New Venture Creation and

Control Mechanism
Professor Alexander Settles
asettles@hse.ru

Introduction to the Course

New Venture Creation
Entrepreneurship / Research on
Entrepreneurship
Innovation
Business Planning
Finance

Organization Theory and

Entrepreneurship and Innovation

Course Design
Requirements
Attendance, Participation and Readings
Personality Assessment
Innovation Journal
Assessment of New Venture or
Entrepreneurial Policy/Action (in Groups)
Exam

Entrepreneurship

Entrepreneurs
Challenging the Unknown
Entrepreneurs
Recognize opportunities where others see
chaos or confusion
Are aggressive catalysts for change within
the marketplace
Challenge the unknown and continuously
create the future

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 individuals business in an
innovative manner.

The Evolution of
Entrepreneurship
Entrepreneur is derived from the French
entreprendre, meaning to undertake.
The entrepreneur is one who undertakes to
organize, manage, and assume the risks of a
business.
Although no single definition of entrepreneur
exists and no one profile can represent
todays entrepreneur, research is providing an
increasingly sharper focus on the subject.

A Summary Description
of Entrepreneurship
Entrepreneurship (Robert C. Ronstadt)
The dynamic process of creating incremental wealth.
This wealth is created by individuals who assume
major risks in terms of equity, time, and/or career
commitment of providing value for a product or
service.
The product or service itself may or may not be new or
unique but the entrepreneur must somehow infuse
value by securing and allocating the necessary skills
and resources.

An Integrated Definition
Entrepreneurship
A dynamic process of vision, change, and creation.
Requires an application of energy and passion towards the
creation and implementation of new ideas and creative solutions.

Essential ingredients include:

The willingness to take calculated risksin terms of time, equity,
or career.
The ability to formulate an effective venture team; the creative
skill to marshal needed resources.
The fundamental skills of building a solid business plan.
The vision to recognize opportunity where others see chaos,
contradiction, and confusion.

An Integrative Model of Entrepreneurial Inputs

and Outcomes

Source: Michael H. Morris, P. Lewis, and Donald L. Sexton, Reconceptualizing Entrepreneurship:

An Input-Output Perspective, SAM Advanced Management Journal 59, no.1 (Winter 1994): 2131.

Entrepreneurs in the United

States
Reasons for the exceptional entrepreneurial activity
in the U.S. include:
A national culture that supports risk taking and seeking
opportunities.
Americans alertness to unexploited economic opportunity
and a low fear of failure.
U.S. leadership in entrepreneurship education at both the
undergraduate and graduate level.
A high percentage of individuals with professional,
technological or business degrees who are likely to
become entrepreneurs.

Entrepreneurial Firms Impact

Entrepreneurial components of the U.S. Economy:
1. Large firms have increased profitability by returning to
their core competencies through restructuring and
downsizing.
2. New entrepreneurial companies have been
blossoming in new technologies and new markets.
3. Thousands of smaller firms established by women,
minorities, and immigrants have strengthened the
economy.

Entrepreneurial Firms Impact

Entrepreneurial firms make two indispensable
contributions to an economy:
1. They are an integral part of the renewal process that
pervades and defines market economies.
2. They are the essential mechanism by which millions
enter the economic and social mainstream of society.

Aspects of Entrepreneurship
Venture
Financing
Corporate
Entrepreneurship

Entrepreneurial
Cognition

Global
Entrepreneurial
Movement

Social
Entrepreneurship

Trends in
Entrepreneurship
Research

Women
and Minority
Entrepreneurs

Entrepreneurial
Education
Family
Businesses

Common Characteristics of
Entrepreneurs
Commitment,
determination, and
perseverance
Drive to achieve
Opportunity orientation
Initiative and responsibility
Persistent problem solving

Calculated risk taking

Tolerance for failure
High energy level
Creativity and
Innovativeness
Vision

Seeking feedback

Self-confidence and
optimism

Internal locus of control

Independence

Tolerance for ambiguity

Team building

Outline of the Entrepreneurial

Organization
Imagination
Imagination

Flexibility
Flexibility

Acceptanc
Acceptanc
ee of
of Risks
Risks

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

Entrepreneurship is the interaction of skills related to inner control, planning and goal setting, risk taking, innovation, reality perception, use of feedback, decision making, human
relations, and independence.

