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07 Chapter - Entrepreneurship CHAPTER 7 ENTREPRENEURSHIP KEY STUDENT QUESTIONS The revisions to Chapter 7 address some of the questions students have about entrepreneurship directly. For example, the three questions most often asked by my students include: h 1. What does it take to be successful as an entrepreneur? 2. Where can I get ideas for an entrepreneurial venture? 3. Who can help me to write a business plan? Question 3 opens a whole series of nuts and bolts questions about starting a business, including things like Where do I go to get a business license? What are the advantages and disadvantages of having a home-based business? etc. While these kinds of details are beyond the scope of the class, it is useful to have resources to give to students. Some of the ones that I have used in the past include: U.S. Small Business Administration ( In addition to offering a wealth of information about starting and running a small business, the SBA also sponsors SCORE - the Service Core of Retired Executives. ( SCORE offers free counseling to small business owners and budding entrepreneurs, and their help can be invaluable in getting a business off the ground. U.S. Chamber of Commerce ( The U.S. Chamber of Commerce also provides a wealth of information for entrepreneurs. In particular, their toolkits on everything from office management to sales and marketing to government contracting, can be useful in helping to get a small company up and running. Local chambers of commerce will often sell business startup kits that contain all of the forms a small business owner needs to register his or her business name, obtain a business license, etc. The Business Owners Idea Caf ( is a little difficult to navigate, but it contains tips and advice from working entrepreneurs. Students may find a site like this helpful not only for information, but for support and building a sense of community. 7-1 Chapter 07 - Entrepreneurship CLASS PREWORK ASSIGNMENT H EXERCISE 7.1 - TAKE AN ENTREPRENEUR TO DINNER Objectives 1. To get to understand what an entrepreneur does, how she or he got started, and what it took to succeed. 2. To interview a particular entrepreneur in depth about her or his career and experiences. 3. To acquire a feeling for whether you might find an entrepreneurial career rewarding. 7-2 Chapter 07 - Entrepreneurship C Student Discussion Question 8: Conduct interviews with two entrepreneurs, asking whatever questions most interest you. Share your findings with the class. How do the interviews differ from one another, and what do they have in common? Sample Response The individual entrepreneur selected in my area is Charles Craft, an owner/operator of a Dairy Queen franchise. The appointment should have sufficient lead-time to develop interview questions. Approximately 1 to 2 hours will be sufficient time to interview this entrepreneur. Interview questions should include: How did you come up with this idea? Have you completed any marketing research for this market? Do you have a business plan to present to investors? How will you launch this business successfully to get it up and running? What are the essential traits that you possess to create a successful entrepreneur? Make sure to record and/or write down the responses to the above mentioned questions. What you will learn are the successful traits required for an effective entrepreneur. You will also learn the essential elements of a business plan, whether this is a business that will go or not go successfully at this point in time. The thank-you note should read, I would like to thank you for taking the time and energy in responding to my questions of what it takes to be a successful entrepreneur. Sincere appreciation must be forthcoming to permit the education and learning that is taking place to be successful and observe the pitfalls of competing in the marketplace. TT Teaching Tips 1. It may be easier to invite an entrepreneur to visit the classroom for the interview than having each student attempt to identify an entrepreneur. If you do, it may be useful to have the students prepare their questions in advance so that you can provide a degree of structure to the interview. 2. If students cannot find people to interview before class, use have your guest speaker start the class, then structure your class discussion around how the guest speakers comments relate to the material in the textbook. 3. Ask the students prior to the interview to rate themselves (on a 1 to 10 scale) as to whether or not they feel they might find an entrepreneurial career rewarding. Ask the question again following the interview to determine if any students scores changed dramatically. If it did, in which direction? And why? USING THE UNFOLDING CASE DOES PHILLIP ROSEDALES SECOND LIFE HAVE STAYING POWER? 7-3 Chapter 07 - Entrepreneurship TT Teaching Tip: If you teach typical students in the 18-22 year-old age range, changes are that many of them already have avatars. In fact, they may already be familiar with Teen Second Life, a Second Life universe designed especially for teens. To get them enmeshed in the case, you may ask them to consider what they would do if they started an Internet site that suddenly generated a lot of attention and demand. Would they sell it and retire with their money? Would they keep on running it? Would they sell it and start something else? Entrepreneurs most often give the last response! 7-4 Chapter 07 - Entrepreneurship CLASS ROADMAP I. LEARNING OBJECTIVE 1. DESCRIBE WHY PEOPLE BECOME ENTREPRENEURS, AND WHAT IT TAKES, PERSONALLY A. Definitions 1. Entrepreneurship - The pursuit of lucrative opportunities by enterprising individuals. 2. Small Business - A business having fewer than 100 employees, independently owned and operated, not dominant in its field, and not characterized by many innovative practices. 3. Entrepreneurial Venture - A new business having growth and high profitability as primary objectives. B. Some myths about entrepreneurs (Table 7.1) C Student Discussion Question 9: Read Table 7.1 Some Myths about Entrepreneurs. Which myths did you believe? Do you still? Why or why not? Interview two entrepreneurs by asking each myth as a true or false question. Then ask them to elaborate on their answers. What did they say? What do you conclude? C. Extraordinary entrepreneurs (Table 7.2) h Student Discussion Question 7: Assume you are writing a story about what its really like to be an entrepreneur. To whom would you talk, and what questions would you ask? D. Why become an entrepreneur? 