate efforts and resources

Maintain current efforts
High
Importance
Low priority – normally reallocate resources

Beware of possible over-
Low investment
Figure 12.6
Performance–
importance matrix.
Likelihood of project success

Easy
Bread and butter Pearls
Expected reward
Low High
White elephants Oysters
Difficult
Figure 12.7
Source: Goffin and Mitchell (2005: 213)
Risk and reward
matrix.
(Goffin and Mitchell, 2005: 213). The risk and reward matrix is shown
in Figure 12.7. Bread and butter activities ensure that the fixed costs
are covered; pearls are the current profit earners; oysters are the
hidden or future profit earners; and white elephants are a drain on
resources.
Niche strategies
Many small entrepreneurial organizations aim to maximize the value
they obtain from their resources by concentrating their efforts on
supplying
one main target customer segment and offering a very limited range
of products and services that will suit the segment’s requirements. In
addition a small number of these start ups manage to achieve
spectacular growth and, for example, the Sunday Times produces an
annual league table of the UK’s fastest-growth organizations and runs a
website that provides more information on the characteristics and
good practice lessons of the firms that achieve fast growth.
While not all fast-growth organizations can be described as using
niche strategies, many do. The characteristics of an organization
that operates a niche strategy are that they:
■ focus on one particular customer segment and a limited
range of products and services to service the niche;
■ make sure the niche or segment is recognizable to end
users and distributors;
■ build barriers to entry for a mass market competitor;
■ make sure the niche product or service is distinctive;
■ make sure it appeals strongly to a particular segment of
consumers;
■ define clearly the basis of the organization’s competitive
advantage;
■ aim for premium price positioning for the product and to
certainly be above average pricing in the market.
Many niche marketing organizations are pioneers that have subseg-
mented an existing market to create their own small niche. By focusing
all their activities on one customer segment and one niche they gain
a reputation among their loyal customers and recognition among
potential customers who know exactly what they do. In Spotlight
12.1 it is shown how Tie Rack started and developed its business.
Spotlight 12.1
y tight, in the same way that Amazon started by selling books to the customer segment that was prepared to buy online; a
they choose to grow their business. In contrast to Amazon and McDonalds, Tie Rack has maintained a relatively niche oper
becoming the world’s leading accessory retailer and so the definition of its niche has broadened somewhat. Tie R
Source:
Question: What growth options are there for a niche retailer and what are the advantages and disadvantages of
Both Amazon and McDonalds have broadened their business from

their original niches to supply mass market customers on the back
of their originally innovative business models.
The key to growing niche business is to build greater
competitive advantage and prevent the niche business becoming an
easy target for competitors. The most obvious ways of doing this are by
making choices between the alternative generic strategies proposed by
Porter (1985):
■ Focus: this strategy moves away from the origins of a limited
range of products towards offering a complete service for the
one or two target segments.
■ Differentiation: the aim here is to further differentiate the
product and service, and to tailor it more to the needs of the
segment in order to add customer value, but this needs to
be done without increasing cost, which might encourage
competition. The dangers are increasing the portfolio and
dissipat- ing the limited resources and effort.
■ Cost: reducing the cost of the operations either allows more
profit to be made or the price of the products and
services for the target segment to be reduced. Cost
reduction can increase the loyalty of the segment, but not if
further differentiation and additional customer value is
lost.
Cost reduction must be a continual goal of entrepreneurial organiza-
tions. The most significant benefits derive from:
■ economies of scale, whereby the existing fixed assets are used
to generate a larger volume of activities as the organization
grows, the fixed costs so becoming a smaller proportion of
the cost of each product or service sold; and
■ the experience effect, whereby the cumulative experience of
the same business process reduces cost (the more times it
is carried out the more efficiently it will be carried out),
Cost of performing the same operation
No. of times the same operation is performed

Figure 12.8
The learning curve.
Lower cost
Experience curve effect Economies of scale
Lower price
Cumulative sales Increased output
Figure 12.9 Increased demand

Virtuous circle of
cost and price.
Figures 12.9 and 12.10 (p. 416) show two alternative approaches to cost
reduction, first using it to operate a low-price strategy, and second,
using the lower cost to generate a higher margin to invest in a focus
or differentiation strategy.
Fast growth strategies

The advantage of a niche strategy is that it enables the organization to
focus on one customer segment and gain insights into the customer
Better value Higher demand
More customer satisfaction

Premium price
More efficient operations
New technology Marketing and sales Higher margin
Increased investment
Figure 12.10
Virtuous circle of
value and margin.
needs, beliefs and perceptions of value. By focusing, the niche oper-

ator can become expert on every aspect of the development, delivery
and supplier management of a few products and services. This focus
enables the niche operator to build competitive advantage in its own
defined niche and should lead to fast growth.
The way that organizations achieve fast growth is by having an effect-
ive, well thought out and focused strategy, being customer-led and,
because they are well-managed, being not only efficient but also innova-
tive throughout the organization. The reasons why organizations achieve
fast growth (Wilson and Gilligan, 2004) are because:
■ they offer a product or service that they can demonstrate is
superior to the alternatives;
■ the customer perception is that the offering is better than that
of the competitors, because of its functional and/or emo-
tional appeal expressed through the brand;
■ they have global skills and competencies, and learn faster than
their competitors, and so are able to develop new markets;
■ they have greater assets and resources focused in the key areas
that will deliver competitive advantage;
■ they exploit legal advantages over competitors, wherever
possible, for example by defending intellectual property;
■ they routinely build stakeholder value and quality advantages;
■ by focusing their operations they build scale economies and
obtain experience curve benefits, so operating on a lower
cost base;
■ by identifying and concentrating on the most important busi-
ness connections they build better relationships with key stake-
holders; and
■ they exhibit positive leadership and encourage a confident
approach to management in the organization.
Bernie Ecclestone (see Enterprise in Action 12.6) showed how the
effective development of a niche strategy, erecting substantial barriers
to entry and adopting a well-thought-out negotiating stance proved
to be extremely rewarding.

Bernie Ecclestone: entrepreneur behind Formula 1
Since the 1970s Bernie Ecclestone has dominated Formula 1 (F1) racing, making it a
globally watched sport supported by most of the top names in the car industry. Some years
after leaving school he started a business trading motorcycle parts, and raced motorcycles
until he had an accident at Brands Hatch. He left racing to make a number of lucrative real
estate deals before returning to manage racing drivers. In 1972 Ecclestone purchased the
Brabham racing team and began his campaign for the racing teams to control F1. In 1978
he became chief executive of the Formula One Constructors Association and negotiated a
television rights deal that gave 47 per cent of the revenues to the teams, 30 per cent to the
FIA (the world governing body of motor sport) and 23 per cent to himself in return for
putting up the prize money. Through a series of negotiations Ecclestone has managed to
maintain his rights to TV revenues and also to manage the administration, set up and
logistics of each Formula One Grand Prix.
His shrewd planning, management and negotiation placed him eighth on the 2004 Sunday
Times rich list with an estimated personal wealth of £2343 m.
Source: Bernie Ecclestone, www.en.wikipedia.org on 12 July 2005
Question: What is it that enables an entrepreneur to dominate a niche market?
Ecclestone and other successful entrepreneurs demonstrate the valid-

ity of Hamel and Prahalad’s (1994) view that successful
organizations free themselves from the constrictions of accepted
business wisdom by breaking free from:
■ the latest management tools;

