The

Entrepreneurial
Perspective
Chapter #1
 Introduction
• In the year 2000, people who took collegiate
entrepreneurship courses were:
• 34% more likely to start their own businesses
than people who did not
• 798% more likely to be successful in their
business than those graduates who did not take
entrepreneurship course(s)
 Age of entrepreneurial economy (?), in 1998
(Wells Fargo/NFIB)
• 5,744,000 start-ups, about 40% are subsidiaries of existing
businesses, this means about 1% of the U.S. population
applied for a business license
– 1,799,000 businesses purchased
– 1,333,000 businesses closed for various reasons
– Highest incidence of start-ups is in the southeast
– About 50% of start-ups were in the service industries
• About 60% profitable within the first year
• However, the number of self-employed persons fell about
10% between 1994 and 1999 while their income increased
35%
 What does Entrepreneur mean?
• Entrepreneur - French, literally “between
taker” or “go-between”
• Entrepreneur defined - a person who takes
responsibility for a business project, organizes
the resources it requires, and assumes the risk
it entails.
Entrepreneurial business vs. Small business

• Small Business defined - any business that is

independently owned and operated and is not
dominant in its field (Small Business Act of
1953)
• Committee for Economic Development
– Independent ownership
– Owner supplied capital
– Mainly local operation
– Relatively small size in the industry
 Entrepreneurship vs. Intrapreneurship
• Intrapreneurship – is the act of behaving like an
entrepreneur except within larger organization.
• Entrepreneurship – is the process of creating
something new, with value, by devoting the
necessary time and effort, assuming the
accompanying financial, psychic, and social risks,
and receiving the resulting rewards of monetary
and personal satisfaction and independence.
 Four basic aspects of entrepreneurship

1. Creating something new of value

2. Organization (devotion of time and effort)
3. Assuming the risks
4. Rewards (growth)
 Venture Capitalist
• Venture Capitalist - a professional money
manager who makes risk investments from a
pool of equity capital to obtain a high rate of
return on the investments.
 Creative acts
• a new product or service
• new methods or technology
• new markets
• new sources of raw materials and resources
• new forms of industrial organization

BUSINESSES SELDOM START BIG

 Entrepreneurial process
BIG THREE
1. Idea & an opportunity
– 90% of opportunities arise from your employment
– 8-10 years of experience typical
2. Champion – you, and often a team
3. Resources
– Build an organization
– You do need money, but not necessarily a lot of
money, to get started
Factors effecting the entrepreneurial
decision
No Go Go

Financial obligations Financial resources

Need for security Self-actualization

Family obligations Family support

Inexperience Relevant experience

 What do entrepreneurs “look” like
1. Calculated risk-takers
2. Need for achievement
3. Sense of independence
4. Internal focus of control
5. Tolerance for ambiguity
6. Most love what they do
7. Community leaders
 Demographic of entrepreneurs in 1998

• 70% of businesses are started by one person

• 36% of businesses are started by women
• 70% attended college or technical school
• 63% were married
• Median household income was $40,000
$60,000
• 77% were employed at time of start-
up/purchase
Reason given for starting a business, 1998

• 26% grow business

• 37% decent living
• 29% supplemental income
• 4% until something better come along
 Why “people” go into business
• Positives • Negatives
– Want own show, – Long hour, 12+
independence (part illusion – Uncertain income & loss
- employees, suppliers,
of capital
govt. & customers)
– Financial security/success, – Family comes second
need income – Quality of life suffers, no
– Need to do it better - job benefits
satisfaction
– Being in control/want
something to do
Business types from an owner’s perspective

1. Job substitutes - a living, hard to realize a

capital gain
2. Lifestyle firm - more than a living, but
basically a family business
3. Foundation company – new business area,
rarely goes public (Gore)
4. High potential venture - new Netscape
 Strong economies need entrepreneurs &
entrepreneurs need a strong economy
• 52% of GNP
• 54% of all private jobs
• >50% of all new high paying jobs
• 65% of all initial jobs are in small business
• >50% of all major inventions in past 30 years
The Entrepreneurial
Mind-Set

Chapter #2
How entrepreneurs think
Entrepreneurs think differently than
nonentrepreneurs. Given the nature of an
entrepreneur's decision-making environment,
she or he must sometimes..
– Effectuate
– Be cognitively adaptable
– Learn from failure
Effectuation
• Causation- causal process
A process that starts with a desired outcome
and focuses on the means to generate that
outcome
• Effectuation process
A process that starts with what one has (who
they are, what they know, and whom they
know) and selects among possible outcomes
 Philip Kotler-marketing management