1. Entrepreneurs start their own firms because of the challenge, the profit potential, and the enormous satisfaction they hope lies ahead. 2. New immigrants may find existing paths to economic success closed to them. 3. The excitement of entrepreneurship - entrepreneurs report the highest levels of pride, satisfaction, and income. 7-5 Chapter 07 - Entrepreneurship C Example: Dave Domm, Cofounder and Executive Vice President of Raceline Motorworks, in Vernon Hills, Illinois, wanted to start a business that had a really engaging, interactive environment for boys. They took an already successful product, remotecontrol cars, and coupled this with a sophisticated race track design in their store to also attract the parents, teenagers and younger siblings. They have had early success in suburban Chicago and have plans for 100 stores in the next five years.1 C Student Discussion Question 1: On a 1 to 10 scale, what is your level of personal interest in becoming an entrepreneur? Why did you rate yourself as you did 1 Prospero, Michael. Fast Talk: Fast Learners. Fast Company, Issue 114, March, 2007, p 56. 7-6 Chapter 07 - Entrepreneurship E. Who is the entrepreneur? (Figure 7.1) 1. Varies by creativity and innovation/general management skills a. inventor b. entrepreneur c. promoter d. manager, administrator F. LEARNING OBJECTIVE 2. SUMMARIZE HOW TO ASSESS OPPORTUNITIES TO START NEW COMPANIES 1. The idea a great product, an untapped market, and good timing are essential ingredients in any recipe for success. 2. The opportunity entrepreneurs spot, create, and exploit opportunities in a variety of ways. 3. Franchising - when evaluating a franchise, consider market presence, market share, and profit margins h Student Discussion Question 12: Does franchising appeal to you? What franchises would most and least interest you, and why? 4. The next frontiers where do they lie? Biotech, Eastern Europe, nanotechnology, oceanography, etc. a. One fascinating opportunity for entrepreneurs is outer space. b. Other new ventures in space include satellites for automobile navigation, tracking trucking fleets, monitoring flow rates, and leaks in pipelines. c. Testing designer drugs in the near-zero-gravity environment. d. Using remote sensing to monitor global warming, spot fish concentrations, and detect crop stress for precision farming. C 2 Example: Who is todays entrepreneur? Meet Jefferson Han, the son of Korean immigrants, who spent his childhood taking apart virtually anything that moved, while taking violin lessons like any good Asian kid.2 But Han has done something revolutionary - invented a new way of interacting with computers through touch screen technology that has the potential to eliminate todays mouse, keyboard, and Windows pointers. Watch Han demonstrating his new screen on You Tube, and you, like the Fast Company reporter who interviewed him, might say Hes going to get rich. Hans advice to the teenager who wanted to become a computer engineer, too? Study math. Penenberg, Adam. Cant Touch This. Fast Company, Issue 112, February, 2007, p 86. 7-7 Chapter 07 - Entrepreneurship 5. Side streets trial and error. C Student Discussion Question 13: The chapter specified some of the changes in the external environment that can provide business opportunity (technological discoveries, lifestyle and taste changes, and so on). Identify some important recent changes or current trends in the external environment and the business opportunities they might offer. Student Discussion Question 5: Brainstorm a list of ideas for new business ventures. From where did the ideas come? Which ones are most and least viable, and why? 7-8 Chapter 07 - Entrepreneurship Student Discussion Question 14: Choose an Internet company with which you are familiar and brainstorm ideas for how its services or approach to business can be improved. How about starting a new Internet company altogether - what would be some possibilities? II. LEARNING OBJECTIVE 3. IDENTIFY COMMON CAUSES OF SUCCESS AND FAILURE A. What does it take to succeed personally? 1. Commitment and determination successful entrepreneurs are decisive, tenacious, disciplined, willing to sacrifice, and able to immerse themselves totally in their enterprises. 2. Leadership self-starters, team builders, superior learners, and teachers. 3. Opportunity obsession intimate knowledge of customers needs, market driven, and obsessed with value creation and enhancement. 4. Tolerance of risk, ambiguity, and uncertainty calculated risk takers, risk minimizers, tolerant of stress, able to resolve problems. 5. Creativity, self-reliance, and ability to adapt open-minded, restless with the status quo, able to learn quickly, highly adaptable, creative, skilled at conceptualizing, and attentive to details. 6. Motivation to excel clear results orientation, set high but realistic goals, strong drive to achieve, know your own weaknesses and strengths, and focus on what can be done rather than on the reasons things cant be done. C B. Making good choices Student Discussion Question 2: How would you assess your capability of being a successful entrepreneur? What are your strengths and weaknesses? How would you increase your capability? Student Discussion Question 3: Most entrepreneurs learn the most important skills they need after age 21. How does this affect your outlook and plans? 1. Entrepreneurial strategy matrix (Figure 7.2) a. Innovation b. Risk C Student Discussion Question 4: Identify and discuss new ventures that fit each of the four cells in the entrepreneurial strategy matrix. Management Close-Up Questions: On the Entrepreneurial Strategy Matrix in Figure 7.2, where would you place Linden Labs? 7-9 Chapter 07 - Entrepreneurship Why? Do you think its placement will change over time? Why or why not? and CEO Phillip Rosedale likes to maintain an entrepreneurial atmosphere at Linden Labs. Describe how employees might use skunkworks to develop a facet of Second Life that would be attractive to other firms. See how many ideas you can come up with. 2. Cyrus McCormack - Indomitable perseverance in a business properly understood always ensures ultimate success. C. Factors influencing success and failure 1. Risk a. Be realistic, and anticipate risks ahead 2. The role of the economic environment a. Business incubators are protected environments for new, small businesses. b. The most amazing region for start-ups is Silicon Valley, in California, however other regions include Boston, North Carolina, Austin, and Seattle. 