■ industry dogma;
■ industry rules; and
■ a limited mindset.
The importance of service
One of the characteristics that is common to the majority of
successful entrepreneurial organizations is the focus on customer
service. In situations where the entrepreneurial organization is
competing with larger, better-resourced and more powerful rivals,
especially in commodity markets, the only competitive advantage that
the entrepreneurial organization has is to deliver efficient,
personalized service. In Spotlight 12.2 it is shown how a small
competitor is competing in the toughest part of a commodity market.
Spotlight 12.2
Beatson Clark: shipping air with service

Beatson Clark manufacture glass containers for the pharmaceutical, food and drinks industries. It is a highly com-
petitive market and virtually all countries have their own indigenous producers, given the fact that the materials
to make glass are inexpensive and shipping costs are high; you are shipping a lot of air in the empty bottles, too!
It is perhaps surprising therefore to learn that Beatson Clark export to over 100 countries. They have
developed a very effective niche business by focusing on low-volume small bottles, which tend to be an
irritation
for large producers. Beatson Clark have become expert in their chosen niche by:
■ offering a design service;

■ focusing on quality throughout the organization;
■ building close relationships with trusted distributors and customers – sometimes they are in contact 10–15
times a day;
■ having a dedicated team for the safe movement and delivery of the bottles, which can be problematic; and
■ monitoring all aspects of the business, including performance on every aspect of customer service.
Source: Isobel Doole
Question: Identify the requirements for a niche entrepreneurial organization.
omparing strategies for entrepreneurial and bureaucratic organization
It is not our intention here to discuss generic strategy at length and, at

the end of this chapter, we have directed the reader to texts that discuss
both administrative and entrepreneurial strategies. However, it is use-
ful to draw attention to the different objectives and approaches of
larger organizations, both because these organizations can be competi-
tors to many entrepreneurial organizations and because the most suc-
cessful entrepreneurial organizations can themselves become large
administratively managed enterprises.
The majority of sectors are now dominated by large, mature and
powerful organizations. The strategy of many large, bureaucratic
organizations is to use their competitive market power to
dominate their business sector by providing their large, loyal
customer base with well- established products and services. Their
huge scope and resources, tried and tested activities, processes and
systems, and modest innovations enable them to deliver customer
satisfaction. However, because their income streams are substantial
and predictable they can become complacent and even arrogant,
often unwilling to change a ‘winning’ formula unless there is clear
evidence of a decline in customer demand. Very often these more
bureaucratic organizations become very internally focused on the
efficient use and control of their resources – particularly the
management structures and responsibilities – and develop very
formal, lengthy and inflexible planning and decision-making. Such
firms can become vulnerable to environmental changes and the
more entrepreneurial firms that exploit the opportunities result from
these
environmental changes.
In practice, the changes occur continually in all areas of the business
environment and internal operations that require an immediate stra-
tegic response. Larger entrepreneurial organizations are more
strategically proactive, particularly in faster-changing markets; they
adopt a more interactive strategy development approach, in which
their ability to respond to changes is inbuilt, by developing real-time
information systems and encouraging all lower levels of
management to be more entrepreneurial, enabling them to take even
quite significant decisions in the specific function area or strategic
business unit.
In fact many large organizations state that they need to become
more like small entrepreneurial organizations and adopt their
strategies, by encouraging entrepreneurship and adopting innovation
as an essential component of their culture. They try to avoid a
‘blame’ culture and instead ensure that individuals in the organization
who have the courage to innovate and take risks are not blamed for
failures.
Sustaining and building competitive advantage
Businesses are dynamic and always evolving and in order to survive and
grow in an increasingly globally competitive market the
entrepreneurial organization must decide the basis on which it will
compete in the market now and in the future. Boston Consulting
Group’s annual report for 1982 explains that in the real world of
business competition
each survivor is uniquely superior to all others in some significant way,
no matter how subtle the difference. Unless the competitor
dominates his unique niche his life cycle will be very short.
Because there are many combinations of customer characteristics and
requirements, costs structures, supply chains, management processes,
etc., each competitor must defend its chosen niche against many
other competitors that have also defined their own unique niche. Of
course, to create a successful niche market the entrepreneurial
organization must find sufficient customers that will value the business
proposition offered. In practice, markets and the basis of competitive
advantage change. For example, in the car industry the winners in the
1970s and 1980s were Japanese manufacturers making high quality
mass-market cars that were durable and reliable. During the 1990s it
was the turn of well-designed cars to fill a niche and these were
marketed well. Apart from Toyota, many of the Japanese
manufacturers fared badly. In the early part of the new millennium it is
prestige niche market cars, such as BMW, niche entrepreneurial
organizations, such as component makers, designers and service
providers and those manufacturers that have offered consistently high
quality, well designed cars, with a well managed supply chain, such as
Toyota, that have been the winners. The traditional mass market US car
makers, such as Ford and GM, have too much production capacity
and too high a cost base and are struggling to survive.
Sources of competitive advantage

Wilson and Gilligan (2004) suggest that the main sources of competi-
tive advantage for organizations operating in any sector are as follows.
1. a superior product benefit;

2. a perceived advantage, through imagery and effective
communication;
3. low-cost operations;
4. legal advantage because of patents, copyright or a protected
position;
5. superior contacts and closer relationships;
6. superior knowledge of customers, markets, science or tech-
nology, and the current and potential competition;
7. scale advantages;
8. offensive attitudes, competitive toughness and a determina-
tion to win.
The small size, limited resources and lack of power and influence in
the market mean that there are only a limited number of areas
wherein entrepreneurial organizations can build competitive advantage,
principally points 1, 5, 6 and 8.
Building competitive advantage

Over time the sources of competitive advantage are likely to be
eroded as competitors offer alternative products and services, and
entrepreneurial organizations must continually work to build new
sources of competitive advantage. Given the increasing ability of
competitors from around the world to copy, undercut costs, generate
alternative products and undertake intensive marketing and selling
activity, the entrepreneurial organization must build competitive
advantage that strengthens its niche market position but also builds
into the organization the flexibility to deal with a changing market
situation. It can do this through:
■ improved market effectiveness;

■ improved operational efficiency and cost reductions;
■ encouraging and supporting innovations that will add cus-
tomer value;
■ creating intangible assets, such as company reputation, brand
identity and intellectual property;
■ learning new and more effective ways of running the business
through building staff and management skills, knowledge and
capability.
Competitive advantage through adding stakeholder value

Underpinning the whole concept of competitive advantage are
two principal considerations that the entrepreneurial organization
must continually address:
■ the need to focus on value-creating activities throughout the

organization for all stakeholders, but particularly customers;
■ the need to remove unnecessary costs in the organization by
periodic re-evaluation of the internal and external value
chain.
Politically inspired innovations, such as that discussed in Pause and
Reflect 12.1, need to demonstrate value added if the entrepreneurial
organization is to become a major, sustainable organization.

