CHAPTER 3: INNOVATION: THE CREATIVE PURSUIT OF IDEAS

Entrepreneurship: A Mindset
 Entrepreneurship is more than the mere creation of business:
 Seeking opportunities.
 Taking risks beyond security.
 Having the tenacity to push an idea through to reality.
 Entrepreneurship is an integrated concept that permeates an individual’s business in an innovative manner.

Common Characteristics of Entrepreneurs

- Commitment, determination, and perseverance.
- Drive to achieve.
- Opportunity orientation.
- Initiative and responsibility.
- Persistent problem solving.
- Seeking feedback.
- Internal locus of control.
- Tolerance for ambiguity.
- Calculated risk taking.
- Tolerance for failure.
- High energy level.
- Creativity and Innovativeness.
- Vision.
- Self-confidence and optimism.
- Independence.
- Team building.
- Interaction of skills related to inner control.
- Planning and goal setting.
- Reality perception.
- Decision making.
- Human relations.

Entrepreneurship Theory:
- Entrepreneurs cause entrepreneurship And Entrepreneurship is a function of the entrepreneur.

The Dark Side of Entrepreneurship the Entrepreneurs face Risk.

 Financial risk: versus profit (return) motive varies in entrepreneurs’ desire for wealth.
 Career risk: loss of employment security.
 Family and social risk: competing commitments of work and family.
 Psychic risk: psychological impact of failure on the well-being of entrepreneurs.

Opportunity Identification: The Search for New Ideas

- Involves: The creative pursuit of ideas & The innovation process.
- The first step for any entrepreneur is the identification of a “good idea.”
- Opportunity recognition can lead to both personal and societal wealth..

Entrepreneurial Imagination and Creativity

- How entrepreneurs do what they do:
 Creative thinking + systematic analysis = success.
 Seek out unique opportunities to fill needs and wants.
 Turn problems into opportunities.
 Recognize that problems are solutions what demand to supply

Sources of Innovation Ideas

The Role of Creative Thinking

- Creativity: The generation of ideas that result in the improved efficiency or effectiveness of a system.
- Two important aspects of creativity exist:
 Process: is goal oriented; it is designed to attain a solution to a problem.
 People: The resources that determine the solution.

- Two Approaches to Creative Problem Solving

- Creativity is a process that can be developed and improved.

 Typical Creative Process: The Critical Thinking Process
1. Background or knowledge accumulation.
2. The incubation processes.
3. The idea experience.
4. Evaluation and implementation.

- Developing Creativity
 Recognizing Relationships.
 Developing a Functional Perspective.
 Using Your Brains:
o The right brain helps us understand analogies, imagine things, and synthesize information.
o The left brain helps us analyze, verbalize, and use rational approaches to problem solving.

- Impediments and obstacles to Creativity

 Either/or thinking (concern for certainty)
 Security hunting (concern for risk)
  Stereotyping (abstracting reality)
 Probability thinking (seeking predictable results).

- Types of Creativity
1. Material Creativity
2. Organization Creativity.
3. Relationship Creativity.
4. Event Creativity.
5. Inner Creativity
6. Spontaneous Creativity
7. Idea Creativity

Characteristics of a creative climate:

- A trustful management that does not overcontrol the personnel

- Open channels of communication.
- Considerable contact and communication with outsiders
- A large variety of personality types
- A willingness to accept change
- An enjoyment in experimenting with new ideas
- Little fear of negative consequences for making a mistake
- The selection and promotion of employees on the basis of merit
- The use of techniques that encourage ideas, including suggestion systems and brainstorming
- Sufficient financial, managerial, human, and time resources for accomplishing goals

Innovation:
 Is the process to convert opportunities into marketable ideas.
 Is a combination of the vision to create a good idea and the perseverance and dedication to remain with the
concept through implementation.
 Is a key function in the entrepreneurial process.
- The Innovation Process
1. Types of Innovation
 Invention.
 Extension.
 Duplication
 Synthesis

2. Sources of Innovation
 Unexpected occurrences
 Incongruities.
 Process needs.
 Industry and market changes.
 Demographic changes.
 Perceptual changes.
 Knowledge-based concepts.