7-10 Chapter 07 - Entrepreneurship C C C Example: In 2004, Richard Branson, a British entrepreneur, introduced an early prototype became the fastest amphibious vehicle ever to cross the English Channel. The Aquada, a threeseater vehicle with wheels that fold up is due to go into production in 2008 and will sell for around $85,000 according to its maker, Gibbs Technologies. The Aquada will be built in America (several states are vying to attract the plant). The Aquada certainly has novelty value, but its success depends on there being enough paying customers who decide that it floats their boat.3 Student Discussion Question 6: Identify some businesses that recently opened in your area. What are their chances of survival, and why? How would you advise the owners or managers of those businesses to enhance their success? EXERCISE 7.2 - STARTING A NEW BUSINESS Objectives 1. To introduce you to the complexities of going into business for yourself. 2. To provide hands-on experience in making new-business decisions. Suggested responses 1. Product A customer need that will be satisfied is a fresh submarine sandwich shop. Sandwiches will be customized, made-toorder, and freshly cut. Our product is unique because of fresh rolls baked on the premises, freshly cut meat, and the size shape and thickness. 2. Customer Customer profile will include businesspersons, college students, and a market segment comprised of youth who would like a good hardy sandwich. 3. Competition The competition is the Subway franchise and individual, privately owned submarine sandwich shops. The competition strength is a quality sandwich that advertises and promotes specials from time to time. A weakness would include that our 3 The Economist Technology Quarterly. A plane that thinks its a boat. Sept. 8, 2007, p 12. 7-11 Chapter 07 - Entrepreneurship competitors products are excessively priced and we could use price differential as a primary marketing tool. They can respond by meeting our price or increase advertising to attract a different marketing segment. 4. Suppliers Suppliers will be local and should continue to provide reliability, dependability, quality, and price as the primary marketing tools of purchasing. The business practices are long hours, good location, cash and carry, etc. The relationship is to partner and attempt to communicate price differential and different market segmentation. 5. Location Location is extremely important and we must locate in a primary business district. Location costs should average $20-30 per square foot. The legal limitations have advantages and disadvantages for sole proprietorship, partnership, corporation, and limited liability company. Each must be studied as to the advantages outweighing the disadvantages. 7-12 Chapter 07 - Entrepreneurship 6. Physical Facilities/Equipment It is to our advantage to rent at first to get the business off the ground. Possibly negotiating a lease option to buy. Same consideration should be given to the purchase of equipment to save working capital. 7. Human Resources The availability of Human Resources will be competitive. Onethree week training period for each employee will be given. 8. Legal/regulatory Environment There are licenses required, city ordinances, labor and industry standards all must be met to gain social acceptance in the community. 9. Cultural/Social Environment The cultural issues include understanding the customs and practices of the community. It is important to create a philosophy of management that is conducive and acceptable with the business community we will live and work. 10. International Environment International issues will become relevant if there is expansion in a boundaryless U.S. TT Teaching Tips 1. This exercise can be assigned before class - have the students discuss their results at this point in the lecture. 2. Designate a general location for each of the five businesses. For example, the XYZ shopping center for the submarine shop or the city of ABC for the chimney sweep services. 3. At the end of the exercise, ask each team to evaluate what they feel is the likelihood that the business will be a success. III. LEARNING OBJECTIVE 4. DISCUSS COMMON MANAGEMENT CHALLENGES A. You might not enjoy it 1. If you dont want to sell, you dont want to be an entrepreneur B. Survival is difficult 1. Small businesses feel mistakes more strongly C. Growth creates new challenges 1. Start-up mentality is often high performance, cheap labor 2. Grow requires hiring people at higher wages that are less dedicated than the founders D. Its hard to delegate 7-13 Chapter 07 - Entrepreneurship 1. Leadership deteriorates into micromanagement E. Misuse of funds 1. Failure to use money that is available properly F. Poor controls 1. Aversion to record keeping 2. People like to spend money, dont focus on fundamentals like customers and creating value 7-14 Chapter 07 - Entrepreneurship G. Mortality 1. Companies outlive entrepreneurs when: a. the company has gone public b. the entrepreneur has planned an orderly succession, usually to a family member. C Example: Kamran Elahian was born in Teheran, immigrated to the US in 1972 and worked in HP as a design automation software engineer. He co-founded several companies, including CAE systems, Cirrus Logic Inc and NeoMagic Corp. But it is his one failure Momenta Corp that he chooses to remember most. The license plate of his Ferrari reads Momenta a caustic reminder of his fallibility that keeps him grounded to reality. It reminds me not to be too proud, Mr. Elahian says. I celebrate failure it can temper your character and pave the way for great achievement.4 H. Going public 1. Initial stock offerings (IPOs) - selling to the public, for the first time, federally registered and underwritten shares of stock in the company. I. Global start-ups 1. It is a new venture that is international from the very beginning. 