NHS Direct – good health a phone call away
A number of innovations in primary care treatment have been introduced in the UK. The idea for NHS Direct, a
24-hour, nurse-led telephone advice and information service, was announced in the 1997 White Paper The New
NHS, modern, dependable. Three months later, NHS Direct was established, at three pilot sites to provide ‘easier
and faster advice and information for people about health, illness and the NHS’ so that they could manage many
of their problems at home or know where to turn to for appropriate care. The intention was also to improve
quality, increase cost-effectiveness and reduce unnecessary demand on other NHS services. The services were
provided by telephone and text, and online. Another of the innovations provides a walk-in service.
The website was set up quickly without a proper understanding of user needs in detail but, following a survey
of such needs, the website had to be extensively revised in 2001. Later research questioned the real impact of the
new service and suggested that it was being used by the same people who already make use of existing health
services, the white, healthy middle class and was underused by older people. There was also a suggestion that
improving access in this way could be expensive without resulting in significant reductions in the use of other
primary care services.
Adapted from: Nicholas D., Huntington P., Williams P. and Jordan M. (2002) NHS Direct Online: its users
and their concerns. Journal of Information Science 28(4): 305–319; Chapman J., Zechel A., Carter Y. and
Abbott S. (2004) Systematic review of recent innovations in service provision to improve access to primary
care. British Journal of General Practitioners 54: 374–381; and NHS Direct Online at www.nhsdirect.nhs.uk
Question: Are these simply early problems that are to be expected as the organization grows or is there a more
fundamental difficulty with politically driven innovation?
Treacy and Wiersema (1995) have explained the value disciplines

that underpin the creation of a value proposition for customers.
For an entrepreneurial organization this has to be done against a
background of limited resources. They are:
Operational excellence: The organization should limit the operations it
undertakes itself to those in which it can or should achieve excellence.
These should be core and essential to the organization’s success.
Product leadership: The products and services for which the organiza-
tion is known must lead those of the competitors in their own
particular niche. However, the basis of the leadership, such as
being technically advanced, has to be relevant and essential to the
customer requirements.
Customer intimacy: Having deep customer insights enables the organi-
zation to prioritize its innovation in order to improve its offerings in
areas that will prove to be of real value for customers. Customer service
is where entrepreneurial organizations have the opportunity to excel.
Brand leadership: In general, customers want to obtain products and
services from organizations that have a strong reputation and brands.
They feel more secure. Conventional brand building is expensive but
many entrepreneurial organizations, such as Body Shop, Apple and
Virgin initially built their reputations by word of mouth.
Value-based marketing Doyle (2000) explains four steps which are the
cornerstones to building value that will ultimately deliver competitive
advantage:
1. the development of a deep understanding of customer

needs, operating procedures and decision-making processes;
2. the formulation of value propositions that meet the needs of
customers and create a differential advantage;
3. building long-term relationships with customers so that a level
of loyalty and trust is built based on satisfaction and confi-
dence in the supplier;
4. an understanding that the delivery of superior value to cus-
tomers requires superior knowledge, skills, systems and mar-
keting assets.
Competitive advantage through learning

Many entrepreneurial organizations adopt a traditional pattern for
growing their business by using the easily identified, tangible assets
of their business and carrying out and controlling many of the
operational activities themselves. Indeed, entrepreneurial
organizations are mainly valued by their tangible assets, such as
facilities and equipment, and resources, such as finances and staff.
However, for many entrepreneurial organizations, particularly those
from developed countries, high labour costs will increasingly prohibit
them from carrying out many of these operational tasks in-house, with
the result that their most valuable assets will not be these physical
assets.
The emergence of the information age has meant that tangible
assets represent an increasingly small proportion of the total market
value of the largest organizations. For example, Doyle (2000)
observes that the ratio of the market value to book value of the
Fortune 500 averaged 8, implying that tangible assets represent only
12 per cent of the organization’s total assets. So entrepreneurs might
reflect on whether this offers a lesson for the future development of
entrepreneurial organizations and whether creating and extracting
value from intangible assets might
Table 12.1
Asset types and their characteristics in the resource-based firm
Types of assets Characteristics

Reputational assets ■ Name of the company and brands that convey the
reputation of its products and services and fair
dealings with stakeholders
Strategic assets ■ Licenses, natural monopolies or other privileges
that restrict competition
Technological assets and ■ Proprietary technology in the form of patents,
the capacity to innovate copyrights and trade secrets or special know-how
in the application of technology
Human resources ■ Skills and adaptability of employees
Organization and culture ■ Values and social norms that shape the
commitment and loyalty of employees
■ The architecture of the organization that
enables decision-making, knowledge transfer
and service delivery
be a way of further adding value and building competitive advantage