- Innovation in Action
- Principles of Innovation
 Be action oriented.
 Make the product, process, or service simple and understandable.
  Make the product, process, or service customer-based.
 Start small.
 Aim high.
 Try/test/revise.
 Learn from failures
 Follow a milestone schedule.
 Reward heroic activity.
 Work, work, work.

CHAPTER 4: ASSESSMENT OF ENTREPRENEURIAL OPPORTUNITIES

The Challenge of New-Venture Start-Ups

- New Venture Formation: Number of new firms that have emerged.
- Ideas for Potential New Businesses: Number of patent applications per year.

- Components of New-Venture Motivation

1. The need for approval
2. The need for independence.
3. The need for personal development.
4. Welfare (philanthropic) considerations.
5. Perception of wealth.
6. Tax reduction and indirect benefits.
7. Following role models
- The Elements Affecting New-Venture Performance
- Pitfalls in Selecting New Ventures ‫العثرات‬
 Lack of objective evaluation.
 No real insight into the market.
 Inadequate understanding of technical requirements
 Poor financial understanding.
 Lack of venture uniqueness.
 Ignorance of legal issues

- Phases in New-Venture Start-ups‫مراحل المشاريع الناشئة الجديدة‬

- Prestart-up Phase: Begins with an idea for the venture and ends when the doors are opened for business.
- Start-up Phase: Commences with the initiation of sales activity and the delivery of products and services and
ends when the business is firmly established and beyond short-term threats to survival.
- Post start-up Phase: Lasts until the venture is terminated or the surviving organizational entity is no longer
controlled by an entrepreneur.

Critical Factors for New-Venture Development

1. Uniqueness of venture.
2. Investment size.
3. Expected sales growth: Lifestyle ventures, Small profitable ventures, High-growth ventures.
4. Product availability.
5. Customer availability.

A New-Venture Idea Checklist

- Basic Feasibility of the Venture: Can the product or service work? Is it legal?
- Competitive Advantages of the Venture
1. What specific competitive advantages will the product or service offer?
2. What are the competitive advantages of the companies already in business?
3. How are the competitors likely to respond?
4. How will the initial competitive advantage be maintained?

- Buyer Decisions in the Venture

1. Who are the customers likely to be?
2. How much will each customer buy, and how many customers are there?
3. Where are these customers located, and how will they be serviced?

- Marketing of the Goods and Services

1. How much will be spent on advertising and selling?
2. What share of market will the company capture? By when?
3. Who will perform the selling functions?
4. How will prices be set? How will they compare with the competition’s prices?
5. How important is location, and how will it be determined?
6. What distribution channels will be used—wholesale, retail, agents, direct mail?
7. What are the sales targets? By when should they be met?
8. Can any orders be obtained before starting the business? How many? For what total amount?

- Production of the Goods and Services

1. Will the company make or buy what it sells? Or will it use a combination of these two strategies?
2. Are sources of supplies available at reasonable prices?
3. How long will delivery take?
4. Have adequate lease arrangements for premises been made?
5. Will the needed equipment be available on time?
6. Do any special problems with plant setup, clearances, or insurance exist? How will they be resolved?
7. How will quality be controlled?
8. How will returns and servicing be handled?
9. How will pilferage, waste, spoilage, and scrap be controlled?

- Staffing Decisions in the Venture

 1. How will competence in each area of the business be ensured?
2. Who will have to be hired? By when? How will they be found and recruited?
3. Will a banker, lawyer, accountant, or other advisers be needed?
4. How will replacements be obtained if key people leave?
5. Will special benefit plans have to be arranged?

- Control of the Venture

1. What records will be needed? When?
2. Will any special controls be required? What are they? Who will be responsible for them?

- Financing the Venture

1. How much will be needed for development of the product or service? for setting up operations? for working capital?
2. Where will the money come from? What if more is needed?
3. Which assumptions in the financial forecasts are most uncertain?
4. What will be the return on equity, or sales, and how does it compare with the rest of the industry?
5. When and how will investors get their money back?
6. What will be needed from the bank, and what is the bank’s response?