2. Several questions must be answered to determine whether you should begin with a domestic or global outlook. a. Where are the best people? b. Where is the financing easiest and most suitable? c. Where are the targeted customers? d. When global operators learn about your venture, will they go head-to-head with your? C 4 Student Discussion Question 11: Identify a business that recently folded. What were the causes of the failure? What could have been done differently to prevent the failure? Management Close-Up Questions: Why was it important for Phillip Rosedale to establish ways for Second Life to generate revenue early in its existence? and How is Linden Labs business model a bit different from other Internet-based businesses? TT 7-15 Teaching Tip: The student discussion question above can be enriched by asking students to compare two businesses - one which folded, and one Chellam, Raju. Celebrating failure. The Business Times Singapore. May 22, 2006, p ITUSAY. Chapter 07 - Entrepreneurship which was successful. In looking at the factors of success, be sure the students consider both environmental and personal factors. For example, Southwest Airlines is a success, whereas Peoples Express failed. Were the people running these companies responsible? The environment? Or did something else happen? IV. LEARNING OBJECTIVE 5. EXPLAIN HOW TO INCREASE YOUR CHANCES OF SUCCESS, INCLUDING GOOD BUSINESS PLANNING. A. The business plan 1. The first step is to do an opportunity analysis, which includes a description of the product or service, an assessment of the opportunity, an assessment of the entrepreneur, specification of activities and resources needed to translate your idea into a viable business, and your source(s) of capital. (Table 7.3) 7-16 Chapter 07 - Entrepreneurship 2. A business plan is a formal planning step in starting a new business that focuses on the entire venture and describes all the elements involved in starting it. (Table 7.4) h Example: Students can see real business plans, prepared by MBAs, at . The plans presented on this website are winners of the MOOT CORP Competition, and they include everything from a plan for developing innovative beverage equipment to a plan for a company that provides utility companies with electronic billing and bill payment. Plans are grouped into Best of the Best, Internet Services, Services, and Products. B. Key planning elements 1. People should be energetic and have skills and expertise directly relevant to the venture. 2. Opportunity should allow a competitive advantage that can be defended. 3. Identify current competitors and their strengths and weaknesses, predict how they will respond to the new venture, indicate how the new venture will respond to the competitors responses, identify future potential competitors, and consider how to collaborate with actual or potential competitors. 4. Context should be favorable, regulatory and contain economic perspectives. 5. Risk must be understood and addressed as fully as possible. C. Selling the plan 1. The goal is to get investors to agree on and back up the written plan. 2. The plan should be marketed in order to obtain the necessary funding for the business. D. Nonfinancial Resources 1. Legitimacy 2. Networks 3. Top management teams 4. Advisory boards 5. Partners V. LEARNING OBJECTIVE 6. DESCRIBE HOW MANAGERS OF LARGE COMPANIES CAN FOSTER INTRAPRENEURSHIP AND AN ENTREPRENEURIAL ORIENTATION A. Deciding if a new idea is worth pursuing (Table 7.5) 1. 2. 3. 4. Fit with your skills and expertise Fit with the market Fit with the company What to do when your idea is rejected 7-17 Chapter 07 - Entrepreneurship B. Building support for your idea capitalize on a market opportunity. 1. The first step involves clearing the investment with your immediate boss or bosses. You explain the idea and seek approval to look for wider support. 2. Making cheerleaders people who will support the manager before formal approval from higher levels. 3. Horse-trading begins you offer promises of payoffs from the project in return for support, time, money, and other resources that peers and others contribute. 4. Finally, getting the blessing of relevant higher-level officials. 7-18 Chapter 07 - Entrepreneurship C. Building intrapreneurship 1. Skunkworks are project teams designated to produce a new product. 2. Bootlegging refers to informal efforts by managers and employees to create new products and new processes. C C Example: A good example of intrapreneurship in action is Mobile World, a product that was created by David Goldie while working at Carphone Warehouse. Mobile World is a mobile-phone service targeted at people living in Britain who come from other countries and need to phone friends and relatives overseas. Goldie discussed the idea with a small team of colleagues and then worked with them to bring it to market. Goldie, now Chief Operating Officer of Telecoms at Carphone Warehouse and a champion of intrapreneurship said Carphone Warehouse is an organization that encourages this sort of thing.5 Student Discussion Question 10: With your classmates, form small teams of skunkworks. Your charge is to identify an innovation that you think would benefit your school, college, or university, and to outline an action plan for brining your idea to reality. D. Management Challenges 1. The most dangerous risk is the risk of over-reliance on a single project. 2. Organizations also court failure when they spread their intrapreneurial efforts over too many projects. E. Entrepreneurial orientation 1. Entrepreneurial orientation is the tendency of an organization to engage in activities designed to identify and capitalize successfully on opportunities to launch new ventures by entering new or established markets with new or existing goods or services. 2. Entrepreneurial orientation is determined by five tendencies: a. allow independent action b. innovate c. take risks d. be proactive e. be competitively aggressive. 5 Bridge, Rachel. Harness the innovators in your midst. Sunday Times (London). January 29, 2006. Business, pg. 13. 7-19 Chapter 07 - Entrepreneurship h CONCLUDING CASE: SHOES WITH SOUL: TWO FRIENDS REALIZE A DREAM Case Summary: Renee Albertelli and Richard Rodriguez are on the verge of large scale success with their small business. Albertelli, a former marketing manager, and Rodriguez, a former financial officer, have joined forces to sell a new product - handcrafted sandals made by a group of women from an economically disadvantaged country. Albertelli is particularly excited about the idea of helping the women rise up out of poverty; and her marketing plan centers around both the beauty of the sandals and the women who make them. Up until now, the shoes have been sold almost exclusively in small boutiques, but now demand for the shoes is picking up. The question facing the owners is how can they fulfill their orders, expand their product line, and grow at a sensible pace? Chapter Topics Related to the Case: Discuss the personality characteristics associated with entrepreneurship Analyze the marketing efforts of an entrepreneurial company Describe the challenges associated with entrepreneurship that individuals like the Renee and Art may face Identify and discuss methods to increase the chance of success for entrepreneurs like Renee and Art Case Discussion Questions: 1. Describe the personality characteristics that Renee Albertelli and Richard Rodriguez have that should help them navigate the difficulties of starting a business. Suggested Renee Response: and Richard appear to have many of the characteristics that lead to entrepreneurial success - they are committed and determined as shown by their willingness to invest their own money in the project; they have good leadership skills, and have been able to get others to go along with their plans; they are obsessed by the opportunity they see; they have a tolerance of risk, ambiguity, and uncertainty; and they are 7-20 Chapter 07 - Entrepreneurship motivated to excel. While the case doesnt really provide information about their creativity levels, it seems like they must have been creative to see the potential in the sandals. 