E f (e )

Typology of Entrepreneurial Styles

Source: Thomas Monroy and Robert Folger, A Typology of Entrepreneurial Styles:

Beyond Economic Rationality, Journal of Private Enterprise IX(2) (1993): 71.

The Dark Side of

Entrepreneurship
The Entrepreneurs Confrontation with Risk
Financial risk versus profit (return) motive varies
in entrepreneurs desire for wealth.
Career riskloss of employment security
Family and social riskcompeting
commitments of work and family
Psychic riskpsychological impact of failure on
the well-being of entrepreneurs

A Model of Entrepreneurial
Motivation

Source: Douglas W. Naffziger, Jeffrey S. Hornsby, and Donald F. Kuratko, A Proposed

Research Model of Entrepreneurial Motivation,
Entrepreneurship Theory and Practice
220
(spring 1994): 33.

Opportunity Identification:
The Search for New Ideas
Opportunity identification is central to
entrepreneurship and involves:
The creative pursuit of ideas
The innovation process

The first step for any entrepreneur is the

identification of a good idea.
The search for good ideas is never easy.
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 to solutions
what demand is to supply

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
The process is goal oriented; it is designed to attain a
solution to a problem.

People
The resources that determine the solution.

The Critical Thinking Process

The Creative Climate

Characteristics of a creative climate:
A trustful management that does not overcontrol the personnel
Open channels of communication among all business members
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

Country Level Competitiveness

Economy

Ease of Doing Business Rank

Singapore

New Zealand

Hong Kong, China

United States

United Kingdom

Denmark

Ireland

Canada

Australia

Norway

10

Georgia

11

China

89

Bangladesh

119

Russian Federation

120

Costa Rica

121

Brazil

129

India

133

Innovation Rankings INSEAD 2009

1. United States
2. Germany
3. Sweden
4. United Kingdom
5. Singapore

6. South Korea
7. Switzerland
8. Denmark
9. Japan
10. Netherlands

Russias Innovation Capacity

64. Vietnam
65. Trinidad and
Tobago
66.Mauritius
67. Panama
68. Russia
69. Romania
70. Nigeria

29. Estonia
42. Lithuania
57. Azerbaijan
59. Uzbekistan
60. Latvia
72. Kazakhstan
79. Ukraine
98. Georgia
104. Armenia
112. Tajikistan
116. Moldova
122. Kyrgyzstan

Russia Components

Legacy of innovation - 49
Culture to innovate - 46
Quality of the educational system - 41
Quality of management schools 66
Intellectual property protection 93
Technological awareness - 91
Firm level technology absorption - 90

United States

Human Capacity 1
Culture to innovate - 2
Quality of the educational system 3
Quality of management schools - 10

Innovation and the Entrepreneur

Innovation:
Is the process by which entrepreneurs 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.
Is the specific function of entrepreneurship.

The Innovation Process

Types of
Innovation
Invention
Extension
Duplication
Synthesis

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

Type

Description

Examples

Invention

Totally new product, service, Wright brothersairplane

or process
Thomas Edisonlight bulb
Alexander Graham Belltelephone

Extension

New use or different

application of an already
existing product, service,
or process

Ray KrocMcDonalds
Mark ZuckerbergFacebook
Barry SternlichtStarwood Hotels &
Resorts

Duplication Creative replication of an

existing concept

Wal-Martdepartment stores
Gatewaypersonal computers
Pizza Hutpizza parlor

Synthesis

Fred SmithFed Ex
Howard SchultzStarbucks

Combination of existing
concepts and factors into a
new formulation or use

Major Innovation Myths

Myth 1: Innovation is planned and predictable
Myth 2: Technical specifications should be
thoroughly prepared
Myth 3: Creativity relies on dreams and bluesky ideas
Myth 4: Big projects will develop better
innovations than smaller ones
Myth 5: Technology is the driving force of
innovation success