Why New Ventures Fail

- Product/Market Problems
 Poor timing.
 Product design problems.
 Inappropriate distribution strategy.
 Unclear business definition.
 Overreliance on one customer

Types and Classes of First-Year Problems

1. Obtaining external financing
- Obtaining financing for growth.
- Other or general financing problems
2. Internal financial management
- Inadequate working capital
- Cash-flow problems
- Other or general financial management problems
3. Sales/marketing:
- Low sales
- Dependence on one or few clients/customers
- Marketing or distribution channels
- Promotion/public relations/advertising
- Other or general marketing problems
4. Product development
- Developing products/services
- Other or general product development problems

New Venture Failure Prediction Model

1. Role of profitability and cash flows
2. Role of debt.
3. Combination of both.
4. Role of initial size.
5. Role of control

The Evaluation Process

- Profile Analysis
 Involves identifying and investigating the financial, marketing, organizational, and human resource variables
that influence the business’s potential before the new idea is put into practice.
- The Feasibility Criteria Approach
 Involves the use of a criteria selection list from which entrepreneurs can gain insights into the viability of
their venture.
- Comprehensive Feasibility Approach
 Incorporates external factors in addition to those included in the criteria questions.

Feasibility Criteria Approach

- Assessing the viability of a venture:
- Is it proprietary?
- Are the initial production costs realistic?
- Are the initial marketing costs realistic?
- Does the product have potential for very high margins?
- Is the time required to get to market and to reach the break-even point realistic?
- Is the potential market large?
- Is the product the first of a growing family?
- Does an initial customer exist?
- Are the development costs and calendar times realistic?
- Is this a growing industry?
- Can the product and the need for it be understood by the financial community?

Key Areas for Assessing the Feasibility of a New Venture

Specific Activities of Feasibility Analyses

CHAPTER 5: MARKETING CHALLENGES FOR ENTREPRENEURIAL VENTURES

The Marketing Concept for Entrepreneurs

- Pricing Strategy Approach
- Marketing Plan.
- Market Research.
- Market Knowledge

Common Elements in the Marketing Skills of Great Entrepreneurs

- They possess unique environmental insight, which they use to spot opportunities that others overlook or view as
problems.
- They develop new marketing strategies that draw on their unique insights. They view the status quo and
conventional wisdom as something to be challenged.
- They take risks that others, lacking their vision, consider foolish.
- They live in fear of being preempted in the market.
- They are fiercely competitive.
- They think through the implications of any proposed strategy, screening it against their knowledge of how the
marketplace functions. They identify and solve problems that others do not even recognize.
- They are meticulous about details and are always in search of new competitive advantages in quality and cost
reduction, however small.
- They lead from the front, executing their management strategies enthusiastically and autocratically.
- They maintain close information control when they delegate.
- They drive themselves and their subordinates.
- They are prepared to adapt their strategies quickly and to keep adapting them until they work
- They persevere long after others have given up.
- They have clear visions of what they want to achieve next. They can see further down the road than the average
manager can see.

Marketing Terms

- Market
 A group of consumers (potential customers) who have purchasing power and unsatisfied needs.
 A new venture will survive only if a market exists for its product or service.

- Marketing Research
  The gathering of information about a particular market, followed by analysis of that information.

Defining the Research Purpose and Objectives

 Where do potential customers go to purchase the good or service in question?
 Why do they choose to go there?
 What is the size of the market? How much of it can the business capture?
 How does the business compare with competitors?
 What impact does the business’s promotion have on customers?
 What types of products or services are desired by potential customers?

Gathering Information
 Secondary Data: Information that has already been compiled.
o Advantage: Less expensive and available
o Disadvantages: outdated, lacks specificity, questionable validity
o Sources: internal and/or external sources
 Primary Data: Information that is gathered specifically for the research at hand.
o Surveys.
o Experimentation
- Developing an Information-Gathering Instrument
 Make sure each question pertains to a specific objective in line with the purpose of the study.
 Place simple questions first and difficult-to-answer questions later in the questionnaire.
 Ask: “How could this question be misinterpreted?” Reword questions avoid misunderstanding.
 Avoid leading and biased questions.
 Give concise but not complete directions in the questionnaire.
 Use scaled questions rather than simple yes/no questions.
- Interpreting and Reporting the Information
- Data organized and interpreted is information.
- Tables, charts, graphs.
- Descriptive statistics—mean, mode, median
- Market research subject areas:
- Sales, Distribution, Markets, Advertising, Products