in the future.
There are five types of assets and the characteristics of these are
shown in more detail in Table 12.1.
If the reader takes time to consider the process of building
competitive advantage by focusing on creating and extracting
value from intangible assets it becomes clear that the particular
knowledge, skills and attitudes of entrepreneurs can be used to full
effect.
Most importantly, however, it is entrepreneurial learning as a core
competence that underpins successful entrepreneurial growth strat-
egies. Success is a result of the early appreciation of the signals from
the environment; recognition of the potential opportunities and
threats; reflection on the implications for the organization of
responding to these challenges; and questioning the underlying
assumptions about the most appropriate response before forming
conclusions about the best way forward. Then all that has to be
done is to implement these themes before the competition does!
This returns us to the learning spiral described by Doole and
Lowe (2005: 42). As the entrepreneurial organization gains and
sustains competitive advantage, it uses its learning experiences to
inform and challenge perceptions and so is able to more effectively
manage the interplay between the strategies of the organization and its
environment.
In doing so, the organization’s aspirations in terms of
development and growth also make a step change. The perception of
barriers changes, and the organization is able to build the capability
to maintain advantage even when faced with hostile challenges.
Summary
■ All entrepreneurial organizations should have some kind of
strategy to draw together their long-term vision, aims and
objectives.
■ Strategies in entrepreneurial organizations are needed for
the various stages of development, from start up to
consolidating growth to becoming an entrepreneurial, large
organization.
■ Turnaround strategies are also needed for times when an
existing strategy fails to deal with changes in the environment
and downturns in demand.
■ There are significant barriers to be overcome in the pursuit
of growth, but entrepreneurial organizations can develop
niche strategies to achieve fast growth.
■ A key part of the strategy for entrepreneurial organizations
is to define their future source of competitive advantage.
Increasingly this will be founded not on tangible assets but on
their reputation, resources and the learning capability of staff.
Chapter questions
1. Define the stages of entrepreneurial organization develop-
ment and explain the key skills that are required to
successfully manage each stage.
2. What do you consider to be the characteristics of a fast-growth
organization? What prevents many large organizations achiev-
ing above average performance?
3. A significant number of organizations achieve fast growth
for short periods especially after start up but many of them fail
to maintain growth rates. Why do you think this is?
4. What advantages and disadvantages do periods of
consolidation have for the entrepreneur and the
entrepreneurial organization?
5. Why are many owner managers not interested in growing
their businesses?
Case study
Jokers wild!
Question: How can you be certain of making a profit out of playing poker?
Answer: Make a business out of producing the playing cards.
By the 1990s the future for small independent printers was bleak. Changes in technology and in buyer
behaviour, increased global competition, and volatile raw material prices led to oversupply in print
and wafer-thin margins, and the intense competition resulted in many business failures.
For entrepreneur David Moger, founder and MD of Richard Edward Ltd, the futility of winning
business only to cover marginal costs was obvious – he boldly refused to actively participate in the
com- moditization of the market. He took a bold step – while others were seeking an exit strategy
from the industry he invested heavily in new equipment that would enable his firm to develop what
today is a strong position in a niche market – producing playing cards.
This strategic move into the card market was brave and insightful. It sounds easy . . . It wasn’t. The
strategic move was instinctive and would prove to be right, but the investment further burdened
the business with debt. The company was traditional in culture and product-focused. Personal
selling and relationships between the directors and key figures in the card market enabled the firm
to steadily increase its share of this new market. But despite this there were four years (from 1999
to 2003) of losses and continued survival was dependent, not on the company working harder and
following the traditional business model and approaches, but working smarter.
The directors were worn out by the constant battle for survival – managing the cash flow in such
tight conditions is a full-time occupation. Finding new approaches to doing business – even the
notion of marketing – was not something there was time or appetite for. Reducing average costs was
critical to a more solid foundation, either through improved cost control or building volume to
increase utilization of the plant. The watershed came in the form of the next generation. Moger’s
daughter, Louisa, with a background in telesales for the media and returning from a year out travelling,
offered to help. She identified external sources of help, and a number of initiatives supported by
the LDA (London Development Agency) were negotiated and implemented. The first introduced
lean manufacturing to the business, helping to identify and eradicate waste and improve efficiency.
This initiative represented a watershed in the company’s fortunes and provided a more stable
corporate base from which the business could continue to consolidate and then grow to become a
profitable business.
Sceptical senior management had seen enough to arouse their interest in some of these change
agendas. The drive to improve efficiency needed to continue but it was clear that this required
sup- plementation by actions which would both maximize and leverage the firm’s potential
competitive advantage. The LDA’s supply chain project came at the perfect time for Richard Edward as
it provided access to the external skills that ensured the momentum for change was maintained and
the necessary extra ‘management time’ could be imported to help see through the change process.
Detailed analysis of the external market led to the prioritization of segments and a more struc-
tured approach to business development. A differentiated offer for various segments of the market
ensured that there were key account management for major clients in the games and corporate
print markets but online ordering for the local bridge club, too. Sales activity was more effectively
aligned against clear targets providing focus, a reallocation of effort and better management
metrics.
There is plenty of evidence for the change and a more positive outlook for the future of the
business. A redecorated reception area, a new improved website
w w w . r i c h a r d e d w a r d . c o . u k and refreshed
branding thanks to the help given by the Design Council has enabled the company to showcase its high- q
Founder David Moger is now Chairman of the company and daughter Louisa is Marketing and Sales Direc
Source: Angela Hatton
Questions
What were the internal and external reasons for the original strategy failing?
What were the critical factors in making the turnaround strategy work?
Identify the lessons in good practice for entrepreneurs in this case.
ggested further reading on generic strategy development and evaluati
Johnson G., Scholes K. and Whittington R. (2005) Exploring Corporate Strategy

[text and cases], 7th edn. Harlow: Financial Times Prentice Hall.
Mintzberg H., Lampel J., Quinn J.B. and Ghoshal S. (2003) The Strategy
Process: Concepts, Contexts, Cases, 4th edn., Harlow: Pearson Education.

Barrow C., Burke G., Molian D. and Brown R. (2005) Enterprise Development,
Thomson.
Bolton B. and Thompson J. (2003) The Entrepreneur in Focus: Achieve Your Potential.
London: Thomson Learning.
Chowdhury S.D. and Lang J.R. (1993) Crisis, decline and turnaround: a test of
competing hypotheses for short term performance improvements in
small firms. Journal of Small Business Management, October 1993.
Education Ltd.
Crainer S. and Dearlove D. (2001) Firestarters. Harlow: Pearson Education
Ltd. Davidson H. (2002) The Committed Enterprise. Oxford: Butterworth-
Heinemann. Doole I. and Lowe R. (2005) Strategic Marketing Decisions in
Global Markets.
London: Thomson Learning.
Doyle P. and Bridgewater S. (1998) Innovation in Marketing. Oxford:
Butterworth- Heinemann.
Doyle P. (2000) Value-based Marketing: Marketing Strategies for Corporate Growth
and Shareholder Value. Chichester: John Wiley.
Drucker P.F. (1985) Innovation and Entrepreneurship. Oxford: Heinemann.
Drucker P. (1999) Innovation and Entrepreneurship: Practice and Principles.
Oxford:
Butterworth-Heinemann.
Goffin K. and Mitchell R. (2005) Innovation Management. Palgrave: Macmillan.
Greiner L. (1972) Evolution and revolution as organizations grow. Harvard
Business Review, July–August.
Hall G. (1995) Surviving and Prospering in the Small Firms Sector. London:
Routledge.
Kano C. and Rao R.M. (1995) New management secrets from Japan. Fortune
Magazine, 27 November, pp. 45–52.
Kao J. (1989) Entrepreneurship, Creativity and Organization. Englewood Cliffs NJ:
Prentice Hall.
Kaplan J.M. (2003) Patterns of Entrepreneurship. Hoboken NJ: John Wiley and Sons.
Mintzberg H., Lampel J., Quinn J.B. and Ghoshall S. (2003) The Strategy Process:
Concepts, Contexts, Cases. Harlow: Prentice Hall.
Porter M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Perfor-
mance. New York: The Free Press.
Storey D.J. (1994) Understanding the Small Business Sector. London: Routledge.
Treacy M. and Wiersema F. (1995) The Discipline of Market Leaders. London:
HarperCollins.
Ullmann M. (2000) Routes to a successful turnaround. In: S. Birley and
Hall.
Wilson R.M.S. and Gilligan C.T. (2004) Strategic Marketing Management:
Planning, Implementation and Control, 3rd edn. Oxford: Butterworth-
Heinemann.
Key words
barriers to growth fast growth
brand leadership operational excellence
commitment to change product leadership
competitive advantage strategic positioning
consolidate strategy
crises of management turnaround
customer intimacy underperformance
emergent strategies value-based marketing
exit
Integrated
personal
development
activity
Introduction
In the third part of the book we discussed the actions that entrepreneurs
undertake to commercialize an idea and create a sustainable
organization. The purpose of this integrated learning activity is to
help the reader to reflect on the knowledge, skills and attitudes that
are required to set up and manage an entrepreneurial organization
during its early stages. The task for the reader is to identify the
range of actions that are needed to establish an idea in the
market environment or achieve a turnaround in an
underperforming but potentially entrepreneurial organization,
anticipate the potential barriers to achieving these outcomes and
deal with the crises that might affect the organization’s long- term
future. In doing this the reader is required to identify the process
elements of entrepreneurship and the actions and decisions that are
needed for the process to be successful, and then reflect on their
own entrepreneurial capabilities by assessing the degree to which their
own knowledge, skills and attitudes would enable them to successfully
start
up or turn around a potentially entrepreneurial organization.
Learning objectives
■ identify the steps and decisions needed in the process of com-
mercializing a new idea or achieving a turnaround in an
underperforming organization by taking an entrepreneurial
approach;
0 on
■ reflect on how the entrepreneur’s personal knowledge, skills
and attitudes impact on the steps and decisions needed.
The task
Choose either:
A. a possible new venture (based on a new innovation of a
product or service) that could be created with the
potential for growth; or
B. an existing organization, where there is a need for
‘reinvention’ of the organization, so that it might grow faster
and improve upon its present performance. The
organization might be underperforming against what could
be achieved in the market, or there could be potential for
substantial growth in a new market area.
As the basis for your project you should use an organization of your
choice or, alternatively, one of the scenarios discussed in the book.
Your tasks are to:
1. explain the actions that will establish a sustainable venture for
(A) or a step change in performance for (B). It is important
to explain the innovative and entrepreneurial approaches
that you would recommend and not simply to include a gen-
eral market analysis and generic business strategy;
2. identify the challenges and barriers that you anticipate
could face the entrepreneur and the critical management
success factors for success in the project; and finally
3. reflect on the knowledge, skills and attitudes that are
needed by an entrepreneur to effectively carry out the
commercialization activity.
The scenarios
We have provided throughout the book a number of scenarios of
organizations in different contexts that are insufficient on their own
to provide you with the information that is required to carry out the
task. You will, therefore, have to carry out research and information
collection similar to that which you would have needed to do had
you selected a company yourself.
Getting started
In order to get you started on the first two tasks that have been set, we
include some suggestions based on Chapters 9–12 in Part III. To carry
out task 3 we have included some suggestions as to how you might util-
ize the learning from Parts I and II of the book.
To start you need to consider some basic questions, such as:
■ What needs to be done?