2. Rodriguez and Albertelli decided to focus their marketing efforts on the artisans who made the shoes. Do you think this is a wise decision? Why or why not? 7-21 Chapter 07 - Entrepreneurship Suggested Response: Student responses to this question will vary, but much depends on the market to which they are trying to sell their shoes. If the people who are shopping at the upscale boutiques have a social conscience, then the marketing campaign will be successful. If those people dont want to hear about social issues, then the marketing campaign will be less successful. If Rodriguez and Albertelli do decide to go to the Internet, they might consider having two separate websites - one that focuses on the women who are making the shoes and another that highlights the sandals themselves. 3. What management challenges might cause Shoes with Soul to stumble? Suggested Response: The biggest question is whether or not they can keep up with the demand for the shoes. The problem is that if they add more manufacturing capabilities, their advertising campaign may no longer be accurate, and they could be seen as exploiting the very people they are trying to help. Additional management challenges may arise with regard to the partnership. These two partners have different ways of seeing things, and thats good, but there may be trouble down the road if they focus too closely on their own part of the business. Additional problems may be coming up with capital, and possible issues in defining who their customer base is. 4. Describe several steps that Rodriguez and Albertelli could take to avoid these stumbling blocks and guide their new business to success. Suggested Response: There are many responses to the question above, but Rodriguez and Albertelli could consider setting up a formal board of directors, getting capital from outside sources, creating an open forum for sharing ideas, etc. SUGGESTED RESPONSES TO THE END-OF-CHAPTER DISCUSSION QUESTIONS 1. What is your level of personal interest in becoming an independent entrepreneur? Why did you rate yourself as you did? 7-22 Chapter 07 - Entrepreneurship Each student should be instructed to rate his or her level of interest in becoming an independent entrepreneur on either a high-medium-low scale or on a 1 to 10 scale. Then, they should each list three reasons for their rating. 2. How would you assess your capability of becoming a successful entrepreneur? What are your strengths and weaknesses? How would you increase your capability? Refer the students to the section entitled, What Does it Take to be Successful? and have them rate themselves on each of the six characteristics. (High-medium-low scale should be sufficient although it could be done on a numerical basis.) Have the students make a listing of their strengths and weaknesses and rank them in order of importance relative to starting a business. Then, ask them to take their two top weaknesses and have them identify the training that would improve them in this area. 7-23 Chapter 07 - Entrepreneurship 3. Most entrepreneurs learn the most important skills they need after age 21. How does this affect your outlook and plans? Most entrepreneurs learn and develop their skills after age 21 in the area of taking on additional responsibility, sense of achievement, risk taking, and want feedback. To be able to launch a small business, one must understand the requirements of a business plan and the construction thereof. One must develop a relationship with a bank and understand the essential components of a business plan. This is developed by understanding marketing, finance, and production. This requires experience, and must be learned through skill enhancement of what it takes to become a successful entrepreneur. This all comes after the age of 21. 4. Identify and discuss new ventures that fit each of the four cells in the entrepreneurial strategy matrix. High innovation/Low risk new products, without competition, that are backed by large firms with an abundance of loss-absorbing capital or new products that are relatively inexpensive to make, such as Lego blocks. High innovation/High risk new products produced at great expense, such as automobiles and drugs. Low innovation/High risk ventures in well-established industries, such as restaurants, that require a large initial outlay. 5. Brainstorm a list of ideas for new business ventures. Where did the ideas come from? Which ones are most and least viable, and why? Divide the class into a number of small groups to facilitate the brainstorming process. The text suggests that opportunities arise from technological discoveries, demographic changes, life-style and taste changes, etc., and business probably generates many of their ideas in this manner. Students without business experience will generally indicate that their ideas arose from a personal interest (collecting baseball memorabilia) or a problem they have experienced with a product (not being able to find their keys) or a service (not being able to pick up groceries). In order to help the students determine which ideas are the most and least viable, refer them to Table 7.4 and have them rate the ideas against the first two items: the "fit with your skills and experience and the fit with the market. 6. Identify some businesses that have recently opened in your area. What are their chances of survival, and why? How would you advise the owners or managers of those businesses to enhance their success? 7-24 Chapter 07 - Entrepreneurship Most students will be able to identify one or more retail businesses that have recently opened in the area. They will recognize that their chances for survival will depend on a number of factors including the nature of the business, the target market relative to the local population, its location, and its ability to attract walk-in trade. By contrast, students will find it more difficult to evaluate the likely success of nonretail businesses (manufacturing or wholesaling operations) since they normally depend on attracting business from a far wider geographic market for their success. Location and local business are far less important. Among the steps that students might suggest a recently opened (retail) business could take to enhance the likelihood of success would be advertising in the local press, special promotions and discounts, direct mailings to potential customers, etc. Signs and billboards might also help as might advertising on radio or television. 