1

250-387 Entrepreneurship

Lecture 1 [Chap. 1 & 2] 09/04/01

Introduction
The Entrepreneurial Perspective

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

 2

(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%

Entrepreneurial business vs. Small business

 3

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

1. Independent ownership
2. Owner supplied capital
3. Mainly local operation
4. Relatively small size in the industry

Entrepreneurship vs. Intrapreneurship

Entrepreneurship – is a way of thinking,

reasoning, and acting that is opportunity
obsessed, holistic in approach, and leadership
balanced (Timmons)
or

Entrepreneurship – is the process of creating

something new, with value, by devoting the
 4

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)

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.

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.
 5

“New Venture Creation” or

“Greenfield Startup”

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 - no magic formula

BIG THREE
1. Idea & an opportunity
• 90% of opportunities arise from your
employment
 6

• 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 locus of control
5. Tolerance for ambiguity
 7

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

vs.
 8

Why “people” go into business

1. Positives
• Want own show, independence (part illusion -

employees, suppliers, govt. & customers)

• Financial security/success, need income
• Need to do it better - job satisfaction
• Being in control/want something to do
2. Negatives
• Long hour, 12+
• Uncertain income & loss of capital
• Family comes second
• Quality of life suffers, no benefits

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
 9

Most important contribution of entrepreneurs

and small business - offers the opportunities for
success and independence to anyone and
everyone (Horatio Alger, our national heritage)
• >50% of new businesses are started by women
• increasing minority startups
• result of downsizing
• spinoffs

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

International Entrepreneurship
 10

Small business failure Approx. 18% of all

small businesses fail within 8 years (Fortune,
Sept. 6, 1993)
• About 37 % survive more than 6 years
(SBA, 1992)
OR
• 54% survive more than 8 years
(Fortune, Sept. 6, 1993)
YOUR CHOICE, I favor Fortune’s figures
• Think big, the larger the start-up the lower the
failure rate
 11

• Far fewer planned small businesses fail (many

reasons for failure are eliminated before hand)
• Substantial $ losses are rare, approx. 1%
(Fortune, Sept. 6, 1993)
• Bankruptcy less than 00.5%
(Fortune, Sept. 6, 1993)

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

Learned entrepreneurial attributes

 12

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
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

Not-so-learnable entrepreneurial attributes

1. High energy, health and emotional stability
 13

2. Creativity and innovativeness

3. High intelligence & conceptual ability
4. Vision & capacity to inspire - leadership