1. Analyze long-run opportunities in the market

2. Research and select target market
3. Identify segmentation variables and segment
the market
4. Develop profiles of resulting segment
5. Evaluate the attractiveness of each segment
6. Select the target segment
7. Identify possible positioning concepts for each
target segment
8. Select, develop, and communicate the chosen
positioning concept
9. Design marketing strategies
10. Plan marketing programs
11. Organize, implement, and control marketing
effort
Sarasvathy clearly describes the implications of
effectuation for the entrepreneur in terms of five
basic principles

1. The patchwork quilt principle

2. The affordable loss principle
3. Bird-in-hand principle
4. Lemonade principle
5. Pilot-in-the-plane principle
Entrepreneurial mind-set
• Involves the ability to rapidly sense, act, and
mobilize, even under uncertain condition

• In developing an entrepreneurial mind-set,

individuals must attempt to make sense of
opportunities in the context of a changing
environment, and revising ‘’deceptively simple
questions’’ about what we think to be true about
markets and firms.
Cognitive adaptability
• Describes the extent to which entrepreneurs
are dynamic, flexible, self-regulating, and
engaged in the process of generating multiple
decision frameworks focused on sensing and
processing changes in their environments and
then acting on them.
Achieve success by asking ourselves a series
of questions
• Comprehension questions - questions designed
to increase entrepreneurs’ understanding of the
nature of the environment
• Connection tasks- tasks designed to stimulate
entrepreneurs to think about the current
situation in terms of similarities and
differences with situations previously faced
and solved.
• Strategic tasks- tasks designed to stimulate
entrepreneurs to think about which strategies
are appropriate for solving the problem or
pursuing the opportunity.
• Reflection tasks – tasks designed to stimulate
entrepreneurs to think about their
understanding and feelings as they progress
through the entrepreneurial process
 Small business failure
• Approx. 18% of all small businesses fail within 8 years
(Fortune, Sept. 6, 1993)
• About 37 % survive more than 6 years
• 54% survive more than 8 years
• Think big, the larger the start-up the lower the failure rate
• Far fewer planned small businesses fail (many reasons for
failure are eliminated before hand)
• Substantial $ losses are rare, approx. 1%
• Bankruptcy less than 00.5%
Learning from business failure
• Business failure occurs when a fall in revenue and/or
a rise in expense is of such magnitude that firm
becomes insolvent and is unable to attract new debt
or equity funding; consequently, it cannot continue to
operate under the current ownership and
management.
• Failure is particularly common among
entrepreneurial firms because the newness that is the
source of opportunity is also a source of uncertainty
and changing conditions.
Grief
• A negative emotional response a person feels
from the loss of something important.
• Grief Recovery Process
An individual has recovered from grief when
thoughts about the events surrounding, and
leading up to, the loss of the business no
longer generate a negative emotional response
• Loss-orientation
– An approach to grief recovery that involves
working through, and processing, some aspect of
the loss experience and, as a result of this process,
breaking emotional bonds to the object lost.
• Restoration-orientation
– An approach to grief recovery based on both
avoidance and proactiveness toward secondary
sources of stress arising from a major loss.
A dual Process for Grief
• Involves oscillation between the two grief
recovery approaches (loss-orientation and
restoration-orientation)
Managerial versus entrepreneurial decision
making
Entrepreneurial management is distinct from traditional
management in terms of eight dimensions;
1. Strategic orientation
2. Commitment to opportunity
3. Commitment of resources
4. Control of resources
5. Management structure
6. Reward philosophy
7. Growth orientation
8. Entrepreneurial culture
What successful entrepreneurs know/do
1. Competitive threats
2. Identify the opportunities
3. 'See' the customer’s needs (interaction)
4. Shoot at a moving target
5. Leadership
6. Business economics
7. Technologically literate
8. Ethics
9. Business philosophy or students of business
 Entrepreneurial attributes
1. Total commitment, determination & perseverance (will
to make it happen)
2. Drive to achieve & grow
3. Opportunity and goal oriented (focus is on opportunity,
not resources or strategy)
4. Taking initiative & responsibility
5. Persistent problem solving
6. Veridical awareness & sense of humor (strengths &
weaknesses, realistic, optimistic realism)
7. Seeking & using feedback
 Entrepreneurial attributes (cont)
8. Internal locus of control - belief in self
9. Tolerance of ambiguity, stress & uncertainty
10. Calculated risk taking and risk sharing
11. Low need for status and power – exert influence
without formal power, adept at conflict resolution
12. Integrity & reliability
13. Decisiveness, urgency & patience
14. Dealing with failure
15. Team builder & hero maker
 Questions
• What is the main point of the
entrepreneurship?