■ Who needs to do it?
■ Where does it need to be done?
■ Why does it need to be done?
■ When does it need to be done?
■ How does it need to be done?
Task 1: Actions to establish a sustainable

entrepreneurial organization
In this first task it is useful first to check how many of the various elem-
ents in Chapters 9–12 are relevant to the organization and its situation
that you have chosen. However, be careful not to dismiss areas without
considering their implications. For example, in the turnaround of an
existing underperforming business some elements of Chapter 9 con-
cerning the identification of opportunities may still be important, as
they may prompt you to develop a solution that is more innovative than
simply doing ‘more of the same’ rather more efficiently, which might
be the administrative rather than entrepreneurial management way
of dealing with the problem. Equally, for a start up you should be
thinking of the growth challenges once it has been established, as
some of the later barriers can be anticipated and dealt with very
early in the life of the organization.
To make it easier to refer to the chapters, we have presented our sug-
gestions in what we hope is a reasonably logical format. However, we do
realize that much of entrepreneurship is about challenging the norm
and so you may carry out the task using a different sequence of actions.
This is quite acceptable, provided, of course, that the final outcome
represents a convincing and comprehensive approach.
To make your answer convincing it is necessary to focus on an entre-
preneurial approach and include innovative actions wherever possible.
However, they must be realistic too so, for example, increasing customer
awareness will need to be done within the limits of the organization’s
financial situation. For an organization with little money, creative news
stories that will be picked up by the media and spread ‘for free’ will be
more realistic than paid-for advertising.
In Table 1 below we have identified a series of actions and referred
to the sections in the chapters that provide some ideas. The following
list is not meant to be comprehensive as it will change according to the
context for the task and organizational situation.
Table 1
Task 1 questions
Some actions Chapter

Challenging the industry assumptions 9
Define the market opportunity for which the organization could 9 and 11
obtain the resources to exploit
Identify and quantify target customer segment 10
Define business model 10
Carry out feasibility study 10
Plan for investors 10
Decide on organization form, premises and legal requirements 11
Decide on amount and type of investment required 11
Overcome growth barriers 12
Strategic positioning 12
Task 2: Anticipating and dealing with the

challenges and barriers
In the course of carrying out the actions to develop a new organization
start up or to achieve a turnaround in the performance of an existing
organization obstacles inevitably arise that, if not dealt with, will pre-
vent the entrepreneurial approach from working. There are two
approaches to dealing with challenges and barriers that arise: wait
until a crisis occurs and then rush around to sort out the problem; or
anticipate the potential problems and try to plan them out.
In carrying out this task it is necessary to recognize that giving equal
importance to every potential problem that might be encountered
would make management an impossible task. There is little point in
trying to plan for unlikely events. Indeed some argue ‘analysis equals
paralysis’.
The entrepreneur’s available time is very limited, so allocating it
equally to everything that could go wrong is wasteful. While we
would caution against wasting time on endless analysis we do believe
that successful entrepreneurs anticipate and highlight the most
important potential challenges and barriers and focus on actions and
key decisions that are needed to overcome them. That is what is required
in this task.
In Table 2 we have included a number of questions that indicate
some of the common problems and barriers that occur and
commented on some of the actions that might be taken to counter
them. Again the solution to these problems should be innovative
and you should consider some of the lessons learned from the
experience of other organizations. Some examples of these innovative
solutions are included in the chapter Spotlights. The barriers and
challenges will differ considerably from situation to situation and our
list is given simply to start you thinking of what might or could go
wrong for your chosen organization.
Table 2
Some barriers and challenges
Some barriers/challenges Possible issues

What is the most vulnerable part of Rapidly changing technology, economic
the organization externally? cycle, legislation changes
What is the most vulnerable part Undercapitalized; cash flow management;
of the organization internally? IT system; skills weaknesses
What might stop customers responding Are we doing enough to: understand
positively to the new ‘offer’? their requirements; raise awareness;
explain the benefits; make the offer
distinctive
How might competitors respond if we Keep a low market profile with modest
are starting to appear successful, and growth until the organization is operating
what could we do? efficiently and can withstand a competitor
attack
Task 3: The knowledge, skills and attitudes of

commercialization
In tasks 1 and 2 you will have identified the what, who, where, when,
why and how of the actions that are needed. If you have addressed the
tasks in an entrepreneurial way you will have included some innovative
ideas in a number of these areas, for example, in what you are
proposing, and where and how you will carry it out. In this last task it
is necessary
to take a step back and think about how the entrepreneur (and
you, too):
■ comes up with innovative solutions;