7-25 Chapter 07 - Entrepreneurship 7. Assume you are writing a story about what its really like to be an entrepreneur. To whom would you talk, and what questions would you ask? The ideal person to talk to would be an individual who started a business at about the same age as the students with very little money and who had experienced a number of ups and downs before building a very successful business. Among the questions one might ask are: What motivated you to start the business? Where did you get the idea? What were the major problems you experienced in starting up the business? Which individuals were most helpful in the early stages of the business? What, in your opinion, are the keys to success? 8. Conduct interviews with two entrepreneurs, asking whatever questions most interest you. Share your findings with the class. How do the interviews differ from one another, and what do they have in common? Many students may not be personally familiar with any entrepreneurs, and thus the simplest way of handling this question may be to invite two local entrepreneurs to the class and have the students ask their questions in class. 9. Read Table 7.1, some myths about entrepreneurs. Which myths did you believe? Do you still? Why or why not? Interview two entrepreneurs by asking each myth as a true-or-false question. Then ask students to elaborate on their answers. What did they say? What do you conclude from their answers? This exercise could be handled by handing out a sheet listing the nine myths and asking students whether they agree or disagree with the statements. One might also ask students whether or not they think myth #1 is, in fact, a myth. Many will argue that it is a true statement. Anyone can start a business. If one considers the incorporation of a company as its starting point, then one can start numerous businesses in a single hour. The problem, as pointed out, is surviving. The vast majority of new businesses are out of business within a year. 10. With your classmates, form small teams of skunkworks. Your task is to identify an innovation that you think would benefit your school, college, or university, and to outline an action plan for bringing your idea to reality. The term skunkworks is used to describe a project team designated to produce a new product within a specified time frame. This exercise will test the students creativity, and it may be useful to have them walk around the campus as a group looking at areas and activities that might be improved 7-26 Chapter 07 - Entrepreneurship or problems that might be resolved. Some topics that might be raised (since they cause problems on most campuses) are registration, advisement, job hunting, etc. Once the group has identified its new product, it should then specify what steps will be taken, by what date they will be taken, and who will be responsible for ensuring that the steps are taken by the specified date. 7-27 Chapter 07 - Entrepreneurship 11. Identify a business that recently folded. What were the causes of the failure? What could have been done differently to prevent a failure? This exercise can be approached in two ways. The first involves a search of publications (such as Business Week) and the local presses to identify a company that folded and see what reasons were stated in the press for its demise. The other way is to identify a retail store that used to be in business, track down its owner, and interview that individual to determine why it folded. Students will find that businesses that failed during the first year of operations do so usually for lack of financial resources and an inability to develop sales volume. Poor management is often stated as a reason for failure in more mature companies, as is the strength of the competition. 12. Does franchising appeal to you? What franchises would have the most and least interest, and why? Students will differ in their responses to the first question. Often, people who are attracted to franchises are entrepreneurs who are lower in innovation, but higher in general management and networking skills. The degree of structure, the amount of corporate support, and the cost of the franchise will all play a role in the amount of interest students feel in the process. For example, McDonalds requires that people who are interested in opening a franchise have a minimum of $75,000 in nonborrowed personal resources before they will be considered for franchise training. 13. The chapter specified some of the changes in the external environment that can provide business opportunity (technological discoveries, lifestyle and taste changes, and so on.) Identify some important recent changes or current trends in the external environment and the business opportunities they might offer. As the baby boom population ages, caring for the elderly will offer multiple business opportunities - everything from providing health care to providing assistance with the day-to-day tasks of living. Opportunities may also arise in assistive technology, which compensates for the reduced hearing, vision, and mobility that are often associated with old age. Natural disasters, such as hurricanes and forest fires, provide opportunities for entrepreneurs. Roofing contractors, for example, are booked ahead by as many as three years in Florida, and an entire city infrastructure in New Orleans and other southern cities will need to be rebuilt as a result of Hurricane Katrina. In Southern California, sales of fireproof roofing materials shot up in the wake of the Malibu and Laguna Beach fires. 