- Mistaken beliefs that inhibit the use of marketing research:

Cost: research is too expensive.
Complexity: research techniques rely on overly complex sampling, surveying, and statistical analysis.
Strategic Decisions: only major strategic decisions need to be supported through marketing research.
Irrelevancy: contain either information that merely supports what is already known or irrelevant information.
Internet Marketing

 Allows the firm to increase its presence and brand equity in the marketplace.
 Allows the company to cultivate new customers.
 Can improve customer service and lower costs by allowing customers to serve themselves.
 Provides a mechanism for information sharing and collection at a fraction of prior costs.
 Is a direct-sales distribution channel where the seller-buyer relationship is immediate, and the waiting period
that follows a traditional marketing campaign is almost eliminated.

Developing the Marketing Concept

- Marketing Philosophies
 Production-driven philosophy
 Sales-driven philosophy
  Consumer-driven philosophy
- Factors in Choosing a Marketing Philosophy
 Competitive pressure
 Entrepreneur’s background
 Short-term focus
- Market Segmentation
 The process of identifying a specific set of characteristics that differentiate one group of consumers from the
rest.
 Demographic variables: Age, marital status, sex, occupation, income, location
 Benefit variables: Convenience, cost, style, trends (depending on the nature of the particular new venture)

Consumer Behavior

 The types and patterns of consumer characteristics.

1. Personal characteristics
2. Psychological characteristics

 Major Consumer Classifications:

1. Convenience goods
2. Shopping goods
3. Specialty goods
4. Unsought goods
5. New products
Develop Marketing Plan : The process of determining a clear, comprehensive approach to the creation of customers.

- Elements of Marketing Planning

 Current marketing research
 Current sales analysis
 Marketing information system
 Sales forecasting.
 Evaluation
- Current Marketing Research
 The purpose of marketing research is to identify customers—target markets—and to fulfill their desires.
- Areas of Market Research
 The company’s major strengths and weaknesses
 Market profile
 Current and best customers
 Potential customers
 Competition
 Outside factors
 Legal changes

Current Sales Analysis

- Sales Research Questions:
- Do salespeople call on their most qualified prospects on a proper priority and time-allocation basis?
- Does the sales force contact decision makers?
- Are territories aligned according to sales potential and salespeople’s abilities?
- Are sales calls coordinated with other selling efforts, such as trade publication advertising, trade shows, and direct mail?
- Do salespeople ask the right questions on sales calls? Do sales reports contain appropriate information? Does the sales
force understand potential customers’ needs?
- How does the growth or decline of a customer’s or a prospect’s business affect the company’s own sales?
Marketing Information System

- Compiles and organizes data relating to cost, revenue, and profit from the customer base for monitoring the
strategies, decisions, and programs concerned with marketing.
- Factors affecting the value of a system:
- Data reliability and relevancy
- Data usefulness or understandability
- Reporting system timeliness
- System cost
Market Planning
- Sales Forecasting
 The process of projecting future sales through historical sales figures and the application of statistical
techniques.
- Evaluation
- Evaluating marketing plan performance is important so that flexibility and adjustment can be incorporated into
marketing planning.

The Market Plan: A Structured Approach

1. Appraise marketing strengths and weaknesses, emphasizing “competitive edge” factors.

2. Develop marketing objectives, along with short- and intermediate-range sales goals.
3. Develop product/service strategies.
4. Develop marketing strategies to achieve intermediate- and long-range sales goals and long-term marketing
objectives.
5. Determine a pricing structure.