■ chooses the particular area to focus upon;
■ knows which industry assumptions to challenge.
To do this it is necessary to review what mindset and capabilities the

entrepreneur must have or develop to exploit opportunities in a more
innovative way. In reading this book and carrying out the tasks included
within it you should have become more sensitized to and aware of
the different knowledge, skills and attitudes of entrepreneurship. In
carrying out the series of tasks in this integrated learning activity you
should reflect on, first, what is required of the entrepreneur to
complete the actions effectively and second, which areas you feel you
have or could develop expertise in. In the areas that you have no
interest in developing capability in yourself, you should think
perhaps about how you would delegate these tasks and how you
would create a team that includes members with knowledge, skills
and attitudes that complement your own, so that between you there is
a complete set that you consider necessary to develop a sustainable
organization. You should also consider which areas of
entrepreneurship do not appeal to you or do not fit with your
personality, ambitions, values and beliefs at the moment.
In thinking about these issues it is not enough to carry out a super-
ficial evaluation of everything that you can think of that will result in
Table 3
Areas for consideration
Knowledge Skills Attitudes
Ideal for an entrepreneur in this situation
Concepts, their application and evaluation in this context
Your beliefs and values and contributions
The team members need to make the following complementary contributions
Your assessment of yourself
Gaps that would need to be filled by the entrepreneurial team

you having thirty or forty areas of future actions, possible
unresolved thoughts and dilemmas. You need to think deeply about a
few areas of priority that are of interest to you, where you can gain
some real insights into good and bad practice and learn a few valuable
lessons.
To assist in carrying out this last task, in Table 3 we include some
areas for consideration.
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Index
Abbot, C., 216 divergent, 79