14. Choose an Internet company with which you are familiar and brainstorm ideas for how its services or approach to business can be improved. How about 7-28 Chapter 07 - Entrepreneurship starting a new Internet company altogether - what would be some possibilities? Student responses to this question will be different, but encourage students to be creative, and keep the customer in mind when responding. Students may also want to take innovative features from one website and apply them to another - for example, Amazon.coms recommendations feature might be adapted to a clothing company like Dirtbag Clothing, which offers clothes for skateboarders. ( 7-29 Chapter 07 - Entrepreneurship PART 2 SUPPORTING CASE GLOBAL CHALLENGES FOR EXXONMOBIL Case Overview This case examines some of the key issues facing ExxonMobil today - issues including problems with its corporate reputation following the Exxon Valdez environmental disaster and a 2004 oil bribery scandal, uncertainty with regard to oil prices and production, high cash holdings, but little oil exploration or refinery development, and the retirement of ExxonMobils CEO. Teaching Objectives Use a SWOT analysis to identify the appropriate corporate strategy initiatives for an organization. Identify which level of corporate responsibility best defines an organizations actions. Recommend strategies to improve an organizations image and performance. Purpose and Relationship to the Part The purpose of this case is two-fold: 1) to show the serious consequences of unethical business decisions and strategies companies can use to overcome the results of prior bad decisions; and 2) to analyze the environmental factors affecting an organizations performance and determine what strategies might be appropriate to improve that performance. Overall, this case requires that students think both in terms of ethics and strategy. The case connects three of the four chapters in this part: Planning and Strategic Management, Ethics and Corporate Responsibility, and International Management. Case Discussion Questions 1. Assume for a moment that you are Rex Tillerson, CEO/chairman heir apparent. Discuss some corporate strategy initiatives you would take with regard to ExxonMobil and the international community. Suggested Response Student responses to this question may vary, but students should consider the following factors in their analysis: Strengths: Cash flow/profitability, Size, New CEO with extensive experience Weaknesses: Reputation for unethical conduct, Uncertainty with regard to leadership change , Lack of exploration & oil refinery development 7-30 Chapter 07 - Entrepreneurship Opportunities: Relationships with Russia, Thailand, and Yeman, Kyoto Protocol Treaty Threats: Conflict in oil-rich companies Based on this SWOT analysis, students might consider having ExxonMobil very publicly follow the Kyoto Protocol Treaty (to help overcome its reputation for unethical decisionmaking), funnel money into oil exploration, (taking advantage of the new Chairmans relationships with Russia, Thailand, and Yeman, since these countries are more stable than the traditional oil-producing countries) and building new refineries. 2. Define corporate responsibility. How well do you think ExxonMobil has met its corporate responsibilities? 7-31 Chapter 07 - Entrepreneurship Suggested Response Corporate responsibility is defined as the obligation toward society assumed by business. ExxonMobil had clearly not met its corporate responsibilities at the time this case was written. As a follow-up question, have students go to the ExxonMobil website, and look to see if the company is doing any better in this regard. They will find a link for biodiversity conservation and another for climate and emissions, but a close reading of these pages may lead students to believe that ExxonMobil is still more concerned with economic and legal responsibilities than it is with ethical or philanthropic responsibilities. 3. Are there any other strategies ExxonMobil can implement to help improve its image and performance? Suggested Response It would be interesting to see what would happen if ExxonMobil actually implemented the Caux Round Table Principles of Ethics, described in Chapter 5, and outlined in Appendix B. Students might also suggest using some of ExxonMobils profits to explore alternative clean energy sources. Appendix C may also give the students other ideas for strategies related to improving ExxonMobils position with regard to the environment. LECTURETTE 7.1 THE ENTREPRENEUR ENTREPRENEURSHIP DEFINED 1. The concept of corporate entrepreneurship is one of the hottest topics in todays management literature. Because the task of entrepreneurship is so complex, a simple definition of it is difficult to articulate. 2. Originally, entrepreneurship was defined in such economic terms as the buying, selling, and bringing together of the factors of production. 3. One does not have to sell or buy or bring together the factors of production to be an entrepreneur. More recently, entrepreneurship has been associated with the creation of new business enterprises. 4. The modern definition holds entrepreneurship to be a mental propensity to identify opportunities and threats that lie in the future and to take action now to exploit those opportunities and defend against the threats. 5. The entrepreneur is innovatively future-oriented toward market opportunities and willing to take chances to exploit those market opportunities. 6. Thus, the modern manager perceives entrepreneurship to be both a property and a process associated with innovative enterprises. ENTREPRENEURSHIP AS A PROPERTY 7-32 Chapter 07 - Entrepreneurship 1. Entrepreneurship can be viewed, as a property possessed by the entrepreneur. 2. Some of the psychological properties that tend to be shared by entrepreneurs are as follows: Entrepreneurs have a future-oriented attitude, a way of examining events and cause-and-effect relationships in the business environment in order to identify opportunities that can be exploited. Entrepreneurs have an others-oriented focus on the needs of others in order to identify need-satisfying opportunities to be exploited. Entrepreneurs have a change-oriented focus and understand that success lies in change. Entrepreneurs have an action-oriented focus, realizing that recognizing opportunity is not enough; action must be taken now to exploit opportunities. Entrepreneurs have a risk-taking propensity that allows them to take appropriate action to exploit opportunities, even when risk is involved. There is always an element of risk in business, and the greatest opportunities often demand the greatest risk taking. 7-33 Chapter 07 - Entrepreneurship Entrepreneurs have a high tolerance for ambiguity. Taking innovative, risky action in the marketplace requires making decisions with less-than-clear information. In order to make such risky decisions; the entrepreneur needs to cultivate a high tolerance for ambiguity. Entrepreneurs have a propensity toward Type A behavior they must work fast, think fast, demand high quality work, and expect the same from others. Entrepreneurs have an internal locus of control believing that it is their own behavior and not luck or fate that controls their lives. Entrepreneurs have high need-achievement. 