Pricing Strategies
- Factors affecting the pricing decision:
- The degree of competitive pressure The availability of sufficient supply
- Seasonal or cyclical changes in demand Distribution costs
- The product’s life-cycle stage Changes in production costs
- Prevailing economic conditions Customer services provided by the seller
- The amount of promotion The market’s buying power

- Psychological factors affecting the pricing decision:

- The quality of a product is interpreted by customers according to the level of the item’s price.
- Customer groups shy away from purchasing a product where no printed price schedule is available.
- Emphasis on the monthly cost of purchasing an expensive item result in greater sales than an emphasis on
total selling price.
- Buyers expect to pay even-numbered prices for prestigious items and odd-numbered prices for commonly
available goods.
- The greater the number of customers benefits the seller can convey about a product, the less will be the
price resistance.

Pricing for the Product Life Cycle

Key Terms and Concepts

- consumer-driven philosophy
- consumer pricing
- demand-oriented pricing
- experimentation
- Internet marketing
- loss leader pricing
- market
- marketing research
- market segmentation
- penetration
- primary data
- production-driven philosophy
- sales-driven philosophy
- secondary data
- skimming
- surveys

CHAPTER 6: STRATEGIC ENTREPRENEURIAL GROWTH

The Nature of Planning in Emerging Firms

 The need for formal, systematic planning arises when:

- The firm is expanding with constantly increasing personnel size and market operations
- A high degree of uncertainty exists
- There is strong competition
- There is a lack of adequate experience, either technological or business.

Strategic Planning
- The formulation of long-range plans for the effective management of environmental opportunities and threats in
light of a venture’s strengths and weaknesses.
- Includes:
 Defining the venture’s mission.
 Specifying achievable objectives
 Developing strategies.
 Setting policy guidelines.
- Steps in Strategic Planning:
1. Examine the internal and external environments of the venture (SWOT)
2. Formulate the venture’s long-range and short-range strategies (mission, objectives, strategies, policies).
3. Implement the strategic plan (programs, budgets, procedures).
4. Evaluate the performance of the strategy.
5. Take follow-up action through continuous feedback.

- Key Dimensions Influencing a Firm’s Strategic Planning Activities

 Demand on strategic managers’ time
 Decision-making speed
 Problems of internal politics
 Environmental uncertainty
 The entrepreneur’s vision
1. Commitment to an open planning process.
2. Accountability to a corporate conscience.
3. Establishment of a pattern of subordinate participation in the development of the strategic plan.

- The Lack of Strategic Planning

 Time scarcity
 Lack of knowledge
 Lack of expertise/skills
 Lack of trust and openness
 Perception of high cost
- The Value of Strategic Planning
 Strategic planning is of value to a venture and that planning influences a venture’s survival.
 Benefits of Long-Range Planning
o Cost savings
o More efficient resource allocation
o Improved competitive position
o More timely information
o More accurate forecasts
o Reduced feelings of uncertainty
o Faster decision making
o Fewer cash-flow problems
- Strategic Planning Categories
1. No written plan
2. Moderately sophisticated planning
3. Sophisticated planning
Results: More than 88% of firms with Category II or III planning performed at orabove the industry average compared with
only 40% of firms with Category I planning.

 All research indicates:

o Firms that engage in strategic planning are more effective than those that do not.
o The planning process, rather than merely the plans, is a key to successful performance.
- Fatal Visions in Strategic Planning ‫روئ قاتلة‬
- Failure to explicitly communicate the venture’s strategy to employees
- Misunderstanding industry attractiveness
- No real competitive advantage
- Pursuing an unattainable competitive position
- Compromising strategy for growth.
 The Integration of Entrepreneurial
and Strategic Actions

 Strategic Positions
- Are often not obvious, and finding them requires creativity and insight.
- Are unique positions that have been available but simply overlooked by established competitors.
- Can help entrepreneurial ventures prosper by occupying a position that a competitor once held but has ceded
through years of imitation and straddling.

Strategic Approaches: Position, Leverage, Opportunities

The Entrepreneurial Strategy Matrix: Independent Variables The Entrepreneurial Strategy Matrix: Appropriate Strategie

Venture Development Stages

 Life-Cycle Stages of an Enterprise
 Initial expansion and accumulation of resources
1. Rationalization of the use of resources
2. Expansion into new markets to assure the
continued use of resources
3. Development of new structures to ensure continuing mobilization of resources
A Venture’s Typical Life Cycle
The Entrepreneurial Company in the Twenty-First Century
 Major Challenges:
- Building dynamic capabilities that are differentiated from those of emerging competitors
- Internal: utilization of the creativity and knowledge from employees
- External: the search for external competencies to complement the firm’s existing capabilities.