Action factors see Entrepreneurs, actions; convergent, 79
see also Entrepreneurial management marketing and operational, 79–80
Ahmed, P.K., 127 Bribery and corruption, 265
Allen, J.L., 71 Brown, R., 292, 301, 309, 360, 404
Alreck, P., 192 Bucar, B., 217
Anderson P., 75, 83 Burke, G., 292, 301, 309, 360, 404
Ansoff, I.H., 287 Business angels, 371
Argyris, C., 123 see also Finance, sources of
Attitude, 104–6 Business case, 321
Austrian school, 6–7 Business model, 321, 323–5
breakpoints, 326
Barker, S., 270 design of, 325–31
Baron, R.A., 54, 83, 295, 301, 334, 342, 343, market factors, 325–7
358, 365, 376 organizational issues, 328–9
Barrington, R., 216 personality and cultural issues, 329–30
Barrow, C., 292, 301, 309, 360, 404 Business plan, 340–50
Basu, A., 150 components of, 341–2, 346–7
Beck, T., 24, 257 critical success factors, 342–3
Besant, J., 65, 71, 93, 97, 98 uses of, 341, 347–50
Birley, S., 26, 370, 386 Business proposition, 320–21
Bolderson, C., 255, 256
Bolton, B., 40, 51, 52, 65, 105, 236, 237, 238, Cannon, T., 143
292, 293, 369, 383, 400, 401, 402, 403 Carter, S., 39, 143, 375, 376
Booz, E.G., 71 Cartwright, S., 375
Brand leadership, 423 Cash crops, 256–7
Break-even, 378–85 Casson, M., 56, 57, 58
Breakpoints: Chaebol, 249
industry, 79 Chaffee, D., 195
43 Index
8
Challenging assumptions, 305 Decision-making:
Chaston, I., 326, 330, 338, 340, 372, 408 ambiguity in, 120–2
Chowdhury, S.D., 406 approaches to, 119–120
Christensen, C.M., 82 entrepreneurial, 55–6, 119
Collins, J., 39, 115, 116, 228, 338 process, 54
Community action, 221 strategic, 398–9
Community Interest Company see Social De Geus, A.P., 121
Enterprise, legal structures Deighton, J., 206
Company status see ownership models Demirguc—Kunt, A., 24, 257
Competition: Dependency, 29, 30, 214, 221
Changing nature of, 193–4
Diffusion curve, 192–3, 380–2
Competitive advantage, 200–2, 421
Displacement, 256
sources of, 201, 420–21
Doole, I., 123, 124, 126, 128, 187, 245, 250,
sustaining, 419–20
296, 418
through learning, 423–5
Doyle, P., 400, 423
Consolidation, 408–9
Drucker, P., 65, 84, 96, 100, 120, 216, 217, 227,
Cooper, G., 375
229, 287, 338, 356, 374, 392, 393
Corporate social responsibility, 213, 215–17
drivers, 215
Early life experiences, 43
as an innovative response, 215–16
see also entrepreneurship, dark side of
Coulter, M., 106, 335, 336, 339, 342, 343, 344,
E-commerce, 273–4
349, 358, 409, 424 Economic cycle:
Creative destruction, 19, 72, 81–2, 83–4 surviving an economic downturn, 189–90
Creative tension, 114 Economic development, 5–6, 254–9
Creativity, 65 catalyst for, 6
see also Thinking techniques Education:
Crises of management, 405 enterprise in, 108
Critical decisions, 184 system, 14, 41–2, 107
Critical events, 185–6 Ellis-Chadwick, F., 195
Critical incidents, 113, 182 Emerging markets, 201, 243, 253–4, 255, 257,
Culture, 16–17, 165–6, 245–53 259, 264, 266, 268, 273
Customer: entrepreneurial challenges, 259–62
attitudes, 190 informal economy, 260–2
benefits, 306–7 opportunity, 259–60
intimacy, 422 Enactable contexts, 236
purchasing behaviour, 190–93 Enterprise:
service, 418 capability, 11
value, 290–92 continuum of, 17–18
culture, 28
Davidson, H., 420 government support, 28–9
Davies, H., 11, 28 see also government intervention
Deakins, D., 5, 151 individual, 12
Debt finance, 369 organizational, 12, 18–19,
see also Finance, sources of Entrepreneur-administrator continuum,
De Bono, E., 107, 108 49–50
Entrepreneurial behaviour patterns, 49 fear of, 112
see also Entrepreneurial management start-up businesses, 207
Entrepreneurial capacity, 54–6 Fairtrade, 269–70
development of, 57–9 Fairweather, J., 185
Entrepreneurial management, 48–9, 52–3 Family businesses, 14, 153–9
Entrepreneurial strategy:
communication in 155–6
see Strategy, entrepreneurial
conflicting priorities of, 155
Entrepreneurs:
definitions, 153–4
actions, 48–54
insularity in, 154–5
categories, 172
statistics, 154, 156
roles, 8–9, 21
succession in, 14, 156–8
types, 45–6
support needs, 159
portfolio, 45
Feasibility study, 343–5
sequential, 45
Female entrepreneurship, 16, 30, 142–9,
Entrepreneurship:
264
dark side, 43
barriers, 145–6
see also Social marginality
hidden entrepreneurial activity, 144
definitions, 4, 10–12,
motivations, 146–7
broad, 11
policy issues, 148–9
narrow, 10
self-belief, 147
developed markets, 254
statistics, 144
emergent markets, 253–4, 259–60
typologies, 142–3
challenges, 259
Finance:
individual propensity to, 26–28
access to, 145, 252, 263
multifaceted activity, 8
sources of, 368–72
myths, 25–6
informal, 368–9
Environment:
external, 369–72
macro factors, 178–80
Foreign Direct Investment, 247, 249,
changes in, 181
251
micro factors, 178–80
Foster, R., 72
Equity, 370
Franchises, 50, 300, 360
see also Finance, sources of
Freel, M., 5, 151
Ethical standards, 217
Ethnic minority entrepreneurship, 30, 149–53
Ghoshall, S., 392, 393
generational issues, 153
Gilligan, C.T., 416, 420
geographical location, 151
Globalization, 187–8, 270–1
policy, 153
Goffee, R., 142
push and pull factors, 150–51
Goffin, K., 308, 412
role in economic development, 151
Goswami, A., 150
statistics, 150
Government intervention, 29–31
Exit, 397
cause and effect, 29–30
Exporting, 256, 271–2
see also Support
Greiner, L., 405, 409
Failure:
Grey entrepreneurs, 16, 160–1
learning from, 4
Griffin, A., 86, 92, 101
Growth: incremental, 20, 64, 72, 74–5
barriers to, 403–4 organizational benefits, 68–70
fast, 413–17 sources, 287–8
management challenges, 404–6 stance, 88–9
see also High growth; Team-building Innovation categories, 70–71
Guanxi, 252 paradigm, 70
Gumpert, D.E., 344 position, 70
process, 70
Hall, G., 404 product, 70
Hamel, G., 123, 201, 335, 417 Innovation failure, 94–5
Hamilton, C.L., 71 Innovation management, 95–7
Handy, C., 8, 9, 40, 46, 294 Innovation strategy:
Harrison, R., 370 fit, business strategy, 91
Hart, S.L., 260 implementation, 92–4,
High-growth: process, 84, 90–92, 312
firms, 23, 25 lessons of success, 92–4
markets, 289 Intellectual property, 328, 363–5
Hisrich, R.D., 217 International aid, 255
Hofstede, G., 165, 166 International development strategies,
Hooley, G.J., 202 272–3
Huber, G.B., 117 International entrepreneurship, 244–54
prevalence, 244–5
Idea generation, 294–9 regions:
see also creativity; opportunity search America, 246
Income streams, 324 Asia, 249–50
Incremental change, 182–3, 402 China, 250–52
Indicators of poor performance, 409–10 Europe, 246–8
Individual enterprise 1, 4, 12, 39 India, 252–3
public life, 234 Russia, 248
Informal economy, 260–62 Intrapreneurs, 11, 13
Information: Intuition, 106
management of, 54 Invention, 19, 65, 66
capacity to process, 54, 55 Invoice factoring, 373
Infrastructure development, 255, 257–9, 265 see also Finance, sources of
Innovation, 12, 18–21, 63–4, 66
architectural, 75–6 Johnson, G., 90
continuous, 80 Johnston, K., 195
climate, 114 Jones-Evans, D., 39, 375, 376
customer benefits, 67–8
tangible, 67 Kano, C., 408
intangible, 67 Kano, N., 308
definitions, 65 Kaplan, J.M., 336, 339
discontinuous, 72 Kaynack, E., 270
see also step change Keiretsu, 249
dynamically continuous, 81 Kets de Vries, 43
Kim, W.C., 305, 306 Lowe, R., 123, 124, 126, 128, 187, 245, 250,
Kirby, D.A., 8 296, 418
Knowledge, 13, 104, 106 Lubart, T.I., 302
Kotler, P., 307, 308
Mabourgne, R., 305, 306
Lambert, R., 361 Management buy-out and buy-in, 361–2
Lampel, J., 392, 393 see also New business creation, ownership
Lang, J.R., 406 models
Large organizations, 24 Management team, 374–5, 409
Lateral thinking, 107 Market:
Leadership, 113 approaches to, 202–5
lateral, 109 customer-led marketing, 203
styles of, 115–17 entrepreneurial marketing, 203
Learning, 13, 56–7 internet based, 205–7
by doing, 13 network marketing, 203
individual, 104 not-for-profit sectors, 204–5
organizational, 117, 118 product push marketing, 202
signal, 124 resource–based marketing, 203
single and double loop, 123–4 routes to, 324
3R, 124, 126 subsegmentation, 299–300
Learning capability, 113, 118 Market information, 295
entrepreneurial strategy, 123 Market innovation, 312
leadership, 113–14 Market pull, 19, 85–6, 196
Learning organization, 117 Market restructuring, 194–5
Learning spiral, 128, 424 Memory, 54
Less-developed countries, 262–70 see also Information, management of;
access to markets, 267–8 Information, capacity to process
bribery and corruption, 265–6 Mason, C., 370
infrastructure weaknesses, 265 McDonnell, E., 287
finance, 263–4 McLelland, D.C., 39
low price competition, 268–9 Meredith, G.G., 40
quality and service, 266 Meyer, R., 195
skills and education, 264 Michalski, R., 109
war and terrorism, 266 Mintzberg, H., 119, 335, 392, 393
women entrepreneurs, 264 Mitchell, R., 308, 412
Lifestyle firms, 22 Molian, D., 292, 301, 309, 360, 404
Life circumstances, 15 Moments of truth, 309
Liles, P.R., 161, 163, 164 Moore, J.F., 335
Lindgren, J., 206 Morgan, G., 14, 328
Lippert, O., 261 Motivations, 8–9, 44–7
Local community action, 221–2 cultural, 8, 9
Locus of control, 40 economic, 9, 213
see also personality, traits and social, 8, 9, 213–14
characteristics Multiplier effect, 257
London, T., 260
Muzyka, D.F., 26, 247, 287, 370, 386
Necessity entrepreneurship, 244, 251, 253 limited company, 359–60
Neck, P.A., 40 partnership, 358
Need for achievement, 39 public ownership, 360
see also personality, traits and characteristics sole trader, 358
Nelson, R.E., 40
Networks, 167–8 Patents, 364
business, 181 see also Intellectual property
personal and social support, 167, 181 Personal environment, 181
Network brokers, 168, 378 Personality, 14–15, 37–42, 329
New business creation, 292–4, 320–31, 356–89 drivers, 14–15
barriers to, 386 traits and characteristics, 39–42
formation and launch, 321, 357–8 Physiocrats, 5–6
marketing and selling, 375–8 Piercy, N.F., 202
sustainability, 322–3 Planning, 334–40
triggers of, 292–4 benefits, 336
see also Break-even limitations, 335
New product development, 86–8 process, 337–40
Ng, D., 249, 252 Political climate, 255
Niche marketing, 272
Porter, M., 65, 123, 201, 331, 414
Niche strategies, 412–15 Portfolio management, 91–2
Nicholls, A., 269 Poras, J., 228, 338
Not-for-profit sector, 25, 231–6
Powitt, K., 65, 71, 93, 97, 98
collectivist approach, 221
Prahalad, C.K., 123, 201, 260, 335, 417
depoliticization, 221
Premises, 365–7
innovation in, 235
Private business enterprises, 21
short-termism, 232 Private sector:
tensions, social and economic imperatives, Innovation, 69
231–2 Product leadership, 422
business approach—political process, Product life cycle, 76–7
231 break through, 77
individual—community, 231–2 decline, 78
short vs long-term sustainability, 232 growth, 77
see also Social Enterprise; Voluntary and
maturity, 78
community organizations.
Profit or surpluses, 325
Nueno, P., 244, 250
Public sector, 24, 232–4
Nurture rather than nature, 42–4
bureaucracy and conservatism, 233
innovation, 69, 235
Opal, C., 269 drivers, 233
Operational excellence, 422 Public sector contracts, 226–7
Opportunity entrepreneurship, 243 compulsory competitive tender, 226
O’Reilly, C.A., 120 Public sector procurement, 223–4
Opportunity search, 11, 49, 56, 203, 288–90 Push and Pull factors, 46–7
Ownership models, 358–63 see also ethnic minority entrepreneurship,
charitable status, 360 push and pull factors
co-operatives, 360 Pyramid of wealth, 260
Quantum leaps, 20 Service innovation, 310–11
see also Step-change Settle, R.B., 192
Quinn, J.B., 392, 393 Shane, S.A., 54, 83, 295, 301, 334, 342, 343,
358, 365, 376
Rao, R.M., 408 Shimp, T.A., 192
Redding, G., 249 Skills, 103, 106
Reflection, 59 Small and medium-sized enterprises (SMEs),
personal, 110 22–3, 257
process, 110–11 Social enterprise, 217–25
Reflective practice, 109 business support, training, 224–5
Risk, 6–8, 334–5, 412 definitions, 218
attitudes to, 30 ideology, 220
financial, 7 leadership, 236
market for, 7 legal structures, 224
perceptions of, 15 partnership, 236
public and not-for-profit sectors, 30, 235–6 policy, 223
types, 15, 164–5 problems, 222–3
career risk, 164 business skills, 222
family risk, 164 local focus, 222
financial risk, 164 funding, 222
psychic risk, 164 statistics, 219–20
Robertson, R.S., 80 Social entrepreneurship, 8, 13
Rothwell, R., 87 characteristics of, 236–8
Roure, J., 25, 26 comparison, economic entrepreneurship,
235–6
Saraky, N., 308 Social marginality, 43
Saunders, J.A., 202 see also Nurture rather than nature;
Scase, R., 142 Entrepreneurship, dark side
Schaper, M., 146, 151 Sogo Shosha, 249, 250
Schemas and prototypes, 55 Spin-outs, 361
Schneider, F., 261, 262 Stakeholders, 18, 180–1, 421–2
Scholes, K., 90 Stakeholder value, 421–2
Schon, D.A. 123 Start-up:
Schumpeter, J., 6, 19 capability, 400–402
Science pull, 19 strategy, 399–400
Sector changes: see also New business creation
Public, 196–8 Step change, 64, 71, 74, 402
Not-for-profit, 198–9 see also Quantum leaps
see also market restructuring Sternberg, R.J., 302
Self-perceptions, 161–3 Stevenson, H., 49
readiness for self-employment, 161 Stewart, T.A., 230
effective capacity, 162 Storey, D.J., 153, 403
see also female entrepreneurship, Strategy, 393–5
self-belief bureaucratic vs entrepreneurial approach,
Senge, P.M., 114, 117, 118, 123 418–9
Strategy (contd) Thompson, J., 40, 51, 52, 65, 105, 236, 237, 238,
consolidation, 408 292, 293, 369, 383, 400, 401, 402, 403
emergent, 398 Tidd, J., 65, 71, 93, 97, 98
entrepreneurial, 402–3, 418–19 Timmers, P., 205
fast growth, 415–8 Timmons, J.A., 47
see also High-growth Tipping point, 46
nature of, 395–7
Total product offer, 307–9
start-up, 399–400
Treacy, M., 422
see also New business creation
Tsujis, 308
turnaround, 397, 403, 410–11
Turnaround see Strategy, turnaround
see also Indicators of poor performance
Tushman, M.L., 75, 83, 120
Strategic response:
Twaalfhoven, B., 247
competition, 200
customer characteristics, 199
Ullmann, M., 410, 411
macro-environment, 182–190
Underperformance, 406–10
market structures, 200
Un-learning, 127
Strebel, P., 79
Utterbuck, J., 70
Support, 167–72
employer, 171–2
Value-based marketing, 423
private sector, 168
Value chain, 321–4
public sector, 169–71
Venture capital, 370–71
costs of, 170
see also Finance, sources of
impact of, 169–70
Vision, 114, 338
nature of, 170–71 Volery, T., 146, 151
small firms, 257–8 Voluntary and community sector, 225–30
social enterprise, 224–5 core values, 228
Sweat equity, 369 lessons from, 227–30
see also Finance, sources of effectiveness of board, 229
motivating knowledge workers, 229–30
Takahashi, F., 308 strategy, 227–8
Team building, 374–5, 408–9 nature and role, 225–6
Technology: public sector contracts, 226–7
disruptive, 82
see also Technological discontinuities Walker, M., 261
push, 85, 196 Wang, C.L., 127
Technological discontinuities, 72–3 Westhead, P., 153
Technology push, 85 Westley, F., 119
Thinking techniques, 301–5 Whittington, R., 90
brainstorming, 303 Wickham, P.A., 7, 11, 47, 66, 338
challenging industry assumptions, 305 Wiersoma, F., 422
forced relationships, 304 Wilson, R.M.S., 416, 420
morphological analysis, 304–5
see also Creativity
Young entrepreneurs, 16, 159