3. Some of the surveyed characteristics of entrepreneurs are as follows: Entrepreneurs tend to be mavericks and dreamers. Entrepreneurs tend to be uncompromising, insisting on doing things their way. Entrepreneurs are more apt to be expelled from college, to be fired often, and to jump from job to job. Entrepreneurs have worked and have been self-supporting since childhood and tend to work very long hours. Entrepreneurs tend not to be joiners or team players. ENTREPRENEURSHIP AS A PROCESS 1. Entrepreneurship may be seen as a process of change in three basic stages. Recognition of some change in the marketplace. The change may be in buyer behavior, buyer need, buyer ability to pay, a technological breakthrough, or some major event, such as war, oil embargo, material shortage, etc. For this stage, the entrepreneur must be alert to a change that he or she can convert into an opportunity. Perception of the idea of how this change can be successfully exploited by a product change, a unique service, a bitter package, a bitter delivery, etc. Action the need to get out of the planning and R&D stages and into the marketplace before someone else beats you to it or before the opportunity goes away.6 LECTURETTE 7.2 INTRAPRENEURSHIP IN SMALL BUSINESSES CONCEPT OF INTRAPRENEURSHIP 1. It is difficult to agree on a generally accepted definition of entrepreneurship. 2. New definitions of the concept have emerged, introducing new aspects such as risk taking and the creation of independent units. 3. Entrepreneurship necessarily ends when the venture creation stage is complete. 6 Adapted from T. Begley and D. Boyd, Psychological Characteristics Associated with Performance in Entrepreneurial Firms and Smaller Businesses, Journal of Business Venturing, 2, 1987, 79-93: E. Graham, The Entrepreneurial Mystique, The Wall Street Journal, May 30, 1985, 1, 4, 6-7; J Higgins, The Management Challenge (New York; Macmillian Publishing Company, 1991), 732736; J. Stoner and R. Freeman, Management, 5th ed. (Englewood Cliffs, NJ: Prentice Hall, 1992), 164-170; A. Welsh and J. White, Converging Characteristics of Entrepreneurs, in K. Vesper, ed., Frontiers of Entrepreneurship Research (Wellesley, MA: Babson Center for Entrepreneurial Studies, 1981(, 504-515. 7-34 Chapter 07 - Entrepreneurship 4. Entrepreneurship as a source of innovation is not the exclusive province of new venture creation. 5. What essentially distinguishes intrapreneurship from entrepreneurship in most works, if not all, is first and foremost the context in which the entrepreneurial act takes place. Entrepreneurs innovate for themselves, while intrapreneurs innovate on behalf of an existing organization. 6. Despite the lack of a clearly accepted definition of the term, an analysis of the literature on intrapreneurship reveals two main trends in the research. 7. The first of these trends is concerned principally with the individuals who implement innovations in the firms that employ them. 8. The second main trend identified in the intrapreneurship literature is concerned with the intrapreneurial process, the factors leading to its emergence, and the conditions required. 7-35 Chapter 07 - Entrepreneurship MOTIVATORS AND FACTORS GOVERNING EMERGENCE 1. 2. 3. 4. Simplicity of organizational structures. Easy/difficult to identify intrapreneurs. Ability of owner-manager to trust employees and delegate. The right of employees to make mistakes MOTIVATORS IDENTIFIED DIVIDED INTO FOUR MAJOR CATEGORIES 1. Motivators related to the demands and constraints of the external environment (especially the competition). 2. Motivators related to the perception of an individual as an intrapreneur and that individuals availability. 3. Motivators related to the firms growth objectives. 4. Motivators related to the management or production problems encountered in the internal environment. SIX POSTULATES SUPPORTING THE NEED TO RECONCILE THE CONCEPTS OF INTRAPRENEURSHIP AND SMALL BUSINESS 1. Intrapreneurial characteristics are not the exclusive property of employees of large firms. 2. Intrapreneurs can be first-class allies for owner-managers of growing small businesses. 3. The fact that intrapreneurs are absent from the small business literature does not mean that they have no fight to be there. 4. The loss of an intrapreneur will have more serious consequences for small firms than for large firms. 5. Small firms are potential incubators for intrapreneurs. 6. Small business provides a favorable environment for innovation.7 VIDEO SUPPLEMENTS Principles of Management Video DVD Show the segment 1154 Lill Studios: Entrepreneurship (12:02). Video cases and quizzes for students can be found at Instructor notes are located on the website as well. Management in the Movies DVD 7 Carrier, Camille, Entrepreneurship; Small Business, Entrepreneurship: Theory & Practice, Fall 1996, Vol. 21, Issue 1, p 5, 16 7-36 Chapter 07 - Entrepreneurship The movie clip from The Terminal called The Carts is appropriate for this chapter. Instructor notes can be found on the Instructor side at bateman8e. Students can also find shorter notes on the student side of the website. Destination CEO Clips (Online/Premium Content) Instruct students to watch any of the following clips at the website (they will have to have access to the premium content on the website). After viewing the clips, they will be able to answer a few multiple choice and essay questions and submit their responses in print form, or email them to the instructor. Instructor teaching notes and suggested answer responses can be found at Charlotte Bobcats 7-37 Chapter 07 - Entrepreneurship Managers Hot Seat (Online/Premium Content) There is no Hot Seat segment that applies to this chapter. APPENDIX D This appendix highlights sources of information for entrepreneurs, including: I. Published Sources A. B. C. D. E. F. G. H. Guides and Company Information Valuable Sites on the Internet Journal Articles via Computerized Indexes Statistics Consumer Expenditures Projections and Forecasts Market Studies Other Sources II. Other Intelligence A. B. C. D. E. F. G. H. I. Trade Associations Employees Consulting Firms Market Research Firms Key Customers, Manufacturers, Suppliers, Distributors, and Buyers Public Filings Reverse Engineering Networks Other VIDEO SUPPLEMENT Principles of Management Video DVD Show the segment Women Entrepreneurs. Video cases and quizzes for students can be found at Instructor notes are located on the website as well. 7-38 ... View Full Document

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