Building the Adaptive Firm

 One that Increases opportunity for its employees, initiates change, and instills a desire to be innovative.
 How to remain adaptive and innovative:
- Share the entrepreneur’s vision
- Increase the perception of opportunity
- Institutionalize change as the venture’s goal
- Instill the desire to be innovative:
o A reward system
o An environment that allows for failure
o Flexible operations
o The development of venture teams

The Transition from an Entrepreneurial Style to a Managerial Approach

 Impediments to Transition:
- A highly centralized decision-making system
- An overdependence on one or two key individuals, An inadequate repertoire of managerial skills and training
- A paternalistic atmosphere
Balancing the Focus—Entrepreneurial versus Manager
 The Entrepreneur’s Point of View
- Where is the opportunity?
- How do I capitalize on it?
- What resources do I need?
- How do I gain control over them?
- What structure is best?

Understanding the Growth Stage

 Key Factors During the Growth Stage

1. Control
- Does the control system imply trust?
- Does the resource allocation system imply trust?
 - Is it easier to ask permission than to ask forgiveness?
2. Responsibility
- Creating a sense of responsibility that establishes flexibility, innovation, and a supportive environment.
3. Tolerance of failure
- Moral failure
- Personal failure
- Uncontrollable failure
4. Change

 Managing Paradox and Contradiction

- Bureaucratization versus decentralization
- Environment versus strategy
- Strategic emphases: Quality versus cost versus innovation

Confronting the Growth Wall

- The entrepreneur is able to envision and anticipate the firm as a larger entity.
- The team needed for tomorrow is hired and developed today.
- The original core vision of the firm is constantly and zealously reinforced.
- “Big-company” processes are introduced gradually as supplements to, rather than replacements for, existing
approaches.
- Hierarchy is minimized.
- Employees hold a financial stake in the firm.
Unique Managerial Concerns of Growing Ventures
- Community Pressures
- Distinction of Small Size
- Time Management
- Growing Venture
- Continuous Learning
The International Environment: Global Opportunities
 Global Entrepreneurs
- Rely on global networks for resources, design, and distribution.
- Are adept at recognizing opportunities that require agility, certainty, and ingenuity with a global perspective.
- Must be global thinkers in order to design and adopt strategies for different countries.

Critical Steps in Effective Time Management

Achieving Entrepreneurial Leadership in the New Millennium
 Entrepreneurial Leadership
- Arises when an entrepreneur attempts to manage the fast-paced, growth oriented company.
 Components of Entrepreneurial Leadership
- Determining the firm’s purpose or vision.
- Exploiting and maintaining the core competencies.
- Developing human capital.
- Sustaining an effective organizational culture.
- Emphasizing ethical practices.
- Establishing balanced organizational controls.
Strategic, Visionary, and Managerial Leadership
- Synergistic combination of managerial and visionary leadership
- Emphasis on ethical behavior and value-based decisions
- Oversee operating (day-to-day) and strategic (long-term) responsibilities
- Formulate and implement strategies for immediate impact and preservation of long-term goals to enhance
organizational survival, growth, and long-term viability.
- Have strong, positive expectations of the performance they expect from their superiors, peers, subordinates,
and themselves
- Use strategic controls and financial controls, with emphasis on strategic controls
- Use, and interchange, tacit and explicit knowledge on individual and organizational levels
- Use linear and nonlinear thinking patterns
- Believe in strategic choice, that is, their choices make a difference in their organizations and environment

Key Terms and Concepts

- adaptive firm
- new-venture development
- entrepreneurial leadership
- one-person-band syndrome
- entrepreneurial strategy matrix
- perception of high cost
- global entrepreneur
- personal failure
- growth stage
- stabilization stage
- growth wall
- start-up activities
- innovation
- strategic planning
- lack of expertise/skills
- strategic positioning
- lack of knowledge
- SWOT analysis
- lack of trust and openness
- time scarcity
- life-cycle stages
- uncontrollable failure
-