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Enterprise:

To Andrew, Ian and bouncebackability

Robin Lowe and Sue Marriott

AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD

First edition 2006

No part of this publication may be reproduced, stored in a retrieval system or

British Library Cataloguing in Publication Data

Library of Congress Cataloguing in Publication Data

For information on all Butterworth-Heinemann publications

Typeset by Charon Tec Ltd, Chennai, India

Contexts – where do we find enterprise? 21

Chapter 2 What entrepreneurs are like, and what they do 37

Chapter 3 Innovation and its management 63

Chapter 4 Learning, decision-making and leadership 102

Part II Contexts 139

Chapter 6 The enterprise environment and the

Chapter 7 The social, public and not-for-profit context 212

Chapter 8 Multicultural entrepreneurship 242

Part II Integrated personal development activity 278

Chapter 10 Enterprise planning and risk management 318

Chapter 11 Getting started: creating the organization, obtaining

Chapter 12 Enterprise strategies and fast growth 390

■ entrepreneurship, starting up your own company and becom-

In today’s competitive environment enterprising organizations must

Skills, knowledge, attitudes and techniques

Outline of the book

The following is an outline of the book.

How to study using this book

Part III Commercialization

The Spotlights that have been provided are intended to reinforce a

Pause and Reflect

Many of the situations that occur in the Enterprise in Action examples

Integrated personal development activities

The evolving conceptual perspectives of entrepreneurship

Over time, various authors have taken different perspectives on entre-

The Austrian School

Enterprise in Action 1.1

Entrepreneurship as a multifaceted activity

The social dimension to entrepreneurship

Pause and Reflect 1.1

Questions: Would you describe Cook as an entrepreneur? Why/Why not?

Some definitions of entrepreneurship

Narrow definitions of entrepreneurship

Focusing on skills or attitudes

Figure 1.1 Organizational enterprise

Our view is that the term should be broadly defined. To

■ Why is it that some people appear to be more

■ People do not always choose to act in entrepreneurial ways

The characteristics of individual enterprise

Knowledge and learning

The family connection

Enterprise in Action 1.2

The cultural dimension

The continuum of enterprise

Necessity Conventional Creative Opportunist Serial

Creative destruction or incremental change

Enterprise in Action 1.3

In summary, innovation is, we argue, the process by which

Contexts – where do we find enterprise?